Quoting aparsaiDislikedLet me define a couple of phrases before moving forward. These are my relatively new perception of these phrases. Please correct me if I'm mistaken:
Mechanical Trading: You have a system in place and you are always committed to trade based on that system. So if there is a trade opportunity based on that system you enter the market immediately. You exit the market only if the system tells you to do so.
Discretional Trading: You may or may not use a trading system but even if you use a trading system you may enter or exit the market at your own discretion. For example if you enter the market and it moves against you even if the system tells you not to exit, you do exit to avoid further losses.
The altimate mechanical system is the one that is handled by your computer rather than you so you won't interfere with the system decisions.
I hear from many people that "discretional trading" might be useful in short term but in long term it is the mechanical trader who wins. However, discretional trades argue that market is a dynamic entity and no system can last forever. That's why you need your own discretion to decide what to do.
Based on all those arguments I was thinking what if we could have a flexible mechanical trading system in place. In my opinion such system uses sophisticated trading tools to recognize points of entry and exit for each trade and applies money management tools to maximize profit and limit losses. It's somewhat similar to discretion trading in a sense but the flexibility is an inheritance of the system rather than the decision of the user of the system.
By accepting this idea you can actually develop an automated mechanical system than envisions the market movements but when it enters the market it decides what to do if the price moves either in its direction or against it. It won't replicate the human mind for sure but on the other hand the element of human feelings is eliminated.
What are your ideas?Ignored
1. "You may or may not use a trading system but even if you use a trading system you may enter or exit the market at your own discretion. "
Absolutely among the most dangerous thing a trader can do regardless if new or seasoned. The market is a never ending atmosphere where there are no boundries. It is uncertain/unique at any momment where anything can happen. If one cannot control the market, one has to control oneself. Defining risk parameters is the first step to accept trading. With out a trading system, one cannot see the opportunities market present itself nor does one have a way to tip the probabilities that are essential to consistent results.
Entering an exiting the market at your own discretion free of emotional burden regardless the outcome is the way to go. If your post implies the trader exit the market because of emotional burden, then you are mistaken. When you are in a trade, you have to be objectively focused, clear, yet flexible. If you enter a trade full of emotions, market may tell you viable information that your mind simply blocks out because it is a natural defense mechanism to shield from emotional pain. This is terrible as every piece of information regardless if it's in your favor or not has to be taken account into.
Take a casino for example, they do not know every single variable nor do they care, but they have a system (game rules) that tips the scale in their favor over many samples that gives them a consistent profit.
Secondly, entering at your own descretion implies that you have expectations of the trade. WRONG. When you expect something, it implies you have a grasp of the future, and this concept is naturally absurd. The only way this concept has validity is that if you knew every single market participant's thoughts, their size positions, accurate flow of events, and intentions seconds, minutes, hours from the time you enter your trade. This is impossible but again, it's unnecessary.
"For example if you enter the market and it moves against you even if the system tells you not to exit, you do exit to avoid further losses."
again, very contradictory. Though it is good that the trader exit the trade when he realised that the odds of success are so low that the profit is not worth any additonal money to test out the trade. All this is from an objective, emotional free point of view.
2. "I hear from many people that "discretional trading" might be useful in short term but in long term it is the mechanical trader who wins. However, discretional trades argue that market is a dynamic entity and no system can last forever. That's why you need your own discretion to decide what to do."
the mechanical trader achieves consistency. That, to me, is winning. The market is very dynamic and one has to constantly adapt. This type of discretion is more long term projection than in the time frame of a trade. No system can last forever, but strategy should be at the very bottom of your fundamentals as a trader. Risk management, money management, the basic principles of trading all come first before strategies. Strategies come and go.
3. "Based on all those arguments I was thinking what if we could have a flexible mechanical trading system in place. In my opinion such system uses sophisticated trading tools to recognize points of entry and exit for each trade and applies money management tools to maximize profit and limit losses. It's somewhat similar to discretion trading in a sense but the flexibility is an inheritance of the system rather than the decision of the user of the system."
this is somewhat on target. As a trader, one has to be rigid enough to follow the rules (conditions one define to trade--their "strategy", their perception of an edge that tips the scale in their favor over many trades)
but also flexible enough in their expectations (one can only expect that once the trade is on, SOMETHING is going to happen, not necessarily what you EXPECT, two VERY different concepts). Once you expect something to happen, it will have emotional damage. A true trader is very mechanical, sees what the market is telling them in an objective, clear manner free of emotional clutter.
4. "By accepting this idea you can actually develop an automated mechanical system than envisions the market movements but when it enters the market it decides what to do if the price moves either in its direction or against it. It won't replicate the human mind for sure but on the other hand the element of human feelings is eliminated."
again, your post has two elements, a human trader vs. a machine. To the successful and true trader, there is no difference. To the novice trader, the machine will by far produce more consistent results than the beginner trader as the beginnger trader has not realised the concepts above and trade from an emotional standpoint.
mechanical trading is THE option for consistent gains over time.
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