Hi,

I been doing systems on tradestation for around a year and for the last couple of weeks I been making discretionary trading on a demo in order to have more ideas for the systems, and I have been wondering:

żIs it necessary to attain consistency in discretionary trading before being able to succeed in creating systems, or atleast convenient, or do you think the success in this two types of trading are not related?

jdtrujillo1015 

żIs it necessary to attain consistency in discretionary trading before being able to succeed in creating systems, or atleast convenient, or do you think the success in this two types of trading are not related?

I don't think both are related. The required skill set for algorithmic trading is, in my experience, much more about models, theory, programming, mathematics, and statistics than discretionary trading is, which is much more about watching a few charts closely, trying to 'read' current movement, and constantly adjust one hypothesis.

Furthermore, not many algorithmic traders use technical analysis (as it is applied in discretionary trading) or might not even use a chart.

So experience with studying price charts won't probably help much (though knowledge of, or experience with, trading and market in general does help of course).

jdtrujillo1015 

Hi, I been doing systems on tradestation for around a year and for the last couple of weeks I been making discretionary trading on a demo in order to have more ideas for the systems, and I have been wondering: żIs it necessary to attain consistency in discretionary trading before being able to succeed in creating systems, or atleast convenient, or do you think the success in this two types of trading are not related?

I'm not trading live yet, but about to. I'll offer some comments from my automated system development experience over the past year...this is my opinion only, YMMV.

First if you're only trading experiences come from technical analysis then yes I believe some exposure to discretionary trading systems definitely help.

Automated technical analysis systems can work with higher time frames but they necessitate taking on higher risk so be sure you're only risking 1%-2% of your total trading funds. They also require diligently monitoring the current market conditions and adjusting accordingly. EDIT: Automated systems also require extensive backtesting and low risk live trading. This is very time consuming.

Automated scalping systems built on technical analysis are virtually impossible to be consistent. Its tempting to build one but its extremely difficult to quantify the varying details for a good entry/exit or a bad entry/exit.

Good luck!

The only thing you need to be consistent with is the method you use to place real trades.

If your algorithm is an accurate reflection of your discrentionary system, then you'd better see consistency in the discretionary method first.

On the other hand, if your algorithm is only a vague approximation of your discretionary method, then there's no point in comparing the results.

MrYou 

Automated technical analysis systems can work with higher time frames but they necessitate taking on higher risk so be sure you're only risking 1%-2% of your total trading funds.

A solid trading strategy is realistically going to look at drawdowns that are anywhere from 1/4 to 1/2 your ROI. If you're risking 1-2% then you're looking at a net profit objective of 2-8%. This is positive which of course is good. But the lower end of that is not much better than current CD or money market interest rates, which basically makes such a strategy pointless.