Should you buy a mechanical trading system?

With an increasing number of ads out there in the papers and on the
Internet, I've received emails from readers asking for my opinion on
mechnical/automated trading. Should we all rush out to grab one of
those mechnical/automated trading systems that are for sale? The lure
of such get-rich-quick advertisements certainly appeal to those people
who are interested in making money but not interested in learning how
to. My personal view is...

that even if those systems are working at the time they are sold, they will soon stop working as more and more people use them.
The reasoning is that when big players start noticing many simultaneous
orders being placed at the same time, they will create systems to
either trade against those orders, or anticipate them. So, profitable
automated trading systems will lose their magic once too many people
start to use them. Additionally, why would someone who is successfully
trading an automated system want to sell it and lose his trading income
as more and more people use the system?

Apart from the discretionary trading that I engage in, I also use
some mechanical trading systems which I have developed after much
experimentation and testing. I don't think I would give these systems
away as they produce a steady stream of income with little work.

Besides, even if someone were to use these systems, he or she would
have to periodically adapt the systems to changing market conditions.
And if that person doesn't have a full understanding of the systems and
the markets, it would be very unlikely he or she could keep these
systems profitable over a period of time.

Why is teaching discretionary trading different from selling a mechanical system?

With a mechanical system, trades will automatically be placed in
pre-determined market conditions. This means that every trader's
computer that is running the system will place the same trade at the
same time, thus affecting the market and the results of the system.

On the other hand, with discretionary trading, a trader makes his or
her own trading decisions as to when to enter and exit a position by
taking into consideration a multitude of factors influencing any given
currency pair. Thus, the chances of traders who have learnt the same
techniques placing exactly the same trade at the same time are very
slim.

If you are considering a mechanical trading system, it is better for you to design and test that system yourself, rather than trusting blindly in a system for sale
which you don't understand and cannot be sure if the system is
profitable or don't know how to adapt it to changing market conditions.

And in order to reach the stage whereby you can design and test your own systems, you will need a good understanding of technical analysis and the psychology of the forex market.

This article can also be found in Mechanical Trading Systems.