Can completely discretionary traders every succeed?

[kiwi_trader]

I too trade with a set of rules and then context based overrides (the real discretion). Personally I have know a number of people who had a working strategy at one point that failed later -- and they dropped out.

I think brett is on the right track. My quick take on how to be discretionary and not get trapped is something like:
- quantify your discretionary tactics
- analyse what it is you get money from
- analyse what it needs for it to continue being successful
- analyse what it needs for it to fail
And act on the last before the drawdown really hurts you.

And of course the smart trader would also be looking for "how to change it" and "old strategies that don't work currently but might if the markets changed" and applying the same analysis to each group so you could adapt rapidly.

I think this speaks to using less implicit learning than Brett is talking about in his super discretionary traders (i think).

Just my thoughts.

 

[BSAM]

Kinda strange, the name of the thread doesn't match the poll. Seems like we're mixing two different topics here.

Judging from the posts thus far, seems as though there is no such thing as a "purely discretionary" trader. However, at this time, 18 people claim to be a discretionary trader.

Perhaps me and many others don't really understand the definition of a "discretionary trader". These discussions are always a bit amusing to me.

I'd like for one of those 18 omniscient folks to post on here who is going to win the next Superbowl. Or do their mysterious powers only relate to the stock market?

Myself, I'm a rules guy. Guess I'm just lacking in the mystical powers area. Or maybe I'm not understanding something. For market activity, I believe you have to have some sort of "edge"; not possess "Kreskin-like" abilities.

I did go to a carnival one time when I was a kid. A fortune teller read my future; or at least she pretended to. Wooooohooooo.....

 

[libertad]

Ozzy wrote..........

Successfull discretionary traders are actually system traders who function on set of rules. The only difference is that the trading program is residing inside the persons head.

Automated or hybrid systems are also good. The bottomline is you make money consistently.

ozzy
..........................................................

Actually the improvements in direct access technology and the reduction in costs assist the above statements...

Having traded since 1978..and I am still around...I certainly appreciate Ozzy's statements......

 

[MR.NBBO]

Tides ebb & flow like bids & asks. IF you can read them, you'll be able to profit from them as a purely discretionary trader. Kick in a lil T/A, and your set. Old wild west, shoot from the hip.
Discretionary is definitely more "by feel" & experience.

I'm a mix. I've got pretty solid rules & edges that are computer driven in some areas, but my market-making days (non-pro), make me very tuned into order flow. I do both, computer generated & discretionary.

Then there's purely computer driven activity. You think you've found an edge, you apply the logic to your execution software....and let the dollars roll in, unless your server freezes :eek: .

 

[martys]

I think pure discretionary means you have no set of rules that you apply the same way every time although you might have some kind of framework. Talk about mystical power... today's actions in ES moves have a lot of Fibs in it... 1.272 final extension at a 1.28 implied volatility band which reverses for a .618 retracement of previous big swing and then extend back... I don't trade Fibs so it is just painful to see them unfold to the tick. I did take the whole number (1230) trade down. I think those kind of trades are hard to quantify and be consistent... You just don't know when the numbers will work.

 

[kiwi_trader]

Quote from BSAM:

Kinda strange, the name of the thread doesn't match the poll. Seems like we're mixing two different topics here.

You caught me BSAM. I thought that Brett's stuff was interesting and some people might get value from it so I started the thread. Then I ticked the poll option and then couldn't figure out how to get rid of it ... so ...

 

[steenbab]

I appreciate this thread regarding my articles and hope to make a few clarifications. As the quote from the initial posting indicated, I am not questioning that traders can trade successfully in a discretionary manner. In my work as a director of trading at a large Chicago proprietary firm I have directly observed quite a few multimillion dollar earning traders. None of them traded with technical analysis strategies, and none of them relied on research or mechanical systems. They truly were and are discretionary traders.

The problem, rather, is that such traders do not, as a rule, *maintain* their success. When market trends change, when patterns of volatility shift, their sensitive reading of the market no longer serves them well. I cannot tell you how many active traders I've observed who were successful during the momentum days of the late 90s and early 2000s, only to come to ruin in the past two years. My observation, as one who has directly observed them and worked with them, is that their problems are not primarily psychological. Instead, I believe it to be a problem of learning: patterns that were learned and internalized over many, many hours of market experience no longer show up in the market. By the time they have an opportunity to learn and internalize new patterns, they have experienced much loss and frustration.

Note that I am *not* advocating trading by mechanical systems. Those are based upon exploiting patterns that also will change with shifting market regimes. My experience tells me that discretionary trading can succeed when aided by research that allows a trader to know when market cycles are changing and when they can be counted upon for continuation. An analogy would be that of the fighter pilot, who relies on reflexes and the implicit learning that comes from long hours in simulations and real-time exercises, but who also must be guided by satellite intellligence, radar findings, instrument readings, and other "research".

The goal is not just to be successful, but to sustain success. I believe that can be most easily accomplished if hard, objective findings can tell the trader when recent market conditions can be counted upon and when they are changing. Such trading is neither wholly discretionary, nor mechanical. It is informed.

Thanks for the opportunity on the soapbox!

 

[martys]

Hi Brett,

Can the discretionary traders you talk about describe what they are doing at all? Are they just trading a feel? Thanks.

Regards,
William

 

[steenbab]

Yes, thanks, perhaps I need to clarify my use of terms. When I say that their trading is discretionary, I mean that they are not employing any formal rules or research to arrive at their trading decisions. That doesn't mean that their trading is random. Far from it. Some, for example, look at short-term patterns of buying and selling to detect when large market players are leaning in a particular direction, so that they can ride those short-term moves. The successful ones have an amazing feel for the ways in which volume hits the market and can sort out when moves are for real. They can verbalize what they're looking at, but generally they can't verbalize what goes into that feel. It truly seems to be the result of implicit learning.

To give one example, I have watched a multimillion dollar earner over many days of trading and can describe to you what he does, but I cannot duplicate his performance. It is a bit like watching Michael Jordan: I can figure out *what* he's doing, but cannot repeat his performance.

 

[martys]

Interesting... It would just get me killed. Thanks!