Systematic or Discretionary Trading
Minggu, 28 Oktober 2018
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Should trading be systematic or discretionary? Is there a hybrid of the two? I would venture to state that in the beginning all traders should be systematic traders. Following a system is the way to go in the beginning. Newbies make a lot of mistakes, often time costly, that can be avoided by adopting systematic strategies. It’s only after you’ve been in this business for a few years that you start tinkering with discretionary trades. This requires experience, and it comes from many years of being in the business. I know most traders are completely comfortable with being systematic and they are extremely successful but one of the things I’ve noticed is that the best ones are not system traders.
They know when to follow their signal and when to sidestep it. Systems get locked in. They are yes or no creatures. They are either in or are out of the market. Some of the top traders interviewed by Jack Schwager in the book Market Wizards are discretionary traders. I highly recommend that you get a copy and read it and then reread it. That’s the art of trading. The science of trading is the calculation of signals, position size and all. But the art of trading is knowing when to exit, when to take and when to not take a signal. Which means not taking a signal even though your system might tell you to. No matter how much anybody tries to tell you, the exits part of this business are not programmable. You can program anything per se for sure, but predetermined exits are not optimal. A discretionary trader develops an intuitive feel on when to exit the market. A trading system does not necessarily develop that capability. Even though quite a lot of advances have been done in the field of machine learning, there still is not a satisfactory answer to this from my experience. Even if sophisticated algorithms are developed for it, the exits are still quite a big function of a trader’s acumen and capabilities. Exits are extremely important because they ultimately decide the outcome of a trade. Like they say, any fool can enter a trade, but it takes an expert to exit the trade smartly. Exit too late and you can have a gaping hole in your account. Exit too soon and you could potentially have gotten out of many good trades.
One of the trading system that I sell on this website has a mechanical exit. I have found it to be the best to my knowledge for a beginning trader. Is it perfect? No. Nothing in this business is. But it will keep you in a trade a decent amount of time to have a high average profit per trade over many trades. I sometimes exit a trade at a different price, but that is because of my experience in the markets over many years. Time to wrap up this post. So what did you learn. The lesson of this post is that you start with systematic and then graduate to discretionary. Entries and exits both. On our current open trade in Treasury Bond Futures on this blog, we are still short. The market has started to move down again, as was expected. Hold tight on your short position, we will exit this one profitably.
They know when to follow their signal and when to sidestep it. Systems get locked in. They are yes or no creatures. They are either in or are out of the market. Some of the top traders interviewed by Jack Schwager in the book Market Wizards are discretionary traders. I highly recommend that you get a copy and read it and then reread it. That’s the art of trading. The science of trading is the calculation of signals, position size and all. But the art of trading is knowing when to exit, when to take and when to not take a signal. Which means not taking a signal even though your system might tell you to. No matter how much anybody tries to tell you, the exits part of this business are not programmable. You can program anything per se for sure, but predetermined exits are not optimal. A discretionary trader develops an intuitive feel on when to exit the market. A trading system does not necessarily develop that capability. Even though quite a lot of advances have been done in the field of machine learning, there still is not a satisfactory answer to this from my experience. Even if sophisticated algorithms are developed for it, the exits are still quite a big function of a trader’s acumen and capabilities. Exits are extremely important because they ultimately decide the outcome of a trade. Like they say, any fool can enter a trade, but it takes an expert to exit the trade smartly. Exit too late and you can have a gaping hole in your account. Exit too soon and you could potentially have gotten out of many good trades.
One of the trading system that I sell on this website has a mechanical exit. I have found it to be the best to my knowledge for a beginning trader. Is it perfect? No. Nothing in this business is. But it will keep you in a trade a decent amount of time to have a high average profit per trade over many trades. I sometimes exit a trade at a different price, but that is because of my experience in the markets over many years. Time to wrap up this post. So what did you learn. The lesson of this post is that you start with systematic and then graduate to discretionary. Entries and exits both. On our current open trade in Treasury Bond Futures on this blog, we are still short. The market has started to move down again, as was expected. Hold tight on your short position, we will exit this one profitably.