Discretionary trades vs system trades (for elite performers)
I've been pondering over this issue for a little bit during my off time, maybe the more experienced could chip in with their views.
I fully understand the merits of having a solid tested, almost mechanical system for new to semi experienced traders as that will narrow their errors if they could follow their system to the T. It is definitely the best way to start trading and be a profitable trader as long as your system retains an edge in the market you are trading.
However , does this apply for an elite trader? Someone that has 10,000++ hours under his belt and have no psychological issues whatsoever executing. Ie. The tiger woods of trading. Could I argue that once one reaches that stage of trading , he should be allowed room for creativity instead of rigidly following rules which may limit the amount of trades he may take. With that amount of experience, would you guys agree that discretion should play a much larger part in trading as he can rely on his years of experience to push the boundaries of his expectancy and attain greater heights in his trading ?
Would love to hear thoughts from more experienced traders on this aspect. I have just read Talent Is Overrated (great read) and am wondering if creativity has a role to play in the seemingly "mechanical" world of trading.
I would personally agree with that, provided he has gained real insightful experience regarding the market dynamics and has good level of self awareness and does not get too much excited / depressed with trading gains / losses.
This way he could even improve the output of his mechanical trading systems, because no matter how advanced / sophisticated a mechanical system is made, it still cannot cover all the elements that have impact on the market prices. Whereas a human being can easily notice this change in the Larger Context and then make subjective judgment regarding the signals being generated by his automated system.
But I would again say that this only applies on real experienced traders and not on those guys who although have 20 years of trading experience but have no real understanding of this game and who are just surviving somehow based on hit and trial methods.
Thanks and regards
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I try to minimize all discretionary parts from my trading. I started as a system trader but falled back to have a descretionary portion mixed to it. I doesn't like that und i try to remove this part again. For me it's better to give up some gains and let the system run independently. This is the only way to get your STATISTICS right and proove your edge.
My "discretionary part" is trade filterung only. Because i can identify potential entries some time ahead, i enable/disable the trade execution. In this way i can still have entries without larger latency or slippage. This works also in an Master(Home)-Slave(VPS) environment.
"Gambling is the wagering of money or something of material value (referred to as "the stakes") on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods. Gambling thus requires three elements be present: consideration, chance and prize. Typically, the outcome of the wager is evident within a short period."
I guess we're all gambling whether we like it or not.
How can one achieve success in any endeavour if one cannot even appreciate or understand what one is doing?
You need an edge to succeed in any form of gambling.
As markets are constantly changing, this implies that the edge of any mechanical system is also changing.
Therefore 'sticking rigidly to rules' and 'faultless execution' are terms new traders pick up on, and regurgitated by forum gurus, when in fact they are the death of many traders.
There is nothing inherently wrong in systematic trading - so long as you keep changing your model which in itself is beyond the pale of many 'hobby' traders. So by all means stick to your rules, but just make sure your rules are changing too.
This involves a lot more work than back testing something over 5 years of historical data in Tradestation and expecting it to work in the future. People who claim to have found such methods mostly liars pure and simple.
Just my thoughts.
Edit - rules come in 2 types:
1 risk management and money management. These generally should be stuck to - although risk rules (parameters may be better word) may change with vola for eg. Unless you stick to these like glue, you will blow up.
2. execution rules. These are the ones that will change. Stick to these like glue and you will blow up.
1. There's nothing wrong with discretionary trading - some of the best traders are discretionary macro traders.
2. On the other hand, when I was at a trading floor that mixed discretionary and systematic trading, we used to lose a Bloomberg terminal every few months because someone would get taken advantage of and grab the nearest Polycom phone/BBG keyboard and throw it at a monitor.
Last edited by artemiso; August 20th, 2013 at 11:32 AM.
I like your definition. I'd also add to that good common sense. Common sense is not a simple thing. It is an immense society of hard earned ideas, of multitudes of life-learned rules and exceptions, dispositions and tendencies, balances and checks.
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