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What is a Mechanical Trend Model ?

What is a Mechanical Trend Model and Mechanical Trend Following? Do you have one and does it work for you?

I learned about the term in the DP area. I never had one, but I think I am starting to develop one.

Best Answer

  • markdmarkd mod
    Accepted Answer
    A mechanical trend model is, as it sounds, a rules based method for determining when to enter and exit trades. While discretionary traders may have rules, too, they give themselves the freedom to pass on the trade when the rules trigger, or even execute a trade when the rule "almost" applies. Mechanical traders give themselves no latitude. If the rule is triggered, you do what it says.

    The rap on discretionary trading is, your emotions will filter out evidence you don't want to see, or fabricate evidence you want to see, leading you to take or pass on trades you shouldn't.

    The rap on mechanical trading is, markets change. A system developed over one period may not be appropriate for a subsequent period. System developers are prone to behavioral biases, too.

    Probably the most famous mechanical system is the Donchian channel method, explained here: traderplanet.com/tutorials/view/162844-trend-indicator-donchian-channel/

    The go-to book on trend following is Trend Following by Michael Covel.

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