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Auto trading is only thing that conquered my darkside
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Auto trading is only thing that conquered my darkside

  #121 (permalink)
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BCNTrader View Post
Nice debate here

So, are you assuming that a mechanical rules based system never, ever, change?

I think that most discretionary traders have some kind of mechanical system and also mechanical traders make some kind of discretionary decision over her mechanical rules. Even automated strategies change over the time (usually after a big drawdown, further than past ones). In my opinion market is changing everyday, like traffic jams so many people are involved and everybody has a different reason to be there.

Mi point is, there is a mechanical trader out there using exactly the same mechanical rules for months/years? do she ever fade a trade? do she ever begin a trade before the rules are set, because she is assuming that will be true in seconds/minutes... and so on.... The same happens with auto trades (not changing it for years).

--offtopic-- ** I'm self-taught in english, not sure if I should use she/he when talking about an hypothetical person instead of specific male/female person***

No my assumption is not that mechanical traders never change. But the change is very slow, very methodical and based on data. It is non emotional and has a grounding in probabilities that can be measured.

If discretionary traders have some type of mechanical system are they really not mechanical traders that don't always follow the plan. I traded that way for a few years. I had a mechanical system but would at my discretion leave the rules of the system based on what I thought the market would do. Problem is every time I broke out of system it skewed my probabilities essentially invalidating the system. I would then look back at past year and if had stayed with system would have done much better than having a system but constantly using my own discretion.

Even if at end of year I had done better (which I did not) using my discretion. I could not measure that going forward because those discretionary trades would not be repeated. Trading is a difficult business. To make a living year in and year out I need to be able to hang my hat on probabilities. I need to be able to measure year after year. No system is perfect but discretionary has much less certainty from year to year than mechanical. To me this is massive problem if I am going to eat.

Let me also say this I had a few fantastic years trading in a pure discretionary manner. When I say fantastic I mean fantastic. Problem is like an NBA championship it is hard to repeat. Hard to setup a dependable business around that style. Ultimately I also gave the fantastic gains from those years back to the market.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."

Last edited by liquidcci; June 21st, 2011 at 01:01 PM.
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  #122 (permalink)
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liquidcci View Post
No my assumption is not that mechanical traders never change. But the change is very slow, very methodical and based on data. It is non emotional and has a grounding in probabilities that can be measured.

If discretionary traders have some type of mechanical system are they really not mechanical traders that don't always follow the plan. I traded that way for a few years. I had a mechanical system but would at my discretion leave the rules of the system based on what I thought the market would do. Problem is every time I broke out of system it skewed my probabilities essentially invalidating the system. I would then look back at past year and if had stayed with system would have done much better than having a system but constantly using my own discretion.

Ok, I agree with that. The problem I have (personally, imho) with mechanical/automated trading systems is that all worked very well in the past to start doing drawdowns on forward testing, and I even used 2 ticks slippage plus commissions

I have to run right now but nice chat here.

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  #123 (permalink)
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BCNTrader View Post
Ok, I agree with that. The problem I have (personally, imho) with mechanical/automated trading systems is that all worked very well in the past to start doing drawdowns on forward testing, and I even used 2 ticks slippage plus commissions

I have to run right now but nice chat here.

This is always a possibility and where good a good money management system is paramount. Good money management can buy you time to make adjustments if necessary or let your system trade through until the draw down is done. I personally never make an adjustment unless it something that I am changing for the long term.

Mechanical is by no means perfect. To me it is just the better of the two incredibly insane ways to make a living.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."

Last edited by liquidcci; June 21st, 2011 at 12:52 PM.
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  #124 (permalink)
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Another rhetorical question(s)

Could a few successful years trading at a persons own discretion be just a setup for a fall latter?

Kind of like a gambler on a lucky run. Is it possible the better you do the more risk you take which ultimately leads to your own demise? Can you become confident in your own genius as a trader but really just be in a streak?

Three separate times I took 5k to 100 k trading discretionary. No system, no stats just pure gut. Guess where that 300k eventually went?

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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  #125 (permalink)
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liquidcci View Post
Another rhetorical question(s)

Could a few successful years trading at a persons own discretion be just a setup for a fall latter?

Kind of like a gambler on a lucky run. Is it possible the better you do the more risk you take which ultimately leads to your own demise? Can you become confident in your own genius as a trader but really just be in a streak?

Three separate times I took 5k to 100 k trading discretionary. No system, no stats just pure gut. Guess where that 300k eventually went?

Actually, that is not a rhetorical question. It is a real psychological question that many discretionary traders face, and most are not even aware of it. Here is an excerpt from another post I made that exemplifies this scenario "During the raging bull market in the dot com era, many traders were making money hand over fist. Once the tech bubble burst, they lost everything, and could not make a dime to save their life. In that era you could throw a dart at a chart and make money going long. They mistook the nature of a raging bull market, and thought it was their natural trading ability and skill."

By nature, psychologically many traders develop a god complex after a long winning streak. They start to think they are invincible, start taking ridiculous risk, and that's when the market puts them back in their place with extreme prejudice. I had that issue. That is actually one of the very few reasons I think is valid to have a daily profit goal, for discretionary traders who realize they might have that psychological issue.

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  #126 (permalink)
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People that use pure gut are not traders.

They are gamblers and almost all gamblers lose
their money eventually.

Every trader has a different story to tell.
I have a handful of trader friends that are all successful
using their discretionary method with a set of rules that they
have changed and developed over the years.
Three in particular have been at it for over 20 years.
I meet in person with two of the three every week on Friday.

Discretionary trading is not a guessing game. It should still be a very calculated method.
The difference is that we do not take every trade, only the ones that have the
highest probability to hit or exceed our expectancy target.

Expectancy is determined at the end of each month. If I'm not hitting my expected target,
I reassess what I'm doing and look for ways to improve. This may range from my stop being
too tight, using a ranging method in a trend (cutting winners short), attempting to fade trade
during a reaccumulation period, etc. We all make mistakes as traders whether it's in your
programming or your set of rules as a discretionary trader. Just like in nature,
only the ones that adapt the quickest survive. Understand your mistakes and learn
from them as quickly as possible.

What I used to do for my rules was as soon as I made the same mistake twice,
I created a rule for it. My rules are my fortress around my capital. Protect your capital.

I don't trade just one instrument, but a handful, which all present their unique
opportunities.

Again, everyone is different and nobody is the same; discretionary or auto.

Trading is an art and a skill that is acquired through thousands of hours of thinking,
planning, writing, doing, screwing up, and trying again.


Last edited by Massive l; June 21st, 2011 at 04:04 PM.
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  #127 (permalink)
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Massive l View Post
People that use pure gut are not traders.

They are gamblers and almost all gamblers lose
their money eventually.

Every trader has a different story to tell.
I have a handful of trader friends that are all successful
using their discretionary method with a set of rules that they
have changed and developed over the years.
Three in particular have been at it for over 20 years.
I meet in person with two of the three every week on Friday.

Discretionary trading is not a guessing game. It should still be a very calculated method.
The difference is that we do not take every trade, only the ones that have the
highest probability to hit or exceed our expectancy target.

Expectancy is determined at the end of each month. If I'm not hitting my expected target,
I reassess what I'm doing and look for ways to improve. This may range from my stop being
too tight, using a ranging method in a trend (cutting winners short), attempting to fade trade
during a reaccumulation period, etc. We all make mistakes as traders whether it's in your
programming or your set of rules as a discretionary trader. Just like in nature,
only the ones that adapt the quickest survive. Understand your mistakes and learn
from them as quickly as possible.

What I used to do for my rules was as soon as I made the same mistake twice,
I created a rule for it. My rules are my fortress around my capital. Protect your capital.

I don't trade just one instrument, but a handful, which all present their unique
opportunities.

Again, everyone is different and nobody is the same; discretionary or auto.

Trading is an art and a skill that is acquired through a lots and lots of thinking,
planning, writing, doing, screwing up, and trying again.

That sounds more mechanical than discretionary. Seems to me once you cross the line of using probabilities and rules you have formed a system and are no longer discretionary.

Could it be some traders who believe they are discretionary are really system traders who do not follow the rules all the time?

Could it be that the natural evolution is to move away from discretionary towards rules based system?


Massive l View Post
"If the difference is as you mentioned Discretionary trading is not a guessing game. It should still be a very calculated method. The difference is that we do not take every trade, only the ones that have the
highest probability to hit or exceed our expectancy target.""

I have built a mechanical system that weeds out the the low probability and takes only what I consider high probability yet I am not discretionary at all. The only thing close to discretion I have is I turn my system off on certain reports but even that is a rule so is not really at my discretion. However, according to your comment above I am discretionary. I don't think you can be discretionary and use calculated probabilities per say. I think once you move towards calculated probabilities you have moved towards the mechanical side. If you have moved toward mechanical side and you take trades outside of the things that define your high probability rules or pass on trades that meet those rules you are simply a mechanical trader violating your rules.

Again if you have identified high probability trade based on certain criteria is that not a system and shouldn't you take that trade every time it presents itself. Really in my mind to have rules and then use discretion to not take a trade or take a trade outside rules skews probabilities. So in that scenario you really can't say you use probabilities or must come to realization that you may have started but are no longer using probabilities but what you feel thus changing the probabilities you have based your trades on..

This is getting deep.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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  #128 (permalink)
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Fun Thread. Good talking points. Meanwhile, I had a great day following my system, but discretionarily almost lost almost half of my profit. DFD, exceeded target.

I think some of this comes down to agree to disagree. And that a highly mechanical trader has more in common with an automated bot. And a successful discretionary trader is more mechanical than discretionary. But discretionary does not mean gambling from the gut. Show me a trader without rules, well, he won't be around long.

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  #129 (permalink)
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^That sums it up pretty well.

If you can't conquer your emotions, give programming a try.

I personally don't feel like programming my method yet, but quite possibly in the future.
It takes time that I don't feel like making at the moment.

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  #130 (permalink)
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rpm123 View Post
Fun Thread. Good talking points. Meanwhile, I had a great day following my system, but discretionarily almost lost almost half of my profit. DFD, exceeded target.

I think some of this comes down to agree to disagree. And that a highly mechanical trader has more in common with an automated bot. And a successful discretionary trader is more mechanical than discretionary. But discretionary does not mean gambling from the gut. Show me a trader without rules, well, he won't be around long.

Good comment.

If a discretionary trader has rules to identify a potential trade but uses discretion on when or when not to enter what they define as a high probability setup. If that discretion is a rule that they use every time then the whole system is really mechanical and they are not really using discretion imo.

If discretionary trader sits somewhere in between and uses a system to identify entries and exits but uses discretionary gut on entering and exits. Then I believe they could take it one step further and set a rule for those things that will give much better probabilities that can be measured and banked on. It skews any probabilities once your gut comes into it or you get in and out on what you think.

In other words if I know a particular setup with certain stop and target has a 70% win probability but I move my stop, change my target or pass on the trade based on my discretion. I have effectively changed the probabilities of my entire system into the unknown.

I just don't believe you can really use probabilities and discretion together with any consistent results over time. Only way probabilities are accurate is if you follow what produced the probability to the letter.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."

Last edited by liquidcci; June 21st, 2011 at 04:47 PM.
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