"Close, but no cigar ..." or why I prefer discretionary e-mini futures trading

I said (wrote) those words more than once on Twitter in the recent years. They refer to George IV, a mechanical e-mini futures trading system, that sometimes misses a good trade simply because one condition is not met. This happened again on May 10th, 2016 (see the tweet embedded below). That this can be irritating goes without saying.

This is one reason why I prefer discretionary trading. Ideally when combined with the calls or near-calls of George IV. I think that's the best way to use this system even though it has had a few years of good performance including the last two (2014-2015).

When you trade in a discretionary manner, you are not on the mercy of a mechanical system and you can also take more trades for many mechanical systems do not issue that many calls. Nor should they, as their focus is on the best possible trades with the potential of delivering larger profits. A mechanical system that often tries to capture small profits is likely to work for your broker by generating hefty commissions, but only mediocre, if at all, profits for you. Of course, exceptions to this rule are possible, but they are really exceptions and systems like that may be less robust than those that go after larger profits.

While discretionary trading is skill trading, this skill can be mastered and you can become better and better at it. There is some potential for growth here, much greater, in my opinion, than it is the case with system trading.

Finally, discretionary e-mini futures trading is more suitable for small traders. To make a living through system trading a bigger account is required to withstand system drawdowns and you ideally want to trade more than one system, preferably not correlated with others so as to get some protection from bigger drawdowns. Discretionary trading can be done with smaller accounts, but the bigger your account the better, in general.

While I have said these and similar things on this site on other occasions before, I thought that I mentioning them here in one place would not hurt. But I do prefer "cigars" rather than the feeling of a disappointment of not closing the deal. If you too, discretionary trading is your best choice. Not only when it comes to trading e-mini futures, but especially so, as those trading stocks usually have larger accounts, or, at least, they should due to a smaller leverage that trading stocks offers.

Posted on June 7th, 2016.