Traders have the options of two basic trading systems – the discretionary and the mechanical. In the discretionary trading system, a trader needs to use her own judgment regarding the Forex. This judgment needs to be based on technical or fundamental signals that she receives over the period of the trading. A trader needs to use her creativity and flexibility in interpreting the fluctuations of the market conditions as it can be best used by professional Forex traders who have lot of experience in deciding the validity of any signal they may receive.
Opposite to this system, there is a mechanical trading system in which there are only fixed number of technical or fundamental signals without the participation of the trader. This system too requires the creativity on the part of the trader but only in the Forex system development phase.
In the beginning, when traders have just started foraying into Forex, the best trading system to use is mechanical forex update systems. These systems are sold as Forex signals that are normally developed by experienced traders who know how to channelize their market knowledge of the Forex into a current strategy.
The mechanical trading system serves as a kind of shield against the extreme volatility of the market. Trading without this system may result into the loss of capital. The reason is when it comes to deal with money, many a times, new comers with newly acquired knowledge of Forex are likely to be gripped by fear and greed. And it is because of this reason, mechanical trading helps traders keep them grounded and rooted. It is in a way a disciplinary approach to deal with Forex as there are all the chances for traders to get carried away by the sheer emotional power that money exercises on human psyche.
Apart from using these systems, the new comer traders can also refer to good Forex books, education courses, bank reports and news wires. After a while, they can also develop their own mechanical trading systems with the help of their own insights and intuitions. Usually, a trading system is comprised of two subsystems – the entry system and the exit system. Both these systems can work on different or the same set of inputs which can be technical or fundamental.
The entry system as it stands determines if and at which level the positions should be opened. The exit system determines at which level the open positions should be closed. The entry system aims to find market points which allow to open positions with high potential reward and low potential risk. The exit system's objective is to protect the capital base and the unrealized profits. The capital base is protected by ensuring that the trades are exited with a fixed loss when there is no longer a reason to hold them back.