In this episode of Truth About FX, Walter talks about probably one of the most commonly misunderstood traders: what are discretionary traders? And what draws the line between discretionary trading and algorithmic trading? According to Walter, every trader has rules and there are traders who uses their gut. But, not every rule should be translated into codes.

Download (Duration: 06:22/ 7.29 MB)

In This Episode:

00:33 – struck a nerve

02:24 – a code

03:18 – bad name

04:56 – over optimizing

Tweetables:

You may lose some things by using codes [Click To Tweet].

Don’t let them bring you down  [Click To Tweet].

You might miss something that you can use  [Click To Tweet].

Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.

Hugh: Hi, Walter. What does it really mean to be a discretionary trader? Does this mean that I trade more on feel or do I actually use a system?  

Walter: Okay. This person, this listener, struck a nerve with me because this is something that comes up a lot. People will say like, “You’re a discretionary trader because you don’t have rules” or, “If you can’t automate it then you’re a discretionary trader”.

I understand why they are saying that and usually the hard core algo guys, the EA guys, are the ones that are saying this stuff and I get it. I get what they’re saying. If you can’t code it up then you’re not trading a system or they’ll say something like that.

You can’t code it up, if you can’t get your system down and code it up and turn it into EA, then you’re not trading your trading system. You’re doing something different, you’re trading on your gut.

That kind of gets me because what I will say and what I’ve noticed about these EA guys and these algo guys is that typically, they’ll see something in the charts and then they’ll code it up and they’ll go, “What? It doesn’t work. Why hasn’t it work?”

The reason why it doesn’t work is because they’re seeing something else in the charts in the way that they would trade it or in the way that they see the charts and they’re not putting into their code.

They’re actually missing something that you can use and you can leverage off of if you’re a discretionary trader but you can if you’re an EA trader, if that makes any sense. So, basically, what I’m saying here is that a discretionary trader can take their system and turn it into rules.

You can list all those rules. However, you may lose something if you take those rules and you turn it into a code. That is something that I would say here is that every discretionary trader should be able to sit down and go “This is my trading system” and they can write a bunch of rules but turning that into a code is something else and you may lose out on somethings when you turn it into a code.

I don’t think that necessarily every discretionary trader who trades systematically and has trading rules should be able to turn it into a code. Now,