Death of Discretionary Traders??

[rolange]

	Quote:	Dogpile
	Actually, the book isn't all that good except to make some points about how classic technical analysis might be the best way to compete in a world saturated with computer algorithms competing with each other. But past that, the point is not all that well-developed in the book. It seems to me this is a little like sitting in a poker game with a bunch of computers that are playing against each other with multi-billion dollar stacks. You have your little mini-stack and patiently wait for monster stack 1 to get out of line while going after monster stack 2. You take a little itsy bitsy piece out of stack 1 who at the same time takes a big chunk from stack 2. Because one multi-billion dollar stack is competing for some meaningful amount, they can't possibly be nimble enough or even care for that matter to try to go after your little stack -- they are after the big bucks. You can sit at the table and make a living off the scraps that are left from the 'excess' created by the bigger (higher timeframe) war going on.

I agree. Us retail traders are best imitating those those tiny feeder fish grabbing little morsels here and there.

Although I enjoyed reading the euphoric Utopian vision of Kurzweil's 'The Singularity is Near' (he reckons 2030) but it seemed to sidestep the crucial questions. Human beings and traders are very good at lieing, subtefuge, duplicity, and most of all self sabotage. How can a computer ever be taught to think like this? In nature and crativity and genius the greatest things are achieved by mutation, the variations on a theme, the variation that could never be modeled or predicted mechanistically.

Intuition is a huge part of the equation because anyone who has developed this side of themselves will know that it opens up a whole new set of questions and the immutable conclusion that we will always be one step ahead of any computer system.

[Nick1984]

Personally I think that the more automated systems that come out the better cause of all the extra liquidity in the markets they'll bring. There will always be no shortage of discretionary traders. Imagine the data vending industry and the trading platform industry and how much they will continue to improve their product to allow us to remain competitive against automated systems, cause if we all go so will their businesses! Like rolange just said above me, a computer can never learn to act exactly like a human can. How will a computer cope if there is a large market crash like in 1929? I dont think discretinary trading will die any time soon.

But in James' scenario, ok discretionary traders may become extince in these prop trading firms and in large institution like banks etc, but the end result of that will be that they'll just keep on trading privately from home anyway. If you had a system which worked and you were consistently making profits on average, why would you want to go to a firm where they will take most of the profit?

[Soultrader]

Wow. Excellent post guys. Very interesting to compare both sides and its advantages vs disadvantages.

With instutional trading, I have learned that it costs approx $1million to hire a trader. This includes, platform/system fees, data fees, etc... Therefore $3-$5million seems to be a minimum quota for insititutional traders. A prop trader mentioned that discretionary traders have the potential to make over triple of what an automated system can make. Hence the reason why major banks are still interested in hiring discretionary traders due to one big reason. Discretionary traders understand speculation and trader pyschology.

As long as there is speculation, discretionary traders will be here to stay. This is where discretionary traders have the edge. But with the increase of automated systems, there is a need for discretionary traders to keep adjusting to the markets. I feel like discretionary traders are able to paint the markets freely using their hands and a brush while automated systems can only do so with adobe photoshop.

[Nick1984]

	Quote:	Soultrader
	As long as there is speculation, discretionary traders will be here to stay. This is where discretionary traders have the edge. But with the increase of automated systems, there is a need for discretionary traders to keep adjusting to the markets. I feel like discretionary traders are able to paint the markets freely using their hands and a brush while automated systems can only do so with adobe photoshop.

This is the point exactly, specualtion. How can a computer speculate, its cant! Its actions are completely reactionary. I'm pretty sure computer systems dont start gigantic moves. Discretionary traders will always have an edge.

I like to use the analogy of car manufacturing: most car manufacturers have completely automated assembely lines and they can provide a high volume of cars for the markets. But the best cars are the ones that are still hand made! The Rolls, Aston Martins, Lambos, Elfin, Bentley etc... The hands on experience cannot compare in quality to the automated stuff. Some things computers can never do!

[Reaver]

	Quote:	ant
	A lot of excellent responses here, so I'll just add to some of the themes already mentioned. It is my opinion that to be a viable opponent in the markets, traders will have to rely on the abilities that make human beings superior to computers. We all know that the human brain cannot compete against a computer when it comes to routine, raw number-crunching, analytical, information-based tasks (i.e., purely left-brained abilities), and this applies to trading strategies that can be programmed and automated. We currently live in an information age where there is an abundance of information and incredibly fast computers. This sets the stage for efficient automation. Computers are significantly faster, they can process vast amounts of information in significantly less time than humans, they don't get tired like people do, and they don't make errors. Generally speaking, if you are an individual trader with a trading strategy that can be described in a finite number of steps, a computer will be able to trade it more easily and better than you. I agree with ItalianSharp when (s)he wrote: So in my opinion, very few automated, systems traders will be able to compete with institutions that have the best minds, deepest pockets, fastest computers, best automated trading systems; in short, the best, and most abundant, resources. So what type of trader do I think will be able to compete with the institutions? Discretionary Traders. Specifically, traders that combine the analytical, problem-solving skills found in the left hemisphere of the brain with the human abilities carried out by the right-side of the brain. These right-brain abilities include seeing relationships and integrating those relationships into the big picture, pattern recognition, focusing on context, creatively combining ideas, understanding what your competitors are doing and how they may be feeling, and looking at the markets in new and different ways. The list goes on, but these are all examples of areas where human beings excel over computers and the focus of most discretionary traders, I think. Traders that use a holistic approach, combining left and right brain abilities, will be able to continue to compete in the financial markets against institutions with vast computing resources. Anyway, this is my current belief which has shaped my trading style and methodology. Soultrader, I think you started a thread on an important topic that will be discussed heavily by many traders as time goes on. I believe it's important to consider how we plan to adapt in a world that's becoming more and more automated. Recommendation: Read "A Whole New Mind" by Daniel Pink, an easy, enlightening read that discusses this subject in more detail. Dogpile mentioned this book in one of his posts.

Outstanding post, Ant.

This is also similar to another discretionary trader I highly respect, Finley "Chick" Goslin. He is old school and has been around the block on this stuff. He says that we simply cannot compete with the institutions or funds with their virtually limitless computer systems and supply/demand information. There is simply no way, and it is borderline clinically delusional to think otherwise. There are funds that have armies of traders and analysts and researchers....you have to break the game down to something you can have an edge on.

He uses a 3/10/16 MACD (actually the SMR proprietary indicators, pretty much the same thing) and to make a long story short, breaks trading into an up or down numbers game. Using price action and momentum, he shows that it can be done., and very very well at that.

We cannot compete in an an analyzing, number-crunching contest...but we can be very competitive in a SEEING contest.

[ant]

Thanks Reaver. I also read both of Chick Goslin's books and thought they were quite good. I still use the 3/10/16 oscillator to gauge momentum, but more in the way that Linda Raschke uses it.

[Reaver]

Yeah, he has some excellent ideas, however, it seems that his method is so intuitive to him and his 30 years of trading it...that it is a little tough to grasp properly for others....there is a lot more that goes into it all than just the 3 lines for him...he's an awesome trader, but at the same time, proof that one still has to find their own way, even with a good method presented to them.

By the way, where is a good place to read up on how Linda Raschke uses the 3/10/16? Her site, or is there a better resource you know of?

[ant]

Reaver, the best place to learn about LBR's trade setups using the 3/10 oscillator is her website. My suggestion would be to subscribe to her "Basic Online" service for one month ($85) and make copies of her class transcripts (she encourages this). There are a lot of setups using the oscillator (i.e., Anti, First Cross, Intermediate Buy/Sell, divergences, Momentum High/Low, etc). There is a good article on momentum highs/lows using the oscillator here https://www.lbrgroup.com/index.asp?p...stBreak_Apr_04. Also, on her home page, take a look at the MarketVu Presentations, I believe she reviews many of her setups there. I know she also did a couple of webinars for the CBOT and the link to one of them is one her home page as well. I think she provides an excellent overview to technical analysis. I learned a lot about price action and discretionary trading from her.

Another good thing about her work is that she doesn't use a lot of technical indicators, she mostly uses the Keltner Channel, 3/10 Oscillator, and the ADX, and she emphasizes learning to read price action before using indicators. Once I learned her methodolgy, I actually stopped looked at other indicators. You'll be surprised how much time one can spend looking for the perfect indicator instead of learning to read the market. Even though I don't trade her setups anymore, I still use the principles that she teaches in my trading.

[Reaver]

Good to go, thanks for the info Ant.

[BlowFish]

When is a discretionary trader simply a 'system' trader that overrides there signals? For example I think that the LBR method and the Goslin method could be 'systematised' or put another way programmed to spit out signals. One could then choose whether to take them or not (hence exercising discretion).

Of course you could say I am only going to take a trade when the 3 crosses the 10 "by a good amount" and the volume is "high". Is it valid for a discretionary trader to leave these terms 'fuzzy'? If not these variables can be systematised. Incidentally computers can do a reasonable job at 'fuzzy' stuff.

The reason I raise this is because as a discretionary trader I am constantly asking myself :- What should be included in my trading plan, and what can be safely left out? And, how rigorously should these parameters be defined. (high,good,wide,long) Honestly I don't know the answer to this. Do you define stuff rigorously then only take the ones that 'feel right'? Is one of the failings of less successful discretionary traders the fact they don't define there setups rigorously enough?

Cheers.

Edit: oops gone of at a bit of a tangent.