I wanted to open up a discussion on Mechanical vs Discretionary trading because quite frankly, I believe that they are the same thing. A literal definition would render this discussion useless, however I first want to make the distinction between the only relevant subcategories of each (Profitable and unprofitable). My theory is that the reason 95% of us fail is that we focus way to much on the differences of the two approaches, which only exist when they are unprofitable ways of trading. It is in the similarities between the two approaches that I believe the holy grail truly exists. I have seen so many EA's come and go, all with promising results, however, everybody who actually seems to turn a profit with them has their own unique way of trading it. Rules or systems are constantly adjusted and those who don't end up suffering many walk forward losses. Then there are those discretionary traders, who do the exact same thing, only setting their own logical formulas in their head, x event = y outcome unless z occurs which in turn cause C & D to happen. They become so rigid in their thinking that the 1st abberation in market behavior has them wondering what logic had they missed, like EA's looking for more and more filters to produce 99% winning trades. These are the similarities in ways of trading that lose money. Instead of looking for a good deal, it seems like we are always looking to steal a little from the market. My only advice to that is become a salesman and take a piece, it will probably make you more money.
Then there are the similarities. Discretionary as well as mechanical traders have rules that they follow. This is actually very simple. Rules are comparable to inspections of real estate. There is a checklist you have to go through in order to even contemplate the purchase. Outside of this checklist are the current market conditions. In real estate, this can be tricky. First there is the overall picture which is relatively easy to investigate. However, short term strategies in real estate may be very tricky unless you know the locale inside out, who is buying, who is selling, what are the near term plans. I live near Newark NJ where real estate has been flying. If I didn't know half of this town, I would be petrified to invest in it. Not to mention, any outsider who trys to sell to me is going to get the shaft. Therfore, anyone looking for a short term startegy in my town be wary. Trading is the exact same way. Real estate is very forgiving long term, and so is trading.
Where does this forgiveness end? overleverage. This exists in real estate as well. 100's of billions in ARMS are coming due this year. People that put 0% down and got very low interest rate for 5 years are now going to have to pay double or more. Somebodys going to lose once all of these properties hit the market.
Trading is an investment property, you should put in at least a 20% down payment and get a loan for the rest based on your credit. Now if you are paying 8%/year in interest and you can turn over 20% or even higher(on the full contract value) basically doubling your money - you are golden. The good thing of trading is that the transaction costs and turnover time are much less and in our case, there isn't any interest charge on the loan. so pay yourself the interest and reinvest your 10-20%. You will be a millionaire in no time. The problem exists in how we look at trading.
Discretionary and mechanical traders that are profitable are diligent hard working balls to the wall individuals. They know their territory and they look to forsee any risks, weather planned or unplanned. Buy the time they buy, they are allready in the money - if they are stuck in a bad situation, guess who they pawn that lemon of a house onto. Finding a good deal is only one part of the investment - what you do with it is ultimately what decides your fate as a trader. Drown in your money until you have something grand to do with it. Remember, real estate is forgiving only because a mortgage allows you to weather the storm. Negative equity is allowed. In trading you can be right, but negative equity takes you out of the game, so treat leverage very seriously. Remember, you are the bank and must control your risk exposure. I have completely veered of. If anyone has any input on the similarities between these two types of trading, please, let's learn from them - and develop a proper frame of mind for profitable trading.
Then there are the similarities. Discretionary as well as mechanical traders have rules that they follow. This is actually very simple. Rules are comparable to inspections of real estate. There is a checklist you have to go through in order to even contemplate the purchase. Outside of this checklist are the current market conditions. In real estate, this can be tricky. First there is the overall picture which is relatively easy to investigate. However, short term strategies in real estate may be very tricky unless you know the locale inside out, who is buying, who is selling, what are the near term plans. I live near Newark NJ where real estate has been flying. If I didn't know half of this town, I would be petrified to invest in it. Not to mention, any outsider who trys to sell to me is going to get the shaft. Therfore, anyone looking for a short term startegy in my town be wary. Trading is the exact same way. Real estate is very forgiving long term, and so is trading.
Where does this forgiveness end? overleverage. This exists in real estate as well. 100's of billions in ARMS are coming due this year. People that put 0% down and got very low interest rate for 5 years are now going to have to pay double or more. Somebodys going to lose once all of these properties hit the market.
Trading is an investment property, you should put in at least a 20% down payment and get a loan for the rest based on your credit. Now if you are paying 8%/year in interest and you can turn over 20% or even higher(on the full contract value) basically doubling your money - you are golden. The good thing of trading is that the transaction costs and turnover time are much less and in our case, there isn't any interest charge on the loan. so pay yourself the interest and reinvest your 10-20%. You will be a millionaire in no time. The problem exists in how we look at trading.
Discretionary and mechanical traders that are profitable are diligent hard working balls to the wall individuals. They know their territory and they look to forsee any risks, weather planned or unplanned. Buy the time they buy, they are allready in the money - if they are stuck in a bad situation, guess who they pawn that lemon of a house onto. Finding a good deal is only one part of the investment - what you do with it is ultimately what decides your fate as a trader. Drown in your money until you have something grand to do with it. Remember, real estate is forgiving only because a mortgage allows you to weather the storm. Negative equity is allowed. In trading you can be right, but negative equity takes you out of the game, so treat leverage very seriously. Remember, you are the bank and must control your risk exposure. I have completely veered of. If anyone has any input on the similarities between these two types of trading, please, let's learn from them - and develop a proper frame of mind for profitable trading.