Discretion vs Mechanical Trading – Which Style is for you?

Discretionary Vs Mechanical Trading Systems

There is always a debate whether trading should be discretionary or mechanical. I will cut to the point, trading requires both objectivity and subjectivity. Some aspects of trading must be 100% objective, yet others will require a bit of human judgement. We must have fully back tested and proven trading strategies yet we can have discretion to take or leave signals.

Most traders are discretionary system traders. They use discretion but they have a set of rules that defines their trading. You cannot be 100% discretionary because that is not a trading system. This approach would lead a beginner trader in to serious problems.

Discretionary or Manual Trading

Discretionary traders can (and very often do) use their intuition to confirm (or negate) their trading decisions. For example, a trader might decide not to make a trade because the trade would require a slightly larger stop loss than usual, even though all of their entry requirements had been met.

While discretionary traders are able to use their intuition and instincts in their trading, they need to make sure that they do not confuse them with fear and greed. For example, whenever a trader decides not to enter a trade based upon their intuition or instincts, they need to know why they are doing do, otherwise it is possible that the decision is based upon fear of a losing trade. Similarly, if a trader decides to hold a trade longer than usual, they need to make sure that it is their intuition rather than greed that is making the decision.

Knowing the difference between intuition and emotions is something that will come with experience. In the meantime, if you are making a trading decision and you find that your heart is racing or that you are starting to sweat, you are probably making an emotional rather than an intuitive decision.

System Trading or Robotic Trading

System traders on the other hand, cannot use their intuition in their decision making process. System traders make their trading decisions during their testing and analysis of their trading system, rather than during live trading. If a system trader starts using their intuition and instincts to modify their trading decisions, they are no longer a system trader, and they may need to modify other aspects of their trading accordingly. Some would say that there is no such thing as a part discretionary and part system trader. However, that is not entirely true.

System trading is not done manually any more. These days, we can program those type of trading methods and let the computers trade on auto. The market is mostly made of algorithmic trading robots.

AIMS Stress Free Trading combines the Art and the Science of Trading the Markets. The iTradeAIMS concept is to learn how to be in tune with the market and enable, grow and enhance your intuitive and instinctive abilities. Having said that, our trading rules are so clearly laid out that it can almost be called a Trading System. I like to call myself “A bionic algorithmic manual system trader” or something like that.