Discretionary Trading Anyone?

I illustrated in another thread of mine my diffidence towards back test, automation and the rigid "set-up and SL/TP routine".

If you trade discretionary, how do you do it? What technical criteria do you use? How do you manage position? What is your underlying belief about speculation?

-ras72

 

1. With the click of a mouse

2. Buy low sell hi

3. Open P/L

4. It's like picking money up off the ground, all you gotta do is bend over to get it :eek:

 

As the thread starter let me say:

I view speculation as a deception game. The game has technical and emotional components. The market is entirely technical.

I currently play spot FX, EURUSD only, 200:1 leverage. Flat to flat ranging from hours to many days.

I am very deep into TA and into studying price dynamics, I am marginally aware of relevant macro factors, I never act on news by themselves.

My TA gives me a bias and through my observations (more than from reading books!) I recognize a number of chart patterns and their more likely outcomes. I establish a core position with 3-6% of equity then proceed BLASHing (Buy Low And Sell High) and SHABLing, in essence I increase position on adverse impulses and reduce on favorable impulses. I never, ever, straight out close at a loss although if price runs some time against my position I may end up with too large size for comfort (say around 20% of equity or a "paper" loss of 200% the position); in which case I "roll back", I think of it as an orderly retreat, and I'll start reducing exposure at a loss, always on favorable impulses though!

I'm still fine tuning this approach but it has been going well for the past two months after some rough beginnings (oversized, undecisiveness...).

-ras72

 

For me a discretionary system is simply another word for un-tested, un-proven trading system.

In fact, without clearly pre-defined trading rules, there is no "system" to begin with, period.

 

There are basically three types of traders.

1) Automated Traders 2) Discretionary Traders 3) Intuition Traders

If its not an automated trading system from entry to exit...it's a discretionary trading system or intuition trading.

If its not a discretionary trading system (rule base but not programmable) from entry to exit...its intuition trading (no rules and/or trading without a plan).

I think most traders bounce back-n-forth between discretionary and intuition depending upon their discipline level.

P.S. I do not refer to "intuition trading" as someone with a system. Thus, I call it as it is...its just intuition trading (no system or no trading plan).

 

RAS

Let’s see if I can add any value

All jmo of course

Speculation;

Why perceive it as deception game…. Why not a concerted effort of “most” participants to make money – hence each working their unique agenda(s)

(I say most as there are some who derive satisfaction from simply trading – profit / loss be damned – now ain’t that f’d up)

Technical Criteria;

Time / volume/ price / horizontal & diagonal lines


Managing a position;

Entries are extremely important to me – they are the very foundation for low risk trades… And provide a clear exit should the trade fail soon after entering (iow trade has quickly stopped working / never worked in the first place

Next stage (of each trade) – trade should start making money pretty quickly after I enter – otherwise I exit

Next stage – trade should continue making money – soon as it stops – I exit

I consider fees and commissions negligible and a part of doing business - as are the small losers - so entering / exiting repeatedly is no biggie

=============


Setting a target – in truth I don’t.... but rather rely on my reading skill to tell me when to exit

If one is compelled to set targets – then several factors need to be included (type of day…, time of day…, larger TF support/ resistance area (as defined by volume)..., current PA behavior)


My belief of speculation;

Most everyone is out for their own best interest – me included


TA gives you bias; (from your second post)

I think this the wrong (and dangerous) mindset Sir – a trader should ALWAYS maintain a neutral bias imo

TA.., and/or whatever else a trader chooses to employ – should impart price’s bias

The trader’s job is to identify.., then exploit that bias

Keeping impartial / detached / objective / whatever - keeps one from getting wrapped around the proverbial axle

We must trade free and unencumbered - 100% of the time


HTH & makes at least a little sense

RN

 

Money only gets exchanged when a participant abandons his view and exits a position. Price moves (or is moved...) to induce such an event.

TA provides the analytical framework, a shared set of tools and rules; mkt. decisions based on other considerations cancel out or provide a trending bias. Every significant price reversal is certainly “technical” because it implies a shift in expectations which can only be accomplished if the players have a common rule set. The more net the shift, the bigger the ensuing move, the more obviously “technical” its origin. Actively manipulating price in a large enough mkt. makes use of TA, negating or generating signals for all players to see, coordinating their actions, and in this resembling a form of communication. So, differently from the naive view of TA as having predictive capabilities on a neutral market. In the end, whether one wants to unload or accumulate size one uses or creates, volume generating TA signals.
Not quite a “deception game” but the essentially manipulative nature of speculation needs to be acknowledged. A manipulation acting on emotional extremes (fear / elation) and mental confusion and fatigue (there is scope for analysis far beyond what is practical with commercial software or is accessible to an individual).

Directional trading inevitably requires a directional choice. In order to make money one needs a combination of directional calls and betting strategy. Any random direction betting strategy has zero expectancy (minus costs). Any emotional and (probably) any book literal strategy will lose or net zero.

I think it boils down to being better than most at “interpreting the story being told” or the expectation being more successfully pushed and raising the stakes when conditions are most favorable.

Discretionary trading in general is more ambitious and higher potential but also more challenging emotionally and technically, often relying on a more ample set of conditions.

I feel my discretionary approach differentiates from a classic set up and Stop / TP routine in three ways: It allows for not knowing precisely where and how rapidly direction will change in a trade-off between better position price versus potential open loss. Secondly, psychologically it dilutes entry / exit tension, and attenuates emotional response from repeated outcomes. This facilitates maintaining objectivity and requires less resources (mental and time). The approach is also highly scalable.
On the negaive side it does produce situations where the short term view is opposite to the position (and longer term view) which should rationally be dealt with by reversing, except that that is akin to moving to a different operativity...
I'm unsure regarding the expectancy balance: the approach does call for dragging losing positions and taking small losses but it also sees losing open positions turn positive...

-ras72

 

Well said Redneck!

 

I have definitions for each of my setups (context+pattern), and signals/triggers to initiate a trade.

I have two ways of entering a trade once I get a signal.

I have a max stop loss and a minimum profit target. I know in advance of placing an order if my maximum stop loss is wide enough to survive an adverse excursion that doesn't negate the validity of the setup and if there's technical "airspace" to my minimum profit target.

I have defined conditions under which a trade is to be exited for a smaller loss, a smaller profit, or break even.

The max stop loss is fixed (although slippage can increase the actual loss).

The profit target can be fixed (limit order placed in advance) or flexible, but the conditions under which I will use a flexible profit target instead of a fixed target are defined.

I'm forever grateful for the opportunities given to me through speculation in the financial markets.

 

Good post, saving the knowledge as reminder of great wisdom.