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System trading. System Trading

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Based on rules you select Trades can be automated Not very adaptive Discretionary Trading Pros and Cons In discretionary trading, the trader decides which trades to make based upon the information available at the time.

A discretionary trader may and should still follow a trading plan with clearly defined trading rules, but will use their discretion in taking the trade and how it is managed. For system trading, a system trading trader might review their charts and find that all of their criteria for a long trade have been met, but decline to make the trade because the volatility for the day is too low, and thus it is highly likely the price won't reach the system trading target for the trade.

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The advantage of discretionary trading is that it is adaptive to current market conditions. You may have a great trading system but if you know that it tends to perform poorly when certain market conditions are present, then you can avoid those trades.

Or if you notice your strategy has a tendency to perform very well in other conditions, you can increase your position size slightly during those times to maximize gains. The drawback of a discretionary system is that many traders are prone to second-guessing themselves.

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They may actually be very poor at deciding when to trade and when not to, and therefore a more systematic approach would be better. Discretionary systems are susceptible to the psychology of the trader ; being too greedy or fearful can destroy the profitability of a discretionary trading system in a hurry.

And the answer is…. Systems Trading. But first… what is Systems Trading?

System Trading Pros and Cons In system trading, the decision to make a trade is based entirely upon the trading system. System trading decisions are absolute and do not offer the opportunity to decline to make a trade based on the trader's discretion. If the criteria are met, the trade is taken.

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A system trader might review their charts and find that their trading system requirements for a short trade have been met, so they will make the trade without any further decision-making process, even if their "gut" is telling them it isn't a good trade.

Once a computer program has been developed to recognize when a trading system's requirements have been met, the program can make the trade including the entry, management, and exit without any involvement of the trader.

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  6. Automated trading systems — also referred to as mechanical trading systems, algorithmic tradingautomated trading or system trading — allow traders to establish specific rules for both trade entries and exits that, once programmed, can be automatically executed via a computer.

The advantage of the system trading strategy is that it system trading not susceptible to the psychological whims of the trader. The system takes all trades, regardless of the trader's feeling. The disadvantage is that a systematic trading strategy is not very adaptive.

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Trades are always taken as long as the conditions are met, even in unfavorable conditions. To help alleviate this problem, more rules can be added to the system, although this often results in cutting out some winning trades as well.

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Finding Your Style Discretionary trading and system trading have the same goal of making money, even if they achieve it in slightly different ways. The two systems may even make many of the same trades, but each will likely be better suited to different personalities.

Discretionary trading is most compatible with traders who want to be in control of every trading decision the entry, stop lossand the exit.

What Is System Trading?

Discretionary traders often feel uncomfortable when they think about giving complete control of their trading to a computer program. Discretionary traders often have backgrounds in artistic endeavors, such as writing system trading gardening. However, discretionary trading also appeals to traders who like to be copy transactions earnings trader control in most aspects of their life.

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Discretionary trading is also for people who just want to adapt their trades to current market conditions. System trading, on the other hand, is most compatible with traders who want speed, precision, and accuracy in their trading.

The Basics

System traders have no qualms about letting a computer program make their trading decisions, and may even value the feeling of lessened responsibility that this allows.

System traders usually have logical personalities, and often have backgrounds in areas such as computer programming and mathematics.

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A Combined Approach It is possible to be a discretionary trader that uses system trading, but it is not possible to be a system trader that uses discretionary trading. For example, a discretionary trader may follow a trading system for their entries and take every trade that the system identifies, but then manage and exit their trades using their discretion. If a system trader ever deviates from their trading system even for a single tradethey have become a discretionary trader.

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