Discretionary Versus Mechanical System Trading

[Murray Ruggiero]

Let's discuss the pro's and cons of discretionary and mechanical trading. In real life very few traders are 100% mechanical or 100% discretionary so, let's discuss how these two types of trading can be used together or if they should be used together.

If you override your systems using discretionary trading , please post how often and why you override them, for example not taking trades before a government report.

 

[bighog]

This boils down to the question: is it SCIENCE or is it ART.

How about starting out it is more art and as one progresses it becomes more regimented and called science?

So is it really an artform within the head and science in the implementation of whats in the head?...

 

[stephencrowley]

I don't even know what my system is doing during the day. I *never* over-ride it. Emotional (discretionary) trading is just silly. I have fail-safes, dead-man switches and the like to alert me when something goes wrong.

 

[blogtrader]

the best thing is to start mechanical and use that as a base to develop your other skills

 

[horribilicus]

If you're a professional money manager, the "best" thing to do is say you're a discretionary trader, even if you in fact religiously follow a 100% mechanical system. 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. They want to test your system for non-correlation with other system traders they've given money to. They want to calculate jillions of statistics about your past performance. They want to fiddle with your system.

On the other hand, if you say "I am a skilled discretionary trader, I trade based on my highly developed sense of the market, and my track record shows I have been very successful," they can't really pester you to death. Give them your track record, smile most sincerely, and say "well are you going to trust me, or not?"

Saves lots of time and avoids plenty of grief.

 

[bighog]

blogtrader

Think about your statement. My question would be how can you mechanize what you do not know? It is like the ole saying, Do not put the cart before the horse. I will shoot you a few examples of the transition of the art form to the scientific form in a couple of minutes, got to get some coffee.

 

[qtip]

Quote from horribilicus:

If you're a professional money manager, the "best" thing to do is say you're a discretionary trader, even if you in fact religiously follow a 100% mechanical system. 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. They want to test your system for non-correlation with other system traders they've given money to. They want to calculate jillions of statistics about your past performance. They want to fiddle with your system.

On the other hand, if you say "I am a skilled discretionary trader, I trade based on my highly developed sense of the market, and my track record shows I have been very successful," they can't really pester you to death. Give them your track record, smile most sincerely, and say "well are you going to trust me, or not?"

Saves lots of time and avoids plenty of grief.

NIce post

 

[bighog]

Ok, back

Most scientific or learned processes require a learning curve first, a FEW examples.

ART ----------------------------------- Science
..................................................................................

scribble---------------------------- Artist

tinker toy------------Architect

witch doctor-----------physician

idiot-------------------Member of House of representatives

tinkerer-------------Scientist

loser------------------Winner

cynic------------------------Lawyer

single---------------Married

bully-------------------Soldier

children--------------Adults

dogcatcher..........republican president

go-cart--------------Formula1

doodles..........Idea

fiction-----------------Mission Statement

domestic cars----Foreign cars

training bra---------------Brassiere

crook-----------------CEO-CFO-COO

counting fingers........Computer

BS' er....................Bush

5 & 10 store---------------Wal-Mart

girlfriend-----------------Wife

fancy free---------------------Employed

and on and on.

I believe it is a fallacy to think the mechanics are a learning tool. Mistakes are a learning tool, the mechanics follow. hope this helps....

 

[bighog]

They will pester you if you miss a hot mkt........

Ron Reagan said, "TRUST BUT VERIFY"...that could also fit into the art form and science ledger.....

 

[nicholaf]

Quote from bighog:

Ok, back

Most scientific or learned processes require a learning curve first, a FEW examples.

ART ----------------------------------- Science
..................................................................................

scribble---------------------------- Artist

tinker toy------------Architect

witch doctor-----------physician

idiot-------------------Member of House of representatives

tinkerer-------------Scientist

loser------------------Winner

cynic------------------------Lawyer

single---------------Married

bully-------------------Soldier

children--------------Adults

dogcatcher..........republican president

go-cart--------------Formula1

doodles..........Idea

fiction-----------------Mission Statement

domestic cars----Foreign cars

training bra---------------Brassiere

crook-----------------CEO-CFO-COO

counting fingers........Computer

BS' er....................Bush

5 & 10 store---------------Wal-Mart

girlfriend-----------------Wife

fancy free---------------------Employed

and on and on.

I believe it is a fallacy to think the mechanics are a learning tool. Mistakes are a learning tool, the mechanics follow. hope this helps....

Also, there is the "art" of creating a good mechanical system