The Psychological Tragedy of Discretionary Trading
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This Might Hurt
Ok folks, this is going to be a more realistic entry with less technical discussion. Let's discuss the Psychological Tragedy of Discretionary Trading.
The way I see it, trading via discretion forces your mind into a job it was never wired for: high-speed decisions with real money riding on every single click.
Think about that for a moment. This job isn't physical, your job ends with the contact point and inputs through your hardware known as your keyboard and mouse.
One or both you might've physically destroyed if you've been trading long enough. Destroyed because of stupid mistakes like fat finger errors, 10 contracts long instead of being 1 contract short.
Believe me, I started this career as a discretionary trader, I knew the pain and psychological trauma it inflicted. I shifted to systematic trading and automation because I didn't want discretion to be the end of me. I've lost people due to the taxing nature of manually trading, and meeting or failing to meet profit targets per quarter. It's soul-crushing.
Discretionary Delusions
I learned quickly that a manual trader isn’t just reading the chart—he’s analyzing the chart while constantly questioning himself, and that second part quietly wrecks the first. You start seeing things on the chart that weren't there. You start thinking your trendlines are magical lines of God.
The support is gonna hold forever! I'm buying more! -anonymous trader
Then it doesn't hold, it tanks so hard and you were long 15 contracts! 14 beyond your comfortable limit of one. You witness the defeat of 6 months of hard work vaporized in 10 seconds due to delusions of grandeur, euphoric gambler's fallacy. A fatal flaw that plagues even the most veteran discretionary speculators.
What about this: Is this the move? Am I late? Too early? Should I wait, size up, or just sit on my hands? Every candle is its own little interrogation in this regard. As said with the delusions of grandeur, these issues and questions are detrimental to trade performance.
Personally I hated it.
I realized that I traded discretionarily for the dopamine hit, even if I lost. How did I realize this? Easy, I actually recorded my entire trading session to get a 3rd person perspective on my actions trading during Non-Farm Payrolls back in 2010. I saw something I didn't want to see, this wasn't trading, it was personally destructive theater, I just didn't see it until that moment I turned the camera on for personal analysis.
I accepted the fact that I had to change, and automation and systems trading was the hardest change of my career, but I'm grateful because if I didn't? I wouldn't be here or this blog wouldn't exist at all. Who knows.
Market Voodoo
Discretionary traders say they're “adapting,” 99.5% chance they’re justifying why they broke their own rules again. You know why? Because of a phenomenon I call "Market Voodoo". You don't know what that is?
Let me educate you.
Market Voodoo is Fibonacci Retracements anywhere, then thinking "Oh it hit 50% in this retrace, looks like a low-risk entry! I'll take it to the 1.618879345978345 extension." Right! You forgot you did that 10 times in an hour and lost all 10.
Possessed you are.
Market Voodoo is thinking you're good at manually trailing your stops. This is one of the greatest discretionary trading delusions. Little did you know your trailing stop is part of shifting liquidity. You will be the fill for a limit order to clear the order book if trades must execute. Your visible stop is your agreement to trade and execute. You're playing the game, don't get upset thinking you got stop hunted by someone. When you shift to systematic trading you learn these nuances. So now you know.
Market Voodoo is praying that a moving average will magically hold and price will bounce off it like a trampoline. Until it doesn't. Price doesn't even know the MA of any iteration of any length of any calculation exists. The market just collapses in a beautiful red bar, that has you seeing red because your stop was at 6500 and you got hit at 6200, talk about slippage. Thanks Market Voodoo!
The list goes on and on.
Systematic Shift
Now let's shift to Systematic Trading. As stated in previous logs, profitability is not guaranteed. As a rookie shifting to this universe, you will find it difficult to let go of discretion completely. I was there 17 years ago. Back when NinjaTrader only had version 7 and Trading Technologies didn't even have TT cloud or ADL but was called X_Trader. I ended up coding emotion in my early programs, as if the past wanted to haunt me.
It was an uphill battle, it's like climbing Mount Everest, you don't take an elevator to the summit. I faced 2 choices, capital destruction and stay as the 95% statistic that lost, or learn to find inherent edges to abstract away human issues via undertaking algorithmic trading.
The inherent edges you will have guaranteed versus a discretionary trader are: inherently more emotional detachment (though not 100% detached), execution speed of 500x faster than a human, an uptime of 99% or higher based on your infrastructure setup, no fatigue(the code doesn't get tired), no more trading from home or your mobile device, no charts required (they become optional), and a broader market perspective versus being clustered with those limited to certain strategies for certain times e.g. US open breakouts, 123 setups and all those low level edgeless strats(strategies).
The code negotiates with the market in logical terms, statistical, latency and efficiency. Not via emotion.
The question is are you in for the dopamine hit or are you willing to set foundational edges that are not available to those who trade discretionally?
This is The Psychological Tragedy of Discretionary Trading.
You learn to take advantage of human intuition along with machine speed.
Trade well.
In closing
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~Asymmetric_Vol