The traders who make the most money are discretionary + rule based traders.
Discretionary and gut-feel based/instinct based traders blow up someday.
Purely 100% systematic traders make money, but also must adhere to drawdown periods, so the equity curve will be jagged.
Discretionary and gut-feel based/instinct based traders blow up someday.
Purely 100% systematic traders make money, but also must adhere to drawdown periods, so the equity curve will be jagged.
The best path for someone coming into the market to trade and make good money is the following.
1. Start off as a systematic trader.
2. Collect ideas from everyone you come across. You can also reverse engineer strategies based on what popular traders on Twitter put up.
1. Start off as a systematic trader.
2. Collect ideas from everyone you come across. You can also reverse engineer strategies based on what popular traders on Twitter put up.
I once spent entire weekend decoding @bhatiamanu's initial strategies for how he took 10L to 30L and then 30L to 1C. He used leverage, he did cash buying in stocks, he was long only for most part initially, traded in stocks that were highly volatile, high beta, mostly an ORB.
I did this with his tweet screenshots from the past. With a little bit of common sense, and persistence you too can decode the strategies of most of the traders here on Twitter when they post screenshots regularly. If they don't post screenshots regularly, demand for them. 😅
As and when you get these strategies, manually backtest them for at least 10 years (one random quarter per year) to see the strategy's validity. If it shows some promise, test for full 10 years period. Otherwise move on to the next strategy, rinse and repeat this process.
3. Once you find a worthy strategy, test it thoroughly, put it through rigorous backtesting process, if someone you know knows to code, have them backtest it via code also (Python/Amibroker). Find out the parameters you must know before you trade the system.
4. Some of the parameters you must know are the system's profit factor, the maximum drawdown, the average profit, the average loss, the win ratio, total CAGR of the system, maximum points made per trade, risk adjusted return, look for skew, ignore outlier trades if any, etc.
5. Once you have these details, forward test with very small size, and then if the strategy looks credible in the real world trading including slippages, spreads, etc., also, then start scaling up and deploying capital in phases.
You do this for few years, you will have gone through tonnes of charts, so many systems, in the process of testing all these random systems you found out. In this process, you'll develop innate understanding of the market structure, structural changes that happen regularly.
Once you have this innate understanding, you will also have developed instincts to create filters in systematic/rule based trades that innately work, but can't be quantified yet. You put those instincts to good use in filtering out bad trades from your system.
This would essentially call for a certain level of discretion. But that discretion again is not 100% discretion. It's essentially your intuition developed through years of exposure to charts and trading. The discretionary-rule based traders win more, and with higher probability.
That's because they instinctively filter out low probability trades. They also identify such market patterns that appear to have low probability of succeeding. This eventually leads to a smoother equity curve. Albeit, the people who can pull this off are rare.
You can't start off a discretionary trader as a beginner and expect to be profitable or to not blow up at least in the first 2-3 years of your market experience. If you disregard this and start off with discretionary anyway, there's a higher probability you'll blow up.
The reason is that you can't depend on your instincts as a market virgin. Market will lure you with small profits initially and in a classic bait and switch manner, you'll be baited, and the amount in your account will be switched with someone with experience.
You'll end up with the experience and the person who switched it with you will end up with the money. When you have a higher probability of blowing up as a discretionary trader, anyone with common sense won't do that and go the 100% systematic way.
So, do 100% systematic for few years, gain a handle over your emotions, your execution, and your entrepreneurial nature (coz trading is a business and you gotta treat it like one). Then, and only then, should you even look at discretionary rule based trading as an option.
