What's better, systematic or discretionary?

[sle]

The below came from another thread and caught my attention, as it contrasts discretionary and systematic approach to the markets. I have done both and was reasonably good at both. There are advantages to both approaches and disadvantages to both, in my view and it would be very interesting to discuss why you decided on a particular approach.

I don't like (fixed) trading Systems. -- they clearly have a rather close-minded downfall to them.
Systems are basically for people/traders who have a loose, vague, semi-ambiguous directional bias or skill or intuition.

For people who are skilled traders, why bother with systems or averages that will only boggle your overall performance down....when you have a somewhat of a laser-guided ability.

Over the years I have gradually transitioned from a more discretionary approach to a more systematic one.
- The main reason was that you can automate things and thus have a number of market positions working concurrently.
- Also, it's nice not to waste mental energy on decisions that can be performed by an algorithm.
- There is also a lifestyle advantage to systematic trading once you get it rolling, you can take a day off and trading does not stop
- Last but not least, there are strategies that can only work in a systematic manner, either because of the sheer number of assets or because of the required speed


PS.Let's not turn this into a quant or no-quant discussion, there are people doing discretionary quant trading and there are people doing systematic non-quantitive trading.

 

[toc]

What ever makes you money.

However, when doing discretionary you learn more about the markets and also yourself as a player in the markets.

Systematic is of course more efficient and leaves more mental and physical energy to pursue further study of the markets.

 

[traider]

The below came from another thread and caught my attention, as it contrasts discretionary and systematic approach to the markets. I have done both and was reasonably good at both. There are advantages to both approaches and disadvantages to both, in my view and it would be very interesting to discuss why you decided on a particular approach.


Over the years I have gradually transitioned from a more discretionary approach to a more systematic one.
- The main reason was that you can automate things and thus have a number of market positions working concurrently.
- Also, it's nice not to waste mental energy on decisions that can be performed by an algorithm.
- There is also a lifestyle advantage to systematic trading once you get it rolling, you can take a day off and trading does not stop
- Last but not least, there are strategies that can only work in a systematic manner, either because of the sheer number of assets or because of the required speed


PS.Let's not turn this into a quant or no-quant discussion, there are people doing discretionary quant trading and there are people doing systematic non-quantitive trading.

Hi can you compare the some performance metrics of discretionary vs systematic?
For example, rough sharpe ratios for each?

 

[sle]

Hi can you compare the some performance metrics of discretionary vs systematic?
For example, rough sharpe ratios for each?

It's very hard to generalize. It's probably true that an average portfolio of systematic strategies has a higher IR simply due to bigger ability to diversify. It's probably true that a discretionary strategy usually has higher capacity. You can have an HFT guy who's Sharpe is in double digits and a trend following CTA with a Sharpe of 0.25. Same goes for discretionary guys.

 

[d08]

What ever makes you money.

However, when doing discretionary you learn more about the markets and also yourself as a player in the markets.

Systematic is of course more efficient and leaves more mental and physical energy to pursue further study of the markets.

You also learn about the markets when analyzing large amounts of data. Because of the quantified approach, you're not wasting time making selective observations.

 

[sle]

You also learn about the markets when analyzing large amounts of data. Because of the quantified approach, you're not wasting time making selective observations.

To be fair, as a quant you will be making selective observations too, just in a different way. For example, majority of quants do not try to assign a causal hypothesis to whatever patterns they find (in fact, most people don't even have a good prior hypothesis when going through the data).

 

[dealmaker]

Soros talked about his back ache when things just didn't feel right, therefore I'd say whatever suits one's personality and trading style...

 

[d08]

To be fair, as a quant you will be making selective observations too, just in a different way. For example, majority of quants do not try to assign a causal hypothesis to whatever patterns they find (in fact, most people don't even have a good prior hypothesis when going through the data).

I do it backwards as well because I'm not smart enough. First the pattern, then the causality. It's obviously not the right way to go about things but it can work.

Using large amounts of data is also selective, I agree but it's better than looking through charts or pieces of news. I have my obsessive chart studying sessions same as most others on ET but it's not very productive at all.

 

[SysVolTrader]

Systematic is easier to backtest. This is important to evaluate risk.

 

[Visaria]

You can do both, have a portion of your money done systematically and a portion done discretionary. There is no law against it afaik!