I believe that one can apply good trading principles without having an explicit system and be successful as a discretionary trader. Some of the best traders I know are discretionary traders, this is especially true of day traders or swing traders. Discretionary trading is more fun and can be more gratifying if you have the right personality.
Many people believe that only a human brain can make money and that discretionary trading is vastly superior to systematic trading. Others believe that discretionary trading is inferior and that only system trading works. I hold none of these dogmatic beliefs.
I believe that all successful traders are systematic but that some have internalized the rules they use so that they are able to perform without having to explicitly refer to rules. They may not even be aware of all the rules they use.
Good system traders would learn quite a bit from reading the blogs of discretionary traders. There are many ideas contained in these blogs that can be used to build systems which make money.
I also believe that discretionary traders can learn a lot by building systems and testing out trading ideas in the context of those systems for scientific validation. I have found that many ideas I held as truth did not stand up to the rigor of testing. I’m sure that many discretionary traders find the same when they test their ideas using simulation software.
When I have sat down with discretionary traders, I often find that after a few hours of questions and answers I can get them to describe to me concepts which they did not believe could be tested in such a way that I was able to create a specific trading algorithm that embodied those concepts. This process has always been instructive for both of us.
So I encourage all of you who believe that only your religion is the one true faith to try to learn from the dark side. I am sure that you will find, as I have, that both approaches have their merit and can be the basis of a successful trading career, and that success using either approach comes down to the same core principles: trade with an edge, manage risk, be consistent, keep it simple.
Discretionary vs System Trading
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