First of all what is the definition of a discretionary trader?
Jack Schwager says:
A trader who relies on his own internal synthesis of market information to make trading decisions, as opposed to using a computer-generated trading signals.
In other words traders who rely on their own judgment as opposed to solely relying on technical indicators, chart patterns, price patterns, forex robots, etc. The traders who solely rely on concrete technical indicators signals, chart patterns, etc and never deviate from them are not discretionary traders. They are more system traders.
Discretionary Traders Do Have A System, A Process
Now you may think that discretionary traders do not have a system. They actually do have a system. They have sets of rules that they follow and live by. Especially order flow traders. The order flow trader has a certain process that they go through to synthesize all of the important information. Discretionary order flow traders almost always rely on their own judgement far more than they rely on any indicators or patterns they may follow. They can skip a certain pattern or signal that they see if something doesn’t feel right. They can tweak their entry and exit signals as market conditions change.
That does not mean that they are going to change their complete trading philosophy or methodology right in the middle of a trade. No, they do not do that. While they do specialize in order flow trading, that still leaves them flexible to respond to changing market conditions since order flow and liquidity are the foundations of every market.
Which is why the discretionary order flow, global macro and news trader tends to be at the highest point in the trading profit ladder. They actually have the ability to spot when the big move is coming because they can differentiate between trading signals. While a pure systemic approach may just signal a normal trade, the discretionary trader can see the subtle signs that a big move is approaching. They can therefore choose whether they want to risk slightly more per trade and go for the jugular.
Trading Is An Art
The discretionary trader acknowledges that trading is more of an art than science. And thus, there is no pure 100% systemic substitute for human experience and judgement.
If trading was a science, then there would be hundreds of thousands and millions of traders throughout the world applying the scientific principles in order to make money. That obviously hasn’t happened, and never will happen.
Pure, 100% systemic traders typically do not know when to go for the jugular. They cannot do that because they do not measure the variables that determine whether a big trade is occurring or not. Things like moving averages, chart patterns, price patterns, forex robots, cannot measure such things. Only human beings analyzing the market can perceive things such as stops, option barriers, market sentiment, news, market positioning, market sensitivity, global macro, etc.
That doesn’t mean that order flow knowledge cannot be useful for a systemic trader. It absolutely can be. A system trader can absolutely incorporate certain order flow principles into their system to supercharge their system. They may not use all of the order flow principles, but they do not have to in order to get great results.
That is my current view of discretionary traders. It has evolved over the years. It wasn’t easy coming to that conclusion. I had to get through a lot of the trading forum B.S. in order to get to that point.
Previous Thinking On Discretionary Traders
I used to think that the discretionary trader was too difficult. That it may be too difficult to control emotions, too difficult to know when good trades occurred. Too difficult to stay out of bad trades. Too difficult to know when I am seeing order flow mirages (generators which aren’t there).
There are some very painful inner demons that you need to overcome with discretionary traders. I had to overcome a lot of my over trading bad habits.
After all that is a big argument for computerized, algorithmic trading. It removes the emotion. The computer will pull the trigger for you.
Most people are not highly successful discretionary traders. Which is why you see people telling you on the forums to become a more systemic, computerized, algorithms traders. They keep pointing you towards that direction because they do not know any better. They do not know how to assimilate and use all of the order flow and information flow out there. They give up, so they go back to their technical indicators and moving averages.
There are many hurdles to pass to become the discretionary highly successful order flow, global macro and news trader. Initially you may not be sure how to put all the pieces together. You do not know the critical market foundations. You may not know how to systemize it and break it down into a process. All those hurdles can prove to be a brick wall in your progress.
And that is what the Order Flow Mastery Course is designed to solve.