From begining of thhe trading, there was only discretionary approch. The trader had to pay attention to the market signals, watch fundaments, and make decisions. Same signal or news could mean different things for different traders.
On the other side, we have mechanical approach. This doesn’t hhave to be only done by computer, but it’s most common. We have various informations from the market and then we have strategy with fixed rules. When Signal-A cross Signal-B, we open position in specific direction. Same input will mean same output for each trader, every time, so we speaking of deterministic system. This approach is perfect for automatization, as if we have specific inputs meaning specific output, we can create a program, which will do this without a human trader.
Automated systems are perfect in following rules, they are never tired, emotional or egoistic. But they can’t flexible react to various market conditions, as people could. Nevertheless, using automated trade systems is very useful, as we save a lot of tim. We can have multiple systems trading at once, all day long.
The only problem is, how we can get qualite system, which will work reliably. We have 3 options: Buy it. Build it. Let someone build it for us.
Another question is whether the strategy will in fact perform in the long-term. This is also issue with discretionary approach. If we have well known strategy, let’s say London breakout, and this strategy is commonly used by high number of traders and/or lot of automated trading systems, will the strategy work that good as before, when almost nobody used it? As a majority of traders (or bots) will have entry, stoploss and takeprofit levels on the same prices, the market than behaves differently and the strategy loses its ‘Edge’.
The ‘Edge’ is advantage over the market. It is statistical certainty that if we will execute f.e. 100 trades, we will be profitable. If the strategy has the Edge, our only job is to execute trades according to the strategy rules, which is repetitive activity and thus is suitable for program.