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Mechanical or Discretionary Trading - Which is Best?
Discretionary Trading
Pure discretionary trading will rely solely on the traders
judgment. For example a discretionary trader may spot a
particular pattern developing on a chart and decide to enter a
trade on that basis. It would be impossible to systemise their
trading because it relies on subjective judgments and 'gut'
feel.
Mechanical Trading
Pure mechanical trading involves the development of trading
rules that cover every situation, from entry to exit and position
sizing. The trader is executing a predefined plan. They must
however take every trade that the system gives them which can be
difficult if the trader begins to 'think' too much!
Both sets of trader are working hard at different times and at
different things. The mechanical trader spends time developing a
system and does not need to think whilst trading, merely
executing a plan. The discretionary trader has to be thinking all
the time that they are trading and can suffer from 'information
overload'.
Which is best?
The answer is probably a combination of both approaches.
Coming to the market with a proven strategy rather than relying
on gut instinct is far less stressful and gives the trader more
confidence. However the markets are always changing and one
trading strategy will not work forever - i.e. the Turtle Traders.
Strategies will always need updating.
Many traders will use a mechanical system to generate buy and
sell signals but then use discretion, reading the market, to
attempt to gain better fill prices.
All successful traders will use some sort of proven trading
strategy to begin with but the level of discretion allowed by it
will vary. A trader with no plan at all will fail.
Tim Wreford runs Online Futures
Trading, a website that provides information and resources
for traders. Tim also provides a free
day trading system, the results of which are updated daily on
the site.
 MORE RESOURCES updated Tue. March / 21 / 2023
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