By Oscar Goullet
One of the most attractive things about being a forex trader with Vantage FX is the range of different approaches and styles available to you. Discretionary traders rely on gut instinct to beat the market, systematic traders take trades based on a proven system and automated traders take systematic trading to its logical conclusion and deploy a robot to trade their system. With so many different approaches, there is bound to be one that is suitable for nearly everyone. In this piece we will discuss the pro’s and cons of each approach and also take a quick look at the hybrid, semi-automated approach which dominates the proprietary trading sector.
Discretionary traders with Vantage FX are the cowboys of forex trading. Though they will generally use the same technical tools other traders do, at the end of the day, they take trades based on gut-instinct. Discretionary trading is tough – only a select few are capable of turning consistent profits with this approach. You need to have an edge to be successful discretionary trader: whether it’s in your genes, or a product of decades of experience; you have the ability to pick the market right more often than not.
Many new traders try their hand at discretionary trading and fail miserably. This approach is not at all suitable for beginners. On the other hand, experienced discretionary traders can be extremely profitable, as their trade frequency is not limited by the confines of a rigid systematic approach.
Not a discretionary trading god? Systematic trading with Vantage FX might be a better option. Unlike discretionary traders, systematic traders do not necessarily require a genetic edge; rather their edge comes from a proven trading system, and their ability to adhere to this system.
Where discretionary trading revolves around skill, systematic trading is all about discipline. If your system tells you to enter long, you enter long. If your system tells you to exit your trade, you exit. Often your system’s signals will go against your gut-instinct: you may not like the trade, but your ability to ignore your gut and adhere to your system will determine your success.
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Automated trading with Vantage FX takes the systematic approach to its logical conclusion. Even though systematic traders adhere to a strict set of rules, it is impossible to completely remove the human element from manual trading. Automated trading systems do exactly this.
An automated trading system always follows the rules, no exceptions. Automated systems don’t need to sleep – they can run 24/5. Automated trading systems are fast – they calculate trade size in fractions of a second and enter the market before you can say ‘there’s my signal’.
Though completely removing the human element from trading is the automated approach’s greatest strength, it is also arguably its greatest weakness. Once you begin testing and running automated systems, you realize discretion still plays a large part in profitable systematic trading. Many basic systems, for example an RSI 30 / 70 cross, are simply not profitable once discretion is removed from the equation.
The vast majority of proprietary trading firms employ a semi-automated approach. In general, most firms require your position sizing and risk management processes to be completely automated. It is extremely hard to acquire funding for an entirely discretionary approach – you will need an even more extensive track record than usual. Semi-automated trading allows you to capitalize on the benefits of the various approaches, whilst minimizing or eliminating the drawbacks.
If you do have edge when it comes to picking trades, but you are not so good at restricting your risk, managing a trade once it is open, or taking profit at the appropriate time; you should seriously consider a semi-automated approach. You can design or commission a robot that takes a trade on your cue, but sizes your position automatically, places your stop loss and take profit levels automatically and manages your open trades using advanced trailing stops.
Semi-automated trading is arguably the best approach to trading: this approach automates all secondary processes, allowing the discretionary or systematic trader to focus on executing high probability trades.
Article By Oscar Goullet