Mechanical or Discretionary Strategies – Which is Better?

Lately, I’ve been spending some time learning about the Wyckoff method and “Smart Money” concepts, both of which are discretionary approaches – I firmly believe that it’s always important to grow as a trader and do what you can to become more comfortable and aware of how the markets work, and while these two approaches are by no means easy to understand in-depth, they are incredibly efficient for producing phenomenal returns.

I think of myself as an intermediate trader – not quite a professional, but definitely not a noob. I started out with learning a grabbag of trading approaches – breakout candle structures, triangles, Fibonacci retracements, and ultimately landed on mechanical strategies using indicators as the way to defy the gravity of trading mistakes and finally get into profitability.

Discretionary tradingMechanical strategies can be fairly easy to learn, as long as the conditions for signal, entry, exit, and trade management are clearly described in rules. They’re also easy to program if you want to get into algorithmic trading and have a bot submit trades on your behalf. But every mechanical strategy has periods of drawdowns as they don’t necessarily adapt to new changes to typical market behavior.

Now that I’ve passed a couple of challenges with the mechanical strategy I teach in the Disciplined FX Scalping Course, I’m thinking about ways I can improve from here and not only increase my typical return but also stay vigilant of inevitable changes in market types.

Does this mean discretionary strategies are “better” than mechanical ones? I believe the answer to this question depends on your trading style, your level of experience with trading, and what kind of returns you hope to get out of the market in exchange for the amount of study, preparation, and effort that you put in.

If you’re relatively new to trading, I believe mechanical strategies are the best way to be able to focus on building emotional discipline with trading first. It’s difficult enough to determine appropriate entries and exits in market structure, but it’s nearly impossible to achieve any kind of consistency and profit if you have no reign over fear, greed, and impatience from upending your trading plan. While you might not see 1:20 risk-to-reward ratios with a day trading mechanical strategy, you can still get into profit and keep it. If this is an experience you’ve never been able to maintain for months at a time before, then that alone is achievement enough.

For me, getting back into discretionary trading methods feels like the logical next step. Now that I know myself better as a trader who is capable of following rules and not making common early mistakes such as holding onto losses, revenge trading, or putting more than 2% of my account at risk for a trade, I’m better prepared to handle the learning curve that comes with developing an intuitive and experienced eye for reading market behavior.

<<WANT TO SEE AN EXAMPLE OF A DISCRETIONARY STRATEGY? CHECK OUT THIS FREE CONCEPT I CREATED>>

I think the important takeaway from this question isn’t a final decision over whether one strategy approach is better than the other, but to instead regard the behaviors of each as unique. They each have their benefits and drawbacks, with their own skills that need to be mastered, regardless of your time in the markets.

Mechanical trading might be for you if: You’re new to trading; you are struggling with trading discipline; you want to turn your strategies into robots; you don’t have a lot of time to study market structure or trade; you’re having a hard time grasping discretionary concepts, or you are okay with less return in exchange for less effort committed to learning how to trade; you want to be able to trade while you are also working

Discretionary trading might be for you if: You’re looking to improve your trading skills while gaining a better understanding of how markets work; you want to improve your typical return of profit; you are confident in your trading discipline; you have more time to evaluate different time frames and setups; you have time and are available to watch the charts and wait for prime entries; you want to stay on top of changes in market behavior and profit from doing so

Mechanical Trading Skills to learn: How to implement trading tools like indicators, fibbonaci tools, or candlestick patterns; Discipline in following rules

Discretionary Trading Skills to learn: How to read market structure; How to profit on different market setups; dynamic entry and exit positions; How to use technical analysis tools to aid in understanding market structure and behavior; Discipline in following a trading plan