Intro - New Approach

As you may have noticed from the new title, from this point forward the blog will be focused on a new discretionary trading approach I am trying.

During the 20+ years I have been trading, I have had a lot more success in mechanical/robot type systems than discretionary/human systems.  The 3 times I won trophies in the World Cup trading contest, I traded with a mechanical system.  In 2011, I tried a discretionary approach.  I failed.

Just to be clear, here is what I mean by those terms:

Mechanical/Robot System:
1) Any system where the rules have been fully defined.
2) All the trader has to do is to enter orders, or if the system is automated, just monitor that orders are placed correctly.
3) There should be NO trading decisions made with such a system.
4) Ideally, the system can be accurately tested on historical data for the last 5 to 15 years.
5) Since the trader is not making any decisions once the sytem is developed, during drawdowns he will feel helpless - since he is not in control (unless he shuts the system off).

Discretionary/Human System:
1) Any trading system where the rules are "fuzzy" - where the trader has to make entry/exits decisions to some extent.
2) This might be because the rules cannot be programmed, or because the rules evolve with time, etc.
3) Such a system may have rules or guidelines, but ultimatley the trader has to process all pertinent info and make a decision.
4) Typically, these systems can only be sufficiently tested in real time, with real money.  Emotions may play a big role in decision making.
5) Backtesting such an approach, or trading on a simulator, typically leads to overly optimistic results.


Next post:  Why in the world would a proven successful mechanical trader try a discretionary approach?