Discretionary Trading

Pure discretionary trading will depend solely on the traders judgement. For instance a discretionary trader may spot a specific pattern creating on a chart and determine to enter a trade on that foundation. It would be not possible to systemise their trading because it relies on subjective judgements and ‘gut’ feel.

Mechanical Trading

Pure mechanical trading entails the development of trading guidelines that cover each and every scenario, from entry to exit and place sizing. The trader is executing a predefined plan. They should however take each and every trade that the system gives them which can be tough if the trader begins to ‘think’ as well a lot!

Both sets of trader are working hard at different times and at different issues. The mechanical trader spends time creating a system and does not need to think while trading, merely executing a plan. The discretionary trader has to be pondering all the time that they are trading and can suffer from ‘information overload’.

Which is greatest?

The answer is most likely a mixture of both methods. Coming to the marketplace with a confirmed strategy rather than relying on gut instinct is far less tense and gives the trader much more self-confidence. Nevertheless the markets are always altering and 1 trading strategy will not work forever – i.e. the Turtle Traders. Methods will always need updating.

Numerous traders will use a mechanical system to generate buy and market signals but then use discretion, studying the marketplace, to try to gain much better fill costs.

All successful traders will use some type of confirmed trading strategy to begin with but the level of discretion permitted by it will vary. A trader with no plan at all will fail.

Tim Wreford runs Online Futures Trading, a web site that offers info and sources for traders. Tim also offers a totally free day trading system, the results of which are up to date every day on the website.