One of the choices that every new trader has to make is whether to be a Discretionary/Subjective trader or a Mechanical /System trader. The third stage is called Intuitive trading which is called “ZEN” State which very few traders are able to achieve.
In Today’s Article we will discuss on Discretionary Trading
The definition of discretion is the ability, the power, or the right to decide or act according to one’s judgment.Traders have to make decisions – use our judgment – to enter and to exit the market.
Discretionary trading is decision-based trading, where the trader decides which trades to make, based upon the information available at the time.
Discretionary trading involves Decision, and our Decision is highly influenced by our beliefs about ourselves and our deepest (subconscious) fears and hopes. This is why most traders repeat the same mistakes despite all the promises to do better next time, How Many time you repeated the same mistakes again ?
For a discretionary trader it’s really about how well you deal with uncertainty, what goes into your judgment process when facing the uncertainty of those probabilities in the heat of the moment.
The advantage of discretionary trading is that it is adaptive to current market conditions. You may have a great trading system but if you know that it tends to perform poorly when certain market conditions are present, then you can avoid those trades. Or if you notice your strategy has a tendency to perform very well in other conditions, you can increase your position size slightly during those times to maximize gains.
The drawback of a discretionary system is that many traders are prone to second-guessing themselves. They may actually be very poor at deciding when to trade and when not to, and therefore a more systematic approach would be better. Discretionary systems are susceptible to the psychology of the trader; being too greedy or fearful can destroy the profitability of a discretionary trading system in a hurry.You Spend countless hours on tracking and analyzing pattern and we think we are making a decision based on that stuff, but in the heat of the moment what becomes more important is the desire to be right, or the desire to not be wrong.
The skill most needed for a discretionary trader is self-awareness. Expanding self-awareness means taking what was once subconscious and making it something you are consciously aware of. Self Awareness meaning being in the moment and not getting biased with outcome of past trades.