Discretionary vs System Day Trading

Both discretionary and system day trading methods are frequently used by day traders in the stock market. Some traders prefer to utilize a specific system while others tend to trade at their own discretion. Both of these methods have some merit and a few potential drawbacks associated with them. Here are a few things to consider about using a discretionary or system day trading method.

System Day Trading

One way that many day traders use to trade is with a system. They could choose to develop a system or purchase one of the commercially available trading systems on the market. Regardless of how the system is acquired, the trader utilizes the system when making trading decisions.

Each system has a specific plan that will be put in motion by the trader. The trader will refer back to the plan when deciding whether to buy a stock and when determining how big of a position to take on each trade. Most of the time, the system will also help the trader decide which individual stocks to invest in. With this type of trading method, the trader will not do anything unless it fits into the rules of the trading system.

Discretionary Trading

Another method that many individuals use is a discretionary trading method. With this method, traders will not use a specific pattern or system when making trading decisions. They watch the market and then place a trade based on their personal experience. Many times, the trader will base their trading decisions on whether they feel good about a particular trade opportunity or not. Once the trade is opened, the trader will then decide whether to stay in it or close it out. In order to be successful with this method, you have to have a lot of experience in the stock market and be very familiar with what works.


If you are trying to decide between these two methods, there are a few things to consider. First, one of the problems with discretionary trading is that many traders allow their emotions to get in the way. When dealing with financial matters, it is usually not a good idea to let your emotions get the best of you. For example, instead of closing out a trade because it makes sense, you might decide to close out a trade because you are afraid of losing more money. With a trading system, you will know exactly when to get in and out of a trade without any guessing.

At the same time, system trading has a few disadvantages also. The market is constantly moving and changing. When you utilize a specific system that has rules to follow, you might find that it does not adapt well to the market. You may not be able to take a potentially good trading opportunity because the system does not allow it. Because of this, many traders will utilize a mixture of discretionary and system trading for best results.

blog comments powered by Disqus