What's better, systematic or discretionary?

Discussion in 'Trading' started by sle, Dec 16, 2017.

  1. sle


    The below came from another thread and caught my attention, as it contrasts discretionary and systematic approach to the markets. I have done both and was reasonably good at both. There are advantages to both approaches and disadvantages to both, in my view and it would be very interesting to discuss why you decided on a particular approach.

    Over the years I have gradually transitioned from a more discretionary approach to a more systematic one.
    - The main reason was that you can automate things and thus have a number of market positions working concurrently.
    - Also, it's nice not to waste mental energy on decisions that can be performed by an algorithm.
    - There is also a lifestyle advantage to systematic trading once you get it rolling, you can take a day off and trading does not stop
    - Last but not least, there are strategies that can only work in a systematic manner, either because of the sheer number of assets or because of the required speed

    PS.Let's not turn this into a quant or no-quant discussion, there are people doing discretionary quant trading and there are people doing systematic non-quantitive trading.
    MoneyMatthew and d08 like this.
  2. toc


    What ever makes you money.

    However, when doing discretionary you learn more about the markets and also yourself as a player in the markets.

    Systematic is of course more efficient and leaves more mental and physical energy to pursue further study of the markets.
    fordewind likes this.
  3. traider


    Hi can you compare the some performance metrics of discretionary vs systematic?
    For example, rough sharpe ratios for each?
  4. sle


    It's very hard to generalize. It's probably true that an average portfolio of systematic strategies has a higher IR simply due to bigger ability to diversify. It's probably true that a discretionary strategy usually has higher capacity. You can have an HFT guy who's Sharpe is in double digits and a trend following CTA with a Sharpe of 0.25. Same goes for discretionary guys.
    d08 likes this.
  5. d08


    You also learn about the markets when analyzing large amounts of data. Because of the quantified approach, you're not wasting time making selective observations.
    toc, Simples and MoneyMatthew like this.
  6. sle


    To be fair, as a quant you will be making selective observations too, just in a different way. For example, majority of quants do not try to assign a causal hypothesis to whatever patterns they find (in fact, most people don't even have a good prior hypothesis when going through the data).
    lcranston and Sprout like this.
  7. dealmaker


    Soros talked about his back ache when things just didn't feel right, therefore I'd say whatever suits one's personality and trading style...
    sle and themickey like this.
  8. d08


    I do it backwards as well because I'm not smart enough. First the pattern, then the causality. It's obviously not the right way to go about things but it can work.

    Using large amounts of data is also selective, I agree but it's better than looking through charts or pieces of news. I have my obsessive chart studying sessions same as most others on ET but it's not very productive at all.
  9. Systematic is easier to backtest. This is important to evaluate risk.
    MarkBrown likes this.
  10. Visaria


    You can do both, have a portion of your money done systematically and a portion done discretionary. There is no law against it afaik!
    #10     Dec 17, 2017
    speedo likes this.