The automated vs. mechanical vs. discretionary trading debate

Wow! I sense a lot of anger and frustration. A lot of negativity, there! Relax, man! we are having a chat after trading ends.
So, you have found something that works for you (algo?) and something that doesn't (discretionary?) That's great, I am happy for you and nobody said you are wrong. Chill

Hi Rafaz1, thanks.
I have no idea where we will end up (it's an experiment, remember?) but agreeing to disagree and putting forward other views is good progress I guess.

I am not going to talk about my systems here. Can you imagine what chaos that would create? Besides, as I said, I can be successful with systems that don't fit any other person's views and beliefs, so it is quite pointless. If the thread progresses in a conducive way and it would fit the purpose, I may illustrate some points with some examples taken from my stats, but that would be it. You can always ask me questions, though.

Finally, if I divulge my super secret systems, I would have to charge an enormous amount and I would become a vendor....puah!

Sorry if I made it angry. I didn't want. This is just my stats. Yours can be different and also correct. Because of observer effect
I never wanted to insist on anything and teach anyone. And even more so to make someone think that my path is the most correct.
Just may be catch some fresh ideas if I'm lucky.

Exactly. True. For example I love manual scalping XAUUSD in the middle of NY session using Laura's approach. It works only on XAU and only in the middle of NY session. And it must be not more than 4 deals. If >5 then it can be a long road. And mostly shorts.

You have been surrounded by people who want you to confirm their views rather than learn something new.
Please take it as an exercise in co-existence and choose to respond or not.
We all are having anonymous identities and so why should you get affected by other people unless you are looking for validation or following.
If you have expectations of attracting following for whatever reasons, then you have to be in a combative mood and keep sharing trade signals.
Majority of members are looking for signals . It's as simple as that.
For me, I do it for the sake of posterity and preserving my notes and chronology/chronicle of events.
I am OK even if one person gets interested in learning.
All depends on your motives. Nothing wrong in having commercial agenda but you will get traffic or not and at what cost and time is something you have to seriously think of.

@simnz
Thanks for your comment. Actually, one of the reasons that made me decide to make this experiment was also to exercise my behavioural and patience skills (not my forte) or co-existence, as you put it.

What my motives really are I am not sure, oddly enough. Not having expectations gives quite a lot of freedom and easiness.
Am I looking for validation or following? This is a really interesting question and I will think about it in the next days. So, here is another advantage of doing this: having interesting questions.
I guess that deep down the mere activity of getting in and out of markets every day, every month, every year has worn me off a bit and I am looking for something more. I always loved learning and teaching, for instance. But no, I am not really sure why I am here apart from the experience.

Another interesting question: do I have a commercial agenda? Or should I?
You are right that most people want signals, which means they do not really want to learn. I thought that my unbearably long winded posts will keep most of those away. I will repeat here, just in case, that I am not in the signal selling, super-system promotion business. Yes, it would be nice to have some commercial return from what I do apart from trading, but if selling signals is a pre-requisite, then I will not have a commercial agenda. Besides, I do not have the marketing abilities absolutely necessary to make money by selling hot air.

Well, it did not take long for this thread to become moribund. Was it something I said?

I reckon this is not exactly exciting stuff. Still, I would like to try to re-invigorate it (yes, I do not really have much of a life these days!)

I will start with an example on the importance of measurement and stats. Probably this is more indicated to more discretionary traders, semi mechanical traders and all those who do not keep a trading journal. But there is a bit for everyone, I hope.

Here is an example from one of my systems. I will use the Time of the Day (London based) stats. I have divided the stats into two periods: Sep-Dec 2020 and Jan-Feb 2021 so far and on two different trade management strategies (series 1 and series 2.) This is just an example. Before you complain: my stats are over a much longer period.


Based on the 2020 stats, there is no reason to think that the system is time of the day sensitive. There is good performance in the morning, an irrelevant dip just before the US open, and a good performance again in the afternoon.


In 2021 something has changed quite dramatically. The afternoon performance is consistent both in terms of time and strategy, but the morning one is all but gone. Only the 11-12 slot is OK- ish, but its best performance is with a different strategy than in 2020.

There are several observations we could make from this simple example:

a) If you do not have a journal, it would take you much longer to realise what’s going on where and the extent of it. I am pretty sure that in these circumstances many discretionary traders will find that their methodology (or their magic) does not work as it used to and scratch their heads.

b) Systems are blunt instruments: rules are the same for all market circumstances, but obviously some circumstances are better than others. You have to be consistent. You should not pick and choose. We said that system trading is a number game. Diversification (even across time of the day) is a usually a good solution. Imagine if, based on the 2020 stats of this example I had elected to trade this system only in the mornings, for whatever reason. I would declare that “the system is broken” and look for something else. Had I elected to trade only in the afternoons I would have a totally different perception. Still, I can’t be sure that next month it will not be the opposite.

c) It would be very tempting at this point to start fiddling with the parameters. The risk of overfitting is always around the corner, though. The more general the rules, the more consistent the stats.

d) If your system is based on ideas that you do not understand or accept, you would have big doubts by now and would be much more inclined to quit. To better illustrate this point: I discussed half-jokingly with one reader about a rule based on the correlation between the neighbour’s dog barking 5 times and the S&P rising 1%. Such system would be based on a ridiculous theory that I can’t possibly accept. Or perhaps the neighbour moved or the dog died. So, I would now be quite ready to quit the system.

e) On the other hand, if I know and accept the ideas underlying the system, I may have a better understanding of what’s going on and probably a better assessment of what (if anything) to do. This system is built on the basis of momentum and break-out. It is a well known and tested theory that resonates well with my beliefs. So, I know this system needs volatility to work well. Volatility in the European mornings have been really bad so far in 2021. I can now analyse the causes. I can decide it is just a phase and things will go back to normal in the long run. Or I can decide there is a fundamental shift in trading behaviour where European are generally sitting on the fence and wait for Americans to step in and move the markets. Perhaps I could keep trading all times, to maintain diversification, but reduce my risk based on some measure of volatility. If I were nerdy and capable enough I could try to build a systematic solution by incorporating a rule that tracks the volatility (perhaps a rolling measure of volatility, or a “volatility momentum”) and increases/decreases the trading risk accordingly. And so on.

Another observation would be: when should we actually quit a system? But this is getting too long again.

Ah, we always have the option of buying Tesla and Bitcoin and forget about all this, of course.

Sleep well.

I trade a completely mechanical method that I learned from a professional trader. It's very simple and takes a minimum of handling and trades longer term.

However what I have found is that while all this research which focusses on systems are great that is only piece of the puzzle.

It took me a long time to realize that what I should be focused on is money management, after I had a robust, working method, of course.

Ultimately all your system's trades aren't equal.

Knowing the edge of each trade and placing a portion of your equity relative to the edge on each trade is what separates slightly profitable traders from the wildly profitable traders.

Some advice. This is not a healthy place for your mind. Frequenting here will negatively affect your mindset and your trading. One idiot has already shown up, that's all there are here. Idiots.

I've sent the admins here about 5 messages asking for my membership to be revoked but nothing was ever done. If somebody could get my membership revoked that would be great.

Hi Nivad
I totally agree with you that money and risk management are vital. Too many people focus on entry alone. Glad you found your way with a system you like.

Thanks for the advice, but I am not affected in the slightest by this or any other thread. As I said, it would be nice to have a conversation among adults on our experiences and points of view with systems. If it is too adult or too boring, or too uninteresting, no worries.

Hi. Long time. Not dead yet.

Here is an example of the dilemma: totally automated – semi automated systems. Here is an edited excerpt from the analysis of one my systems for the month of February. When I talk of filters I mean additional rules on the basic system’s rules. Some of them could be automated, but not all, hence the “semi-automation” (read human intervention.)



Against the benchmark of not filtering at all, which would have given a net of fees result of -8.7R for strategy 1 and 2.2R for strategy 2, almost all filtering would have worked. In this particular instance, taking only the “purest” trades, the ones fulfilling all the requirements given by all filters taken together, would have given the best result.

In particular, look at the last line. The gross performance for the strategy 2 was basically the same (16.9R vs 17R.) So, this filtering would not have been relevant if we looked at the gross return. But we would have filtered out so many trades that the fee saving component would have contributed 9 full R!

However, not all filtering rules can be coded (in particular the "PA2" filter, which is the one that is more typically discretionary, i.e. how well we read the markets with our “superior” discretional knowledge.) So, taking all filters means trading partially discretionally, which would have required us to stare at the screens throughout the trading period following every trade.

Back to sleep

Very interesting! I can relate to a lot of what you described in your trading journey. I am currently in the process of fine tuning the discretionary side of a trading system I have been testing and developing. Like you I am not a coder and have had to manually gather data. It's is a massive drawback in terms of time but the experience gathered from staring at signals and price action has been invaluable imo. I used to only know about and trade in a discretionary manor. When I found out that I could blend discretion with a indicator/algo based system I was hooked. That being said I plan to learn how to code, mostly so I can automate my testing, and then probably automate an entire system later in my journey. Now I don't want to talk too much about my (half baked) system as this is the first I have ever attempted and would like to see it through to the end without second guessing it. I still need a bit more time to forward test it but after that I wouldn't mind going into more detail and sharing results and data.

I like the discussion on this thread a lot so far. Lets keep it going if we can! @capm

Hi guys, very interesting topic ( for me ), everyone should find own path to profitable trading, I found own too, algo trading. As capm wrote, overfitting is the biggest nightmare algo traders, you need to make many tests to decrease this factor. Important is also trading by couple strategies at the same time ( portfolio ) to split risk, and creating new strategies for future. Regards Greg

Hey ProfesorPips, do you use fully automated algos or do you make the final decisions on when to take a trade?

hi, this is fully automated algo. Regards Greg

Good post

Testing on different intervals and assets will help to increase robustness, at least for me it is enough to get away with overfittting.