Should You Be a “Systematic” Trader?

There are two types of traders:

• Discretionary – making trading decisions in the moment (gut feeling, market analysis, news, etc).

• Systematic – making trading decisions purely based on data alone.

Guess what? Chances are you’re a discretionary trader. And there’s nothing wrong with that but…

Systematic trading might be ideal for you (or at least a hybrid approach).

Here’s what systematic trading looks like

Your trading entry is clearly defined and based on an indicator, number, or event that triggers you to take a trade—for example a 60-moving average cross above on close on the 15-minute chart.

Your trading exit is clearly defined too. You take a profit or a loss when the price reaches a certain number.

Systematic trading is the non-emotional consistent way to trade.

Here’s the litmus test: Can a robot do your strategy?

If the answer is yes, you’re a systematic trader. Another way to know is if your strategy can be explained step by step.

4 benefits of systematic trading

1. Easy to follow as it’s mechanical.

2. Less demanding as it doesn’t require discretionary thinking.

3. Systematic trading strategies can be backtested without bias.

4. Finding out what’s working and what’s not is easy to do.

Why you should consider a hybrid approach also

At TradrLab, we’re all about data-driven trading decisions. However, achieving your trading goals might require discretion.

For example, receiving a signal to enter through an indicator and then conducting further analysis such as evaluating news, chart pattern, and liquidity is a hybrid approach to trading.

Generally, you want the backbone of your strategy to be systematic. That could be:

• Entering the market based on technical signals

• Having a strict risk-reward ratio

• Using the same position size for each trade

Anything constant that can be replicated is an aspect of systematic trading.

Why systematic trading is more important now than ever before

If we keep it real, discretionary trading isn’t working for most traders.

There’s too much emotional influence going on making traders work harder and longer than the 9-5 job they started trading to quit.

Insanity is doing the same thing over expecting different results.

Now it’s time for change – incorporate systematic trading.

All you have to do is create a trading system based on a set of strict rules to be systematic.

You can have room for discretion but it should be minimal.

Happy trading!