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How mechanical is your discretionary trading?


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How mechanical is your discretionary trading?

  #21 (permalink)
NoiseTrader716
Buffalo, NY
 
Posts: 64 since Jul 2014
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BTR411 View Post
The biggest thing for me to overcome when first using mechanical methods was accepting the limitations of automation.

I don't agree with this. The limitation you are talking about is really just the look-ahead bias implicit in discretionary trading with the way people use charts for prediction.

Look-Ahead Bias:
"Bias created by the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. "

Most discretionary trading goes:
If close[+100]==good
buy close[0]

Even though people think they are using close[-100]. It isn't hard to draw a trend algorithmically, rather it is easy to draw a trend by hand after the fact.

Of course you can account for look-ahead bias without trading algorithmically but a shield isn't a limitation.

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  #22 (permalink)
 MedianVelocity 
 
Posts: 135 since Dec 2013

A indicator tells me if the market can be entered long or short in each particular candle and shows a signal to help calculate odds of a reverse move. Another indicator tells me the acceptable accumulation/distribution price levels within that candle.

Not very distracting... Just some little text on part of the screen. "Buy Level, Extreme Buy Level, Sell Level, etc..." About a third of candles are okay for entry or exit.

But, only about a third of pops and dips set up good enough to trade.

I guess I would say... The trade setups, price levels of entry, etc... All mechanically determined nowadays. Discretion influence comes from objective analysis of higher timeframes and the news flow/calendar. Those check out in addition to the math... Good to go!

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  #23 (permalink)
 
BTR411's Avatar
 BTR411 
NY, NY/USA
 
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What I was referring to was the limitations of any system...discretionary, mechanical, etc. and for that matter, the limitations of any trading edge or strategy. Every edge or method will have it's respective strengths and weaknesses.

In specific cases there were also limitations in how I could implement discretionary methods in a mechanical system.







NoiseTrader716 View Post
I don't agree with this. The limitation you are talking about is really just the look-ahead bias implicit in discretionary trading with the way people use charts for prediction.

Look-Ahead Bias:
"Bias created by the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. "

Most discretionary trading goes:
If close[+100]==good
buy close[0]

Even though people think they are using close[-100]. It isn't hard to draw a trend algorithmically, rather it is easy to draw a trend by hand after the fact.

Of course you can account for look-ahead bias without trading algorithmically but a shield isn't a limitation.


If you can keep your wits about you while all others are losing theirs, and blaming you....The world will be yours and everything in it, what's more, you'll be a man, my son. - Kipling
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  #24 (permalink)
TradersJourney
CA SanFran
 
Posts: 5 since May 2014
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I am more of a system based / rule based trader.

I have a list of rules that I embedded in my mind and I focus more on the "if then" scenario.

If I see this then I do that.

If I don't see that then I don't do this.

All I need in order to trade profitability is a few things...

0. Proper Mindset
1. Entry Rules
2. Stop Loss Rules
3. Profit Target
4. Risk Management

My goal is to make trading simple as ABC / 123. Some of you advanced guys may frown on that but I don't care. I'm in this game to make money not to be market genius. Only thing that I am focused on is knowing just enough to earn me money. I'll leave all the advanced strategies and things to the quants.

I've learned that simplicity is always best. Give me a system that has an edge and I'll make money with it.

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  #25 (permalink)
 montanajtt 
Como, Italy
 
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well I believe discretionary trading can give you an edge over mechanical trading, mind has the ability to adapt and see things that in the short term the system can't see. This is my opinion at least.

But the bad of a discretionary trading is that every day you have to make the day, be in good shape, have no other things scheduled except trading and in the long term this can be unsuistanaible for most of the people. Infact the most of the traders I know have stopped doing it around 40 yrs old.

So mechanical trading can help building a more solid long term plan, give you more time and the time you have can be used to develop new things.
But off course making a reliable, and solid, consistent mechanical system is a big deal... and just one or two is also not enough.

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  #26 (permalink)
 
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 Ming80 
Singapore
 
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I believe good trading lends itself abiding to good rules and by that definition needs to be 100% systematic whether it be manual or automated in execution.

The analogy is similar to one going through a diet or exercise program. It is going to be very hard to figure out what works and what doesn't for oneself if one doesn't follow a systematic approach. For sure markets are dynamic and certain approaches will work well and terrible in certain situations. But isn't that a trading rule by itself if one can properly define the situation?

One can develop 20 approaches to trade whatever 1 market throws at them or alternatively use 1 approach to trade 20 markets. The whole endeavor is about figuring out how to participate in good situations and stay out of bad ones whether the rules are implicit or explicitly stated. The clearer the focus the simpler the task becomes.

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  #27 (permalink)
 
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 DarkPoolTrading   is a Vendor
 
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Ming80 View Post
The analogy is similar to one going through a diet or exercise program. It is going to be very hard to figure out what works and what doesn't for oneself if one doesn't follow a systematic approach. For sure markets are dynamic and certain approaches will work well and terrible in certain situations. But isn't that a trading rule by itself if one can properly define the situation?

This gets to the heart of why I started this thread. For me personally I find it extremely hard to relate to those who use completely discretionary approaches because how do you track what is and isn't working? How do you ensure that you're not looking at the market through emotional goggles on a certain day and therefore are either ignoring key information, or giving other information too much importance. I need to anchor aspects of my methodology to a mechanical process / rule base otherwise I will drive myself crazy being allowed to trade multiple similar scenarios in different ways.

For me a perfect middle ground is to define the market structure in a discretionary manner to identify my areas of interest, after which my trade entry and management is mechanical.

However I keep coming back to the thought that a lot of really top traders use a completely discretionary approach, with intuition developed over thousands of hours of screen/market time.

Diversification is the only free lunch
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  #28 (permalink)
xylem
LONDON UK
 
Posts: 60 since Nov 2014
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THis is a question I am currently pondering.
I am trying to write a trading plan but when I think of the specifics of my entry they are always a shade of grey involving at least 3 different factors.

DOM action
Macro bias
Sup/Res
Retracemet amount
Whether or not a level has been tested "properly"

Putting that in a trading plan is tricky, especially when im trailing out.

I honestly dont believe a mechanical system can be as optimal as a discretionary one as the market is dynamic and therefore to optimize capitalization on it you also need to be dynamic.

Maybe you could be a super coder and work out a crazy intricate way of programming but I am not sure I can.

Here is a post on a discretionary trading plan trying to be more mechanical.


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