Alright, so what are the best ways to operate in the markets? Or better yet, if I, as someone who knows absolutely nothing about the subject, wanted to learn how to trade, what should I do? What steps should I take?
Well, let me tell you right away that there are two main ways to approach trading: discretionary trading and systematic trading.
Discretionary trading is, in a way, the dream of many, because based on one’s mood, choices, or feelings, one can trade. You sit down, you watch, maybe you do some chart analysis, and you decide to act as you wish, without precise, pre-established rules. There may be some guidelines, but no strict rules. There’s flexibility in what you’re doing.
Systematic trading, on the other hand, involves building a detailed and verified plan, I’ll explain how in a moment, to execute your trades.
Let’s start with discretionary trading. The beauty of discretionary trading is that it gives you the sensation of being in control of what you’re doing. It’s just you and the market, you and your feelings, you and your decisions. You have the immediate ability to intervene in the markets based on your own decisions.
And that feels good. It’s satisfying because you feel in charge of your actions. The downside is that if you’re talented, if you have a natural gift like Messi, just to give an example, that’s great. But if you’re like any other average soccer player and you don’t have that genius, that creative spark, whether it’s handling a ball for the soccer player, or understanding market behavior for the trader, then this freedom quickly turns into a kind of slavery. You become a slave to the situation, at the mercy of events.
And while that can lead to losses, which unfortunately does happen, it also brings tremendous frustration, because you realize that you’re not able to do what you wish you could do.
This sets off a vicious cycle of negative emotions. And even if, by chance, things go well, and I’m not trying to jinx anyone here, I’m just being realistic, even if you have some positive outcomes, you risk becoming overconfident the next time. You’ll never truly know if you’re really talented and can consistently succeed, or if you just got lucky that one time. And then, when you increase your risk, you might get hit hard.
So discretionary trading: yes, it offers freedom from one point of view, but on the other hand, it brings major challenges and a great deal of decision-making stress. Of course, there’s always some level of stress in everything in life, we all know that. But here it’s just you and the markets, and you often have to make decisions on the spot, which can become quite a heavy burden.
The systematic approach, on the other hand, allows you to pre-set everything in advance, in a way. What do you do? You get your hands on historical data, files with all the information for a specific market, and you study those data to develop strategies. I’ll go into more detail about that a bit later. Based on your study, if the strategies you’ve developed look promising, you then decide to operate according to the rules you’ve defined for those strategies.
Once you’re trading, you actually have free time. Not before. Before you need to study and develop the strategies, but afterward, once everything is live in the market, you’re free. You no longer need to sit there in front of the computer. Before, you had to be in front of the screen; now, you don’t.
You set everything up in the system, and it runs on its own, fully automated. You don’t have the stomachache of having to make decisions in the moment, you know? And that’s a huge advantage. Plus, you can even create a sort of numerical plan, to know exactly what you’re aiming to do. And that’s another big advantage.
Everything needs to be pre-set ahead of time, even in terms of infrastructure, meaning the tools you’ll use to trade this way. For discretionary trading, all you need is a trading platform and your own brain. But with systematic trading, you need additional software to run the tests I mentioned, data to feed those tests, and then the software needed to automate the actual trading operations.
But let me tell you: many years ago, when I first got started, I believed in systems. And when I realized that it was even possible to automate everything, to have it run completely on its own without me having to place orders manually, it felt like a godsend. So, I got started…
I still remember Strategy Runner, the platform I had read about back then, I believe it no longer exists. But I was fascinated by it. And a lot of time has passed since, but I knew right away that this was the right direction for me. Partly because, as an engineer, I have a sort of methodical, systematic mindset when it comes to doing things.
But be careful, you don’t need a degree for this. Not at all. Anybody, anybody who has a scientific mindset, meaning simply an organized way of approaching things, can do this.
Why? Because all you need to do is put everything in order: decide how to enter the market, where to enter, with how much capital, and how to exit. Once you’ve done all that, along with all the necessary tests to confirm that the system works, you’re good to go. And at that point, you no longer have to make any decisions.
So, I already gave it awa, I chose systematic trading. But let me be clear: I’ve always said that the best discretionary trader in the world will always outperform the best systematic trader. I’m absolutely convinced of that.
However, to become that best discretionary trader, you need a kind of talent that, in my opinion, only one person in a million possesses.
To become the best systematic trader what you need is work, dedication, the willingness to put in the effort, and the ability to stay organized. So even someone who doesn’t have that natural gift can still succeed.
That’s why, in my view, if someone wants to become a trader, they should absolutely choose the systematic path. Now, I’m not saying that everyone who chooses this path will succeed, that would be silly., because as with anything, some people will do well, and others won’t.
But the chances you have when you choose one path over the other are definitely in favor of systematic trading.
So why do so many people choose discretionary trading instead? Well, we have the statistics on how many people lose money…. Well, that’s because, as I said earlier, it’s much easier to get started, and there’s something in all of us, myself included, this tendency to think we’re better than everyone else.
It’s a bit like the driver syndrome. Every single one of us believe we’re better drivers than other people. Let’s not deny it, come on, you’ve thought it too, haven’t you?
The same applies here. You always think, “Yeah, but I’ve got this. I’ll figure it out.” And maybe you will, I hope so, but unfortunately, most of the time, that’s not how it goes.
So on one hand, you would have to discover this hidden talent inside you, which most people probably don’t have. On the other hand, you can gather a body of knowledge and put it to work and build something for yourself. It’s a bit like earning a university degree.
You don’t get a degree in physics because you’re some prodigy. No, you study hard, you dedicate yourself, and eventually you get there. You do learn the things you need to learn. And you don’t go playing the role of a physicist at home without having done any of that. It’s exactly the same here.
So let’s not compare this to getting a physics degree. That would be an insult to physics degrees! But it helps illustrate the point: gather the knowledge, get organized, and build your path toward personal success.
Anyway, that’s it for today! If you want to learn more about discretionary and systematic trading, just leave a comment with the word TRADING and we’ll send you our Complete Beginner’s Trading Guide in PDF format for free! In it, you’ll find everything you need to know to get started in trading on the right foot!
See you in the next episode of this mini-course!
