By ProfessionalTradingSystems.com
In this article we are going to discuss what are the differences between mechanical trading, algorithmic trading, rule-based trading and more phrases used to describe systematic trading. They are subtle nuances between the terms that`s why I decided to write more about this topic.
100% Rule-based trading – This type of strategies implies that every rule is objective and there is no need on the part of a trader to interpret any rule of the system. Because it is 100% rule-based it means that no discretion is needed and if 4 people are trading the same system, they will get the same final result after X number of trades. If we only talk about rule-based trading, it will mean that part of the system is absolute (no interpretation) and part of it is up to traders to decide what to do.
Mechanical trading – Here again we have no interpretation of the trader. Everything is 100% clear as rules and the one who trades mechanically the markets only needs to apply predefined rules. In his essence mechanical and 100% rule-based trading are exactly the same. The word “mechanical” probably comes from the fact that every rule is applied mechanically like a machine without any interpretation.
Algorithmic trading – It is the same as previous two. The only difference is that algorithmic implies that we have created a code for a trading platform, which will trade automatically for us instead of manually entering and exiting every trade.
Expert Advisor (EA)– This is the name of a strategy code created especially for MetraTrader 4 trading platform. This is very popular Forex platform because it is free, used by many brokers and traders and easy to operate with.
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Forex Robot – The other name of Expert Advisor. There is no difference between these two terms.
Automated trading – This term means that a trader has a mechanical strategy and he also has created a strategy code for a trading platform in order to automate his trading. This is the most recognized term regarding trading with 100% rule-based systems.
Systematic trading – the same as mechanical trading. It is just another term for the same type of trading. Systematic trading implies using the same trading rules over and over again.
I hope that I have brought a clarity regarding the subject of mechanical trading and what are the similarities and differences between the most used terms regarding this type of trading.
Article by Professional Trading Systems – Forex Mechanical and Automated Systems
