Mechanical Systems - what are these?

Mechanical systems generate buy and sell signals. Systems traders employ mechanical trading methods. You will hear all these statements made and see them printed in books about trading – but what do they really mean?

Everybody uses computers these days, so what is the difference between mechanical systems and other systems? What is the difference between systems traders and other traders?

We are still in the age of believing that machines are magical and do the work for us. How come computers have now learned how to fly big aeroplanes? We all know it is not really the computer flying the plane, it is the computer program.

The computer program is not a machine, it is software containing detailed instructions. In this case it is instructions on how to fly a big aeroplane. Not just on the straight, but taking off and landing in all weather conditions.

The program contains the essence of a great deal of human experience in flying aeroplanes, a great deal of physics and of course a great deal of technology too. The computer itself has no idea what it is doing.

What is the point of using the machine if it is so ignorant? Machines are outstandingly good at repetition work – you can rely on them to do the same things the same way every time when conditions are the same. Human beings are not good at this. They easily become bored with routine.

It’s horses for courses then – get the computers to do the repetition work and let the human beings do what they do well.

That’s how it is with mechanical trading. Those machines are not generating the buy and sell signals any more than your cat.

We can now view the mechanical systems employed by systems traders in its true light. The mechanical system is fed with all the information on what to do. (Incidentally, this is very much more than just how to generate buy and sell signals.)

When a systems trader has thoroughly tested his mechanized system he can leave it to get on with the routine job of applying his methods reliably.

You are now wondering what the other traders do – the ones who are not systems traders? These are called discretionary traders. They do not have fixed rules or else if they do, they choose not to apply them automatically. The problem with discretionary methods is that they are not always applied – for one reason and another.

Stick to your system is the first piece of advice given by all successful commodity traders. This is much more likely to happen if you are a systems trader with a ‘mechanical system’.

 

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