Differences between Discretionary and Systematic Traders

Below are some of the differences between discretionary traders and systematic traders.

Discretionary Traders

• Trade base on intuition formed from their experiences in the market
• No specific set of rules to dictate their trades. Their approaches are normally difficult to quantify
• More flexible and adaptive to market changes (new normals)
• More susceptible to emotional biases but can be better managed with more experience in the market
• Attempt to anticipate the market’s next movement
• Usually trade on a small pool of stocks or a specific sector or market that they are familiar with
• Spend more time in analyzing current fundamental new
• Confidence comes from their experience in the market

Systematic Traders

• Specific set of rules that they follow for entry and exit (and risk management)
• Rules are usually based on price and volume or even fundamental metrics
• Reactor to market movements instead of actor
• Easier to quantify and automate
• Unemotional. Losing trades are expected. They believe the system will be able to profit in the long run if their testing has already shown positive results
• Can have many stocks in their watchlist/filter across different markets
• Most time spent on ‘perfecting’ their rules or system at the initial stage. After that, time is usually spent on fine-tuning or researching other new systems. Usually lesser time spent on trade analysis on a daily basis
• Confidence comes from successful testing of their system

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