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The Basics

Is there such thing has hybrid trading?

decisionPhilosophical question: If you trade partly in a mechanical fashion and partly in a discretionary fashion, are you really trading mechanically at all and not just discretionary?

I ask that question after re-reading an old article on the subject of hybrid trading, which is described as combining mechanical and discretionary approaches. The piece takes the view that mixing the two approaches can serve to counter the issues which each of them have individually.

In terms of the mechanical approach, the advantage is suggested to be that such systems provide very clear signals and thereby reduce the opportunity for psychological issues cropping up to derail our performance. On the negative side, however, sometimes mechanical signals can completely conflict with the market view we’ve developed. Whether that’s a bad thing is open to interpretation, though. 😉

The reported advantage of discretionary trading is that it allows us to trade in a way which may better account for current market situations. The short-coming, though, is that such an approach can be subject to psychological problems, as well as a simple lack of market understanding.

The article goes on to basically describe hybrid trading as being an approach in which the trader decides which signals provided by a mechanical system they will take and which they will ignore. Doesn’t this basically sound like a bad implementation of a mechanical system?

Personally, to my mind if there is any kind of discretionary element to the trading process, particularly with respect to entry and exit, then I consider it a discretionary approach overall. This does not mean there can’t be mechanical aspects, however. There certainly can.

In fact, many discretionary traders are mechanical in the way they approach things like position sizing and risk management. Setting trade account exposure at 1% is an example of this.

Stock traders often use filters to narrow down the number of companies to look at for consideration. That’s another example of a mechanical process in what can be a very discretionary overall approach.

So does having a mechanical element to your otherwise discretionary trader make you a hybrid trader? Or does it just make you more efficient?

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Reader Questions Answered

A Trader’s Educational Path

I received the following in an email from a member of my mailing list. Because I think it tracks pretty well how many people work their way through different tools and resources and methods I decided to include it here essentially unedited. My comments and responses to the questions presented are at the end.


Like I said before I’m new to trading at what I consider a professional capacity. I’m more focused than I’ve ever been and couldn’t be more excited about trading, and yes of course I have a million questions for a seasoned professional such as yourself.

My trading education lead me first to Lance Biggs and I have now watched all his videos multiple times and read all the articles on his website which is in fact where I came upon your article.  Lance had mentioned that the single person who had influenced his trading the most was Mike Reed (www.tradestalker.com) who trades mostly off of support/resistance . Although I trust Lance Biggs recommendation highly I would like very much to know if you have reviewed this system and your opinion if so.

Along with Lance Bigg’s trading basics money management was my key focus. Now that I have the basics down I’m looking for what I term as high probability entry’s.

I seem to have stumbled onto volume as the best leading indicator as it points to where the big money is going. Your article on value areas etc. was very helpful.  From this I have started looking at various sites who seem to have the best Volume indicators such as www.linnsoft.com, who has a value area indicator (www.linnsoft.com/tour/techind/va.htm), and others such as www.ninjatrader-support.com/HelpGuideV6/helpguide.html?PowerVolumeIndicators .

There is also Trade Maven who has seemingly come up with some volume based system that I’m still not sure about. They are by far the more expensive of the two.

Finally there is a group which seems to me to be the most impressive (due to their many videos). They use what is called Price-Volume-Spread-Analysis or PVSA.  I called them and spoke with someone at length about their program and was even more impressed afterwards having learned that along with PVSA (which sounds great but is still rather mysterious) they use a form of Price Analysis/Price Action where they analyze the last ten candlesticks.  This all sounds most fascinating but their program costs a small fortune.

I would me VERY grateful if you had any ideas/comments on their system or if you perhaps know anyone who has taken or heard about their program. This is their website. www.nextbartrading.com  Be sure to watch their live trading videos.

Finally, my instinct is telling me that there is a very simple and obvious way to trade using a combination of support/resistance, volume, and by analyzing price action.

What does your trading system look like?  What indicators do you use? and really, do you believe I’m on the right track?


The first question posed above was whether I had any experience with Mike Reed’s analysis. I personally have not read much of Mike’s actual day-to-day market analysis and trading ideas. I have some idea of where it’s focused (support and resistance as noted), but I’ve not made a study of what he does. This has nothing to do with the quality of Mike’s work. Based on the feedback I’ve received over the last few years, that quality is very high. For my part, though, I steer clear of reading other people’s market analysis as it tends to muddle my own.

My next comment is that I have not used any of the other resources listed above, so I can make not comment on them personally. I encourage anyone who has, to offer their thoughts via comment below, though.

Now, getting to the last part of things, my first comment is that combining support/resistance, volume, and price action analysis generally (but not necessarily always) falls into the category of discretionary trading. As such, “simple” probably isn’t the best word to use here. Good discretionary trading comes about from experience. That means lots of looking at charts, and lots of developing expectations about future price movement from what you see. It’s not a quick thing.

I personally trade in a couple of different ways. When position trading stocks I incorporate basic fundamentals with price action analysis. When short-term trading indices or forex, I use price/volume distribution analysis. In those same markets, when I’m looking longer-term I generally go with price action and volatility.

But that’s just me.