What Style of Trader Am I?
Discretionary trading allows the trader to make decisions about their trade based on all the information they have at the time of the decision. For example, if the market has had a strong rally and the trader gets a buy signal, he may elect not to take it feeling the market is overbought. Consistently profitable Discretionary traders still have a trading plan to follow. This can also be a system that tells them when to get into a trade, but allows them to manage the trade for exits at their own discretion. These traders usually like being in control of situations. They are not comfortable letting a machine or anybody else make their decisions for them.
System trading is based upon strict rules that cannot be overridden by the trader. Meaning that if the system issues a buy signal, the trader "must" take the trade. There is no room for human input or thinking. Another name for this style of trading is "Black Box Trading." Many hedge funds and large traders use these Black Box systems to extract money from the markets on a daily basis. Today, we can actually design our own system and have trading software such as Trade Station execute the trade, place our protective stop and profit target all without any input from the trader. Most system traders are very analytical and come from mathematic or computer programming backgrounds. System traders have no problem letting the computer make all their decisions for them. They don't have to feel like they are in control of the trade. Being a system trader also means you truly believe that trading is a probability business.
By identifying our style of trading we are comfortable with, we have a much better chance of sticking to our plan during the bad times of trading. Not committing to a style will make us prone to switching from one to the other every time our strategy has a few losses. By doing this, we are assuring we will catch most of the losing streaks and forfeit the profitable trends where we stand to make good profits. So if you find yourself switching from strategy to strategy, ask yourself if you have identified the style of trader you are. This will go a long way in helping you become a profitable trader.
As the lyric in the song goes, "We must stand for something or we will fall for anything."
Until next time,