Discretionary Traders…
- …trade information flow.
- …are trying to anticipate what the market will do.
- …are subjective; they read their own opinions and past experiences into the current market action.
- …trade what they want and have rules to govern their trading.
- …are usually very emotional in their trading and taking their losses personally because their opinion was wrong and their ego is hurt.
- …use many different indicators to trade at different times. Sometimes it may be macro economic indicators, chart patterns, or even macroeconomic news. Many discretionary traders are trying to game what they believe the majority of other traders will be doing based on market psychology as if it is one big poker game.. They are trying to form an opinion on what the market will do.
- … generally have a very small watch list of stocks and markets to trade based on their expertise of the markets they trade.
Systematic Traders…
- …trade price flow.
- …are participating in what the market is doing.
- …are objective. They have no opinion about the market and are following what the market is actually doing, i.e. following that trend.
- …have few but very strict and defined rules to govern their entries and exits, risk management, and position size.
- …are unemotional because when they lose it is simply that the market was not conducive to their system. They know that they will win over the long term.
- …always use the exact same technical indicators for their entries and exits. They never change them.
- …trade many markets and are trading their technical system based on prices and trends so they do not need to be an expert on the fundamentals. (more…)