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Mechanical or Discretionary Binary Options Trades

Pros and Cons of Discretionary and Mechanical Trading


Are you familiar with the concepts of mechanical and discretionary trading? These two terms are contrasted with one another, and describe two different approaches to trading binary options (they also apply to stock trading, Forex, or any other form of trading that exists). They actually exist as endpoints on a scale, however, and most traders fall somewhere in the middle of the spectrum. Let me rephrase that. Most traders who are successful fall somewhere in the middle. There are actually a lot of traders at either end, but by placing yourself at either end, you expose yourself to hazards which are avoidable if you take a more balanced approach.

What are discretionary and mechanical trading as approaches? Here are the definitions of the endpoints of the spectrum:

Mechanical trading: This is a method for trading where all trade decisions are made according to an exact set of rules (a trading system). Traders do exactly what their system tells them to do, without deviating in any way based on instinct.

Discretionary trading: This is a method of trading where all decisions are made according to the instincts of the trader. No system is used.

Does either of these methods sound like they describe what you do when you trade? Many newbie traders are full-on discretionary traders. They approach binary options thinking, “I know a few things about economics; I can probably profit,” and they try their luck. Really, full-on discretionary trading based on instinct with no systematic approach can just be re-phrased as “gambling.” Because that is what it is.

There are a lot of people who are full-on mechanical traders, too. At first this may seem like a better approach, and it is—but it also has its drawbacks, and they can eventually lead to trading losses and a feeling of helplessness, because mechanical trading does not encourage the participation of the trader.

Let’s break it down and examine each type of trading, and then see how we can combine aspects of each approach for trading success.

Mechanical Trading



Discretionary Trading



Combining the Best of Both Worlds

What are the good things we can take from each approach to trading?

Mechanical Trading: The best thing that mechanical trading can contribute to our success is a disciplined, systematic approach with a real basis for making trades.

Discretionary Trading: Staying involved in your trading and being willing and adaptable enough to make changes when necessary is a great aspect of discretionary trading.

What is great about these two approaches it that when you combine them, the good aspects of each can cancel out the bad aspects, resulting in a sound approach to trading for the short term and the long run. Find or create a great trading system which you can use to reliably spot and execute good trades and avoid bad ones, but keep your head in the game. When you see a trade you know isn’t good, despite your setup satisfying your system criteria, consider skipping it. And if you start seeing patterns of these imperfections, try testing modifications to your system and see if you can create improvements.

In this way you mitigate chaos, but you also stay flexible enough to survive changes in the market. You may still find yourself more on one side of the scale than the other, but as long as you find a balanced approach that works, you are far more likely to excel than if you simply stick to trading that is 100% mechanical or discretionary.

Read these articles to learn about the tripod of success as well as using your own characteristic skills to be successful.

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