I am a systematic discretionary trader. If I had to make an estimate of how much is systematic and how much is discretion, I would go for 70/30. Maybe even 80/20. But those 20% make all the difference.
While my system is very straight forward and based on classic price action principles, I could never translate it into an algorithm. It simply wouldn’t work. Believe me, very talented coders have tried, including myself. While certain principles can be taken from it and used as filters in fully automated trading strategies, what makes my system so profitable and adaptable to different market environments is my brain, the best trading algorithm on earth and probably the universe.
So, how can you start listening, trusting and acting on your gut feeling, which is so important for systematic discretionary traders? It takes a lot of effort and screentime. Here are 3 little but powerful helpers.
Backtesting. Experience translates into instinct or gut feeling. Backtesting gives you tons, literally years of experience in a short amount of time. This gives you confidence and trains your spidey senses. If everything looks great about a trade but something just doesn’t feel right, get your ass out of there.
Journaling. Again, journaling translates into experience and confidence that what you are doing works. What helped me immensely was to set up a custom stat in Edgewonk which tracks two things: one, the grade of the trade on a scale from 1 to 5, and my gut feeling on a scale from 1 to 5. Then, whenever there is a discrepancy, check out how the trade would have worked out. This will do wonders. For me, if both the technical level and my gut feeling tell me it’s a 5 (best level), I make by far the most money. One, because my gut instinct was trained over the years, and two, I trust the trade more and make much less trade management mistakes. I feel comfortable. You will also learn whether you can trust your gut or whether it needs more training.
Extract as much value as you can from talking to yourself. You can record this on video, or audio, or write down your feelings before, during, and after a trade. Then compare your emotions to the actual outcome of the trade. How reliable is your gut? I can tell you, it is much more reliable BEFORE entering a trade than after entering it. I listen a lot to my gut before entering a trade. After, I have to force it to shut up and stick to my rules. The last objective moment is before entering a trade – that is true for both your consciousness and subconscious!
I have just revealed to you one of the biggest secrets of my trading performance, which is tracking gut feeling versus trade quality. This is one of the most reliable indicators I have in my trading. If everything about a trade looks great, but I just don’t like it, I stay out, and my data tells me this saves me money!
On the other hand, if a trade entry is more discretionary / does not tick all the boxes it should, but my gut tells me there is great reward to be had, I get in by bending the rules. This is something I don’t recommend if you are new to trading with your system. Master it first, then you can do some fancy plays.
Also, very important to note is that your subconscious is very susceptible to stress. If outside stressors are messing with your mindset, you will go completely out of sync with the markets and lose your superpower. At least, I do. During these days or weeks, I just don’t trade. Additionally, if the markets didn’t present a good trade opportunity for a while, you might become more and more willing to play “deaf” and override your instinct. Don’t. It will only cost you money and make you very angry because you KNEW it wasn’t a good trade. This will tilt me the most.
When is the best time to listen to your instinct? Just before you get into a trade. For example, you see a trade that ticks all the boxes. You haven’t been in the market for a while because it only presented mediocre setups. You can feel the pressure building. Then, that setup…before you click buy or sell, stop. Wait for 10 seconds. How do you feel about the trade? If you don’t feel good about it, don’t take it. Period. Wait for a trade to come around that you absolutely love.
Guess, which saying in trading I absolutely do NOT agree with? Yeah. “The hardest trades are the most profitable ones”, or some crap like that. Bullshit! The easiest trades are the most profitable ones. When we love a trade, we are much less prone to making mistakes. Fewer mistakes translate directly to more money. Easy trades are easy money. You should not even be in a hard trade. Ever.
When I filter for technical grade 5 and gut feeling 5 trades in my journal, the equity curve becomes a missile to mars without a return ticket. It’s my personal ATM, printing money 24/7. I call these trades pocket rockets, as no-limit poker players like to call their starting hand of Aces. Of course, I also take trades with less than optimal conditions, simply because I am human and because they still make money. Just not as reliably and consistently as my pocket rockets. I also bet more money on pocket rockets. A lot more.
So, train your instinct. This is why you are a systematic DISCRETIONARY trader. If you want to be a systematic trader, learn to code and stop trading manually! That would make much more sense. I also have quite a few fully automated strategies running, as I enjoy the process of creating and discovering new strategies, so it is absolutely possible to be both a systematic discretionary and fully automated systematic trader at the same time. A hybrid, so to speak. The best of both worlds. And double the fun.
Start training your instinct today. Your trading account will thank you. Also, this is another argument to stop system hopping. You will never cultivate a reliable gut feeling if you haven’t traded a system over a few hundred or thousand trades. Be consistent if you want consistent results.