Profitable ETF Trading Strategies – Is Mechanical Trading Right For Me?

Clearly, when you are considering whether or not a particular trading strategy is appropriate for you it comes down to bottom line performance.

Can you, in fact, execute the trading strategy according to the rule sets as defined?

In one sense it doesn’t matter whether whether your system is mechanical or discretionary or combination of both. You can either follow the rules or not, and the rule set makes money for you according to plan or doesn’t.

It would be nice to know, however, if a certain style is appropriate for your personality type or not before we commit a lot of time and money to the effort.

There are a lot of people who believe they can trade a mechanical system until they actually have a good one and try to do it. They discover that they cannot stop themselves from tinkering with it by bending the rules or otherwise adding discretion.

Here’s an example from my own trading practice.

I have a mechanical system that is in the market only 10 to 15{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2} of the time in a given year. It waits for specific high probability conditions to arise in the market and then takes a position that is clearly against the mass psychology. It aims to capitalize on the markets tendency to revert to the mean after extreme moves. This rule set guarantees that you will enter the market in a direction completely opposite of what your human psychological tendencies suggests is about to happen.

Even though I have back tested the system extensively in the past 15 years in multiple markets and am satisfied with my rational brain that it has a high probability of success and reliable results, and have traded it successfully with real money for more than four years, I still find it uncomfortable to enter the positions because of my psychology.

I can now manage my psychology to enter the position at appropriate risk levels when signals are generated and have had to learn how to accept the uncomfortable feeling as a positive sign of a good trade.

In a larger sense, I think what is necessary for someone to be pure mechanical trader is that they have the confidence in their analytical judgments, confirmed the reliability of the confirmedand have identified the risk level that allows them trading system without danger of blowing up.

They are committed to periodic performance review and can approach the entire situation with analytical mind and rigor.

These would be unusual qualities for most people, but they are ideal for someone who has a good mechanical system and wants to exploit it.