What is Discretionary Trading?

What is Discretionary Trading?

Discretionary trading relies on the trader’s judgment rather than rigid rules or automation. It allows flexibility to incorporate qualitative information, but it demands discipline, experience, and self-awareness to avoid impulsive decisions.

Advantages

• Adaptability: Quickly adjust to unexpected news, policy surprises, or shifting liquidity.
• Contextual awareness: Blend technical structure with macro narratives, sentiment, and order flow.
• Opportunity recognition: Spot nuanced setups that systematic strategies may overlook.
• Risk tailoring: Scale size based on conviction or evolving volatility.

Imposing Structure

Flexibility doesn’t mean randomness. Discretionary traders need a written trading plan outlining setups, risk limits, timeframes, and review routines. Without structure, it’s easy to blur the line between insight and improvisation.

Risk and Review

• Consistent sizing: Define position sizes relative to account risk even when trading by feel.
• Journaling: Record reasoning, emotions, and outcomes to spot patterns in decision quality.
• Feedback loops: Conduct weekly reviews to evaluate rule adherence and adjust only when data supports changes.
• Continuous learning: Study macro trends, policy shifts, and market microstructure to refine judgment.

Advanced Guidance

Build a repeatable, rules‑based process so decisions are consistent across sessions and instruments. Start from context (higher‑timeframe structure, positioning, macro tone), then define precise triggers and invalidation on execution charts. Track spread and depth so your order type matches conditions. Pre‑compute scenarios (breakout, fakeout, mean‑revert) and map actions for each to reduce hesitation.

Execution Framework

• Plan entries at levels with confluence (structure, momentum, time‑of‑day).
• Place stops beyond the logical invalidation, not arbitrary distances.
• Target at least 2–3R; scale out methodically and trail remainder.
• Avoid thin liquidity windows unless the setup explicitly requires it.
• Record slippage and spreads; poor fills can erase edge.

Review Loop

• Journal setups by session and pair to learn where they excel.
• Tag trades by catalyst (news, trend continuation, range breakout).
• Recalculate expectancy monthly; prune underperforming variants.

Risk Controls

Keep daily loss limits, reduce size after consecutive losses, and pause during regime shifts. Survival enables compounding; treat discipline and execution quality as part of your edge.