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In trading, every decision matter, but none is as important than deciding which trading method to use. This decision will affect not only how you trade the markets, but also the quality of your life as a trader.

In this video, we will take an in-depth look at two of the most popular methods: discretionary and systematic. We will discover the differences and evaluate the pros and cons in several important aspects.

-Evaluating the effectiveness of trading ideas
-Managing strategies in live trading
-Risk management
-Quality of life

We are sure you will have much clearer ideas after watching the video!

Enjoy! 😊



Hello and welcome back to this brand-new video. Discretionary trader or systematic trader: what are the differences, and what is the best way for those who want to approach the world of trading?

One of the coaches at the Unger Academy here, and for those of you who have been asking yourselves these questions, today we're going to shed some light on this much-debated topic.

To do this, we'll look at what discretionary and systematic traders do in practice and compare the most important aspects of their daily operations.

Here at Unger Academy, we rely exclusively on the systematic approach, and we believe in it so much that we have developed a method, the Unger Method, which has enabled Andrea Unger to win the World Cup Trading Championships in real money trading four times, and that has helped thousands of people like you to become traders and trade the markets.

If you would like to receive a free guide with our tips on how to get started trading, please comment with the word "Systematic" below this video.

Alright, let's get started.

Discretionary & Systematic: validating trading ideas and strategies

Let's start by saying that the first goal for discretionary as well as systematic traders is to look for confirmation of their ideas.

So, we have a basic idea and want to understand whether that idea is viable and effective.

The discretionary trader looks for these confirmations on the chart. On the other hand, the systematic trader needs data and statistics to make his decisions.

So, basically, you need real rules that are clearly defined so that there is no room for the free interpretation that the discretionary trader has instead.

Let's look at what that means in a chart.

Let's take any instrument… here we have the SP 500, the U.S. stock index.

And suppose our basic idea is to enter the market with long orders at a specific time, so, let's say we want to buy at 8 a.m..

If you look at that part of the historical data, that might seem to be a good idea. We see that there is an uptrend at 8:00 a.m.

Of course, we're looking at very few sessions compared to the entire historical period that could be analyzed.

And here, the discretionary trader could, based on this idea, have confirmation that this is indeed a good starting point.

On the other hand, the systematic trader isn’t satisfied with that and wants to look analytically over the entire historical span of fifteen years or so at whether this idea could be profitable and to what extent.

So, he constructs a rule, applies it to the entire chart, and evaluates the metrics to see whether this idea is profitable.

Discretionary & Systematic: Choosing entry and exit levels

Another example I can give you is related to levels.

The discretionary trader can arbitrarily set levels on the chart and decide whether those are the correct levels for his trading operations.

On the other hand, the systematic trader has to set the rules for these levels. So he has to codify the creation of the levels in some way, and when he analyzes the data, he has to determine whether these levels have provided good results.

It’s essential to understand that drawing lines on a chart depends significantly on the hand that draws them.

So, I can decide that this is one channel and someone else can decide it's another, just because we are two different people, and we haven’t defined a rule precisely.

Whereas if I define the previous day's high as a level, as in this case, this is a fixed and clear level for any trader to consider.

Another vital aspect for any trader is to create a diversified portfolio.

Since the discretionary trader cannot use reports, because we have seen that he doesn’t create reports for each strategy, he can't study their overall behavior.

Discretionary & Systematic: Diversification

So, he may create a portfolio based on several instruments, maybe with different logics, but he will not be able to analyze them in their totality.

On the other hand, the systematic trader builds his portfolio not by putting strategies together but by combining them harmoniously.

What do I mean by that? By knowing the metrics of each strategy, the systematic trader can examine the degree of correlation and adjust the portfolio to his risk profile.

Discretionary & Systematic: Live Trading

Once we have created our portfolio, we have to manage many live strategies, and this is where the problems start because the discretionary trader has to do this manually, of course, up to the physiological limit that I think he can reach.

On the other hand, the systematic trader will use a trading platform that can handle his trading based on rules that he has previously established.

Let's take a look at what I'm talking about.

Here we are in MultiCharts, one of the most famous trading platforms in the world, and we see six windows, each with a strategy.

So, this is the classic screen of someone who should be managing six live strategies simultaneously.

For example, we see an order that has just been generated; in this case, we are inside the market with our long position.

We should be able to track with the naked eye, let's say, all of our trades and our systems, and let's imagine that this is just one of many screens we must work with.

All of this becomes even more complicated when we consider a larger number of strategies, such as a well-diversified portfolio may have, and for the duration of the opening hours of a market, such as the U.S. futures market, which remains open for trading 23 out of 24 hours.

Discretionary & Systematic: Monitoring performance

So, we can see that this becomes unmanageable. And finally, there's the problem of monitoring the performance of our strategies.

The discretionary trader picks some parameters that interest them and measures them against that metric.

Whereas the systematic trader uses software that accurately and quickly analyzes the performance of strategies and the strategy portfolio, providing valuable data to help us make trading decisions.

To give you an idea of the reports I'm talking about, here we can see the performance report of a strategy uploaded to the MultiCharts platform. Here we can see the net profit and the maximum drawdown of the strategy itself,

the equity curve, both on the long and short sides and on both sides together, and see the average trade generated by the strategy.

Then there are so many other metrics that we can analyze to support our decisions. These include, for example, annual period analysis, which tells us to the dollar the exact return on a strategy.

Then there's one more aspect we haven't discussed yet, but it's crucial for a trader.

Discretionary & Systematic: Emotions and Psychology

I'm talking about the emotional aspect that is inevitably associated with us. It’s certainly not an ally for our health, nor does it help us make decisions rationally and calmly.

There are always emotions involved in trading. As famous investor Don Hays said, emotions can be our worst enemy in trading. Regarding discretionary trading, we can say that emotions can certainly play some bad tricks.

A discretionary trader does indeed experience emotional stress daily, which is challenging to bear in the long run.

For example, excessive stress comes from constantly trading in front of a screen, or uncertainty comes from investing in a strategy without being able to test it before investing your capital in it.

And all of this sometimes leads to being afraid to make decisions and fearing the consequences.

Systematic trading doesn't wholly eliminate emotional involvement. Still, it minimizes the time we spend in front of the trading desk, allows us to do all the testing before we commit our capital, and makes us more confident in our decisions when we trade with our money.

That peace of mind is something precious.

Final thoughts

Well, in summary, we've seen today that a systematic trader and discretionary trader belong to two different worlds.

And we saw the crucial aspects and limitations of discretionary trading in the markets.

Creating simple trading strategies, testing them against historical data, and automating real-time trading in the world's financial markets are just some of the profitable and fascinating aspects of systematic trading.

As a reminder, to get the free guide with our tips on how to get started trading, write the word "Systematic" in the description below.

If anyone among you is interested in the world of systematic trading, I encourage you to click on the link in the description. From there, you can watch a video of Andrea Unger, get our best-selling book by just covering the shipping costs, or even book a free call with a member of our team.

If you liked the video, be sure to leave us a Like, subscribe to the channel, and click on the bell so you can stay up to date.

As always, thanks for your attention, and see you next time!

Need More Help? Book Your FREE Strategy Session With Our Team Today!

We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.

Andrea Unger

Andrea Unger

Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.

I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems. 

In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.

Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.

Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.