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Mechanical trading vs. discretionary trading
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Mechanical trading vs. discretionary trading

  #11 (permalink)
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Arpad View Post
Mechanical, I mean:
I could say fully automated instead.
Positions are opened and closed by a computer program, an electronic algorithm based on programmed rules. This algorithm works on its own, a human don’t needed to press any keys. Sometimes you adjust the program, the algorithm, but the program could run unattended for several days.

Discretionary, I mean:
You have to sit in front of a monitor, and have to open your trades manually. Maybe closing of trades are done via NinjaTrader’s advanced trading management, but you have to look your charts and press Enter to initiate your trades.

Good thread on an important topic. Thanks for starting this.

I think that when many of us use the terms "discretionary" and "mechanical," they have a slightly different meaning than what you've outlined above. A system can be mechanical even if it's not automated. If the trader is taking the exact same trades that the automated system would have taken, then I would consider that to be a mechanical system even if the trades are being entered manually.

Discretionary trading generally implies flexibility to take different kinds of trades than a mechanical system would have contemplated. So I think the key difference is whether or not the trader's methodology can be boiled down to a set of objective criteria that are traded the same way each time they occur. If so, that's a mechanical trader; if not, that's a discretionary trader.

As I see it, there are a few factors to consider when deciding whether to lean toward mechanical or discretionary trading (as I've defined the terms above anyway):

1. Do you trust the results of backtesting with enough confidence to continue trading a mechanical system through a significant drawdown? If the answer is no, then you can't be a mechanical trader.

2. Can you have confidence to pull the trigger on a trade even if you don't have statistical evidence that this particular kind of trade has a positive expectancy? If the answer is no, then you can't be a discretionary trader.

3. How frequently do you believe that market conditions change, and how big an impact do you expect those changes to have on a system's performance over time? If you believe that market conditions are constantly changing, then you will probably lean more toward discretionary trading since you will want to adjust your trading method in response to changes in the market.

My two cents anyway.

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  #12 (permalink)
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Discretionary is like a hooker quoting you prices and services available ....

Mechanical is like a wife...

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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  #13 (permalink)
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ThatManFromTexas View Post
Discretionary is like a hooker quoting you prices and services available ....

Mechanical is like a wife...

In that case maybe I need to take my wife to a mechanic...

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  #14 (permalink)
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ThatManFromTexas View Post
Discretionary is like a hooker quoting you prices and services available ....

Mechanical is like a wife...


worldwary View Post
In that case maybe I need to take my wife to a mechanic...



"Faith is the substance of things hoped for, the evidence of things not seen." --- "Therefore, I Believe it and I will see it. And every day and in every way, I am healthier, wealthier, and wiser."
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  #15 (permalink)
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ThatManFromTexas View Post
Discretionary is like a hooker quoting you prices and services available ....

Mechanical is like a wife...

(1) I guess you must be married.

(2) Are you sure that your wife does not spy you out?

(3) If you marry a rich woman, you can actually make money. Otherwise with a marriage you will consistently lose money, whereas with hookers you will lose it in an inconsistent way. As it will cost you anyway, the hookers - or the discretionary trading - is preferable, because you get better entertainment for what you pay. Thanks for reminding us.

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  #16 (permalink)
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Arpad View Post
Mechanical, I mean:
I could say fully automated instead.
Positions are opened and closed by a computer program, an electronic algorithm based on programmed rules. This algorithm works on its own, a human don’t needed to press any keys. Sometimes you adjust the program, the algorithm, but the program could run unattended for several days.

Discretionary, I mean:
You have to sit in front of a monitor, and have to open your trades manually. Maybe closing of trades are done via NinjaTrader’s advanced trading management, but you have to look your charts and press Enter to initiate your trades.

OK ,thanks . And the questions are .....

• Is it harder or easier to trade profitably with a mechanical, automated system compared to profitable discretionary trading?
• Is it a natural evolution progress to first trade profitably in a discretionary manner, and then to trade mechanical systems, or they are so different that we could say that somebody could trade profitably a mechanical system even if he can’t trade profitably in a discretionary manner?
• Is it possible that someone could trade profitably a mechanical system but would unable to trade profitably in a discretionary manner?
• How would we picture: if someone starts to trade profitably a mechanical system this probably would mean that at the same time he would stop trading in a discretionary manner because mechanical trading is a so much elevated process, a way more effective method of making money?

Again , neither are difficult nor easy . Thats because trading is a game of probabilities and your trading should be a function of recognizing opportunities , acting on them and managing them until its over and then being ready to act on the next opportunity . Difficult and easy suggests an emotional attatchment to the game and in this game its a big liability to be attatched emotionally . Its not a natural progression and Its most likely the opposite . If you cant trade discressionary method profitably you wont trade an algorithmic method profitably . Trading an automated strategy is not necessarily more elevated (?) or more of a money maker than trading a discressionary method . You see , the method or precisely your variables you need to make a trade exist is a little , minor , almost insignificant piece of trading . Its the managing part that makes you a good or successful trader . Position sizing , risk management and the things that HELP you KEEP the gains you manage to take from the market is what is critical and unfortunately the most ignored or least considered . A trader that focusses on handling his capital very very carefully will always make the decisions that causes them to slowly ratchet up their P/L , even using a simple rudimentary method . Hope that helped and for a little more about the trials and tribulations of autotrading check this out ....

https://futures.io/elite-group-trading-methods/7455-battle-bots-do-you-have-what-takes-win.html

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  #17 (permalink)
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worldwary View Post
...
2. Can you have confidence to pull the trigger on a trade even if you don't have statistical evidence that this particular kind of trade has a positive expectancy? If the answer is no, then you can't be a discretionary trader.
...
My two cents anyway

A discretionary trader is not concerned with stats but rather with the context within which an opportunity is developing. A mechanical bot will take every trade just because the overall figures is positive statistically speaking. The smart and astute discretionary trader will always beat these mechanical systems.

That's my two cents.

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  #18 (permalink)
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Hi guys,

Thanks for your 2 cents.
There is almost a dime accumulated already.
:-)

@Eric j


Eric j View Post
and your trading should be a function of recognizing opportunities , acting on them and managing them until its over and then being ready to act on the next opportunity


I agree completely. I thought that if you managed to recognize the opportunities and made up your plan that is working good for managing your trades, so when this is done, you could code your method to make it a completely automated mechanical system. I know that emotional attachment is not good, and hesitation or second-guessing your proven rules could be harmful. So why not code your system? If trading is a game of probabilities, you have to accept that there will be losers and loser strings. Why would you try to guess whether the next trade would be a winner or a loser? Who cares? It doesn’t matter at all. It’s all about probabilities and the outcome in the long run. You have a working system, it works in the long run. So wouldn’t it be completely logical to make your system work unattended, run on its own, automatically?

I opened this thread and asked these questions because it seems to me that there are more traders who trade in front of their monitors and manually initiate their trades. I called this discretionary even if this could be as mechanical (rule based) as a fully automated process. So maybe we could name this 'in person' or 'live' trading.

I wonder why this is the case. And one of my questions was whether automated trading is an elevated process, i.e. a more elegant or straightforward way of trading, if and when you have found a working system. My preconception was that this should be the way, so once you proved for yourself that your system works, you code it, and let it run on its own. So why bother watching your screen, pressing keys, and watching the (at times) distressing events, if they don’t matter…? Only the probabilities in the long run matter, and you have a working system, so why not automate it?



Maybe I should change my first question to this:
Is it harder or easier to trade a mechanical system fully automated vs. trading that same system in person, live? ‘Harder or easier’, I mean is it very hard to fully code your system? If so, this could be a reason why so many trade their system in person.



Eric j View Post
the method or precisely your variables you need to make a trade exist is a little , minor , almost insignificant piece of trading . Its the managing part that makes you a good or successful trader.


Again, I agree absolutely. But couldn’t you code the managing part of your trading system (“Position sizing, risk management and the things that help you keep the gains you manage to take from the market)?
Again: if it is working, why not code it, and let it run on its own?

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  #19 (permalink)
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trendisyourfriend View Post
A discretionary trader is not concerned with stats but rather with the context within which an opportunity is developing. A mechanical bot will take every trade just because the overall figures is positive statistically speaking. The smart and astute discretionary trader will always beat these mechanical systems.

That's my two cents.

May I assume that you are a successful discretionary trader who consistently makes money?
I have to assume even you have some patterns on which you react. So why don’t you automate your patterns and methods?

If you say those can’t be automated because there is some degree of gut feelings involved, I think uh-uh, warning… Should a serious trader, who strives for consistent profits, base his trading decisions on gut feelings if he can’t describe heuristics behind them? If there are observations behind those, then they also could be coded to run automatically.

Please correct me if I’m wrong.


So why wouldn’t you just modify the code of that not so smart bot in order not to take those trades that you wouldn’t take as an astute discretionary trader?

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You can automate certain aspects but not all, it takes a good pilot to maneuver around the obstacles as they present.

I have posted a comment in another thread (clickme) which depicts how i view trading in general. I think along the same lines this person Brian Hoffman has elagantly described in his winning argument : [There are no "winning" entries. There are no winning trades that are decided in advance as many would like to believe]. So if you believe in that argument then you can only conclude that trying to find a mechanical system may be an elusive dream.


Arpad View Post
May I assume that you are a successful discretionary trader who consistently makes money?
I have to assume even you have some patterns on which you react. So why don’t you automate your patterns and methods?

If you say those can’t be automated because there is some degree of gut feelings involved, I think uh-uh, warning… Should a serious trader, who strives for consistent profits, base his trading decisions on gut feelings if he can’t describe heuristics behind them? If there are observations behind those, then they also could be coded to run automatically.

Please correct me if I’m wrong.


So why wouldn’t you just modify the code of that not so smart bot in order not to take those trades that you wouldn’t take as an astute discretionary trader?


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