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Mechanical vs. Discretionary

  • #41
  • Sep 21, 2011 1:57am Sep 21, 2011 1:57am
Quoting PrymeTyme
my point on that topic


mechanical trading systems (if A happens do B) are handrails to hold one while starting out in this buisness . well at least thats what they should be.

u have no idea whats going on and thus u want a guidiance wich u can follow along in order to stay alive and make your first steps.. but as u move along u can start to let go the handrail and try walking on your own... this may take while , and u may have createtd new handrails along the way..but as u get more and more knowledge, at some point u can leave the rails alone......
That's one way of looking at it I suppose. However, if you are using a mechanical system that (on average) netts 85 pips per day.....then where is the incentive to change?........after all.....if it ain't broke, don't fix it!
Doing what you like is Freedom. Liking what you do is Happiness.
  • #42
  • Sep 21, 2011 9:02am Sep 21, 2011 9:02am
Quoting realjumper
That's one way of looking at it I suppose. However, if you are using a mechanical system that (on average) netts 85 pips per day.....then where is the incentive to change?........after all.....if it ain't broke, don't fix it!
It's up to the trader to want to grow and adapt. There will be cases of complacency, just as there will be traders who grow and advance. In the end, if a strict rules-based (systematic/mechanical) system can help a trader advance his or her psychology grow into a discretionary system, then doesn't the concept deserve further exploration?
  • #43
  • Sep 22, 2011 12:31am Sep 22, 2011 12:31am
Quoting realjumper
That's one way of looking at it I suppose. However, if you are using a mechanical system that (on average) netts 85 pips per day.....then where is the incentive to change?........after all.....if it ain't broke, don't fix it!

Hi Jumper


no need to change a winning strategy ,even if its mechanical .. i never said u need to change your current system... but u are limiting your views on the market...

a question ... lets say a mechanical system wich is profitable runs for 3 years
and suddenly starts to break appart ... what happens then ? did u learned new skills during that period ? .. did your knowledge about the market grow ?

well if all u did during that 3 years was hitting the buy and sell button . or if u are a lil more lazy and wrote a EA wich did all the 'work' for you.. then the answer is probably .. that u didnt gathered more knowledge ..as there was no need to do so... well what ever u made money in the end .. and thats what we are here for! right? .. yea sure .. but know that system doesent work anymore .. whats next?

well several choices now..
u made enough money to retire now? congrats!
or u start to sell that system .. with an amazing 3 years track record...

or u start to develope another system wich could take alot of time to be profitable again .. and u never know how long it takes till it tanks again...

hmmm.. well what did i during this 3 years ? .. i studied the markets and gained knowledge ... and added eveything to my library .. wich keeps on growing... or better said i traded while u where enjoing other things while your EA worked for you..... i have no choice but to quarrel the markets .. as i dont have a mechanical system.. wich 'thinks' for me...

who is in a better position now?


i came to this market to master it and master trading .. beeing profitable while doing so comes while u deal with the markets....

i dont want to be a system designer but a trader...


people just have to deal with the markets.. and not trying to make something fit into it....
  • #44
  • Sep 22, 2011 3:34am Sep 22, 2011 3:34am
Mechanical systems are a pitfall, with no 'analysis' whatsoever, simply point and click or worst a blackbox EA, there is no learning.

However, a systematic approach using strict rule-based entries and exits can assist a trader get over the initial hump in the psychological learn curve. At least until their ready to accept the underlying principal 'there is no spoon'.
  • #45
  • Sep 22, 2011 4:07am Sep 22, 2011 4:07am
Quoting realjumper
That's one way of looking at it I suppose. However, if you are using a mechanical system that (on average) netts 85 pips per day.....then where is the incentive to change?........after all.....if it ain't broke, don't fix it!
Mechanical systems weren't even around in the late '90's, so my mindset isn't used to trusting them. A lot of traders, I've noticed on ff, understand well how to read and/or write entire programs, which'd make it easier.

The market is somewhat random, though even at the retail level it can be based on indicators such as news correlation, volume (unregulated) and tick spread. Understanding patterns reduces randomness' impact, so I try and begin simply, to be the most genuine to price.
Thus, the concept of rules-bound portion of systematic sounds useful, but it seems beyond me. I have to stop short of actual rules in order to stay pliable enough to adapt to partial randomness / extreme complexity that a chart may offer.

What I do now:
Define chart patterns with a dozen or so examples each,
organizd them with like kind
and get a handful to be more critical and/or working with each other far more than the others.

The psych inclusion noted in others' posts seems integrally tied, at least now for me, to having an edge one can whole-heartedly support and apply at a moment's notice, and at the same time be willing to adjust some to the ever-changing market.
  • #46
  • Sep 22, 2011 4:27am Sep 22, 2011 4:27am
Quoting ha-pattern
Mechanical systems weren't even around in the late '90's, so my mindset isn't used to trusting them. A lot of traders, I've noticed on ff, understand well how to read and/or write entire programs, which'd make it easier.

The market is somewhat random, though even at the retail level it can be based on indicators such as news correlation, volume (unregulated) and tick spread. Understanding patterns reduces randomness' impact, so I try and begin simply, to be the most genuine to price.
Thus, the concept of rules-bound portion of systematic sounds...
I would argue that you likely already employ a rules-based system, even if only to the extent that you utilize strict equity management. That said, I acknowledge a systematic approach cannot hope to encompass the intricacies found within a chart. But can it be successful over a significant period of time, long enough for a trader to develop whatever he or she needs (analysis and/or psychology)? I simply don't have the answer. To me, at least in the purview of this thread it would seem to be viable.

In the end the trader must throw off the shackle's of a purely systematic approach and embrace discretion. The question that comes to mind now, is this: Which form is more efficient? A rules-based systematic approach or a discretionary system with a core set of rules for equity management and/or trade management.
  • #47
  • Sep 23, 2011 3:13am Sep 23, 2011 3:13am
The market is an emotional creature. Trader decisions cannot be defined by fixed rules, and so price movement cannot be defined by fixed rules.
Attempting to define a market by fixed and objective rules will result in an approximation that will fail to represent reality at critical times. The human mind excels in subconscious pattern recognition, and will develop its own feel for market interaction at critical areas such as supply/demand to predict likely future price direction. The end result of trying to overlay objective rules upon market movement is mental conflict, as your subconscious analysis differs from that of your objective model.

Conflict in thought and emotion results in poor trade execution, poor trade management and sub-optimal results. The answer is not in having a better and more objective model. You need to get comfortable with subjectivity. You need to trust your intuition.

Those of you who are rule based traders will most likely resist this idea. If so, take some time to consider why. What are you afraid of? Why do you demand objectivity in rules, when you know these rules do NOT define the market price action? Like I said, the market is an emotional creature, there is little objectivity in emotion.


Quoting OmniTree
I would argue that you likely already employ a rules-based system, even if only to the extent that you utilize strict equity management. That said, I acknowledge a systematic approach cannot hope to encompass the intricacies found within a chart. But can it be successful over a significant period of time, long enough for a trader to develop whatever he or she needs (analysis and/or psychology)? I simply don't have the answer. To me, at least in the purview of this thread it would seem to be viable. Whilst rule based methods may produce some profitability with good money management, why settle for this and not increase your odds and probability for every trade by learning to read the market as it plays out?

In the end the trader must throw off the shackle's...
  • #48
  • Last Post: Edited Sep 24, 2011 3:40am Sep 23, 2011 9:23am | Edited Sep 24, 2011 3:40am
Quoting Porkpie
The end result of trying to overlay objective rules upon market movement is mental conflict, as your subconscious analysis differs from that of your objective model.

Conflict in thought and emotion results in poor trade execution, poor trade management and sub-optimal results. The answer is not in having a better and more objective model. You need to get comfortable with subjectivity. You need to trust your intuition.
Then why cannot conflict be made patterns of? And, there's the market emotion cycle, a popular rendition of emotions while trading.

It was seven years ago that I realized I intuitively understood how to trade a chart. Only, to paraphrase what you stated, one cannot trade well without a stable mindset.

There's a psychological approach called rational-emotive therapy: It's rather forceful about how to deal with reality, I've read, only its interweaving the objective and the subjective is a necessary one that varies from person to person.

For me, I've found that a great drive toward improving one's edge is to face and resolve that mental conflict, using guidelines that wiser sayings on ff, for instance, help correct the path of. It's kind of like working to objectify what your mind intuitively already knows to do.
Yes, emotional balance may go a long way; only, if I go to a job having an upsetting day, bad or good, then it's likely I could lose a trade without an objective path to follow the instructions of.

Thanks to you and the next poster for a rare insight into what's likely the majority view.
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