Brian,
I think the primary difference is that mechanical traders can analyse their
results quantitatively. They can communicate their actions in scientific terms
to others who can duplicate their success.
Descretionary traders make decisions that are based on personal knowledge
and circumstances, perhaps using many factors unknown to themselves. Like which
journal they read the night before. Very few descretionary traders will be able
to communicate (teach) their techniques to others others in any way that
garanteees comparable success. For a novice traders to try and mimic their
techniques witout having similar backgrounds merits caution.
This doesn't mean I have no respect for descretionary traders, they may very
well do much better than mechanical traders. This is not an issue of who is
better. Its just that descretionay trading techniques are virtually impossible
to define in any scientific manner.
herman
Wednesday, August 20, 2008, 7:00:04 AM, you wrote:
> Re one of your original questions, "Does one
lead to the other?"
> Yes, in my experience it does.
> This year I found myself reading the headline news at
the finance
> page, and experimenting with systems based around
'event' trading,
> when two years ago I said I would never do that.
> Fortunately for me I readily concede to the first
signs of spring and
> because of my interest in the Psychological aspects
of trading I can
> come to terms with my actions quite easily.
> IMO the terms (DT and MT) are quite arbitrary and
merely a matter of
> semantics - no such creatures exist!
> It is quite incorrect to assume that TraderA is a
discretionary
> trader and therefore 'intuitive, creative, visionary,
has superior
> insight, knows what the market will do, is
passionate' etc AND that
> TraderB is 'logical, objective, a superior thinker,
is limited to
> mechanicality, is cool and calculating, relies on
computers to
> analyse market behaviour' etc.
> Those who are successfully competing in the the 'race
for trading
> gold' have both faculties going for them in well
above average
> quantities.
> Similarly it is incorrect to assume that Chart
Traders are all DT's -
> they can just as easily be using rules/logic etc via
their charts as
> via a BT or anywhere else e.g. formulas linked to
studies that are
> placed on the chart.
> In fact I was speculating, privately, the other day
as to how a
> person of my typology ( a confessed 'upside down
man') could be
> relatively comfortable in the virtual company
of
> programmers/mathematicians etc and I came to the
following conclusion:
> a) the abstract mind is the bridge to the
sub-conscious mind
> (individually and collectively)
> b) the superconscious mind resides in the
sub-concious, beneath the
> dark elements (shadow) of the sub-conscious
("don't pay the Ferryman
> til you get to the other side")
> c) I am interacting with the sub-conscious via the
abstract mind and
> using the language of symbology
> c) mathematicians and programmers are adept with
their abstract
> minds - mathematics and programming are abstract
languages so at that
> level we are peers althouh we are traversing
different paths
> (parallel paths never cross but we can look over and
chat to each
> other across the divide).
> Bilbo - thanks for the post - I am waiting for
Purebytes to read your
> attachment.
> Tomasz - I thought your posts in this thread were
statesmanlike -
> thankyou (it is a threadlike tightrope we walk but
exhilirating when
> we can stay on it).
> A couple of colourful vignettes I left out of my
first post:
> (1) two years from now a trader backtesting data will
come across a
> handful of volatile trades in Fanny, Freddy and
friends.
> All they will see is the numbers.
> They won't see the context - political connections,
Fed intervention,
> national interest, lots of red on the books etc
unless they really go
> out of their way (not many do that, from the
backtesting environment).
> Will that make any difference to their trading?
> Are they better or worse off, if they possess the
contextual
> information as well as the numerical?
> (2) if the stockmarket Gods appeared at the foot of
your bed one
> morning and announced that "It has been decreed
that henceforth no
> investor trader will be allowed to own more than one
trading software
> package AND no software package can contain both
charting and
> backtesting/optimisation features - they can only
have one or the
> other".
> (when you go to your broker platform you don't see
any charts - only
> the bid and ask so all trading decisions need to be
made in your
> software package first)
> Which one would you choose?
> Are you are Discretionary Trader OR a Mechanical
Trader?
> brian_z
> --- In amibroker@xxxxxxxxxxxxxxx, "sidhartha70" <sidhartha70@xxx>
> wrote:
>> Bill,
>> Not holding back. Was just waiting for the 'chart
features' side of
>> this discussion to come to a conclusion.
>> Well, as I stated in my original post, my
intention was to learn
> from
>> others experiences. For the record, these are
mine...
>> I was trading large portfolio's for various
investment banks.
>> Essentially european equity long short portfolios
based around
> various
>> statistical arbitrage ideas. Ironically the
journey into trading my
>> own money has, of course I suppose, made me a
much better trader. I
>> was doing monthly walk forward optimizations back
in the late 90's
> and
>> onwards. My experience of purley 'mechanical
trading' (to use the
>> correct term as the other Bill pointed out) was
that I could
>> consistently achieve 30% net returns in rigorous
out of sample
>> backtesting. However, whenever I came to trade
these
> ideas/portfolios
>> live my return was basically halved, volatility
of returns always
>> slightly higher than in backtest. Now, not
wanting to take the
>> discussion in the direction of 'why' that
happened (all this stuff
> is
>> well documented by others), I wanted to take the
discussion into the
>> form of 'what did I learn from where I was at as
a trader at that
>> point, with the benefit of hindsight'...
>> And I think what I learned was this... I often
used 'mechanical
>> trading' and the 'hunt for a system' as a kind of
security blanket,
> or
>> excuse you might say, for not becoming 'a better
trader'. The
>> psychological appeal of 'mechanical trading' is
obvious. Becoming a
>> 'better trader' is clearly a very general term
and what I mean by it
>> are the following... 1. knowing myself better as
a trader, my
>> weaknesses, strengths, emotional biases in
decision making, Mark
>> Douglas et al etc..etc.. 2. Understanding what
happens 'under the
>> hood' of the market place. Understanding the
auction process in
>> intimate detail, and how price is a conduit to
seek value, and how
>> market structure develops out of that process. 3.
Through genuine
>> experience learning to understand the context of
the information I
>> recieved from the marketplace. Any knowledge I
had, any 'rules' I
> had
>> formulated should always be valued by the conext
surrounding them.
>> Something I think that can only come from
experience I believe.
>> I guess we are talking about a type of 'fuzzy
logic' here Bill. That
>> 'fuzzy logic' could be seen as a weakness, but
it's my view that for
>> the best discretionary traders, it is exactly
this ability to use
>> fuzzy logic that is one of their great strengths.
>> Maybe my experience of 'mechanical trading' was
quite specific...
> when
>> you trading such large portfolios it really is
impossible to use
> that
>> process as a means to 'get under the hood' of the
market - you get
>> information overload basically from so many
trades. If you are
> trading
>> one or two instruments I can see that there is
perhaps an associated
>> learning process from that focus.
>> There seem to be some really excellent
'mechanical traders' on this
>> forum, but I also get a sense that there are
quite a few smart guys,
>> perhaps with not much market knowledge, with
strong engineering or
>> software backgrounds, who are spending vast human
resources in the
>> attempt to 'find a system' when they really
should be trying to
>> understand the market at a much deeper level. Of course,
all the
> best
>> 'systems' are born out of market knowledge...
>> Just my 2c worth...
>> --- In amibroker@xxxxxxxxxxxxxxx, "brian_z111" <brian_z111@> wrote:
>> >
>> > Sidhartha,
>> >
>> > Perhaps we can learn a bit more if we do
some dissection:
>> >
>> > > Over recent years I have migrated away
from rule based trading
> back
>> > >to
>> > > discretionary, and find myself
developing some quite strong
> opinions
>> > > about rule based trading
>> >
>> > So far you haven't posted any strong
arguments against 'rule
> based
>> > trading' .... are you holding back?
>> >
>> >
>> > More importantly.....
>> >
>> > my mini dictionary defines discretionary as
"freedom to decide
>> > something" but so far not one
discretionary trader has given us a
>> > PRECISE example of a trading decision that
they make freely .....
>> > free of what? ... if you are using an indicator,
as a visual cue,
> and
>> > making a decision based on that visual
input, is that a 'freedom
> of
>> > choice' decision OR did you just use the
human computer (brain)
> to
>> > run a few lines of 'code'...... perhaps a
level of consciousness
> that
>> > is present in the subconcsious mind (that is
to say that most of
> us
>> > are not consciously aware of OR can interact
with) can manage
> fuzzy
>> > logic, or similar, with ease ... dare I say
even super-
> rationality?
>> >
>> > ~(left side - right side)~
>> >
>> > Mark Douglas claims to experience a
"transcendental state of
>> > consciousness where he is at one with the
market and KNOWS what
> it is
>> > going to do" (my paraphrasing) ......
if any one in the forum can
> do
>> > that then I might consider that to be the
ultimate in
> discretionary
>> > trading (no point in explaining it in too
much detail if no one
> is
>> > actually doing it).
>> >
>> > brian_z
>> >
>> >
>> >
>> > --- In amibroker@xxxxxxxxxxxxxxx, "sidhartha70" <sidhartha70@>
>> > wrote:
>> > >
>> > > Thought I'd try and start a discussion
on this very important
>> > topic...
>> > >
>> > > Over the years I seem to have come full
circle... back in 1994
>> > > starting as a largely discretionary
trader, I moved into 'rule
>> > based'
>> > > systems while working for Merrill Lynch
back in 1997. I spent
> about
>> > 7
>> > > years trading various types of rule
based system. All
> variations on
>> > > statistical arbitrage themes.
>> > >
>> > > Over recent years I have migrated away
from rule based trading
> back
>> > to
>> > > discretionary, and find myself
developing some quite strong
> opinions
>> > > about rule based trading (opinions
which I happy to have
>> > changed!!!).
>> > >
>> > > One thing that strikes me about this
forum is the focus on 'rule
>> > > based' trading and backtesting/optimization
of systems. Perhaps
> this
>> > > relates to the grounding of the
product. I have been an owner of
>> > > AmiBroker for about 5 months now I
guess... and it seems to me
> it's
>> > > strengths lie in backtesting &
optimization (if only I had a
> product
>> > > like this back in 1997 my life would
have been an absolute joy).
>> > > However, it's weaknesses seem to lie in
it's charting (as has
> been
>> > > commented on a couple of reviews on
Elite Trader) and
> particualrly
>> > the
>> > > openness & adaptability of it's
charting framework.
>> > >
>> > > Anyway, I'd love to start an open
discussion on 'rule based'
> versus
>> > > 'discretionary'... Pros, cons,
differences, potential returns
> from
>> > > each route, does one route lead to the
other etc..etc...
>> > >
>> > > I'm very much wanting to learn from
opening this subject up.
>> > >
>> >
> ------------------------------------
> Please note that this group is for discussion between
users only.
> To get support from AmiBroker please send an e-mail
directly to
> SUPPORT {at} amibroker.com
> For NEW RELEASE ANNOUNCEMENTS and other news always
check DEVLOG:
> http://www.amibroker.com/devlog/
> For other support material please check also:
> http://www.amibroker.com/support.html
> Yahoo! Groups Links
> <*> To visit your group on the web, go to:
> http://groups.yahoo.com/group/amibroker/
> <*> Your email settings:
> Individual Email | Traditional
> <*> To change settings online go to:
> http://groups.yahoo.com/group/amibroker/join
> (Yahoo! ID required)
> <*> To change settings via email:
> mailto:amibroker-digest@xxxxxxxxxxxxxxx
> mailto:amibroker-fullfeatured@xxxxxxxxxxxxxxx
> <*> To unsubscribe from this group, send an
email to:
> amibroker-unsubscribe@xxxxxxxxxxxxxxx
> <*> Your use of Yahoo! Groups is subject to:
> http://docs.yahoo.com/info/terms/