Analytical Trading vs Discretionary Trading

Change is the only constant in life. The same thing can be said about the stock market. As much as it stays the same with buyers and sellers battling to get the best price, the stock market’s permutations are forever changing. This is particularly true in the area of trading strategy. For many years technical short term stock traders simply used seat of the pants, intuitive chart or tape reading tactics to gain an edge in the market. This discretionary trading skill set was built up from looking at 1000′s of real time charts and level 2 screens. Some of these discretionary traders would watch the lead market maker or axe on the level 2 jockey for position then try to ride his coattails for profits. Others would watch tick or very short term charts for support and resistance levels that felt significant prior to entering trades. Still others would combine tape reading, charts and fundamental data into an un-replicable soup of data requiring strong intuitive skills to execute.

There are traders who still utilize, sometimes very successfully, discretionary methods. However, technology has pushed stock trading strategies into a far more analytical place than they were in years past. Analytical systematic trading relies on statistics and automation for success. Quantitative skills are becoming more and more necessary to compete in the stock market. Large trading firms are now made up primarily of math wizzes and computer programmers.

As the markets change, discretion and market feel are still required albeit in a different way. Knowing what programs/trades to implement based on the overall market and being able to quickly adapt to a changing environment is one skill set that will never change for traders.

Lightspeed Financial Services Group LLC is not affiliated with these third-party market commentators/educators or service providers. Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lightspeed Financial Services Group LLC does not endorse, offer nor recommend any of the services or commentary provided by any of the market commentators/educators or service providers and any information used to execute any trading strategies are solely based on the independent analysis of the user.

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