Discretionary means something which is left to individual choice or judgment.

As discretionary traders, we have a lot of freedom, choice, and this is a boon and bane at the same time, we’ll talk about it later in the article.

In this article, we will talk about the reasons why most discretionary traders don’t make money even after devoting many years to the markets, whereas some traders who follow a systematic way of trading have a higher chance of success in the markets, and what should you do if you are a discretionary trader.

So, let’s jump straight into it.

So, as I said, there is a higher chance of a systematic trader to become successful in the markets as compared to discretionary traders.

But, why?

Here, I’m not saying that “Systematic trading” is better.

What I’m saying is that those who follow a system at least initially, are more likely to become successful.

You might be confused by looking at the above two statements.

See, when we start trading our only aim is to make money as fast as we can.

And most of us start as discretionary traders only, and as you all know that discretionary traders need not have any predefined rules, at least most of us don’t have any when we start trading.

We have a lot of freedom as discretionary traders, when we want to take a trade we take a trade, when we want to close a trade we close the trade, basically, we do whatever we feel comfortable with.

And we keep playing this game for a long time and keep repeating the same mistakes, such as oversizing, holding losers, cutting winners, etc.

On the other hand, a systematic trader needs to learn various important concepts to build a system, i.e they need to learn about position sizing and its importance, R based trading, the importance of holding their winners and cutting their losers, they learn about the correlation between accuracy and win rate, also they have to watch the charts of the past 5-10 years, by which they can easily find some repeatable patterns which they use to build their system.

So, as you can see, when a discretionary trader is “trying to make money” by doing random things, a system trader is busy learning about all the important concepts, which even the discretionary traders should have learned, but they didn’t.

That’s why most discretionary traders even after giving 4-5 years don’t know much about a simple concept like position sizing, they don’t know how much they are risking, where they’ll exit the trade, what will they do if the trade doesn’t go as per their view.

Now, are they losing money because they are following a discretionary way of trading?

I would say no, the underlying reason behind their losses is that they are close-minded, they don’t have a growth mindset, they don’t have a learning mindset, they keep repeating the same mistakes, they are undisciplined, and most importantly they keep waiting for some miracle to happen which will make them profitable overnight.

As I said before, we have a lot of freedom as discretionary traders, but most people could only use it as a downside, and not for their benefit.

That’s why when most of the discretionary traders are losing money trading randomly, without developing their knowledge, the system traders develop their system and keep learning about all the important concepts, which makes them capable of saving their cap if not making money.

So, as you can see, one of the big reasons why discretionary traders lose is because they are so focused on “Earning”, they forget that they can’t make money without “Learning”.

So, even if you are a discretionary trader, keep a learning attitude, that’s the only way to become profitable.

React, don’t Predict

The second big reason why most discretionary traders lose is not because they don’t have enough skills, but because they think that they can predict every market move accurately.

Well, the market is the master and you are the disciple, you might think that you have become better than the master, but it's only your illusion.

When we learn to draw a few lines on the chart and learn a few patterns, we think that we can predict every market move.

That’s why you see charts like this on social media ~

Well, it just takes 1 big whale to change the sentiment of the instrument you are trading in, and you think that you can predict the market?

This is an excerpt from the book Trading in the zone ~

The semi-retired chairman of the board of the brokerage firm was a longtime trader with nearly 40 years of experience in the grain pits at the Chicago Board of Trade.

He didn't know much about technical analysis, because he never needed it to make money on the floor. But he no longer traded on the floor and found the transition to trading from a screen difficult and somewhat mysterious.

So he asked the firm's newly acquired star technical analyst to sit with him during the trading day and teach him technical trading.

The new hire jumped at the opportunity to show off his abilities to such an experienced and successful trader. The analyst was using a method called "point and line," developed by Charlie Drummond. (Among other things, point and line can accurately define support and resistance.)

One day, as the two of them were watching the soybean market together, the analyst had projected major support and resistance points and the market happened to be trading between these two points.

As the technical analyst was explaining to the chairman the significance of these two points, he stated in very emphatic, almost absolute terms that if the market goes up to resistance, it will stop and reverse; and if the market goes down to support, it will also stop and reverse.

Then he explained that if the market went down to the price level he calculated as support, his calculations indicated that would also be the low of the day.

As they sat there, the bean market was slowly trending down to the price the analyst said would be the support, or low, of the day. When it finally got there, the chairman looked over to the analyst and said, "This is where the market is supposed to stop and go higher, right?"

The analyst responded, "Absolutely! This is the low of the day." "That's bullshit!" the chairman retorted. "Watch this." He picked up the phone, called one of the clerks handling orders for the soybean pit, and said, "Sell two million beans (bushels) at the market."

Within thirty seconds after he placed the order, the soybean market dropped ten cents a bushel. The chairman turned to look at the horrified expression on the analyst’s face.

Calmly, he asked, "Now, where did you say the market was going to stop? If I can do that, anyone can."

_______________________________

So, as you can see it only takes one trader to change the structure of the instrument you are trading in.

And, you thought that you could predict and the market would follow your orders. Well, you are absolutely wrong!

But, 90% of the traders make big losses because they think that the market is doing something wrong because their analysis projected some different path.

Sometimes I find myself saying things like, “The markets don’t usually do this or do that” or the market will bounce from that level and then it will do this, and then I laugh at myself, that the markets don’t care about what I think, it can literally do anything.

In my opinion, rather than becoming rigid with our “opinions” or “views” about the markets, it’s better to be fluid, and change your plan as per the changing market structure.

React, don’t predict, learn this and you would see a big change in your trading results.

Don’t let your emotions overtake your trading

One of the most difficult things to do for a discretionary trader is to control his emotions, see, we aren’t robots, we can’t eliminate the emotions, but we have to learn to control them.

If you don’t control them, then you are highly likely to make some bad decisions like increasing your risk after a series of gains which might lead to some big dents in your Trading account.

In my opinion, you will face some of the biggest losses of your trading career after your biggest wins, if you let your emotions decide your actions, at least I faced that, because a series of wins makes you overconfident, the market makes you think that you know everything, some of us might get a “apun hi bhagwan hai” type feel.

And then the market says, “Surprise, surprise”, it hits you, and it hits you really hard when you were not prepared for it.

So, at all times, Either when you are enjoying a winning streak or you are facing a losing one, you have to keep your calm, and not deviate from your original plan.

Don’t let the market make you feel over or underconfident, you have to have enough belief in your strategy that you’ll make money in the long term, but not that much, where you feel you are invincible.

One of the big reasons Traders faces a lot of emotions while trading is because they don’t have a Trading plan, plus most people usually are not prepared for the trading day, they try to find opportunities in the live markets, basically, you need to do your homework before the market opens, and then you just have to execute your plan.

Your plan should include where to buy, sell. How much to buy/sell.

So, it’s extremely important to have a written set of rules, even if you are a discretionary trader, that’s the only way to control your emotions.

Practice Independent Thinking

One of the big reasons why discretionary traders lose even after learning all the chart patterns and fancy indicators is because they don’t practice independent thinking.

They are dependent on others for decisions like where to buy, sell, how much to buy, how much to risk.

And I’m like, dude you research for days before buying a 10-20k phone, and here you are letting others decide what you should do in your trading? Like for real?

Learning from others is a different thing, but most people just want to spoon-feed from others, but in my opinion, you won’t be able to make money consistently from trading until you start taking ownership of your decisions.

Otherwise for how long do you think your tip provider or any other person, can help you make money?

See, you have to take this business seriously, take charge of your trading, write your mistakes, see where you are going wrong, and improve, that’s the only way to become successful in trading.

Independent thinking is not just only about making your own decisions, but it’s also about not believing anything you hear from anyone before you try/test it yourself.

Like you would hear from some expert, “Only option selling works” or “Trailing stop loss doesn’t work”, “Only pullback trading works”, “Only breakout trading works”, etc.

Most people would believe someone just because they are more successful, or they have more money, but I believe that what works for others might not work for you, and what works for you, might not work for others.

Learning from others is important, but it’s equally important to ask “Why” about every part of your trading.

Why should I do pyramiding and not averaging, why should I follow risk management, why should we follow position sizing, why does the breakout work, etc.

When you get into this kind of mindset, then you would know deeply about every constituent of your trading System.

You can get knowledge from others, but wisdom can only be found inside you, by asking “WHY”.

It’s not about the “YEARS”

Many people Brag about the years they have given to the markets, but I have a different opinion on this topic.

Well, I feel that it’s not about how many years you give to the markets, it’s about how early you learn from your mistakes.

Some people learn after making the mistake for the first time, and few don’t even learn after repeating the same mistakes 100’s of times.

So, according to most people, the second guy gave more time to the markets, so he has more experience, right?

Well, that’s what most people think.

Now, tell me how many times you have said, “I will never repeat this mistake again”, but in reality, you make that mistake again and again and again!

Well, there are many traders who have 5-6 years of “Experience” but they don’t know the most fundamental concepts of trading, whereas a beginner who has just 2 years of experience, knows most of these concepts, and is trying to learn from his mistakes as fast as he can.

Both are unprofitable, as of now.

Who do you think will become profitable first?

You see, that the more time you give yourself to correct your mistakes, the longer it will take you to become profitable. Either learn after making the mistake for the first time or keep repeating it for 100’s of times, it’s in your hands.

Discretionary trading is all about “When not to trade”

In systematic trading, you have to take all the signals that are generated by your system without any second thought.

But, Discretionary trading is about trading as little as you can and knowing when not to trade.

That’s why the biggest weapon/edge of a discretionary trader is his patience.

Most people are impatient, they are in it for the fun, they want to trade every day, doing this they make only one person rich, their broker.

See, this choosing when to trade is one of the major differences between the systematic and disc. Trading, and it’s basically an edge for us.

Your screentime plays an important role in knowing what kind of market environment you are into, Sometimes the environment is favorable and you get a series of good trades and sometimes you’ll have to sit for days, though most people can’t, because they don’t have control over themselves, and that’s why only a few are able to succeed in discretionary trading.

Discretionary trading is rewarding, but only when you have a lot of patience, and the willingness to improve daily.

So, that’s it for today from our side, we hope that you learned something new from this article and if you did then do share it with your friends over social media.

Thanks for reading :)