Home > Uncategorized > Discretionary Trading Vs Mechanical Trading

Discretionary Trading Vs Mechanical Trading

This is something I’ve obviously struggled with in my career as a trader.  I first entered this path believing that I would be analyzing the markets and  picking tops and bottoms and profiting handsomely.  I quickly got my head handed to me.  I then did research and developed my mechanical approach.  Although not perfect, I have enough research to show if I take it blindly, I can be profitable.  I’ve decided to list out some of the pros and cons of these styles of trading.  First the pros of discretionary:

  1. So much more fun.  There is nothing comparable to analyzing the mkts looking for buy and sell pts.  There is nothing more exhilarating than nailing a perfect trade you called yourself.
  2. Not everyday is going to fit my particular mechanical strategy.  By using discretion, I can turn the system on or off
  3. I know there are pure mechanical traders out there, but have to believe this is where the great pros are making their living.

Now the cons:

  1. I’ve only been profitable trading my mechanical system.  This was not just a blip either.  It was a 5 month stretch of consistent profits.
  2. Mechanical Trading can be extremely boring.  When only watching 1 mechanical system on a 5 min chart, signals don’t come often.  Also, could teach a monkey to execute the system, so not much fun in the actual execution either.
  3. Can be psychologically draining.  When not adding discretion, although it will most be likely profitable for any given 12 month stretch, my system can lose money for 4-5 weeks straight.

I definitely believe I have to ask myself “Why am I doing this, for fun or to make a living?”  Although, the mechanical approach seems clearly profitable for me, I also believe you do have to take into acct the human element.  Maybe executing a system a monkey could do is not my idea fun.  Maybe I can’t execute a system that I would lose 4-5 weeks in row on.

If I do conclude I can’t take the mechanical approach, then what?  I’m obviously not profitable doing that.  Can I really figure out a way to merge the two worlds?  Can I figure out a way to only take the “winners” and skip all the “losers”?  All things to be considered if I’m really going to try to support a family on this.

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