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The Discretionary Trader’s Dilemma & Automated Trading’s Solution

The Discretionary Trader’s Dilemma & Automated Trading’s Solution

Tyler Yell, CMT, Currency Strategist


“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

-Charles Darwin

There are often too many factors converging in the market for our mind to trade effectively and objectively, trading automation may provide a way around this problem.

Talking Points:

*Discretionary trading has the challenge to be objective when your money is on the line

*It’s tough to be objective when the pros disagree

*It can often be helpful to turn to auto trading based on a methodology you trust

* Mirror Trading is a no-fee option to shop auto trading systems

Trading by its nature involves extreme multi-tasking around the clock under the stress of potential financial gain or loss. The human mind often has difficulty successfully multi-tasking in a way that allows progress to be made in the task at hand. When trading, the task at hand is taking real time information via price as well as news coming off the wires that can affect your trades’ outcome. All the while professional traders can be on opposite sides of the trade.

If you don’t feel like you have the tools to trade like a professional, we’ve created a FREE certificate course here to help you understand the key concepts we believe a professional trader should know, whether they use automated trading or not.

Learn Forex: Discretionary Trading Is Built upon Discerning Which Signals you’ll Trust

(Created from FXCM Marketscope 2.0)

The Discretionary Trader’s Dilemma

Therefore, traders who are entering or exiting trades by their own discretion have multiple problems they must face. First, you must decide which indicators of price action will warrant the majority of your attention. Second, you must continually decide whether the indicators that you focus on are a fair predictor of likely price action to see if it’s giving you the pay-off that you seek in trading.

After you’ve decided which trading indicator of the thousands will take up your coveted mind space and you can confirm through your own testing that the indicators that you follow are still the best indicator of likely price action, you are then faced with the next step which is the toughest hill to climb for many traders.

The third stage of discretionary trade development is to develop the trading skillset so that you can think and act in a manner congruent with your trading goals. This means having the ability to focus only on the signals that meet your criteria and execute them in an optimal manner.

It’s tough to be objective when even the pros disagree

Often, new traders will look to the well connected to get a feel for what direction or position they should trade. However, a short search may find you disagreeing with professionals. This is usually because these professionals themselves have different indicators they are looking at to tell them whether or not the current trades is a buy, sell, or hold.

Regardless of who you follow, if any one at all, you should have a handful of indicators you trust. These indicators should help you determine whether markets are ranging or trending and whether you are near a relatively low risk entry on the trade you’re considering.

Auto trading is helpful to those who find discretionary trading overwhelming

Traders or investors who have not yet built up the skill set to trade effectively are often between a rock and a hard place. On one hand, they know that trading affords them the ability to reach their financial goals faster than other means they have been considering. On the other hand, discretionary trading has proven tough which has discouraged them.

While not a panacea, automated or black box trading can be a nice solution but there are things you need to keep in mind. First, you need to know and trust how the automated trading system that you’re considering to trade for you places trades. If you know and like the way the automated trading system triggers trades then a necessary checkpoint has been achieved. DailyFX likes to focus on price action break outs and trader sentiment.

Learn Forex: From DFX Article 3 Ways to Use Black Box Automated Trading Systems in Forex

(Created from FXCM Mirror Trader)

Second, and likely more important, is that you need to know how the auto trading system has performed historically. While no system or person will win 100% of the trades it is important for you to know how a system handles the trades that perform well vs. the ones that do not. The best auto trading system in the world is likely doomed to fail if it refuses to take a loss or equally bad holds onto a loss until a major chunk of prior gains are lost.

Mirror Trading is a no-fee option to shop auto trading systems

While by no means your only option, FXCM does have a platform at your disposal that can allow you to shop and view back tested data from multiple auto trading systems. You can choose from third party systems that allow you to view how they place trades and how they’ve historically performed. Alternatively, you can choose to automate the DailyFX PLUS Trading Signals from the Mirror Trading platform. Either way, make sure you like and trust the system’s triggers and money management method if you’re looking to automate

---Written by Tyler Yell, Trading Instructor

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.