Discretionary vs System based trading

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Victory5

Sure, we all know there are going to be losers in both cases......


But i'm curious to see what people's opinions are regarding these two approaches. For clarifications sake (and someone please correct me if i'm wrong), by discretionary trading I mean an individual is relying primarily on 'gut' or 'instinct' to make trades and while he/she may have some lose rules or guidelines, the trader is mostly making their own calls as the situation dictates. With system trading, the individual is following a strict set of rules laid out by a system that dictates when, where, and with how much they go into certain positions and what the trader does when the market moves up/down/sideways. In other words, the system entirely dictates when the trader is in and out and he/she simply executes trades according to their rules without any added thought: everything is entirely predetermined.


My question then is pretty simple: which approach is better (read: more profitable)?

I was always under the impression that a lot of the higher up guys (prop firms, hedge funds, etc) draw on both. Am I wrong?
 
Use a hybrid of the two. o_O
using 100% of just one of those ways, is doomed for failure. -- in my opinion.

...Markets are dynamic and moody...and it's your job, as the trader, to decipher that.
 
The timing and frequency of when, whether and which part of a system would require any updating/modifying or not must be discretionary, I guess!
 
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Victory5 said:
Sure, we all know there are going to be losers in both cases......

But i'm curious to see what people's opinions are regarding these two approaches. For clarifications sake (and someone please correct me if i'm wrong), by discretionary trading I mean an individual is relying primarily on 'gut' or 'instinct' to make trades and while he/she may have some lose rules or guidelines, the trader is mostly making their own calls as the situation dictates. With system trading, the individual is following a strict set of rules laid out by a system that dictates when, where, and with how much they go into certain positions and what the trader does when the market moves up/down/sideways. In other words, the system entirely dictates when the trader is in and out and he/she simply executes trades according to their rules without any added thought: everything is entirely predetermined.

My question then is pretty simple: which approach is better (read: more profitable)?

I was always under the impression that a lot of the higher up guys (prop firms, hedge funds, etc) draw on both. Am I wrong?
More...

You have your definitions of Discretionary and System mixed up.

There are two types of Discretionary traders and both do not use any automation:

1) Gut feel or instinct as you stated

2) Rule base...type of rules that can't be automated

There was an in-depth poll, amongst discretionary traders...58% are gut/instinct, 32% are rule base and 10% not sure.

You have two types of System traders:

1) Partial or full automation from entry to exit

2) Mechanical traders that do not know how to program/code their system method but other programmers are able to do it if asked.

Most traders lose regardless if system trading or discretionary trading. The best approach is determine by the trader and everything else that's in the trading plan (e.g. risk management, position size management, adaptability and so many other factors in ones profit/loss level).
 
wrbtrader said:
You have your definitions of Discretionary and System mixed up.

There are two types of Discretionary traders and both do not use any automation:

1) Gut feel or instinct as you stated

2) Rule base...type of rules that can't be automated

There was an in-depth poll, amongst discretionary traders...58% are gut/instinct, 32% are rule base and 10% not sure.

You have two types of System traders:

1) Partial or full automation from entry to exit

2) Mechanical traders that do not know how to program/code their system method but other programmers are able to do it if asked.

Most traders lose regardless if system trading or discretionary trading. The best approach is determine by the trader and everything else that's in the trading plan (e.g. risk management, position size management, adaptability and so many other factors in ones profit/loss level).
More...


Thank you for clearing that up.

Can you given an example of a 'rule' that cannot be automated? In order to better differentiate between system based rules and discretionary rules......
 
Victory5 said:
Thank you for clearing that up.

Can you given an example of a 'rule' that cannot be automated? In order to better differentiate between system based rules and discretionary rules......
More...

Here is an example - All Discretionary Rules cannot be automated!
 
It was proved many years ago that all of natural language can be expressed in binary logic. There are no rules that cannot be automated except the metaphysical.
 
Sergio77 said:
It was proved many years ago that all of natural language can be expressed in binary logic. There are no rules that cannot be automated except the metaphysical.
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It's quite true but it would be very programming extensive.

If you could observe, analyse and write down step by step on how your brain interprets patterns in the market, you could code it.

However, if your system involves intuition, it would be very difficult to code.
 
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