Discretionary Trading vs Automated Trading

[Soultrader]

I have come to a conclusion... discretionary trading wins hands down. But how many traders will ever go on to master the art of discretionary trading? Just a few....

I say this because discretionary traders can constantly see warning signals and changes in the market with their own mind and vision. Therefore every setup is a different situation. Systems will never know what hit them until its too late.

[waveslider]

I agree with you, James. Discretionary trading does win hands down - in the right hands! There are so many pitfalls out there though that the successful discretionary trader is less than 5% of the trading population. We all know the drop out stats.

All mechanical trading does is try to emulate what a discretionary trader would do, but on a larger more diversified scale (one trader wouldn't be able to execute or watch the same number of signals as a computer).

This advantage I see in mechanical trading -diversification. Humans simply cannot watch many markets at once with any hope of taking into account all of the data that a computer can.

Another advantage is consistency. Humans are emotional and tend to be subjective. On the positive side they are also adaptive. The problem is, is the ability to adapt really helping or hurting?

If a computer can identify a consistent edge, it will attack that edge consistently, every day. The markets may change, and in those cases the system may lose. But if the edge is proven over time, the edge will bring profitability.

A good discretionary trader will be able to chose between a variety of methods (systems) that are appropriate for that particular time. Mechanical traders often take a shot-gun approach and apply all systems, or just train the system to stay out of the market when it is inappropriate.

What you said in your second sentence is all important : But how many traders will ever go on to master the art of discretionary trading? Very few will ever trade consistently. I consider consistent profitability in trading as mastery. The reason the majority fail is not because of the lack of a good method, it is the fact that the method is not applied consistently. Human emotions just screw it up for most of us.

So bottom line, if you are one of the few (don't kid yourself) who is able to see 100% objectively and know when emotion is affecting your judgement, then you are one of the few successful discretionary traders who will succeed. But think about it, if you are 100% objective and acting without emotion, you are pretty close to a machine yourself.

These comments may disturb some of the discretionary traders on this board. If what you are doing works for you, great! I just think that those that may be interested in the mechanical route should not be dissuaded. Being able to act with the confidence of a statistical edge behind you is an amazing thing, for sure!

ws

[enlightedtrader]

The recent volatility spike of the markets is a good testimony of discretionary trading vs automated trading. We heard numerous sad stories about hegde funds which trade primarily on computer-driven trading strategies. To name a few, Gold Sachs Global Alpha Fund is down 26% this year. On the other hand, we also heard a lot of discretionary day traders made a killing in the recent market turmoil.

For me, this huge contrast shows clearly the edge of discretionary trading over automated trading, i.e., when the market experiences high volatility and turmoil. The more chaotic the market, the more edge will discretionary trading shows over automated trading. Of course, this comparison is based on the assumption of a good discretionary trader.

I used to think that discretionary trading would be in danger with the proliferation of automated trading. Now I'm more convinced that discretionary trading can significantly outperform automated trading in the long run. As a result, I'm more determined to become a better discretionary trader.

[Thoth]

if taking the time "to do it right" and quality of programming, a human mind "can always be beat, by a computer".

humans = 0
computers = 100

[PYenner]

The computer can be good for processing data to give signals.
But the decision to act needs to come from an experienced human brain, far far more complex than software still.
One guy said it well, a human knows when it is time to head for safe harbour.
The one thing big trading programs don't like to do is stop trading, that would be like admitting defeat. But knowing when and how to get out or stay out, thats priceless.

[Reaver]

	Quote:	Thoth
	if taking the time "to do it right" and quality of programming, a human mind "can always be beat, by a computer". humans = 0 computers = 100

Negative ghostrider.

Haven't you ever seen Terminator?

[PYenner]

Last I heard, IBM had only just got to a supercomputer that could match a chess grandmaster. So I aint sweating about trading computers for a decade or so.

[syswizard]

I've been following a small hedge fund manager whose been posting his "systematic" trades on Elite Trader.com. Omigosh, he is just getting HAMMERED and whipsawed to death....he was up HUGE in short YM futures 5 weeks ago, and he held and got stopped out last week for a loss because that's what his system told him to do.

[brownsfan019]

We can beat this horse to death.

The programs are built by humans. Computers just do what they are told and cannot react to changing conditions unless told to do so.

Now, that will probably change years from now, but I hope by then I've got my bank roll together and can watch from the Bahamas. Or maybe Aruba.

[feb2865]

This is one of the most famous and well-known soap operas in the whole trading world

Stops vs. no stops

Scaling out vs. all in

Indicators vs. naked trading

the list goes on.

I have seen a lot of traders trying a lot of mechanical stuff, bot's, black boxes, ect

none has win consistenly on the markets.

But, I am willing to learn, you know, it's wise to have an open mind about everything. If anybody has some mechanical stuff that win consistenly, with average losses, 5 years in a row (a whole cycle according to experts) I am willing to take a look at it.