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Forex discretionary trading

Defining Your Edge As A Discretionary Trader,Two Trading Approaches: Pros and Cons

Trading bias is an inclination or outlook that a trader may have about the markets based on which s/he may believe that there is a higher probability of a specific outcome compared to any other possibilities. In forex trading, being bearish or bullish is a form of bias. It is normal to have biases especially when tech See more 10/2/ · Proponents of purely discretionary forex trading believe that price changes are determined mostly by fundamental factors, which influence interest rates and supply and 6/2/ · Discretionary trading is a kind of trading technique which uses all kinds of trading strategies to make a buying and selling decision. The list of trading techniques Discretionary trading is not making random decisions, taking trades you do not feel confident about, or rejecting trades which look good because you feel nervous. A discretionary trading methodology is characterized by a decision making process in the market that is based on discretion or judgment by the individual trader or investor. It is ... read more

Scanning Software — Scanning software is particularly useful for stock day traders who employ momentum based strategies. As such, a stock scanning software can be a vital tool for discretionary day traders to ensure that they do not miss any major trade setups within their watchlist. One of the better-known stock scanning software is in the market is Trade Ideas. Within Trade Ideas a trader can scan dozens of different preset scans to find the best trade opportunities during the day. Additionally, a user can customize and build their own stock scanning criteria based on their specific parameters.

It can be applied in both the equity market via the specific market index ETF , or in the futures market using the micro or the e-mini index futures contracts. This discretionary strategy utilizes a mean reversion approach, and takes advantage of a certain tendency that occurs within the stock market. More specifically, when the market gaps down on the open following a test of an important resistance area, there is a good likelihood that the price will return to the closing price of the previous day, essentially filling the price gap.

So here are the rules for this gap fill trading strategy using the 15 minute chart of the day session. Again, we will only execute the strategy within the major US stock indexes and only when a gap down occurs after a test of an important resistance level.

The reason that we only reserve the strategy to the long side is because this particular pattern isolates a period wherein market participants become overly bearish and panicky.

This results in an in ordinate amount of order flow to the short side. This condition is typically short-lived, as professionals push prices back to its fair price levels. This pattern does not work as well on gap ups after a test of a major support level. As such, we avoid trading that scenario altogether. Below you will find the 15 minute chart of the SPY based on the day session. The day session starts at AM Eastern and ends at 4 PM Eastern. The 4 PM closing price is very important as it relates to this methodology, and as such, you must be careful to set your chart parameters to this closing time for the day session.

Analyzing the beginning of price chart above, you can see that there is a relatively steady price move higher. The price action created a swing high which was later retraced. The price then put in a swing low, and then a subsequent swing high was created. The second swing high retested the initial swing high, which was a relatively important resistance level created on the price chart.

Shortly after this retest, the prices move lower off of the resistance level and closes near the low of the last 15 minute bar for the session. The following day the opening price gaps lower, and is substantially below the close of the previous day. If we measure the length of the gap and compare it to the average price bar over the previous 10 bars, we can confirm that the length of the price gap is greater than the average price bar over the last 10 bars.

As such, all the conditions for this set up have been met. As such we would place a market order to buy as soon as possible after the open. We would protect our position by placing a stop loss order below the entry price, which would be equivalent in distance to the length of the gap.

The upper yellow bracket represents the length of the gap, and the lower yellow bracket represents that same length below the opening price.

Notice we are not able to see the end of that second lower bracket since it is well below our chart image. But that is where the stop loss would need to be placed. Clearly, the price action never got anywhere close to that stoploss level. Instead, the price began to move higher fairly quickly, and continued to do so during the session until it eventually reached our target point. Remember, the target point for this trade set up would occur at the close of the previous day.

Notice here, that price started off by creating a swing high, which led to a sharp move lower. Subsequently, the price continued to move higher testing the initial swing high level. Then we can see another minor retracement to the downside, which was followed by another test of that resistance level. Prices moved slightly above the resistance zone during the final test, and the closing price for the session occurs near the top of that price range. The next day the price gaps down at the open.

We can see that the length of this gap down is greater than the average price bar within the last 10 bars. As such, we can prepare for a long trade since all of the necessary conditions of the trade setup have been met. A market order to buy would be placed as soon as possible following the open. The stoploss would be placed below the entry that is equivalent in distance to the length of the gap.

The price within the second bar also declined and made new lows for the day, however, demand soon entered the market pushing prices higher during that second price bar. That second bar resulted in a hammer candlestick formation. This is indicative of price rejection to the downside, and provides for a bullish implication. This coincided with our target point, allowing us to exit the trade for profit. We looked at some of the pros and the cons of discretionary trading, and presented a discretionary trading strategy built for various stock market indices.

Deciding whether a discretionary based trading strategy is right for you will depend on your personal strengths, weaknesses, and preferences. The best way to know whether this is a style of trading that suits your personality is to start implementing discretionary based strategies in the market along with a few system based strategies as well. You will be able to compare and contrast the advantages and disadvantages of each as it relates to your own level of comfort.

By going through this surveying process, you will be better prepared to align yourself with the trading style that suits your temperament the best. Take Your Trading to the Next Level, Accelerate Your Learning Curve with my Free Forex Training Program. Home Trading Articles Forex Futures Crypto Stocks Options.

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Discretionary Forex trading obviously cannot be automated — unless you choose to have a computer search for setups and then alert you so you can make the final call on the trade. Discretionary trading means using your judgment and intuition as part of the trading process.

Does this mean you do not use a system when you trade with your discretion? Certainly not! Without some kind of method in place, you will not be trading with discretion: you will be gambling. Forex newbies often confuse the two. Trading without some kind of method is a quick way to blow your account.

Discretionary trading is not making random decisions, taking trades you do not feel confident about, or rejecting trades which look good because you feel nervous. Discretionary Forex trading does not replace discipline — indeed, you must have excellent self-discipline to pull it off, and it is a great way to develop it in demo testing, preferably! What are the benefits of using discretion while trading? If you have to follow trade rules in order to avoid gambling, how can your discretion possibly help you trade well?

It may seem contradictory at first, but there are many reasons discretion can be useful, most of them centering on context. A mechanical Forex system might alert you to a great-looking setup in a terrible context; if you did not analyze the context and make your own decision, you would probably take the trade mechanically and fail. Of course, any Forex system you use, whether discretionary or not, will need to be statistically tested in advance.

If a mechanical system tests well in all contexts, there is no reason not to use it. Context changes, though, and the market itself transforms over time, and eventually you have to be ready to adjust your system for those changes, even if that system is mechanical. Most Forex traders operate somewhere in between mechanical and discretionary trading. It seldom makes sense to remove yourself entirely from the equation, but it is gambling to place trades based solely on your intuition.

You will eventually trade a Forex method with clearly defined entry and exit rules.

There are essentially two styles of trading that can be deployed in the market. The first is what is referred to as a discretionary based trading style, and the second is what is known as a system based trading style.

In this lesson, we will focus on the former, the discretionary trading style, with the intention of helping you to evaluate for yourself, whether it aligns with your personal psychology. A discretionary trading methodology is characterized by a decision making process in the market that is based on discretion or judgment by the individual trader or investor.

It is in direct contrast to systems trading, wherein all trading activities are governed by a set of rules that have been predefined and programmed within an algorithmic trading model. As such, a discretionary trader has much more leeway and flexibility in their trading business. Having said that, many discretionary traders have a detailed trading plan that outlines various conditions for entering into, managing, and exiting a trade.

But even with these outlined conditions, the discretionary trader is free to make overriding decisions on any trading related matters, and will have the final say in that decision. There are pros and cons to both styles of trading, and the question is not necessarily which is the better style. Instead, the more important question is which style of trading is better suited for you based on your personality.

That is to say that some traders are much more comfortable when they are in control of the decision-making process from beginning to end. Other traders prefer to have a more automated process and allow a trading system to execute all orders in the market based on their predefined rules that has been coded into their algorithm. Discretionary traders typically rely on trading techniques and strategies that generally have room for interpretation such as chart pattern analysis, support and resistance, Elliott wave , Fibonacci analysis , cyclical analysis and more.

System traders require more empirical or mathematical based data which can be programmed into an algorithm. Additionally they may use price smoothing indicators such as moving averages and price bands such as Keltner channels, or Bollinger Bands.

Discretionary trading has its pros and cons. Some of the advantages of using a discretionary trading style includes the ability for traders to quickly adapt to changing market conditions , and remain in complete control of how they react to such changing conditions.

This can be a great advantage for the experienced discretionary trader, who has the ability to sense if something is awry in the market and take that information and quickly adjust their positions or portfolio. The less experienced discretionary trader may however lack this sense of intuition in the market and may even be adversely affected by changing market conditions because they are unable or unwilling to react accordingly.

There are many different tools that discretionary traders can use. Below you will find a list of four important discretionary trading tools for swing traders that focus on the Futures and Forex market. Economic Calendar — Having access to an economic calendar is of vital importance to any intermediate term trader. By knowing the scheduled economic news releases for the current day and upcoming several days can help you better navigate your swing trading efforts.

Below is a useful economic calendar for discretionary currency traders provided by FXStreet. Correlation Table — A correlation table enables a trader to better assess risk within a portfolio of positions.

That is to say that you should always consider the effect of adding a new position to your current holdings. This is because some currency pairs and asset classes are highly correlated and thus can lead to a situation wherein you may be inadvertently overweighting a particular position in your portfolio.

The correlation table or matrix can provide valuable insights into new and developing correlations in the market. This awareness can help you steer clear of any unintentional portfolio overbalancing.

Volatility Analyzer — Discretionary swing traders should have a viable method for analyzing volatility within the market. There are ways to analyze current and future volatility. One of the more popular ways to analyze volatility is by simply looking at the average daily range indicator.

This indicator provides insights into the daily high low range within a given market, and traders can use that data to compare against historical tendencies. The VIX indicator is an excellent gauge of overall market volatility and fear within the stock market.

Below is a Volatility Analyzer for discretionary forex traders provided by Mataf. Commitment of Traders — The Commitment of Traders report is put out by the CFTC every Friday afternoon.

It details the current futures and options positions of three major market participants including large hedgers which are often called commercials, large speculators which are typically investment funds and hedge funds, and other non-reportables, which are typically smaller retail traders and investors.

There is a treasure trove of valuable information within this weekly report. W hen you know how the different players in the market are positioned, you can use that information to make better trading decisions. Although this report is completely free, many traders underestimate its value. Furthermore, most beginners will find that analyzing the data within it can be quite challenging. Nevertheless, it is an important tool that can benefit most if not all discretionary swing traders.

As such, it is well worth looking into. Below you will see a list of four valuable tools for discretionary day traders that focus on stock index futures and individual stocks. Market Profile — Market profile is a discretionary analytical method for understanding order flow in the market. Said another way, it can help in assessing fair value versus overextended market conditions.

Market profile takes into account three primary pieces of data. This includes time, price, and volume. When these indicators reach an extreme level, there is a strong tendency for prices to revert back to the mean. For example, when the TICK indicator reaches an upper threshold, that is indicative of an over extended price move to the upside, which should result in a downward correction towards the mean.

Similarly, when the TICK indicator reaches a lower threshold, that is indicative of an overextended price move to the downside, which should result in an upward correction towards the mean. News Feed — Every discretionary day trader needs to have a reliable newsfeed to stay on top of the latest news and economic releases for their trading instruments.

Some newsfeeds are built directly into a traders platform, while others can be a standalone application. Some newsfeeds are better than others. Some of the more reputable day trading newsfeeds include the following — Benzinga Pro, Bloomberg, Yahoo Finance, Market Watch, Wall Street Journal, CNBC markets, and The Financial Times. Scanning Software — Scanning software is particularly useful for stock day traders who employ momentum based strategies.

As such, a stock scanning software can be a vital tool for discretionary day traders to ensure that they do not miss any major trade setups within their watchlist. One of the better-known stock scanning software is in the market is Trade Ideas.

Within Trade Ideas a trader can scan dozens of different preset scans to find the best trade opportunities during the day. Additionally, a user can customize and build their own stock scanning criteria based on their specific parameters. It can be applied in both the equity market via the specific market index ETF , or in the futures market using the micro or the e-mini index futures contracts.

This discretionary strategy utilizes a mean reversion approach, and takes advantage of a certain tendency that occurs within the stock market. More specifically, when the market gaps down on the open following a test of an important resistance area, there is a good likelihood that the price will return to the closing price of the previous day, essentially filling the price gap.

So here are the rules for this gap fill trading strategy using the 15 minute chart of the day session. Again, we will only execute the strategy within the major US stock indexes and only when a gap down occurs after a test of an important resistance level. The reason that we only reserve the strategy to the long side is because this particular pattern isolates a period wherein market participants become overly bearish and panicky.

This results in an in ordinate amount of order flow to the short side. This condition is typically short-lived, as professionals push prices back to its fair price levels. This pattern does not work as well on gap ups after a test of a major support level. As such, we avoid trading that scenario altogether. Below you will find the 15 minute chart of the SPY based on the day session. The day session starts at AM Eastern and ends at 4 PM Eastern.

The 4 PM closing price is very important as it relates to this methodology, and as such, you must be careful to set your chart parameters to this closing time for the day session.

Analyzing the beginning of price chart above, you can see that there is a relatively steady price move higher.

The price action created a swing high which was later retraced. The price then put in a swing low, and then a subsequent swing high was created. The second swing high retested the initial swing high, which was a relatively important resistance level created on the price chart. Shortly after this retest, the prices move lower off of the resistance level and closes near the low of the last 15 minute bar for the session.

The following day the opening price gaps lower, and is substantially below the close of the previous day. If we measure the length of the gap and compare it to the average price bar over the previous 10 bars, we can confirm that the length of the price gap is greater than the average price bar over the last 10 bars. As such, all the conditions for this set up have been met. As such we would place a market order to buy as soon as possible after the open. We would protect our position by placing a stop loss order below the entry price, which would be equivalent in distance to the length of the gap.

The upper yellow bracket represents the length of the gap, and the lower yellow bracket represents that same length below the opening price. Notice we are not able to see the end of that second lower bracket since it is well below our chart image. But that is where the stop loss would need to be placed. Clearly, the price action never got anywhere close to that stoploss level.

Instead, the price began to move higher fairly quickly, and continued to do so during the session until it eventually reached our target point. Remember, the target point for this trade set up would occur at the close of the previous day.

Notice here, that price started off by creating a swing high, which led to a sharp move lower. Subsequently, the price continued to move higher testing the initial swing high level. Then we can see another minor retracement to the downside, which was followed by another test of that resistance level. Prices moved slightly above the resistance zone during the final test, and the closing price for the session occurs near the top of that price range.

The next day the price gaps down at the open. We can see that the length of this gap down is greater than the average price bar within the last 10 bars. As such, we can prepare for a long trade since all of the necessary conditions of the trade setup have been met. A market order to buy would be placed as soon as possible following the open. The stoploss would be placed below the entry that is equivalent in distance to the length of the gap. The price within the second bar also declined and made new lows for the day, however, demand soon entered the market pushing prices higher during that second price bar.

Discretionary vs Non Discretionary Trading!,Trading system biases

A discretionary trading methodology is characterized by a decision making process in the market that is based on discretion or judgment by the individual trader or investor. It is Trading bias is an inclination or outlook that a trader may have about the markets based on which s/he may believe that there is a higher probability of a specific outcome compared to any other possibilities. In forex trading, being bearish or bullish is a form of bias. It is normal to have biases especially when tech See more Discretionary trading is not making random decisions, taking trades you do not feel confident about, or rejecting trades which look good because you feel nervous. Discretionary Trading. While other trading styles emphasize the reading of signals based on mathematical formulas or price action patterns, or fundamental analysis alone, discretionary Disadvantages of discretionary buying and selling system Systematic back tests are not too easy. Heck, it might not be also exactly the same person deciding this time around because it The discretionary trading advantage is high adaptability to market conditions, using human logic. The discretionary trading disadvantage represents emotional attachment, mistakes during ... read more

A trade journal allows traders to list their trades, the things that went right or wrong, what one expected, and what one got. But that is where the stop loss would need to be placed. In contrast, each investor may not have the time to research or get information on all the profitable investment opportunities available in the market, so that they may lose out on opportunities. Trader since In this lesson, we will focus on the former, the discretionary trading style, with the intention of helping you to evaluate for yourself, whether it aligns with your personal psychology.

Market profile takes into account three primary pieces of data, forex discretionary trading. Stock Exchange Trading Hours Which Forex Broker Accept Paypal? App Software Download Android Windows Mac Android App Download Windows Software Download Mac Software Download. A discretionary trading methodology is characterized by a decision making process in the market that is based on discretion or judgment by the individual trader or investor. Some traders, especially beginners, forex discretionary trading to be poor at making trade decisions for which a system trading approach would be the better alternative. You have entered an incorrect email address! It is normal to have biases especially when technical and fundamental factors support them.

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