This thread is to follow on from the "Question on Margin Lending" thread rather than take that one off topic.
I don't want this to be a mechanical versus discretionary trading argument. I will not go there. I personally hate mechanical trading, but not silly enough to criticize it. It obviously suits some people, It obviously can work. It can obviously fail too, if the premise on which backtesting is conducted is faulty. But that doesn't take away from mechanical tradings validity.
So it is with discretionary trading.
Firstly lets define what discretionary trading is. It can be buying and selling on a whim, what's hot, gut feel whatever. If this is all it is, then Tech/a's comments could be valid. But to consider all discretionary traders to be like this is a monumental and delusional assumption.
A disc trader can be very rule based and may be much more discerning than a mech trader. I can only speak here of my own example.
Tech presumes disc trader has no numbers so obviously couldn't have done any backtesting. BS! I backtest a lot. I have 3-4 stops that I use, and I have an entry scan that I use, and here's the rub. These can (and in fact I have done) be developed into a tidy mechanical system in their own right.
So where does the discretion come in? I look at the general "type" of stock it is and decide whether to use a target, or a trailing stop, and if a trailing stop, which trailing stop.
When I enter I don't just enter because the squiggly blue line crossed the the line witrh the pleasing shade of green. No, I have to "like" the pattern based on what I have observed in the market for that type of stock (or future or whatever) But my "mechanical" entry criteria will always be satisfied...apart from those times where there is a good looking trade off supp/res.
I may learn a bit "about" the compnay; not really fundamentals, but what people think of the fundamentals, whether ther is positive sentiment etc
There will always be entry, stop, target/trailing stop, breakeven stop, whathaveyou.
No even with a Disciplined Discretionary method they have absolutely no idea whether they have a profitable method.
BS! "Profit" determines a profitable method and only profit. Tech admits that a mech system must be traded to see if it matches it's blueprint.
Well let me tell you I have a benchmark expectancy that I trade to. My spreadsheet has total expectancy and a MA of the same. If my expectany MA is not up to the benchmark and overall expectancy, I'm starting to too some self analysis...real fast.
So why don't I like mech systems, purely and simply they don't return enough for me, pure and simple. Not withstanding that mech trend following sytems have performed very well on the ASX, it must be observed that we are in a rampant bull, this is a rather extraordinary period in the Aussie market. The most cursory glance at the long term XAO will show that.
I trade full time and I want a cheque at the end of the month that never draws on capital. I am running a business. Only through discretionary trading, can I achieve that. If I had a separate job or business my point of view would probably be entirely different, and a mech system might become suitable in those circumstances.
But when we go sideways or into a bear, mech systems will struggle. Thats not such a drama for those who work. It's a drama for me. I'll be trading discretionarily in those periods, short, long, sideways and I'll outperform mech systems hands down. I'll always make a living, a good one.
I know this because I have done it. I made a living throegh the post 9/11 bear, I made a living in the US sideways market over the last year or two.
So don't tell me disc traders have no idea. It's BS, it's arrogant and it's puerile! ...and to use Ducs favourite term, it's nonsense!