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What’s the difference between systematic and discretionary trading?

Systematic and discretionary trading are two different approaches to making trading decisions. Systematic trading involves using a set of rules or algorithms to make decisions about when to buy and sell securities, while discretionary trading involves using judgment and experience to make decisions based on market conditions and other factors. Some key differences between systematic and discretionary trading include:

 

  • Decision-making process: In systematic trading, decisions are made based on a predetermined set of rules or algorithms, while in discretionary trading, decisions are made based on the judgment and experience of the trader.

  • Flexibility: Systematic trading is typically less flexible than discretionary trading, as it is based on a set of rules that cannot be easily changed or adjusted. Discretionary trading, on the other hand, allows for more flexibility and adaptability, as the trader can make decisions based on a wide range of factors and market conditions.

  • Time and effort: Systematic trading can require less time and effort than discretionary trading, as the rules and algorithms can handle much of the decision-making process automatically. Discretionary trading, on the other hand, can require more time and effort, as the trader must constantly monitor the markets and make decisions based on their judgment and experience.

  • Suitability: Both systematic and discretionary trading can be effective approaches, but they may be better suited to different types of traders and markets. For example, systematic trading may be more suitable for traders who want to minimise their time and effort, while discretionary trading may be more suitable for traders who have a high level of expertise and experience.

“Two rules for Investing/Trading: Rule number one: Most things will prove to be cyclical. Rule number two: Some of the greatest opportunities for gain and loss come when other people forget rule number one.” – Howard Marks

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