Forex systems are rigid rule-based means of trading the market. The idea behind most forex systems is that by eliminating human emotion from trading decisions one can gain the upper hand in the market by trading in a cool and calculated manner. In a perfect world this idea would actually work quiet well, however, human beings are not perfect and neither are financial markets. This means that even in a robotic forex trading system where all the entry and exits are automatically decided for you, you can still over-ride the system and let your emotion take over. Typically, forex “robots” and indicator-based trading systems still require you to enter the number of lots you want to trade, so the temptation to over-leverage one’s trading account on any given trade is not decreased at all by using a forex system. The temptation to over-trade is decreased as long as the forex system is followed exactly and not over-ridden by the trader, however, there is no guarantee of this over-riding not happening, and as any experienced trader knows it is very easy to do.
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The claim that robot forex systems eliminate human emotion from interfering with trades is simply not true due to the fact that you can still over-leverage yourself quit easily with these systems, and one can easily over-ride them and enter a trade when the system has not called for one. So, we can forget about the hyped advantage of “reducing emotional trading mistakes” that most rigid forex systems make. The next big problem with forex systems is that they are inherently inflexible or inadaptable to changing market conditions. The forex markets ebb and flow on a daily basis, to correctly read and interpret this daily volatility requires a refined sense of discretion. This discretion is achieved through learning to analyze price dynamics and to decipher quality trading signals from random market noise. Any professional forex trader will tell you that they often use discretion or “gut” trading feel on a daily basis. Simply put, there is no replacement for the human brain when it comes to profitable forex trading, certainly not an inflexible robot trading program. It is true that emotion must be mastered with discretionary forex trading, but since forex systems require this same emotional mastery and they do not allow for flexibility or human discretion, there is obviously no advantage in using them.
- Forex Strategies
Forex strategies are more of a trading “methodology” than a strict indicator-based trading system as discussed above. There are many different forex strategies available that allow traders to develop their own perspective on the market that can adapt to changing market conditions and that can be traded on any time frame. Trading strategies essentially allow traders to understand the forex market in terms that make sense to them, instead of having trading signals dictated to them without any understanding of why. Most of the great trader’s throughout history were great discretionary traders and students of the market; they were not systematic “robot” traders. Think about such legends of the financial market as Jesse Livermore, George Soros, Warren Buffet, and others, do you think they followed strict indicator or software-based trading systems? Well, they didn’t, and it is a fact of financial market speculation that some amount of human discretion and “gut” feel trading instinct is a prerequisite to long-term forex trading success. There is nothing 100% predictable in the forex markets, as such; it takes the discerning power of the human brain to differentiate between quality trading signals and those that are not worth taking. A forex system has no power to “discern” between the quality of trading signals, “quality” is not something that a computer can calculate as efficiently or accurately as a human brain. And this is the primary reason why forex strategies are better than forex systems.