What is more effective: situational or system trading?
This question among traders is as old as trading on exchanges itself. Since the technical analysis appeared and some patterns in price movements were revealed, traders were divided into 2 camps. Some are sure that trading success is the trading of the same models, others believe that the market is volatile and there is no ready-made recipe for all occasions.
These are our colleagues who spend years of their life searching for the perfect algorithm. It does not matter what it is based on: on the testimony of a group of indicators, graphical trading patterns, scalping setups for trading in a glass and HFT. In most cases, they try to automate the algorithm to the utmost by creating a kind of "tablecloth-self-assembly" for the market.
- Automation capability.
- The possibility of wide-format testing of the strategy on historical data and identifying the best parameters.
- Getting rid of the human factor. A person is always nerves, emotions, interference with a systemic process that is strictly debugged at a distance. As a rule, any intervention leads to negative consequences.
- The ability to work as robots at speeds that are not available to ordinary traders.
A vivid example of systemic trading were the "turtles." A group of traders that Curtis Faith described in his book The Way of the Turtles. The guys completely far from the market were trained in a short time and systematically traded very simple technical situations. The experiment to create traders from amateurs fully confirms the effectiveness of this approach.
Free artists or intuitive traders.
These guys, as a rule, consider (and not without reason) that the market is a living organism. It does not have the same once and for all profitable recipes. Each situation is unique in some way.
- A flexible approach to the market.
- The human factor in the positive sense of the word. Intuition often helps to avoid serious mistakes.
- Ability to change with the market.
The most famous trader, who can be attributed to situational ones, is Jesse Livermore, whom many recognize as the greatest stock speculator and who several times made fabulous fortunes out of nothing and also lost all the money earned in unsuccessful transactions.
Trading in plus is possible both systemically and situationally. From personal experience I will say that the system is more suitable for scalping and HFT strategies. Normal operating speeds are simply physically inaccessible to humans. And this is a field for battles between machine guns. As for longer-term trading, the system remains here, since anyway some kind of support base is needed. The patterns by which decisions about entry are made will be the same (and this is systematic), but the conditions in which they will be formed each time will be new (and this is situational).
Only competently combining these manners can you get a good result.