Thursday, 9 November 2017

Discretionary or Algo: The Choice!

One of my blog readers said:

As a discretionary executor of a systematic pattern (heuristic execution of a high probability pattern)in several markets, I look at these posts with both curiousness and gratefulness.

Curious because, i do not share your inclination towards algos as you do. And grateful because you present things in a lovely, simple and undramatic fashion.

Since 2008, while I have expected discretionary trading to die...something to the contrary has happened - not just to me but 3 other folks that I know of. Our trading, has remained as straightforward as pre - 2008, while remaining completely discretionary.

While patterns have surely changed, it doesn't seem to be less profitable....just different.

What you say is quite interesting to read though, once again thank you for your efforts in making these posts public. They are very illuminating and thoughtful.

I tend to agree. The markets are very different but can still be traded profitably if you know how.

BUT, and there is a big "but", you need to be in front of your workstation for hours to catch the trade(s) that suddenly appear. Markets trade more in swings separated by quieter periods so if you are not there and focused you can miss the trade of the day. Also, covering more than one market at a time is more difficult.

However, there is a better reason for trading algo: capital utilization. If someone has trading capital of, say, $50,000 and is trading as a discretionary trader, they may trade, say, the ES and risk $1,500 a trade. The number of contracts would be related to the risk.

As an algo trader with $50,000, I don't have to sit there, I can trade 23 hours a day but more importantly, I can trade 6 markets each risking $1,500 per trade as the metrics of the portfolio I am trading show me that due to that diversification, my risk allows that. Out of the 6 or 7 markets I will probably only have 2 trades open at the same time. In fact, I can design my algos with that in mind.

Yesterday, my flobot traded the DAX like this:

As you can see, this is quite active trading using 18 minute bars with relatively tight stops.


  1. I envy you with that ability, I can't code, and to me algo programming is like vision to a blind man.......

    Keep posting these things, folks like me are grateful for your contributions

    Best, S

  2. jenrique42

    puedes explicar, de una forma mas extendida, como fue tu paso de ser totalmente un trader discrecional a ser un trader que utiliza los algoritmos para su trading
    creo que puede ser un tema bastante interesante, el poder saber por ejemplo en que ha cambiado tu operativa, si lo ha hecho, tiene los mismos setup, en discrecional que con algos
    evidentemente me imagino que tu profit seran muchos mayores, y esto como ha cambiado tu MM? etc etc ..... gracias de antemano por tu interes en enseƱarnos

  3. Hi, I'm a little confused yet appreciative of your last two blog posts. In this one you say the screenshot is yesterday's trades but the chart shows the DAX expiring in March 2017, which is a very expired contract. You are also doing your backtesting on two completely different sets of data - IQFeed in Multicharts and walk forward in Tradestation so I wonder if there are any data integrity issues or conflicts there. Could you kindly post and update your recommended algo software so we can understand the process - eg is it firstly Adaptrade, then test in Multicharts, test in Tradestation and finally go live in Multicharts and are you still using the same algos that were used for the trades for the March17 contract ?

  4. Hi Sam, its NOT an expired contract but a continuous contract, still active, created in March. Look at the prices. I'm preparing a s step by step chart to show how to get from zero to a highly robust portfolio of algos. The software to use of choice is StrategyQuant which is the state of the art tool now. It can be used with MultiCharts, NinjaTrader and TradeStation.