In our search for the ultimate system, whether developed on our own or by another, we come across two distinct forms of systems. The first is Mechanical, where the system indicates an entry, we the trader ask no questions and enter the trades based upon the predefined rules. The second is Discretionary, where the system indicates an entry, we the trader review the results then decides whether or not to 'pull the trigger'. Two distinct methods with both mental and trade benefits.
In Mechanical systems, the trader is freed from many psychological issues associated with trading. The first and foremost being fear. In this case the trader acknowledges the capabilities of the system. Thus being able to leave fear at the door, so to speak.
However, in a Mechanical system a lot less of the trend is captured as the system needs to be loose enough to reduce whip-saws while still capturing as much trend as is possible. This results in fewer PiPs captured over the course of a given trend with the benefit of higher overall consistency, as the discretion of the trader is removed from the equation.
A Discretionary system, while providing clear guidelines allows the trader to decide whether or not to place the trade. This allows an amount of unknown and or fear into the equation. A question is now available that wasn't found within a Mechanical system. "Was I a factor in the trades success or failure?" This question if found to be negative can breed fear. A fear if left unchecked can in itself be detrimental to the trader.
However, there is a benefit to discretionary trading. A Discretionary system can be tighter fitting to the trend, allowing for a greater quantity of PiPs to be captured. This has an obvious result of larger gains with better Risk to Return ratios. But, what happens to consistency? Can consistency ever be as, well consistent, as a Mechanical system?
The above is a very simplistic explanation of Mechanical and Discretionary trading. It is my hope that veterans and beginners alike will offer insights that may help other traders discover which form their system should take.
In Mechanical systems, the trader is freed from many psychological issues associated with trading. The first and foremost being fear. In this case the trader acknowledges the capabilities of the system. Thus being able to leave fear at the door, so to speak.
However, in a Mechanical system a lot less of the trend is captured as the system needs to be loose enough to reduce whip-saws while still capturing as much trend as is possible. This results in fewer PiPs captured over the course of a given trend with the benefit of higher overall consistency, as the discretion of the trader is removed from the equation.
A Discretionary system, while providing clear guidelines allows the trader to decide whether or not to place the trade. This allows an amount of unknown and or fear into the equation. A question is now available that wasn't found within a Mechanical system. "Was I a factor in the trades success or failure?" This question if found to be negative can breed fear. A fear if left unchecked can in itself be detrimental to the trader.
However, there is a benefit to discretionary trading. A Discretionary system can be tighter fitting to the trend, allowing for a greater quantity of PiPs to be captured. This has an obvious result of larger gains with better Risk to Return ratios. But, what happens to consistency? Can consistency ever be as, well consistent, as a Mechanical system?
The above is a very simplistic explanation of Mechanical and Discretionary trading. It is my hope that veterans and beginners alike will offer insights that may help other traders discover which form their system should take.