Benefits of Mechanical Models

Regardless of whether your preference is to be;

  • A systemic/mechanical trader (like me),
  • A discretionary trader, or
  • A mechanical discretionary trader (like Larry Williams)

there are many benefits to following a mechanical model including;

Mechanical models imply that all the rules are known and fully disclosed, allowing a trader to measure a methodology’s expectancy and ROR.

Whichever methodology you’d like to trade, your number one priority is to calculate it’s ROR. If it isn’t at 0% then you have no business trading it. If you do then you deserve the results you get.

A mechanical model, unlike theories such as WD Gann and Elliott Wave, makes it easy for a trader to calculate and measure the necessary metrics.

Evidence Based Trading
Measuring metrics is not the only benefit of mechanical models. Having the ability to measure allows traders to gather evidence of a model’s profitability. Rather then relying on an interesting theory to make money mechanical models allow traders to have confidence in historical performances. They allow traders to follow an evidence based methodology. Having evidence is more tangible then relying on an interesting idea. Interesting ideas may stimulate the mind however they do nothing to boast confidence when the inevitable drawdowns occur!

Mechanical models will introduce structure to your trading. Clear and precise rules allows you to know exactly when you should be trading (the set-up), where you should be buying or selling (the entry), where you should get out when you’re wrong (the stop) and when you should take your profits (the exit).

There is no wallowing, indecision, head scratching, dry washing of hands or any guesstimating.

With mechanical models everything is well laid out like a good recipe.

For new traders mechanical models makes the introduction to trading a more straight forward process as they amount to no more then a step-by-step list of instructions on how to trade.

For experienced traders mechanical models, with their clear and precise rules, are a way to get back to the basics of trading and are a reminder to keep it simple.

A great appeal of mechanical trading is that it simplifies the trading process.  There are no decisions to make except to follow the rules. A mechanical model removes the psychological stress of having to make decisions each day. Your only job is to follow the rules of your mechanical strategy. Following a mechanical strategy makes trading simple.

Structure breeds discipline. Discipline dampens impulses. Fewer impulses mean less revenge  trades. Less revenge trades mean more profit.

Emotional Stability
Structure, and the discipline it creates, helps traders to overcome their natural tendencies of fear, hope and greed. Clear and precise trading rules allows traders to execute trades without the worries of whether or not they should be trading, and if they should be trading, where they should be entering, placing stops and exiting? The stress, indecision and procrastination associated with those decisions is removed by a mechanical model allowing traders to purely focus on simply executing their model’s trade plan.

Time Management
Following rules takes less time then performing a full scale analysis. Following clearly defined rules removes indecision and procrastination. Mechanical models make trading run more like a business where traders become more productive with their time.