Trading Strategy: Pros & Cons of Each Type

So today we're going to talk about there's two distinct kinds of edges in trading. You know, everybody likes talking about having an edge in trading, but there's, if you, if you step back from it just a little bit, there are two types of edges and these, these like general categories. But which one you choose really can have a huge impact on how successful you are and how frustrating trading can be for you. Here's what I'm talking about. You've probably heard it brought up and I've talked about it in different videos before. The difference between being a very mechanical trader and being a very discretionary trader. And a lot of traders, you know, they want to be discretionary or at least if you look at their actions, that's what they're wanting to do. It's like, right, I want to be able to look at the markets and you know, just see what's there and you know, just jump on the opportunities that the market presents me. And so they're wanting to be very discretionary and not very mechanical. Mechanical trader is where you have a very clearly defined, very specific, very objective process that's, hence the name mechanical. And so you have discretionary versus mechanical. Now here are the trade offs and here's why you want to pay attention to this. Each of them has an advantage over the other and each has a weakness. Now if you're, if you've been trading for a while and you've had some success with a particular method, and I'd say, you know, reasonable period being at least six months trading with that method and you've got some good confidence with it, you know, that you can trade it well and trade it and make money on a consistent basis for six straight months or more. Okay, cool. In that case, yeah, I'd say you've had enough time in where you're subconscious because if you think about it, when you're looking at the charts and you're interpreting what you see, a lot of that processing that's going on, that evaluation and determination is happening on a subconscious level just from whatever charts you've looked at in the past. And if you've had sufficient time doing that, successfully interpreting the charts and drawing the right conclusions and making the right decisions, then okay, yes, you probably have the decent, you know, a decent foundation, a subconscious wiring foundation to be a discretionary trader. But if you have not had that successful period of at least six months, preferably a year or more continuous successful trading from a knowing standpoint, if you haven't done that, then I strongly recommend that you be a mechanical trader. And here's why. Again, when you're a discretionary trader, you're saying, I'm just going to look at the markets and kind of see what's there and I'm going to respond accordingly. Whether the markets are, you know, they're very trending, they're counter trending, very choppy, whatever. And what I do is going to vary tremendously depending on what the market's trying to offer me. I'm just, that's why, you know, it's called discretionary, because you just kind of look at it and you make the decision on the fly based on how you feel and what you see at the moment. And you know, it's all a very momentary and highly flexible type of trading. Mechanical trading, however, is where you say, I have a very specific process. I'm looking for very specific things. And when I see those very specific things, I know the very specific actions to take. And, and so I have a very mechanical do this, do this, do this and make money. Now here's the trade off. A mechanical process doesn't work in as many circumstances or as many market conditions as discretionary trade. With discretionary trading, you can kind of jump in there no matter what the markets are doing. Okay, I'm being discretionary. I have this tremendous flexibility in what I pursue and what I do. Okay. So you can trade in a wider variety of market conditions, market moves, or, you know, just whatever the markets are doing today. Whereas with a mechanical process, you're going to get more consistent results. But you, you need to be trading when the, when the conditions are favorable for that type of strategy. For example, if you like trading, you know, flat markets, choppy markets, a lot of times selling option strategies where it's non directional, you just want the market to stay in that range. Cool. That's a strategy to use if you have a trend, a trend following strategy or a momentum strategy. You want to be trading when the markets are trending. You're not going to do well when the markets are choppy. So if you're a mechanical trader, you're going to wind up with a playbook of very specific mechanical trades. But when you're trading in those conditions, you're going to get very consistent, reliable results. That's the big difference with discretionary trading. If you're having a rough month, you're not feeling well, maybe, you know, get some personal issues to deal with, maybe marital problems, you know, your, your, somebody died in the family, whatever, there are different things that can affect your mood and how you're feeling. And with discretionary trading, how you're feeling at the time can strongly affect how you interpret what you see and the conclusions that you draw and the decisions, decisions that you make. That's why if you're being a discretionary trader, prior to getting all this good subconscious wiring, you're, you're likely to struggle with consistent results because it's all going to, it's going to be very strongly influenced by how you're feeling and how things have gone recently. If, you know, if you've been really just crushing it lately and you're just feeling on top of the world and all that kind of stuff, okay, you're probably going to again, you know, treat the markets and respond to the markets differently than if you're feeling down or, you know, you're, you're, you know, you're not feeling well or you're just kind of depressed or whatever. So your trading results will be much more tied to how you feel and your state of mind with a discretionary system versus mechanical system. The mechanical system. If you have not experienced that good, you know, periods of success, I strongly recommend that you pursue mechanical systems and make sure that you identify, you know, okay, when does this system work, when doesn't it work? And you just trade it during those conditions where, you know, it works. Again, you know, if you got a trending system or a momentum strategy, okay, you identify, okay, only during these, you know, trending conditions will, well, I trade the strategy and you develop different strategies, plays, or, you know, in your playbook like, like I, to refer to it like, you know, football coach. It brings a playbook, but you have very specific strategies and systems for the different market conditions. If you are in the, and if you approach, if you approach it this way, being very mechanical now, you can, you can, you know, just trade when you know, markets are favorable and you'll get those good consistent results. You can very clearly trade with a high level of confidence and know what you're very likely to get as far as your results. That's the big advantage. And the more you trade that way, the more you're wiring your brain to read the markets appropriately, draw the right conclusions, make the right decisions, and then over a period of time, you know, it's like, you know, six months or a year or two or three, the more you trade this way. Now your brain is wired so that now you can have that flexibility and trade in a discretionary manner. You can have, again, you can have that flexibility to be responsive to what the, whatever the markets are throwing at you and you can trade it effectively and make money with it. But if you're trying to be discretionary and you don't have that wiring, if you haven't gone through that period of mechanical trading, you're just really likely to struggle. So from a strategy standpoint, you know, the highest level is, am I going to be discretionary or am I going to be a mechanical trader? That's like one of your very first things because that, that determines what you choose to do with the markets. And just so you know, discretionary also includes, oh, hey, you know, but I've got, you know, this strategy and this strategy and this strategy and this strategy and you know, I'm just going to jump into the markets and I want to be able to take advantage of any opportunity that comes my way. That's not mechanical trading. That's still very discretionary trading. And that's where a lot of traders are. They'll wind up with one. They call it a system, but it's actually a mishmash of a whole handful of strategies where they're trying to take advantage of anything they might see. That's not a really good system. That's not. So that. And again, that's one where you're going to struggle. So again, back to if you're gonna, if you haven't had that level of success yet, be a mechanical trader. And this is what I teach you. Again, consistency is, is my gig. I'm a retired quality engineer and quality assurances is, it's at its foundation how to be consistent, how to get consistent, predictable output results. And when you apply it to trading, which is what I teach, it works wonderfully well. And you can have that confidence and get those consistent results that you want and do it from a very knowing manner because you're doing it in a very intentional manner with a very specific process to achieve those results. So if you'd like to find out more, swing by InsideOutTrading.com have some free resources there that you can find out more about this. If you want to book a call with me, talk about your situation, maybe you know, you got some specific questions, certain things you've been running into. Like to talk about your situation points you in the right direction. And if you've enjoyed this video, you know, subscribe down below. Give me a, like, give me a thumbs up and of course share it with your friends. If you have friends who trade they like even more if you can help them, you know, with their trading. So anyway, again, I hope this been helpful. Talk to you soon. Cheers.