Systems or Discretionary Trading?

Many traders are taught to believe that building a mechanized set of rules is a trading panacea. Not so. Trading systems are great if you see yourself running public money and you want to build a track record that way. But if you just want to trade your own account, I’d suggest saving your money for the time being.

Here are a few ideas to think about as you develop your arsenal of trading knowledge.

1) The rules that Dennis and Eckhardt taught the turtles had a great deal of discretion built into them despite what you might have been led to believe. Traders are emotional, human beings first, and those powers can hijack a trader’s efforts. It did for 2 of the turtles.

Having a mechanized set of rules will not allay your fears or sense of greed, nor will it remove the emotion from trading. In some cases, it amplifies them.

2) To trade with discretion, you can look at a chart, detect the trend, and use a spreadsheet to create position sizing, entries, and exits. You can also use some of the commercially available simulators if you really want to get into it. But spend your money wisely. I would wait until you start trading an account that’s north of $100,000.

3) Just because you have an expensive simulator will not guarantee phenomenal trading results. You still have to follow the rules and you might find yourself overriding the rules. You will tend to jack up the system with 45 indicators — what I call emotional band-aids — to set up the “perfect trade” because you are afraid to lose money. Don’t put yourself through this. It’s not worth it.

It’s very hard to follow mechanized trading rules if your account is under-funded. I’m sorry to say that, but if you’re under-funded, save more money and build up a bigger account. Trading with an under-funded account is brutal.

4) More than 50% of the training the turtles were to have received was on the emotional and psychological aspects of trading. Even if you have a set of rules, and even with Dennis and Eckhardt as you mentors, the rules are STILL hard to follow.

Lastly, if you are under-funded, I would strongly recommend that you do not fall into day trading forex or the e-mini S&P, for example, because you’re afraid to take risk home overnight. You’ll never let the market do the work that it’s capable of doing for you. You’ll end up frustrated and will have done a great deal of work, for very little return.

Please note: I reserve the right to delete comments that are offensive or off-topic.