FOREX ExpertAdvisor Mechanical Trading Systems
Today, there are several free
automated trading platforms available from a number of different
brokers. One popular platform is MetaTrader 3.0, which uses the
MQL II language to develop what MetaTrader calls an Expert
Advisor. (In addition to MetaTrader 3.0, there is a newer
version, MetaTrader 4.0. MetaTrader 3.0 is generally easier to
learn by a non-programmer and is a better choice for a trader
creating their first mechanical trading system).
Since this platform is free, and most introducing brokers offer
demo accounts, it is an excellent opportunity for a FOREX trader
to evaluate mechanical trading without incurring any upfront
costs.
There are at least four
reasons developing a mechanical trading system is worthy of a
traders effort .
Reason #1: The trader's strategy must be fully described
The first step in developing a mechanical trading system is to
describe its behavior. The trader is forced to fully articulate
the strategy of their trading system. This includes both the
trade entry and exit.
The trade entry must be described in detail, including concrete
definitions of the proper market conditions for entry, the trade
setup or confirmation, and the final confirmation or trigger.
The trade exit must be fully defined as well. The stop loss and
limit as well as the conditions for exiting must be fully
described.
For many traders, articulating their trading strategy proves to
be both challenging and enlightening. The personal growth a
trader experiences through this exercise alone justifies
developing a mechanical trading system.
Reason #2: Mandatory backtesting
No trader should unleash a mechanical trading
system without first thoroughly backtesting the system. Fortunately, most brokers offering free trading
system platforms also offer the ability to back test - along
with sufficient historical data to perform the testing.
Since the trader has already fully described and translated
their trading system into a working program, backtesting is
simple.
Reason #3: Increased discipline
Backtesting gives you a preview of the actual performance of the system.
When traders
conduct numerous back tests, they begin to understand the
randomness of any one particular trade. This understanding
prevents a trader from assuming too much risk on any particular
trade - regardless of the quality of the trade setup. While
testing, the trader has seen too many "perfect trade setups"
that resulted in losing trades. This improves your discipline to stick with a proven trading system through the bad times as well as the good times.
Reason #4: Consistent execution
Consistently executing a trading strategy is the single most
difficult task a trader faces. The ability to accurately
interpret market behavior through a smoke-screen of emotions -
fear, greed, anger, elation - is a talent very few traders
actually possess. An often cited benefit of the mechanical
trading system is its ability to execute trades according to its
rules, with no variation.
The actions required to develop, test and execute a mechanical
trading system are consistent with the behavior shared by most
successful traders. If done correctly, the results of these
actions reward the trader for the effort; this positive
experience reinforces the "good" behavior and gradually builds
and strengthens the framework successful traders rely on to
remain successful.
When you are analyzing potential option positions, it
helps to have a computer program like Option-Aid that
swiftly calculates volatility impacts, probabilities,
statistics, and other parameters of interest. These
programs can pay for themselves with the first trade that
they help you with.
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