System and discretionary trading


We continue talking about the fundamentals of trading. When analyzing articles and educational programs aimed at teaching how to trade in financial markets, you have probably noticed that a great emphasis is placed on the importance of having a system.

However, system trading is not the only possible way to make trades. Another option is to use a discretionary approach to exchange trading.

Today, we are going to discuss both of these methods so that you can make a truly informed decision and pick the one that makes sense for you.


1. System Trading: Definition
2. Secrets of System Trading
3. Discretionary Trading and Its Features

System Trading: Definition

The trading system and a strict observance of its rules form the backbone of the system trading. This means that if the trading strategy that you are using gives you a signal to open a position, that’s exactly what you do, no questions asked. Why is that so?

Each strategy implies that there will be both profitable and losing signals. However, as long as the overall result of the profitable trades covers the losses resulting from losing trades, you are good. If you skip a signal after a series of losing trades, it may be damaging to the overall yield because that one signal could have generated profit.

System-based trading: What is it

Secrets of System Trading

The system-based approach will generate profits if the strategy which lies at the heart of it is also profitable, and there are also clearly outlined money management rules.

Here are the basic benefits of system-based trading:

  • Relatively forecasted yield in case of a positive expected value.
  • A clear understanding of what steps you should take. If there’s a signal, we open a position, and when there is none, we stay out of the market.
  • The trading process can be automated by creating a robot based on the trading strategy and thus getting rid of a psychological factor.

Drawbacks of the system-based approach:

  • Human factor. The trader may not see a signal or miss one when not trading for several days. This will lead to statistical and yield disruptions.
  • Psychological complexity. It is not easy to open positions based on all of the signals especially when you experience a losing streak. If you skip a certain trade, there is a chance that it could have been a profitable one.
  • The ever-changing nature of the market. The market situation periodically changes and unless you make relevant adjustments to your strategy, it may turn into an unprofitable one.


Some people say that system-based trading illustrates the male approach to trading whereas the discretionary one resembles the female mindset. But we believe in equity, so it’s up to every trader to decide which one works for them personally.

Discretionary Trading and Its Features

While the system-based approach implies that all signals given by the trading strategy must be used, discretionary trading leaves the choice to traders. With that said, it doesn’t mean that discretionary traders trade chaotically. They just have the liberty to skip a certain trading signal when they believe there is a high likelihood of loss.

For instance, your trading strategy suggests that you should open a long position whenever the price bounces off the support level upwards. However, at some point, the trader may realize that the current bounce isn’t going to work out.

This can be explained by several things. Major news is about to be released, there are additional interim levels that may stop the growth, the ratio between the stop loss and take profit is not unfavorable, or position will be closed manually earlier while take profit has not been achieved yet.

Benefits of discretionary trading:

  • Allows adjusting the strategy whenever the market environment changes.
  • Experienced traders can listen to their intuition.

But there are also the downsides:

  • Discretionary trading doesn’t necessarily work for everybody. The traders need to have extensive experience and then the gut feeling well manifests itself as unconscious knowledge. Unlike our mind, the subconscious reacts faster, processing the information and offering solutions based on available information.
  • It is hard to make any forecasts regarding prospect yield since not all signals given by the strategy are executed.
  • There has to be a wide selection of trading tools to choose from in order to use the best signal for entry.

Before you choose discretionary trading, you need to fully master the system-based approach first. To achieve that, you must acquire relevant knowledge (Reboot of Your Trading training course can help you with that ), practice, and invest your time into gaining the necessary experience and understanding of the market and how it works.