Discretionary vs Mechanical Trading

[Soultrader 12]

Thought I'de bring this topic up. This is a hard topic to brush on, similar to any religion based discussion.

 

One discussion I had recently on a different forum was the debate between discretionary trading vs mechanical systems.

 

As a pure discretionary trader, I have a hard time believing mechanical system traders can make money consistently in the long run. Yes, they can make money over the course of several years. But to me it seems like they are simply getting lucky.

 

Test a ton of indicators and you will find several that will work efficiently with each other and make money. But to me this seems like pure luck. A poor baseball player can step up to the batter box against Randy Johnson enough times that he will eventually hit a homerun. Can mechanical system traders survive 5 years down the line? 10 years? 20 years?

 

Have they really found a set of indicators that work? Or are they just getting lucky?

 

Long Term Capital Management got their heard ripped off because they believed they had created a super system based on historical market behavior. The markets change everyday. Are mechanical system traders going to be able to find the right set of indicators each year?

 

I just cant seem to understand why alot of traders flock towards systems. Disretionary is far more powerful. There is no need to spend countless hours tweaking your system. Discretionary traders are able to adjust naturally to changing market conditions. They rely on price and price only. Once you have built a solid foundation of discretionary trading, nothing can ever take that away from you. Am I wrong?

 

Any opinion/comments are welcome. I know I may be wrong but I have put in alot of time thinking about this and still believe discretionary trading to be number one.

[Reaver 10]

I agree, The market is too random to be mechanical. Anything can happen at any time. I feel alot more comfortable when I know I have made an educated and rational decision to enter or exit a trade, but that's just me. I am 100% discretionary.

[Reaver 10]

Read the first couple pages of Mind Over Markets about Jim for an excellent example of why I greatly prefer discretion.

[syswizard 10]

Systems are great because they take the emotion and "second guessing" out of the decision making. This greatly reduces the stress associated with trading. The downside is the meager performance and huge drawdowns that can occur. Just ask Ryan Jones ("The Trading Game") who embarassed himself in a trading contest a few years ago with his "pullback" system. Also, John Henry's performance past few years has been nothing short of embarassing as well.

Systems CAN work under certain circumstances like special "events" like break-outs, gaps, etc. where there are literally hundreds of trades to manage in a day. Where systems are really at a disadvantage: swing trading index futures for instance. Just one person's opinion.