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Chapter 1. Trend Following > Discretionary v. Mechanical: How Do You Decide?

Discretionary v. Mechanical: How Do You Decide?

We have established the idea that you can be an investor or trader. We have established that trading can be fundamentally or technically based. Further, technical trading can be predictive or reactive. And we’ve explained how trend followers are traders who use a reactive technical approach based on price. However, there is one more distinction. Traders can be discretionary or mechanical.

John W. Henry, one of the best trend followers over the last 20 years, thinks it’s important for clients to know his approach and he makes a clear distinction between the two strategies: “JWH believes that an investment strategy can only be as successful as the discipline of the manager to adhere to the requirements in the face of market adversity. Unlike discretionary traders, whose decisions may be subject to behavioral biases, JWH practices a disciplined investment process.”[15]


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