What's better, systematic or discretionary?

[digitalnomad]

Systematic all the way. If I knew with 100% certainty that I could quadruple returns at discretionary level, I still wouldn’t do it. The stress isn’t worth it. Beyond the mental toll, I’d have the insides of an 80 year old by the time I’m 50.

 

[themickey]

Systematic all the way. If I knew with 100% certainty that I could quadruple returns at discretionary level, I still wouldn’t do it. The stress isn’t worth it. Beyond the mental toll, I’d have the insides of an 80 year old by the time I’m 50.

Your definition of systematic is...?
If systematic = automation, for me this is too hard. Not because of coding but because of the reliance too much on no computer glitches, eg updates which cause continual mayhem and reliable uninterupted streaming data etc.

 

[globalarbtrader]

View attachment 180365

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.

You can't directly compare the black and the red line as they clearly have different vol. This is because there are more discretionary traders in the FS universe than systematic (which of course in itself is interesting). Once you account for that the lines would be closer.

Also people self declare on FS what their strategy is. Could be some bias there.

GAT

 

[TraDaToR]

Through my years in finance, I have yet to see any non-systematic traders that have realized Sharpe ratios over say 1.5 in the long run so I will take this with an appropriate grain of salt. But I am not going to say it’s totally impossible either.

Non-systematic scalpers can have sharpe ratios a lot higher than 1.5 in the long run, but their problem is capacity. At your institutional level, it is not worth the effort because the amounts generated are too low.

 

[ironchef]

Well, that kinda does not mean anything - some dude can leverage on some technical indicator but the strategy would be systematic by virtue of him doing the same thing every time. I think most people mistakenly think systematic equals automated.

Then I don't understand your definition of systemic vs discretionary. I thought systemic means I can automate my trading method and discretionary means it cannot be automated?

I am doing the same thing in every trade but I cannot automate my methodology because I cannot automate my judgement or the FA I do in arriving at a candidate trade.

 

[d08]

Then I don't understand your definition of systemic vs discretionary. I thought systemic means I can automate my trading method and discretionary means it cannot be automated?

I am doing the same thing in every trade but I cannot automate my methodology because I cannot automate my judgement or the FA I do in arriving at a candidate trade.

Systematic not systemic, different definitions.
Discretionary by definition means you use discretion, while you might or might not have a methodology, there is nothing fixed and subjective evaluation is used for most trades.
Systematic being fixed, following a predetermined plan as written down/memorized/coded. You can execute systematic trading manually which some call discretionary trading but since no discretion is used, it's rather systematic.

 

[fordewind]

With the systematic you'll never predict stops(hint:no one will),that`s why it fails everytime.

 

[sle]

Then I don't understand your definition of systemic vs discretionary. I thought systemic means I can automate my trading method and discretionary means it cannot be automated?

Systematic means that there is a fixed algorithm that either tells you when and what to trade or takes over everything including the execution. As long as your process for coming up with the trade can be expressed as a set of explicit rules it's systematic.

I am doing the same thing in every trade but I cannot automate my methodology because I cannot automate my judgement or the FA I do in arriving at a candidate trade.

If you are using judgement (e.g. you make a decision not to trade because it feels wrong or something is missing) it's not a systematic strategy. Fundamental analysis actually has been successfully automated, there is a fair number of a fundamental quant funds that do exactly that.

With the systematic you'll never predict stops(hint:no one will),that`s why it fails everytime.

Not really, though. Stops can not be predicted, but they certainly don't break the systematic aspect of the strategy. They just add path dependence.

 

[fordewind]

The history does not repeat itself!You cant predict volatility,hence you`ll never define stops.Its more like Brownian or gambling.I found that the systematic is pure gambling so the variables are just.

 

[sle]

The history does not repeat itself!You cant predict volatility,hence you`ll never define stops.

I am not sure what you mean by "define stops". There is a garden variety of ways to include stops into a trading strategy, from simple fixed value to expected move (based on either implied or realized vol) to cost of risk.

Its more like Brownian or gambling.I found that the systematic is pure gambling so the variables are just.

Well, that just means that you personally could not find a strategy that works. Doesn't mean you are a bad trader nor does it mean that other people can't find those strategies.