There are generally two types of trading: discretionary and systematic. Discretionary trading is subjective (based on opinion) and largely dependent on intuition. Systematic trading is objective (based on fact) and removes all interpretation from the trading process. While some may like the flexibility that comes along with discretionary trading, there are several obvious advantages to systematic trading.
First, the most significant advantage with systematic trading is the ability to develop and test trading strategies. Once a trading strategy is broken down into trading rules, specialized software can be used to backtest and generate years of performance data quickly without putting any money at risk. These performance reports tell you everything you need to know about the trading strategy – information you don’t get with discretionary trading.
Secondly, systematic trading makes all the decisions for you. It tells you exactly what to trade and where to place your orders – all the guesswork is removed. All you have to do is enter the orders with your broker and let the market do the rest of the work. Discretionary trading requires the user to make each and every decision, which can be mentally exhausting.
Lastly, one distinct advantage with systematic trading is that it saves you time. All the time consuming work is done during development of the trading strategy. Once the trade strategy is locked in place, all trade orders are simply a click away. Compare that to discretionary trading where you have to go out and find the most attractive trade setups by reviewing countless charts each day.
At Maxon Capital Group, we only use the best systematic trading models for our subscription services. As we say around the office, if you’re not using a trading strategy – you’re just guessing.