Discretionary vs Non Discretionary Trading!

What is discretionary trading?

Discretionary trading is the process of buying or selling securities, based on personal judgment without any predefined strategy, or algorithm, or system. Discretionary traders do no need to follow strict trading rules and they adapt strategies based on current market conditions. Non Discretionary Trading represents trading based on rules, usually automated (mechanical) trading where traders follow strict rules or use automated trading expert advisors.


If you engage in trading as a new trader, then the reality is that you must decide whether you will become a discretionary trader or if you will become a system trader. When you hear the term discretionary trading being used in the trading world’s realm, this refers to trading that is based on making decisions. In this case, the trader makes an informed decision regarding what trades they will perform by considering the present conditions of the market. On the other hand, the term system trading refers to trading that is founded on the application of rules. In this case, the trader will decide what trades he or she will perform without considering the present conditions of the market.

It is realized that discretionary trading, as well as system trading, may both be highly profitable. As a result, the type of trading that one engages in should be more linked to the type of personality that the trader possesses. Some traders may be able to realize what kind of trading will suit them best immediately. But there are other traders for whom it may be needful to engage in each kind of trading before choosing what kind of trader to become.

With this kind of trading, the trader must choose what trades to perform in correlation to the information that is accessible at present.

Yet, it is realized that a discretionary trader may yet seek to follow a clear trading plan with well-defined rules for trading, and this is highly recommended. However, the trader will still apply his or her own discretion regarding the performance of the trade and the issues about the management of the particular trade.

Please consider; for example, a discretionary trader may conduct some reviewing of the charts and discover that the full requirements of his or her criteria about a long trade are in place. Yet, the trader may decide not to move forward with performing the trade due to the day having volatility that is considered to be at a shallow stage, which means that the price likely will not achieve the desired profit target regarding the particular trade.

Being adaptive about the present conditions of the market is an advantageous consideration of discretionary trading. The trading system may be a good one. Yet, if you realize that your trading system may result in poor performance under certain conditions about the market, then you can avert engaging in those kinds of trades. Or, if you realize that you have a designated strategy that results in a great performance under other situations, then you can opt to augment the size of your position a bit during such cases for the sake of maximizing your profits.

It is reckoned that a setback about the discretionary system is that often traders may tend to wonder about the trades they have made. In other words, they second-guess their decisions. These traders may not have strong competency in comprehending when it is a good time to trade or a poor time to trade, which means that it would be best for them to apply the usage of trading that is more systematic. Discretionary trading is strongly tied to the trader’s mindset. When one is extremely fearful or greedy, this can destroy the profitability of discretionary trading rather quickly.

Pros and Cons of Discretionary trading

The discretionary trading advantage is high adaptability to market conditions, using human logic. The discretionary trading disadvantage represents emotional attachment, mistakes during execution, and possible human error during trading. Non-discretionary trading or system trading has better execution because trades will be opened as price hit calculated level.

System trading is noted as applying the usage of rules. This means that engaging in trade is linked to rules that guide this system. As a result, it is realized that decisions made with system trading conform to all rules and do not provide the option to refuse to make a trade with the application of the trader’s discernment. If the criteria are in line, then the trade is performed.

Those who use system trading may review the charts and discover that the trading system requirements in consideration of a short trade are in place. As a result, they will perform the trade without any more applied decisions, even though they may sense that the trade is not a good one.

There can be frequent automation of strategies that apply to system trading because there is such a clear definition of the rules, making it possible for a computer to engage in the implementation of the indicated rules without the trader’s immediate involvement. When the development of a computer program that detects the trading system’s requirements is in place, then the program can perform the trade. This means that the computer program can conduct the entry of the trade. Further, the computer can handle the management of the trade and the exit of the trade. With this being the case, there is no need for any direct actions from the trader.

Because system trading is not linked to the whimsy of the trader, this makes it highly advantageous. This system engages in the performing of every trade without any consideration of the feelings of the trader.

On the downside, because system trading does not allow for much adaptation, this is seen as a disadvantage. As long as the conditions are in place, each trade is conducted even when there are clearly not favorable conditions. To help address this issue, it is possible to provide the addition of more rules to the system. But the downside to the addition of more rules is that this can mean missing out on some trades that could otherwise win well.



Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on: igor@forex.in.rs

Trade gold and silver. Visit the broker's page and start trading high liquidity spot metals - the most traded instruments in the world.

Trade Gold & Silver


Recent Posts