Discretionary Trading vs Automated Trading

[torero]

Believe or not, soul, I've seen some code in the TS forum and has been shown by other traders using internals to signal and time their trades. Nothing is impossible that cannot be done in code. Just a matter of how skillful or skilless the coder is. Check around the forum and you can find some nice nuggets to get your ideas going.

[Soultrader]

Very interesting. I do not come from a comp, engineering background and I have absolutely zero knowledge when it comes to coding. I find Easy Language extremely hard.

How would one go about learning coding? Is this something that will take years to become skilled at? Is learning Easy Language enough? Thanks

[walterw]

Well... systems is like Formula 1 races... if its raining you need certain types of tires if not other types... thats also true with systems... you design a system for a market climate... if you are good analist you even design an alternative system for a diferent climate.... the big problem comes in discerning wich climate are we having and wich sistem should be implemented... thats where discretionary traders have an edge... they do know and feel the climate in order to adapt to it... systems dont discern market conditions.... some naive traders put conditions to their systems to filter market climate ,believe me there is no rule , no specific hours, no nothing to market conditions... market can go wild on lunch hour as it can get sleepy on the first 30 minutes before a news... or be wild without news , there is no parameters as to market climate, only a seasoned trader in front of his screen can tell you the market conditions an wich of his alternative techniches can be applied in that conditions...

[Anna-Maria]

Very pertinent points Walter. I agree, unless the trader or fund can bankroll their automated system with deep pockets, the drawdowns will freak most folks out.

As you say, the ever changing climate dilutes the vast majority of these programmed systems, well certainly in the FX environment anyway.

Obviously, there are well capitalized firms (excl the large corporates) & individuals out there who can & do run successful forays into the automated streams - but they're few & far between. For the average market participant, total automation is a tricky prospect.

[torero]

I got a bachelors in international marketing. Just nights studying to become a webmaster when webmasters belonged in the marketing department. From there it went on. It took a few months of reading, doing tutorials etc. Matter of time, just like how one would start on trading I guess. I got to know EL with a tutorial and manual in no time.

Again the less variables and rules the system is the more robust it is. That means with different conditions, it manages to survive and thrive in it because there are little rules to thrive in one and die in another. So, in truth, the good strategy doesn't have to be so sophisticated or difficult to code. Know the market and code should come pretty well placed.

[torero]

Most system traders (successful ones) admit no system will last forever. Hence there is always continuing search for the new systems. Even robust ones need tweaking, revisions, etc from time to time. Same as discretionary traders, they need tweaking (bullish to bearish mindset etc) as new conditions arise. This also explains why these systems for sale out there don't make money. Either too many people trading it making the market absorbing the strategy into failed ones or just don't last long enough when changing conditions become evident.

[Soultrader]

Thanks for the comments Walter, Texxas, and Torero. Some very interesting points. Im very new to this system world... which is why I am still very skeptical with trading systems. I have been taught by discretionary traders only and seeing how successful they are, I always believed discretionary traders make the best traders.

Very good point on the funding part Texxas. Deep pockets is definitely a consideration especially with some of the drawdowns I keep hearing with system based traders. One of the biggest concern I have as a discretionary trader is that more and more traders are creating systems and being automated. Will the edge of a pure discretionary trader ever fade away? The market needs to be full of emotion for traders like myself to survive.... without emotions, I wouldnt know what to exploit. (of course I dont believe this will ever happen but could affect price movement?)

[Anna-Maria]

On the subject of "mechanical trading systems" & the pro's-con's etc:

One of the guys in our office zapped this missive across to me late last night.

I won't reveal the blog/trader, it's immaterial - however, it raises the complexities of this type of trading when the template/mechanics are not built & managed within a solid psychological and/or physical framework.

I think the (abridged) commentary say's it all:-


Firstly to report, results which are rather shitty, and second to suspend / close the blog, possibly forever. Reasons to follow.

First of all lets talk turkey about the results.

The month was terrible - in fact the worst that we have experienced in the 14 months trading it, however not the worst on record from our tests.

We suffered this month a 48% drawdown. We suffered this drawdown at a point when i was supposed to be enjoying a holiday in New York - it was 30% when I left the UK and 45% when i got back. Needless to say due to things beyond my control, much of my holiday was totally spoilt.

The month of December ended up at -45% on the account - from £100,502 down to £55,000 The system still works and is within parameters but the money management, which at the end of the day is the bit that creates the severity of drawdown, was at fault and has since been rectified.

We were running the account at 100% efficiency - which meant that at a max drawdown there would just be enough in the account to sustain it. what i didnt take into account was the psychological pressure of actually getting close to reaching this level and seeing the account decimated.

Even after five years of trading, the market can still humble you, and this drawdown certainly has. So if you are reading this and you're a trader - dont ever think you have this thing licked.

To this point, i hope that you've enjoyed the journey and it's with sadness that I am to close this blog.

There are a few reasons for my decision, some of which I cannot talk about at the moment, however the main one is that because of the blog I am getting emotionally involved when the system has a losing month. The fact that it's in a drawdown at the end of a month shouldnt matter because it peaks and troughs no matter what the date is - the fact it's at the end of the month is immaterial.

Getting emotionally involved in the trading of a mechanical system is not good - you start to analyse every facet of the trades and it can drive you nuts.

[torero]

I totally agree. Trading mechanical doesn't really take away the fact that you still can pull the plug or manipulate it during the trades, etc. This intervention is what makes the system worst and not stay with the performance as expected.

As I said before, my system were built on money management first. They must fit my trading style and tolerance level. All the systems I've put it on trading has then 20% maximum drawdown. So I know I'll pull the plug on it when it reaches there. It's a benchmark point where the system will have stopped working.

Most people don't understand that systems can handle drawdowns on its own, it's the owners or traders who trade them that can't handle them. This is the other reason why renting them can be an emotional panic when you don't know in full details what the system is capable of doing and not doing. I always judge the systems' soundness by seeing if any money management is in place, then see if it's within my emotional tolerance.

I learned this very quickly after deciding to go mechanical with the original belief that no more emotions will be involved. Nothing can be further from the truth.

[momentom]

The biggest issue in mechanical systems for me is EXECUTION. Slippage is an enormous problem as is the system getting out of sync with the actual fills.

My systems trade about 20 times a day.