Discretionary Versus Mechanical System Trading

[LoosenUp]

Quote from horribilicus:

I recommend you study the entire equity curve rather than summary statistics. If you are deciding between 3 systems, slurp their equity curve data into Excel and plot them all on the same graph. If you're down to one system and it's a go/no-go decision, get in touch with your intestines and determine whether you are comfortable with that equity curve. Instead of worrying about "what numbers are GOOD numbers?," consider the question "can I emotionally withstand this?"

This is not what I am looking for. I have equity curves on all my systems. Just would like to have an idea what sort of mechanical systems others trade in terms of performance measures. Again, don't give me answers like "it does not matter what others trade, trade what you are comfortable with". I am always keen to find out what others do and reflect on what I am doing.

 

[LoosenUp]

Quote from OddTrader:

I like your good thinking/ experience.

However, for automated trading systems, should I say "I'm a skilled discretionary trader with majority of trades using human-assisted automated order/ trade execution systems."? TIA.

Oddtrader,

Your answer is rather odd. So, are you mechanical or discretionary?

 

[OddTrader]

Quote from OddTrader:

I like your good thinking/ experience.

However, for automated trading systems, should I say "I'm a skilled discretionary trader with majority of trades using human-assisted automated order/ trade execution systems."? TIA.

Probably the due diligengence people would have to spend all hours everyday with you during trading in order to understand how.

Q
Why? Because asset allocators and fund-of-funds people, demand tons and tons and TONS of information from system traders, their "due diligence" never ends.
UQ

 

[OddTrader]

Quote from LoosenUp:

Oddtrader,

Your answer is rather odd. So, are you mechanical or discretionary?

Technically speaking, that precisely should be: Systematically 100% mechanical discretionary with extremely high degree of human-assisted automation for market analysis, signal generation and order execution, plus some exceptions for risk management decisions through integration of all internal and external inputs.

 

[FredBloggs]

hmm... this old chesnut again.

i always like to remind people of this simple fact:


Q what do the following traders all have in common?

jessie livermore,

george soros,

warren buffet,

richard d wyckoff

monroe trout & most other 'market wizards',

paul rotter

fred bloggs,

etc...


A: they are all discretionary traders - oh yes, and they are also the best traders that ever lived.


Q2: what do the following have in common:

taleb,


neiderhoffer,


ltcm boys,

A: - well you know the rest......

 

[Murray Ruggiero]

Quote from FredBloggs:


Q2: what do the following have in common:

taleb,


neiderhoffer,


ltcm boys,

A: - well you know the rest......

One point about these people that caused their problems had nothing to do with systems, it was greed. They over traded.

Let's play a game , it is a coin flip , you win 2-1 if you are correct and lose even money if you are wrong. You have one more rule , you need to bet 75% your money on each flip and your minimum bet is $5.00. You start with $50.00. Because of the minimum bet size and betting 75% your money on each flip. If you start with 2 wrong guesses in a row, this would leave you with ,$3.12 so you could not make the third bet. If it happens later 4,5,6 wrong guess in a row , which could happen in a 50/50 game would put you out of business.
You can see overtrading could cause you to go bankrupt trading the holy grail , if you over trade.

 

[FredBloggs]

...but surely a comprehensive automated system would take this into account and dictate position size.


fyi: gambling theory suggests at least 10 outcomes are required before we can reach a win with a 99.999% degree of certainty when involved in a 50/50 probability situation!!!


Fundamental Formula for Gambling:
N

1 – DC = (1 – p)

Where – DC Degree of Certainty, p probability, N – number of draws

 

[tradersaavy]

People think of mechanical trading as a set list of rules, period. Right ?

Well, if you are a "good" discretionary trader (profitable) then you do the same thing. You trade based on rules. The rules are just tucked away in your head and there are probably more of them. But it's still trading from a set list of rules.

Then, what is the difference between the two ?

It's all trading based on rules.

 

[ktmexc20]

Quote from tradersaavy:

People think of mechanical trading as a set list of rules, period. Right ?

Well, if you are a "good" discretionary trader (profitable) then you do the same thing. You trade based on rules. The rules are just tucked away in your head and there are probably more of them. But it's still trading from a set list of rules.

Then, what is the difference between the two ?

It's all trading based on rules.

Exactly. And I'd definately say: "Advantage...a well planned ATS!"

 

[Murray Ruggiero]

Quote from ktmexc20:

Exactly. And I'd definitely say: "Advantage...a well planned ATS!"

You are correct , but read the book "When Genius fails" and you will see they where trading beyond levels which a sound mathematical model should have allowed. They begin creating weak models which did not take things into account.