Lets say you have 2 traders. One wants to learn to trade a discretionary style. His approach is 80% rule based but the other 20% will rely on intuition, past experience, and other intangibles that can not be programmed into a machine. Important areas of study for this guy are money management, psychology, market characteristics and reading charts. The other guy want to be 100% mechanical. He's looking to create a system (or systems) that could run 100% on its own. Things like psychology are not important to the mechanical trader. Instead his focus is on programming, backtesting, and math concepts that will help him develop a system capable of churning out results without giving any thought to what the paper projects for the tech sector. Which trader is more likely to succeed? Who will probably make more money?
How could anyone possibly answer this question...... this question can't possibly have an answer. There are too many factors. This thread will not get an answer, it will get a ton of biased opinions... that is all. Will a crackhead be better at trading than a poker player, will a moving average system be better than a volume based system. It's all opinions. Do your own thing
Sure it can. I wasn't expecting a unanimous "mechanical is better because of.." I think most experienced traders have an opinion of which side is better. I want to hear what they have to say. What are the strengths/weaknesses of trading your way vs the other.
he's right though, all this thread will have is a bunch of biased opinions, and old schoolers saying "do what works best for you". Which is pretty much all ET threads come to think of it. But, lets see what happens.
My 2 cents... In my experience as a trader, I had the opportunity to test both strategies. My first job was to work for a CTA. Although very interesting, I find it over time extremely frustrating to follow the firm models blindly, and not intervening when I "felt" I would have put another position. I had the opportunity to implement my own models, but it was a never ending process as I constantly tried to copy my own behaviour, and it was far too complex for my programming and conceptual skills. After that, I took a job offer to trade on HY bonds, with a discretionary process. Believe me it was far more stressful but incredibly rewarding personaly. Of course I know a lot of people doing really well trading systematically. Maybe it is not a real answer to your question but I learnt that one of the numerous keys to be successful in trading is to find the trading style that fits most your own personality. For me, no doubt it was discretionary trading.
Your concerns are normal for most people who get into making money in the markets. This query is often a major fork in the road for the people who actually get there I failed to be able, personally, to do either of the paths following the fork because I lack skills or I do not feel there is any value per se in one or more of the subsidiary concepts The approach that will make more money is the descretionary one. Both approaches are capable of making money at "unbelievable" levels that far exceed any family "life style" needs that can be envisioned. Measuring success seems to be difficult for most people in your shoes. For the descretionary approach you describe, I cannot do intuition and I am not able to practice money management as it is generally described. It is my understanding that anything defined, like rules, can be programmed. I view where I operate as more or less an informal place but I can describe, in very fine detail, all aspects the manner in which I operate. I call it "grooving" descriptively since it resembles doing a process in such a way that any observer can recognize that it is more or less out of the box as the normal course of events go. For the mechanical, I am incapable of doing programming but other persons have done what I do in software so I have their software and their data results from using it. No back testing was done as well since the method was devised through forward operating methods that had a level of performance that was known. What contributes to the "unbelieveable" nature of this level of mechanical performance is how it compares to the understood levels of performance as articulated by the financial industry record. Mechanical systems are, by their very nature, simple and uncomplex and they naturally gravitate to making money in "chunks" continually as a direct consequence of the continuing opportunity facing them. In general, very few people get to the fork in the road that is pragmatically travelled to get to the fork. You are such an example of a person who has not gotten there. So are most of those who have responded to you. The suggestion that most responses will be such as to just advocate for one model or another also demonstrate how people do not easily get to the consideraion of your alternatives. It is a very expensive process to avoid going down the road to this fork. Not many people get to a place where they have choices of how to become very rich. The better question set to be asking may be the set associated with how to get to the fork in the road. There are about 20 questions to consider.
Because a system's performance is fairly predictable (read, limited), it stands to reason that discretionary traders can generate higher rates of return.