The Allure of Mechanical Trading
The idea of mechanical trading is seductive. Fixed rules. No emotion. Just plug in the system and watch the profits roll in. And, to be fair, there’s a lot to like about it. Mechanical trading protects you from dumb decisions – moving stops, chasing the market, revenge trading. It promises simplicity in a complex world.
But there’s a catch: markets aren’t simple. They’re dynamic, driven by factors a static system can’t always account for. The truth is, most mechanical traders fail. Not because their systems are bad, but because they’re incomplete. Even the best system needs a human touch—to decide when to turn it on or off, to adapt to changing conditions. In a firm running mechanical systems, they will turn them off if:
Market Conditions Unfit for Strategy Execution – because some strategies work better in high volatility and some in low (for example).
Scheduled Economic Events or Announcements – because the volatility caused can disrupt the logic of the system.
Significant Overnight Market Gaps – which might disrupt assumptions about opening levels and momentum, may wait for stable conditions.
Major Geopolitical or News Events – which introduce chaos the system isn’t designed to handle.
Detection of Unusual Market Activity – could mean a pause to avoid unnecessary risk.
Transition to a New Market Regime – trending vs ranging requires different approaches.
System Performance Metrics Deviation – drawdowns, win rates, and Sharpe ratios. Significant deviations from expected performance can lead to a temporary halt.
Regulatory Changes or Exchange Announcements – margin requirements, circuit breaker triggers, or new regulations can render the system’s assumptions invalid.
Need for Strategy Recalibration – over time, market dynamics evolve, requiring periodic recalibration of parameters.
Technical or Data Infrastructure Issues – yeah, shit happens.
Now – I do apologize to those who thought they’d just code up a moving average crossover and trade it like a robot – a lot of the above sounds awfully discretionary, doesn’t it? The fact is – you cannot avoid making discretionary decisions in trading – even if it’s just the decision to turn on your trading robot today!
This is where discretionary trading comes in. But it’s not the “gut-feel gambling” many people appear to. True discretionary trading leans on how we learn as humans, blending intuition with structure. Think of it as using your subconscious mind’s incredible processing power—but within the confines of clearly defined rules.
Here’s what discretionary trading rules might look like:
Is the market getting faster? Recognizing acceleration in order flow.
Is there overwhelming order flow against me? A clear sign to reassess.
Is the market slowing down? A potential reversal signal.
Should I take this Oil short, with that Oil refinery fire in Saudi? A sign to maybe sit by the sidelines and wait.
Should I use a wider stop/smaller size to take into account of this additional volatility?
I’ll take a pullback if the trend looks strong and the pullback looks weak.
These aren’t guesses – they’re merely the interpretation of “indicators” that guide decision-making. When applied consistently, they quiet the mental noise while letting you adapt to the market’s rhythm.
From Instinct to Insight: The Power of Structured Discretion
Discretionary trading often gets a bad rap as “just guessing.” But true discretion is far from random. It’s structured decision-making, built on repetition and refined through experience. Think of it as intuition with guardrails. Consider this: the best discretionary traders don’t “shoot from the hip.” They’re answering questions like:
Is this move supported by order flow?
How does today’s market behavior compare to previous sessions?
What’s the likelihood of this setup failing under current conditions?
How strong is this news?
How did the market react to this event previously?
One of the goals of the Jigsaw Trading Manifesto is to help people understand the gap between rigid systems and reckless instincts, offering a roadmap for structured discretion. It’s about harnessing your subconscious’s pattern recognition skills and pairing them with actionable rules.
It’s about treating trading like every other skill you acquire. Yet trading has been put on a 1000 foot pedestal that nobody thinks they’ll ever reach. People attempt to learn trading in a very peculiar way. Hence the topic of one chapter “You can’t learn to swim from a book”. There IS a way to learn how to trade – and almost universally – nobody likes it. Just like learning to swim – I recall sinking a lot, breathing in water through my nose, not being able to swim just 25 meters – I hated it. Love swimming now though!
The Feedback Loop: How Rebels Learn to See Clearly
Strange thing. The rebels in trading are the ones taking the lesser-traveled path of due diligence and focused hard work. Not LONG HOURS – everyone does that – just most people are playing “Trading Space Invaders” to fill those hours. The upside of the “Space Invaders” approach is that it’s fun. You go in – click buy and sell each day, and do the same again the next. What you don’t do is improve. Improvement itself is a process and like any process, there are good ways and bad ways to approach it. Clarity doesn’t come overnight, in fact – it doesn’t come at all without you ‘setting the scene’ for learning. It’s a ‘benefit’ developed through consistent practice and reflection. In fact, The Trading Manifesto emphasizes the importance of a feedback loop—a process of review and iteration that sharpens your edge. It’s the loop that causes the information to hang around in your head long-term. Here’s how it works (feel free to verify with a bricks ‘n mortar prop firm):
Post-Trade Analysis: Reviewing what worked, what didn’t, and why. Tools like Journalytix automate this, making it easier to identify patterns. You sill gotta look though!
Feedback-Driven Improvements: Small tweaks based on data, not emotion.
Subconscious Training: With each review, your mind learns to recognize what’s worth acting on and what’s just noise.
Most traders skip this key part of trader development. They’d rather chase the next trade than reflect on the last. But this reflection is where clarity is forged.
Embracing the Rider’s Spirit: Trading on Your Terms
The independent trader doesn’t follow someone else’s map – they carve their own path. At first, this sounds scary. This sounds a lot like “Here’s a chart – now go away and figure it out on your own”.
It’s not that at all. Of course, you can learn from others. You come to trading as a unique human being with your own unique set of flaws and glitches – which trading will kindly find for you if you didn’t know about them before. You will learn and you will apply what you learned. You’ll likely trade a market that suits you personally, some techniques will resonate and some will make no sense. Some things you’ll be able to “read” and some you won’t’
Trading clarity isn’t about rigid adherence to someone else’s rules. It’s about understanding the market deeply enough to adapt when needed.
The manifesto embodies this philosophy. It’s not a “paint-by-numbers” guide. It’s a framework that gives you structure while leaving room for nuance. It keeps you grounded, but it doesn’t clip your wings.
Successful traders embrace this spirit. They reject cookie-cutter systems and instead build their own, drawing from experience, review, and structured discretion. They don’t just see the market—they understand it.
The manifesto is more than a guide—it’s a call to arms. A challenge to see beyond the noise, to embrace clarity, and to trade with purpose. Like the rebel on an open road, you have the tools to navigate any terrain.
The question is, are you ready to use them?
