This is Why Your Mechanical TRADING SYSTEM Will NEVER Work

Mechanical trading systems do not work and never will. Yes, I know that will upset a few beginner traders with delicate egos, but if you want to be a profitable trader, you need to hear this. Welcome back everyone. In this video I'm going to explain why mechanical rule based systems never work in the long term and importantly what you can do to have more success with your system. And I want to start by asking you if this sounds familiar. If you you're on a site like Forexfactory for example, looking at a new system, it all looks great, people are excited, and then someone inevitably asks for it to be coded into an EA to automate it. So all the rules are carefully coded into a robot and the system gets back tested and the results are terrible. So what happens next? Filters get added, new rules are applied, new indicators included, new tweaks here and there, more coding, more backtesting, more terrible results. At the time of recording this video, there are 3287 systems on ForexFactory and they've all been through the same evolution. They look good, get back tested, fail. Not one of them has been profitable in the long term. There are four reasons mechanical trading systems fail. They're all linked very closely together, but I'll discuss them individually so you can see how they each impact your results. The last one is the most important and most controversial and I'm pretty certain you've never heard it before. But the first thing is the random nature of the market. And what most new traders don't understand is it is a mathematical impossibility to profit over the long term from a random market. It doesn't matter what system you use, what risk to reward ratio or fancy money management you use, no amount of clever tricks or techniques can beat a random market. And in forex, 99.48% of all short term tick to tick price changes are random. That works out to just under seven and a half minutes on average per 24 hours that are non random. So if you're an intraday trader taking multiple trades, perhaps scalping, unless you are lucky enough to only trade the exact 7 1/2 minutes of non random moves each day, you are trading random markets and you are guaranteed to fail over the long term. That's actually the number one reason intraday short term traders lose. The only way to overcome that is to trade with a longer term outlook. Now you can certainly enter intraday because actually your entry doesn't matter and a coin flip to pick with their action is just as good as anything else. But once you are In a winning position, you you need to keep it open over a much longer time frame to catch longer term trends. Forex may be 99.48% random in the short term, but over longer time frames they are less random. And when you keep a trade open for several weeks or even months, you are guaranteed to catch all of those seven and a half minutes of non randomness each day, which soon adds up to big profits. There's a link in the description to a video teaching a system that exploits that fact. But moving on. The second thing are the rules themselves. The problem with any set of rules is sometimes they need to be broken. I'll give you a non trading example first to help you understand this. Health and safety regulations for rail workers state they must wear eye protection when doing certain jobs on the rail tracks. That makes sense. The rules are there to protect the worker. However, under certain conditions the eye protection can steam up and if it gets too bad, the worker can no longer see. And that obviously poses a much greater risk because if they can't see when the next train is coming along, they might die as opposed to media hurting an eye. So under those very rare conditions, it is in the worker's best interest to break the rules. And similar situations happen in trading. A set of rules are good most of the time, but they can't cover every eventuality. And there are situations where the rules need to be broken in order to keep your account profitable and safe. You can't code that into a purely mechanical system. It takes a human trader with experience, expertise and intuition to know when, why and how to break the rules. You've probably heard of the Turtle Traders under Richard Dennis back in the 1980s. They are easily the most famous mechanical rule based traders of all time and they were hugely successful. But there's a reason Richard Dennis didn't automate his strategy into a computer program. It was simple enough to do so, but he knew all systems need a human in control. And one of their rules which most people don't know about was know when to break the rules. That sentence was written into their trading plan. And that leads me into the third part of this, which is the nuance of trading. No two situations are ever the same in the market. And here's a really simple example. The rules of your system may say don't trade scheduled high impact red news, but do trade all the other times if your entry pattern appears. But what happens when there is a rumor of high impact news? Should you or shouldn't you then break the rules? Well, that Depends on what the rumour is about, which currency is involved, the time of day, where the rumor has come from and how reliable the source is, what is the likely impact of the market if it turns out to be true, and so on. There's no way you can cover something like that with a strictly mechanical system. On some occasions, the right thing to do is ignore the rumor and just stick to the rules as they are. Other times it's best to break the rules and not trade. Treat the rumor as though it was of high impact red news. And still other times it might be best to break the rules and trade more heavily to take advantage of something. Again, this is something only an experienced skilled human trader can decide. Which leads me to the next and perhaps the most controversial but most important part of this topic. The primary reason new traders use to justify mechanical systems is to take the emotions out of trading. And I completely understand why. Emotions are the downfall of many all losing traders. But if you take emotions out of trading, you have zero chance of success. Emotions are absolutely essential to trading. Let me give you this example and ask you a question. Is a fear of heights a good or a bad thing? Well, if you're afraid of just standing on a small stool, it's a bad thing. That means you have a maladaptive or an irrational fear. But if you're stood on the edge of a cliff, that fear is vital. It will save your life because it will heighten your senses, increase the oxygen to your muscles, make you ultra alert to danger, increase your reflexes and your reaction times and so on. Without a fear of heights, you would very likely make a mistake and fall to your death. The emotion of fear is a good thing. In fact, it's essential. You wouldn't be here were it not for these emotions. Well, the same thing is true in trading. Your emotions are what will make you an amazing and highly profitable trader. Emotions are the secret power of all great traders. The problem for most people is not that they have emotions, it's that they have maladaptive emotions. When it comes to trading, mechanical systems remove all emotions altogether. But the effect of doing that in trading is the same as removing fear of heights. When stood on the cliff, it will lead to disaster. And in trading you see that all the time. That's why mechanical systems don't work. The emotions that make great traders hyper alert and effective in the markets have been removed. And without emotions you will never be a great trader. The goal should not be to remove emotions. It's to fix your maladaptive emotions. Get your emotions working correctly in your best interest and then use them to maximize your profits. That is the secret to trading success and the one thing all profitable traders have mastered. The reason all mechanical systems fail is because there is no human involvement and it's the trader that makes money, not the system. So how do you fix this? Simple. You subscribe to my channel and you keep watching my videos. I'm gonna try and push out as much information as I can so you can finally get some accurate advice to counter all of the nonsense that the faked influencers keep pegging. I do offer one to one mentoring if you're interested in that, but otherwise please do subscribe to the channel if you haven't already and keep give this video a like and a comment because those things really help the channel get some traction and grow. And I'm very grateful for all your support. And why not click to watch one of the other videos that are on the screen now. So thanks for watching and I'll see you again next time.