So much talk about AI (artificial intelligence) and robots taking over trading from humans, who are mainly discretionary traders, we at FintekNews thought it might be a good time to explore the differences. Algorithmic trading (Algo's) has been around for a long time but now that 'robots' using advanced algo's are increasingly taking over more and more trading/investment decisions it might be time to read about the differences in the "human touch". Being a BIG discretionary trading fan/advocate I highly recommend this as a great insight to what is very topical.
(Bill Taylor/CEO)
"If you are a discretionary trader, you might have asked these questions before...
- What is the future of algorithmic trading?
- Should I switch from discretionary to algorithmic trading practice?
- Is algorithmic trading taking over the financial markets?
- Who will win this war between man and machine?
In order to answer these questions, we first need to know what makes these practices stand apart from each other.
In this post, we will make an attempt to decode all the questions related to algorithmic trading vs discretionary trading.
Discretionary Trading
A discretionary trader has a set of rules that they tend to follow throughout their trading practice, these rules are modified or replaced based on their experience and what works best for them. Some follow these rules rigorously, while others tend to experiment till the time they feel they have cracked the code and continue to make required modifications in their strategy.
A discretionary trader studies the signals and charts, and then makes a decision on whether to buy or sell the asset. The trader calls the shots in discretionary trading i.e when to enter or exit positions.
In discretionary trading, maximum risk originates from decisions taken under the influence of uncontrolled emotions of the trader. In most cases, these emotions can lead to trades which cannot be logically defended. Hence in order to make a profit, it becomes extremely important to not just have a profitable strategy, but also have a check on one’s emotions.
Algorithmic Trading
Systematic traders use algorithms to make trading related decisions or predict their best chance of making a profit out of the investments that they make. The algorithms are changed based on the market conditions, the type of shares, markets etc..."
Source: Quantintsti