The Truth About Discretionary Trading

As the statistics show, 2/3 of people who ventured into forex trading or another form of trading in financial products eventually give up the undertaking altogether. For decades, scientists have studied failure rates in the financial industry and concluded that a novice trader has about a 10% chance of success.

Longevity in the market is a prize that only goes to the most diligent and persistent.

At the same time, financial markets allow you to get more than worthy rewards for your efforts. There are many different philosophies and strategies to help achieve this goal. And one of the most interesting is discretionary trading.

What is Discretionary Trading?

Discretionary (intuitive) trading is the practice of placing trades based solely on the trader's judgment. Fundamental analysis and technical indicators play a secondary role here. In the first place, there is the trader's intuition and sense of the market, which are used for making trading decisions.

In simple words, intuitive trading is trading based on making decisions, while systematic trading is based on strict rules and algorithms (a trading strategy describes in detail the interpretation of technical indicators and indicates how to open and close positions).

Discretionary Trading: Pros and Cons

As in every area of financial activities, there are many misconceptions about discretionary trading. Because of this, people often misunderstand the very concept and definition of discretionary trading. Some believe it is fun for beginners, unworthy of the attention of true professionals. Others - the magic key that quickly makes them rich and successful.

Discretionary trading can be afforded only by beginners or professionals who understand the market very well.

However, traders who have enough intelligence and common sense will be able to extract the following advantages from intuitive trading:

Financial gain. If statistics are to be believed, the best traders (in terms of overall performance) are the discretionary ones. After all, while a normal trader will strictly stick to the plan, following inevitably lagging indicators or waiting for important news, an intuitive trader uses their intuition and hits the target right away. Therefore, if the first trader receives on average about 20% of the profit from a trade, then for the second trader it can be either 200% or 2000%. If you compile the top 10 most successful traders in the stock market, 6 out of 10 would be adherents of intuitive trading.

Personal progress. From the point of view of evolutionary psychology, intuitive trading is much more powerful in developing a person's personal qualities. After all, it implies the most rational use of brain resources. In this case, the trader learns not to load it with layers of useless information, trying to fish out something valuable.

Efficiency. By over-focusing on processing and re-checking analytical data, traders risk losing the perfect moment to place an order. In discretionary trading there is no such problem - the blow is made at the right moment and precisely on the target.

Relevance. Working with ready-made strategies, based on the interpretation of technical and fundamental analysis, ordinary traders risk not keeping up with the market volatility. The major advantage of the discretionary trading system is that the trader adapts their trading to the current market conditions in real-time mode. Of course, if their intuition is so developed that they can assess the market soberly while maintaining calmness and discipline so that emotions do not mislead them.

However, as always, there is a downside. There are negative sides to discretionary trading. The main ones are:

Excessive subjectivity of the process. Unfortunately, the brain is designed in such a way that people are more inclined to accept the information that confirms their prejudices. For example, if a trader is passionate about markets going up, they will usually notice the information that supports that desire first. This approach is fraught with huge risks.

The observation-expectation effect. Another peculiarity is the unconscious influence of the expectation process on the perception of the result. Can manifest itself in the form of too hasty rash decisions, or, conversely, too much deliberation and omission of a good time.

Indulging one's own biases. Failure to recognize one's own biases often plays a cruel trick on traders who decide to follow the path of discretionary trading. Whether one realizes it or not, cognitive biases (and many others) directly influence one's decisions (consciously or unconsciously). Few people have a truly disciplined mind, which is why discretionary trading is a failure for most.

Can a Beginner Reach the Level of a Good Discretionary Trader?

Of course! There are chances. Although it's a fallacy to think that everyone who wants it will make it. And to be frank, not everyone needs it. Many traders really find it easier to act according to classical schemes and be satisfied with the profit that can be squeezed out of them. You have to realize that intuitive traders who place orders regularly are world-class players, pocketing millions and billions of dollars. They have learned to distinguish real intuitive impulses from vague hints and impulses arising chaotically in the brain and therefore have achieved success.

How exactly did they achieve this? In this case, we are talking about conscious brain training to develop and improve such qualities as:

• emotional stability;
• patience;
• self-confidence;
• the ability to feel comfortable in stressful situations.

Only by having developed them to the fullest, one can talk about any success in this type of trading.

It is important to understand: intuition is not some magical characteristic with which fate blesses a person. It is obtained through practice, defeats, successes, new failures, and overcoming them.

There are no easy ways. And if someone is sure of the contrary, it's easier for them to make coffee grounds' divination, since the result will be just in accordance with such beliefs.

What Is the Catch?

One of the worst things a trader can do is rely on intuition without much experience. Intuitive trading is the ultimate in trading, actually elevating it to an art form. Only those traders who have the necessary personal qualities and many years of successful experience can afford to make decisions based solely on intuition. Ordinary traders who do not have enough knowledge and experience are likely to find themselves in a losing position.

The statistics are inexorable - 95% of beginning traders who try to trade intuitively (it seems easier to them than following the movements of candlesticks and meticulously analyzing indicator indicators) tend to lose their deposits on their very first trades.

For this reason, beginners should use reliable approaches, based on price analysis. After all, indicators and technical analysis are the tools that give a more or less reliable basis for building truly working trading strategies.

Simply put, the "intuition" of a beginner is banal guessing, and with such an approach you will not earn much anyway on stock and currency markets.

Summary

The key aspect of discretionary trading is the effectiveness of the trader as a person. Decisions are made solely based on inner feelings, often in opposition to the current market sentiment.

Taking a discretionary approach to trading is not for every trader. Only those who have mastered the standard methods of analysis flawlessly can step on the shaky ground of guesses and assumptions, and most importantly, can feel the psychology and sentiment of other market participants. After all, it is people who ultimately shape the market, and their actions are far from always logical and rational.

About AdroFx

Established in 2018, AdroFx is known for its high technology and its ability to deliver high-quality brokerage services in more than 200 countries around the world.  AdroFx makes every effort to keep its customers satisfied and to meet all the trading needs of any trader. With the five types of trading accounts, we have all it takes to fit any traders` needs and styles. The company provides access to 115+ trading instruments, including currencies, metals, stocks, and cryptocurrencies, which make it possible to make the most out of trading on the financial markets. Considering all the above, AdroFx is the perfect variant for anyone who doesn't settle for less than the best.