'Discretion' in discretionary trading

Discussion in 'Strategy Development' started by bearmountain, Sep 12, 2010.

  1. I am new to discretionary trading and need some help in understanding the role of "discretion" in discretionary trading. some other words that come to mind are judgment, intuition, subjective analysis.

    I like to take the other side of the argument, and say that the more I look into discretionary trading, it appears when traders say they used their discretion to make a trading decision, that it is nothing more than a rule they are not consciously aware of? or is there more to it?

    Most successful discretionary traders say trading is boring. Assuming they are using a set of written rules. So this mean good discretionary trading is nothing more than 100% mechanical trading that good discretionary traders do unconsiously.

    Discretionary traders use words like conflence, context. Which to me is nothing more than a long series of if-then-else programming statements.

    Or is there more to it? Is there a secret sauce that good descretionary traders use to make trading decisions? Thank, just trying to learn.
  2. Experience is the foundation for sound discretionary decisions.
  3. well, basically I am searching for the secert sauce in successful discretionary trading. So you are suggesting that experience is one important ingredient.

    What if an experienced trader sat down, and over a period of time codefied all of his experience, came up with a set of rules.
    So what a good discretionary trader is chalking up to experience is nothing more than a set of rules he is unconscious off?

    so my premise is: successful discretionary trading is 100% mechanical trading, but the trader is not aware of the rules.
  4. ammo


    its like driving a car,you can see the stop sign ahead, the pedestrian, the kid on the bike,very rarely does some one jump out in front of you, if you see kids playing ball,you are extra alert it might come onto the road......,in trading all those markers are trendlines, fibs, market profile points,news releases.....know where these are and trade around them
  5. jinxu


    The problem with mechanical systems is that it's trying to linearize a market that is dynamic. I would have to constantly modify the codes as the market environment changes. There's too many if and what ifs statements to make it consistently profitable over the long term.

    I don't think it's possible to create a pure mechanical system, but it's possible to create a profitable one as long as you know when to use it and not to use it. However, that's discretionary and kind of defeats the purpose of building one in the first place. Not to mention the time spent coding.
  6. Right, so that can be made into a rule, if you see kids playing ball be extra careful...

    what is the secert sauce in successful discretionary decision making?

    Malcolm Gladwell wrote a facinating book Blink about rapid congnition. But I don't know how to apply that to trading.

  7. ammo


    look at any chart ,draw the trendlines,at these junctures,supp or resistance ,the market will reverse or break thru,.... on this dow chrt, the 3 arrows show the tops used to draw the line,.....i looked for this line after seeing the eur/usd chart closing under a major trendline,.....the if/.or here is we push higher to the 10,520 area or we turn here,.....the eur/usd will help u make the call,....the oex and the djtransports are hitting the equivalent of that dow 10520 already,....these facts are using trendlines only,.... now add in fibs and market profile points and you get more confirmations of major resistance,.... a monthly or weekly tl offers greater position size(previous shorts or longs presumably still in the market) at each price than a daily or 30 minute....,so they deserve more respect..... pick 2-6 indexes...,watch them closely as if you were monitoring the guages running a plant,..... learn how they work together,react,.....this is all just common sense,...do your homework,... find out where all these points are and then trade with respect to their relevance...you can do all this paper trading....when trading real money, this above mentioned stuff should already be 2nd nature...now trade small til you have gained confidence in your ability to get out when your wrong....if you became adept at the 1st part, knowing when wrong should be obvious...develop that skill and start to slowly increase your size... etc...
  8. This is an old subject that has been answered already in the 1980s: expert systems. Be aware, since you are not familiar with the subject, that not all rules used in life can be translated into a language. Actually, the concept requires that all thought and experience can be transalated into some language L that has strict relevance over a world W. This presupposes a knowledge of what is relevant a priori, and the notion is circular and as such not primitive. As a result, in the absence of a logical system with strict relevance that can model all of thought and experience, what you described is nonsense. Successful discretionary traders use more than rules and experience. They use emotion control, instinct and possible, I say possible, some ability to see into the horizon of the immediate future, a concept accepted by both physical theories and the philosophy of Phenomenology.

    There is much more into it.
  9. damn, I didn't think I would get a response like this here in ET.
    I am all ears if you like to elaborate further.

    1. Emotion Control
    2. Instinct
    3. see into the horizon of immediate future.

    I find the above very difficult to do in real time trading. My two strong emotions of fear and greed seem to create havoc with my discretionary decision making.

    I will look further into emotion control.


    What I have been able to do quite well, is to use visualization for effective problem solving, but do it offline.
  10. heech


    Can you write a program to systematically "select" music likely to become a hit? Can it perform at the level of a Grammy winning music producer?
    #10     Sep 12, 2010