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Mechanical or Discretionary Trading - Which is Best?

Discretionary Trading

Pure discretionary trading will rely solely on the traders judgement. For example a discretionary trader may spot a particular pattern developing on a chart and decide to enter a trade on that basis. It would be impossible to systemise their trading because it relies on subjective judgements and 'gut' feel.

Mechanical Trading

Pure mechanical trading involves the development of trading rules that cover every situation, from entry to exit and position sizing. The trader is executing a predefined plan. They must however take every trade that the system gives them which can be difficult if the trader begins to 'think' too much!

Both sets of trader are working hard at different times and at different things. The mechanical trader spends time developing a system and does not need to think whilst trading, merely executing a plan. The discretionary trader has to be thinking all the time that they are trading and can suffer from 'information overload'.

Which is best?

The answer is probably a combination of both approaches. Coming to the market with a proven strategy rather than relying on gut instinct is far less stressful and gives the trader more confidence. However the markets are always changing and one trading strategy will not work forever - i.e. the Turtle Traders. Strategies will always need updating.

Many traders will use a mechanical system to generate buy and sell signals but then use discretion, reading the market, to attempt to gain better fill prices.

All successful traders will use some sort of proven trading strategy to begin with but the level of discretion allowed by it will vary. A trader with no plan at all will fail.

Tim Wreford runs Online Futures Trading, a website that provides information and resources for traders. Tim also provides a free day trading system, the results of which are updated daily on the site.

In The News:

Trump is a 'clown', says Iran's supreme leader in rare public address
Fri, 17 Jan 2020 09:00:00 +0000
Iran's Supreme Leader Ayatollah Ali Khamenei has said European nations including the UK "cannot be trusted" but Tehran is not against negotiating with anyone - except the US.

Will pressure on Iran spark more aggression or pull it back to talks?
Fri, 17 Jan 2020 17:58:00 +0000
In the complex and opaque politics of Iran, this week's Friday prayers in the capital Tehran was one of those moments which provides clues on the country's strength, its direction and the confidence of its leadership.

Ukraine president rejects resignation of PM caught on tape criticising him
Fri, 17 Jan 2020 15:09:00 +0000
Ukraine's prime minister offered to resign after an audio recording suggested he had criticised the president - but his offer was rejected.

Magaluf cracks down on pub crawls with new booze law
Fri, 17 Jan 2020 16:35:00 +0000
Party-goers and bars in three of Spain's top tourist hotspots could face fines of up to £510,000 after authorities introduced new laws to crack down on binge-drinking.

Ex-MMA fighter suspended as councillor over underage girl remarks
Fri, 17 Jan 2020 21:07:00 +0000
A former MMA fighter has been suspended as a Sinn Fein councillor over "beyond offensive" remarks about underage girls - a day after he was forced to apologise for comments he made about Ireland's prime minister.



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