As a forex swing trader you should be aware of two styles of trading. There are two styles of trading: 1) Discretionary and 2) Mechanical. Discretionary swing traders evaluate potential trades based on their trading plan. A discretionary swing trader may use either fundamental or technical analysis to determine whether each trade meets his/her requirements.Develop your own forex trading system. Learn swing trading. Get free forex signals. A discretionary trader may pass on or take trade based on experience or gut feeling. A discretionary trader synthesizes all available information, weighs all factors and then makes a trading decision. It doesn’t mean that the rules for discretionary trading are not written down, it only means that a discretionary trader doesn’t follow a program such as, “If A, then B.” Mechanical swing traders are somewhat different. Most of their trading is done with a computer. The mechanical system can be based on technical inputs like price, indicators and so on or fundamentals like GDP, inflation, interest rates and so on. The strategies are programmed into a computer software program that tests these strategies on the historical market data. Mechanical traders develop a strategy, thoroughly test it, back testing and forward testing. Mechanical swing traders analyze those results to determine whether the strategy is worth pursuing and whether it produces more returns. The two approaches are not perfect. Both have merits and demerits. Let’s discuss some of these advantages and disadvantages. Discretionary has got the ability to pass on trades when external data that might not be easily captured on a computer program indicates decreased chances of success. Discretionary trading allows for a fresh look at each situation. One disadvantage of discretionary trading is that the discretionary trader makes a decision on each buy or sell. This makes him/her more emotionally attached to that trade and he/she is more prone to falling in love with trades. This may sometimes force a discretionary trader to not follow the trading plan. Mechanical trading largely takes the human element out of the equation. A computer program is supposed to execute all the steps in the trade. Only input made by the swing trader is the amount of capital devoted to each position, the entry signals and the exit rules. After those factors are taken into account, the mechanical trader can step back and let the computer program do the rest of the trading. Can a mechanical trading system be designed to take into account all the contingencies and possibilities that may arise. Definitely not! Mechanical trading systems also have disadvantages. Mechanical trading is computer programmed. When losses occur, mechanical trader has to determine whether this is a temporary setback of the mechanical system or it represents a fundamental failure on part of the mechanical trading system. Most swing traders feel more in control when they evaluate each trade instead of relying on a computer to execute the trade. Discretionary element in trading cannot be taken out after all no matter how advanced computer programming becomes. After all such things such as recognizing chart patterns can’t be easily programmed into a computer.
