For me, discretionary trading is more about adjusting trade strategy to market condition and market behavior, not necessarily "overriding" trade signals that can be programmed and automated. I believe that one can program many, if not all, of LBR's trade setups if taken in isolation, but that won't lead to profitable trading - she admits that. Her trade setups basically identify market tendencies that can provide an edge under the right market conditions. So what are the "right" market conditions? That's one area where I prefer to use discretion. Sure, I can use stuff like indicators to describe patterns and market conditions to a computer so that it can determine what type of trades to take, but that description is usually too rigid, IMO. Our brain processes so much information and goes through so many steps to accomplish simple things that we usually take it for granted until we have to teach someone something or describe it to a computer in the form of an algorithm. Our right-brain abilities, such as pattern recognition and synthesizing information, is very awkward for a computer to accomplish accurately and efficiently, yet we can often perform those tasks quite proficiently if we know what we are looking for. I believe that pattern recognition is a key skill that expert traders possess. So generally speaking, that leads me to believe that discretionary trading is the "better" path to achieve expert trader status, if one is to get there (just my opinion). I also believe that it would be impossible right now to get computers to "think" the way human beings think and draw conclusions. Although I believe in keeping it simple, I do acknowledge that the market is a complex entity that cannot be mastered without market understanding or by getting "green light/red light trade signals" from a computer. As Einstein said, "Make everything as simple as possible, but not simpler." I think that many trade strategies being used are "too simple" for a changing, fluid market. Wow, a lot of opinions, views and ramblings here, but I've written this much so I think I'll continue.
Understanding price action and market behavior - how auction markets work - through Market Profile is one component of my trading methodology. This is the component that makes my trading discretionary. In short, my trading has been heavily influenced primarily by LBR, Wyckoff, and the books
Mind over Markets and
Markets in Profile. Below are some examples of factors that I consider during my routine nightly preparation and during the trading day. For me, these factors lead to market understanding (which is whatever I can glean from the markets given my limited trading experience) which helps me determine trade strategy, trade location, risk, stops, targets, etc. It also helps me determine how aggressive I should be in the markets. There is a lot of subjective stuff here, but I think I structure it in a systematic fashion. Anyway, here are examples of stuff I look at for my trading.
- context, such as what is currently driving the market and what are the long-term, intermediate-term and short-term market conditions
- long-term, intermediate-term and short-term support/resistance levels
- was a market rally driven by short covering or long liquidation and is new buying/selling coming into the market
- bracket and balance area extremes
- areas where price is rejected and accepted
- where do traders have resting stop orders
- how are traders feeling about their open positions
- where are traders' setups likely to trigger
- market correlation (especially between the ES and YM)
- pattern recognition in price action and Market Profile shape
- market volatility
- volume analysis
- market internals
By trading using a discretionary style, I hope I can pick up on market nuances that will provide an edge in my trading. I believe that learning to pick up on these nuances, which comes through extensive experience, will lead to becoming an expert trader, which is my aspiration.
Folks, I know many of you will disagree with my views, but please note that no offense was intended nor was this post directed towards anyone. I am simply presenting my perspective as a developing trader.
P.S. Blowfish, and you thought you went off on a tangent.