What's better, systematic or discretionary?
- Thread starter sle
- Start date
Good topic. I
FWIW... I guess my style would be a hybrid. I have a systematic system that filters down to a core group and then I make a decision. But even this last step is done based on rules.
$0.3 @ $0.4
Can’t get any tighter in this size, sorry
I never said I was. My employer keeps me around since I can lift heavy things.
Stats from fundseeder. How representative is it of the whole trading world I am not quite sure. I think it represents retail trading quite well.
Discretionary of course can achieve a higher "peak" level. A discretionary trader can trade a system systematically with the occasional rule override while a systematic trader cannot trade a system discretionaraly (as that would make him into the discretionary category). For example 2 traders trade the same MA crossover. The systematic trader HAS to take every signal. The discretionary trader can take the same signals the systematic trader has taken except for ONE trade where it didn't "feel" right. If it turns out the discretion is correct and it is a losing trade then the discretionary trader has one less loss than the systematic so in theory there is no way a system can outperform the best discretion.
Different conclusion drawn here.
Risk is higher with discretionary because positions tend to be larger. Show me a single discretionary trader who can manage 50 or 100 trades at once. For automation, it's absolutely not a problem.
Well, that’s the point of the game for most discretionary traders. Each trade has its own rationale and, because of the limited amount of ideas, you size the trades up. The process is mostly as follows- the PM/trader comes up with a hypothesis, then he proceeds to do some research to reinforce it using whatever information at his disposal. However, most discretionary strategies are much longer term and they do manage to run multiple bets simultaneously to achieve some diversification.
@QuasWexExort - in my opinion, running a repetitive process based on a recurring signal makes a trader systematic. It does not matter if you have discretion to stop it or size it up, any systematic PM has that level of discretionary control. In my mind, the key differentiator is that a proper discretionary trader uses a different set of inputs for pretty much every trade. That’s what makes their alpha so unique and also that’s why that alpha is frequently so unstable.
You pose an almost impossible request. If I throw it back to you can you show me a automated system of 50 to 100 open positions that beats the best discretionary trader trading a single or several positions ?
The only point you have highlighted is the system can manage more trades, yes true there. But is that "better" ? Would you rather 50-100 shares/contracts or the best performing few picked out (during the time period the trade is open) ?
Think for a second about the advantages of discretionary trading - consistency is not one of them. To take it to the extreme, any institutional HFT strategy produces much better results than any discretionary trader ever could. Yet investors do seek out and hire discretionary macro and long-short PMs.
Actually depends on what we are measuring (eg pure return or sharpe or what) and what size we haven't established that. It's impossible for HFT to top returns from the best traders in Market Wizards books in % return. It's also impossible for the Wizards to still make the same returns at HFT sizes. So it depends on what we are measuring.
I automatically assumed this topic was geared for "our" trading at retail account sizes and disregarded the billions. If we were to chuck in billions then yes the argument could be different.
It's almost always better to have diversified non-correlated positions vs one or few. You assume discretionary traders pick out the best performers, not sure where you get that from.
The AQR analysis claims systematic funds have lower risk, which does make sense from the diversification and timing perspective.