Hi! I'm new to ET and this is my first thread. I have no financial background, started trading part time in 2020 and haven't reached consistency yet. I was wondering how you guys decided what kind of trader you want to be? I started with a buy & hold mindset and realized after a short amount of time that I want to be a more active trader. I currently trade a trend following long intraday/swing strategy with a focus on US growth stocks. My strategy has systematic and discretionary aspects. After marking up charts and manually collecting Data, I'm now taking deep look into backtesting. The goal is to back up my discretionary trading with statistical data over time, so that I can have more conviction in my A+ setups. I'm kind of blown away with the newly discovered backtesting possibilties and systematic aspects of fully statistically backed edges. I found out that there are traders out there that fully act on a system that practically eliminates all discretionary actions. Some days I find myself fighting at the "borders" of my system and I act more discretionary, sometimes with success, sometimes not. Now I'm a bit torn apart and ask myself if I might be more successful on the systematic side of trading. Did some of you guys undergo a similar process? Did these changes lead to a different mindset in regard to trading? Were you able to fully embrace the systematic approach from the start on? Was it easier to abide your rules, did you discipline improve? I guess the most logical way to find out would be to trade a fully systematic strategy on a paper account for a few weeks and see how I do & feel. Any other suggestions? I don't know if there is already a specific thread on this topic but am looking forward to your answers!
To me discretionary trading means that I don't believe what the market is telling me so I'll ignore my plan and hope I'm right. The problem with that is when things don't work out, you are never quite sure if the problem is with the trader or the system. Back testing is fine up to a point. Make sure you use different starting points to assess your system. Use a simple benchmark like SPY to see if the system is worthwhile.
Thanks guys I will continue to work hard! That's a good point with the different starting points for the backtest, will do deaddog. Will keep you posted!
You don’t become good trader by working hard, because it can make you run towards the West looking for a sunrise. First you need to develop awareness, then once you gain awareness you can start working on eliminating self-sabotage. Systems and strategies don’t make money, but traders do. Develop a system that fits your beliefs and personality. If not, then discipline might become an issue. Your trading strategy/system must be easy to follow, or you’ll be running in circles. I think listing your beliefs about trading, is a good start, and then base your approach on your beliefs. Make sure that those beliefs are useful, and realistic. Successful rule-discretionary traders have rules, routines, and structured approach to their trading. They know exactly what to look for, they just don’t see patterns as a bunch of lines, but they factor in other relationships which can make or break the pattern. They have very systematic, structured approach, they use trade logic, they don’t shoot from the hip. They keep statistics (at least in the initial stages). Discretionary rule-based approach is superior when it comes to smooth equity, minimal drawdowns, and decent returns. However discretionary trading is not for everyone. On the other hand, fully systematic mechanical traders have very low returns and large drawdowns for extended periods. Most mechanical traders struggle when the market changes. One needs to be comfortable with all this, and many traders simply are not once they have their real money on the line. What can work well is a decision support system (part mechanical, part discretionary). You can still get decent expectancy and R/R distribution this way. Ultimately, the method must fit you. Trading is not easy profession, that’s why there are so many failed traders selling courses.
What is a discretionary rule based trader? Isn't it either/or? You have a set of rules that you follow with discipline except when you don't! Do you have data to back this up? I'm a rule based trader. I became one to reduce my drawdowns. One of my rules is not to have losing stocks in my portfolio. Hard to have large drawdowns when you don't carry losers.
There is a difference between discretionary trader with rules and without. Without rules it is called gambling not trading. Just like @mikeriley said “I love your ambition and optimism. Just be willing to stay the course if it takes a few years.”
When your rules dont account for all the information available. For example: I have a strategy that trades 1:2 reward to risk with at least a 10% gross ROIC and 10% IRR with a specific percentage of my portfolio (approx 7%). I might change the %age invested if reward to risk is vastly better. I may not engage in all the trades under the strategy for qualitative reasons. I might engage in some trades that don't fit this profile. But the rule gives me a guidance that I have to challenge and works for 80% of the trades i do. The big money however is made in the other 20%.