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Systematic Trading to Cash in on Cryptos – Adrian Reid

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Transcript of Adrian Reid’s Interview On The Financial Survival Network podcast

Systematic Trading to Cash in on Cryptos – Adrian Reid

Speaker 1:

You’re listening to Kerry Lutz’s Financial Survival Network, where you get valuable information, you just can’t find anywhere else. To thrive in today’s trying times, you need the Financial Survival Network now more than ever. Go to FinancialSurvivalNetwork.com and get your free newsletter and gift. Financial Survival Network, now more than ever.

Kerry Lutz:

And welcome, you are listening to the Financial Survival Network. I’m Kerry Lutz. It’s 2-16-22. Well, person you’re about to hear from had a job, he became so good at trading that he gave up his job, but he was lonely. He had a big problem, all of his friends were at work and he had nobody to play with. So he decided to start teaching others his system. Now he’s got a huge tribe behind him. He comes from the land down under, otherwise known as Oceania, Australia. His name’s Adrian Reid, and you can find Adrian’s site at enlightenedstocktrading.com/fsn. You can get your free stock trading course. Adrian, pleasure to have you on. So your biggest problem in life was you were lonely, huh?

Adrian Reid:

Yeah, it was actually a huge unintended side effect of being success in trading because humans are social creatures, right? So I had this goal, long time goal of trading for a living. And finally, when I walked out of the corporate world and I got home and I was trading, it was brilliant for about three months. And then I started to think, okay, who am I going to share all my wins with? And who do I get to talk to about… Where’s the water cooler conversation? And so, to be honest, I started to get lonely just like you said.

Adrian Reid:

And so I started to look for other traders and there just weren’t that many successful traders around. And this is killer, right? Because a lot of people attempt to make money in the markets, but not many people actually know how to do it. So I started teaching what I was doing myself, so that I would have a group around me. And that teaching is obviously, a huge passion because it survived. And now I’ve got a big tribe. In Enlightened Stock Trading, we have stock traders and crypto traders from all over the world and yeah, the rest is history. So I’m really, really enjoying both sides, the trading and the teaching.

Kerry Lutz:

That’s a pretty cool story, I have to say. You’ve been trading, I think you mentioned for 20 years now that’s two decades.

Adrian Reid:

Yep, absolutely. So I started way back, took me about three years to get profitable. Like everyone, the journey to trading profitability can be pretty tough. I tried all sorts of things and I tried fundamental analysis and looking at charts and taking stock tips and signal services and all sorts of things. And finally, after about three years, I discovered systematic trading and systematic trading is just rules based trading. Where you have objective rules, back test them to make sure they work on historical data and then follow them in real time. Soon as I implemented my first trading system, my results turned around on the spot and I started making money.

Kerry Lutz:

So tell us, obviously in 20 years you’ve had a lot of wins. Share with us, some of your biggest wins.

Adrian Reid:

Yeah. So I trade systematically, which means I can have a lot of diversification in my account. So at the moment, I’ve got probably close to a dozen systems running live. And look, the biggest individual wins, I’ve had stocks where I made, let’s say 130 times return on what I risked. And so leading up to the downturn in 2008, I had this one stock, it was mining stock or mining services company actually. And I bought it for a couple of dollars a share and ended up at $129 a share is what I closed it out at. And this is the beauty of trend following or trend trading, you can find stocks which have this massive runway and jump on them early as the stock is breaking out and just ride that trend the whole way. So trades like that are my favorite, absolutely. I have short term system as well that are in and out in a day or two, but it’s the long term trends that really kind of build the capital in my world.

Kerry Lutz:

And you’ve applied this system to trading and cryptos as well?

Adrian Reid:

Yeah, absolutely. And in fact, in cryptos, because it’s such a massively emotionally driven market, and there’s so many new people who have never traded before, the market is absolutely perfect for systematic trading. Because what systematic trading does is eliminates the emotion from your trading decisions and when everyone else is being emotional, instead of rules that eliminates the emotion will dominate. And so my crypto systems make about 10 times the return with about the same draw down as what my stock trading systems make.

Kerry Lutz:

Wow. Hey, so what cryptocurrencies are you trading currently?

Adrian Reid:

Well, I actually trade a huge universe. So all of my systems are what I call portfolio systems, which means I’ll look at the whole market, say, okay, what is meeting my criteria today? So what is trending? What has the right level of volatility? What has the right level of strength compared to the other coins, other tokens and I’ll buy those and I’ll follow those trends until I hit the exit target. So I’m holding probably couple of dozen different tokens right now.

Kerry Lutz:

That much, huh?

Adrian Reid:

Yeah, absolutely.

Kerry Lutz:

How do you trade them? Do you trade them out of a wallet or you trade them off an exchange, like a coinbase type thing?

Adrian Reid:

Yeah. I trade on exchange. So because I’m trading in and out… In crypto, at least I trade in and out fairly quickly. So over a day would probably be the shortest holding or half a day, up to several months. So I don’t know when I’m going to have to get in and get out. So I’m trading on Binance and FTX at the moment, but a lot of the big exchanges are fine for the sort of style of trading that I use.

Kerry Lutz:

So what are your current feelings, if you might share them with us about Bitcoin, about Ethereum?

Adrian Reid:

Yeah. So Bitcoin, I mean, we’ve obviously been through a big correction, but it looks like we’re breaking out of that down trend and forming a new up trend. I’m a little cautious. I have systems that get in quickly when the market turns around and then somewhat more slowly and then somewhat more slowly. So I’m not going all in right now on a recovery. Recovery is possible, absolutely. And my systems are starting to load up. I’m certainly in Bitcoin and Ethereum at the moment, but not fully loaded. I have a lot of cash on the sidelines, just waiting for more confirmation that the down trend is over. Because one of the things about the crypto market that I find interesting is that the corrections are obviously huge, right? The bear markets are short and very steep and will drop 50, 60% in weeks, right.

Adrian Reid:

And the recovery or the volatility during those bear markets can be pretty big. We can have some big rallies, but we’re still in a bear market. So I don’t want to get faked out by one of those rallies with all of my capital. So what I’m doing instead is like, okay, it looks like we’re back on, one of the systems will get in and the recovery goes a bit more, the next system will get in and so on. So let’s say I’m about 25 to 30% exposed right now. And that’s about my level of confidence that the rally is going to continue. But who knows in another day or two, if we had this conversation again, if the market continues to go up, I’ll continue loading up because this is a momentum driven market. And when momentum is to the upside, everything starts moving and you can really start making some money.

Kerry Lutz:

Yeah. So it’s interesting with Bitcoin, just looking at the moving averages. The five day moving average is negative, the 20 day is positive, the 50 day is negative, the 100 day is positive and I just find that kind of… And the 200 day is negative and the year to date is negative. So it’s kind of getting conflicting signals, isn’t it?

Adrian Reid:

Yeah, absolutely. Absolutely. And so looking at the chart, I mean, at best we’re early in a recovery. Okay. So if you were a really ultra conservative investor at this point, you’d be looking at it saying, well, look, maybe, but I’m just going to hold off and see. Because we’re a long way down from the peak. The peak was at 69,000, we’re recovered now from 32,900 or so. And it feels like a long way up because we’re now at what, 44,000, but it’s not really that far in the context of what the trend was, the down trend. So I’d say we’re early days and that’s why we’re still seeing some conflicting signals.

Kerry Lutz:

So it could still go down from here?

Adrian Reid:

Oh, look, it could, it could. What I’d be looking for is a breakdown below the sort of 25, 40 day moving average. And that would be a warning sign. And then obviously, if we make it back to the lows, then we’re in trouble.

Kerry Lutz:

All right. So you cautiously open a position, right? And then you for confirmation, and then you basically build up your position from there.

Adrian Reid:

Yeah, absolutely. Now I want to sort of stress though, that the approach, the systematic approach that I’m taking is I’m sort of personalizing or characterizing it, the system does the work. So I have one system which is a little quicker to get in, another system which is a little more cautious and another system, which is a little more cautious. So the rules kind of get me in cautiously like that. I’m not doing the mental work of thinking, okay, I’m a bit cautious. So therefore, I’ll get in a little bit now. It’s a rules based approach that scales in and scales out when the market starts to turn.

Kerry Lutz:

Understood. All right. Interesting. Is there anything else your systems work in, or you just use stocks and cryptos now?

Adrian Reid:

Yeah, so I use stocks and crypto. A systematic approach will work in almost any market. Options is a little hard because of the different expiry dates and the different strikes and everything. So it’s much harder to test. So I would say the systematic approach to trading works for any market where you can get the data as a continuous data time series. And you can, you can put that data into some software to test it. So you apply the rules, you make sure the rules worked over the last 10, 20 years, vary them, optimize them to fine tune the rules and then apply them in real time trading. So my stocks are, I trade US stocks, Australian stocks, and Hong Kong stocks and I trade a broad universe of alt coins in crypto.

Kerry Lutz:

All right. So you’re not using leverage for this?

Adrian Reid:

No, not a lot. I don’t use leverage in crypto. Frankly, you don’t need it. The markets are so volatile that you can trade with the spot market, no leverage and make huge returns. I mean, triple digit annual returns. And in stocks, I use just a little sort of 130% is my maximum longside exposure.

Kerry Lutz:

So how much money do you need to start with to utilize your system?

Adrian Reid:

Yeah. Good question. Depends a little on the market. In crypto very, very little. So because there’s no minimum position size, you can buy very small positions. As small as 500 bucks will allow you to trade a systematic approach in crypto. In stocks, it’s a little higher. In US stocks, a couple of thousand bucks will allow you to diversify and buy a portfolio of using a systematic approach and in the Australian market, more like $5,000.

Kerry Lutz:

And your course, your service itself, do you give buy and sell signals? How does it work?

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Speaker 1:

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Adrian Reid:

Yeah. Good question. My philosophy is that I want to empower the individual trader. You see, I actually don’t want thousands of people looking to me saying, what should I buy? What should I sell? Should I sell now? Should I sell now? Do I still hold? Like, I’m getting nervous. What I do is I empower traders with the knowledge to answer those questions for themselves. Because I’m teaching a rules based approach and you take those rules, you put them into some trading software and you can validate them yourself. And let’s take those rules, let’s test them over the US market over the last 20 years. Let’s see if they worked. And then if you have a question like, Hey, should I take profits? I’m 50% up, should I take profits on this stock? That’s a question that you can put into the system as a rule. Say, okay, let’s take profits at 50% and let’s see what happens.

Adrian Reid:

And then if the performance of the system gets better on the historical data, then the answer is yes. If the performance of the system gets worse, then the answer is no. And so all of a sudden you can start to answer your own questions. And that puts people in a position of power, which is what I want when it comes to their money and their financial future. So I give them the rules, I give them the tools and the process to test and evaluate those rules and I give them the knowledge to answer their questions like that themselves, like the example we just gave. So that way, at the end of the course, people are walking away, truly a trader. Not a person investing in the stock market, dependent on someone for tips. And there’s a huge difference.

Kerry Lutz:

Okay. Do you have software that implements your system or it’s strictly, you got to do it on your own?

Adrian Reid:

So the software is, I use an off the shelf, like a commercially available package. It’s just a couple hundred bucks to buy. It’s a very cost effective package. And what that does is it takes the historical data and your rules and it tells you what are the signals my system is giving today. And then you go on place them with your broker, whichever broker you are using. If you’re using interactive brokers, if you’re using fidelity or whatever, you can use your broker. And this is another thing that I think is really important for everyone to understand. When people give tips and say, oh, you’ve got to use this broker, they’re doing that because they get a massive kickback from that broker. And I don’t want that. I want everyone to have the best deal for them, which means I just do the empowerment piece. I give the system rules and you trade wherever you want. Wherever it’s safe, wherever it’s cost effective for you in your country, in your jurisdiction, that’s where you’re going to trade.

Kerry Lutz:

Okay. Sounds really fascinating. I’m curious to check it out myself. I might just sign up for the offer of as far as, so cryptos and you trade a wide universe of them, obviously. But cryptos can be super, super volatile and you must have taken some big hits in them in the past.

Adrian Reid:

Yeah, look, it’s a good question. Undoubtedly, when you trade crypto, you have to expect some volatility. But here’s the thing, the volatility at the individual coin level or token level, doesn’t have to be reflected in your whole portfolio. Because sometimes, the volatility in one token is far higher in a particular instant than everything else. So I might take a big hit in one token, but something else in my portfolio is doing well. So when I’m fully loaded, I’m probably holding 30, 40 positions or more. And so if I take a big hit in one, it really actually doesn’t matter. And this is another advantage of the systematic, because I’m not researching each individual token and making a fundamental decision about, do I like this one? Do I like that one? I’m following the rules and saying, okay, the rules say, these are the ones that are going up, they’re the ones that I’m going to hold.

Adrian Reid:

So I can hold a much broader portfolio than most people and any trader who’s trading systematically can do this, right. And so, yes, I take some big hits in an individual ticker, but at the portfolio level, it’s so diversified that doesn’t matter.

Kerry Lutz:

Okay. So the obvious question is, why do I want to go systematic if I believe that cryptos are going higher? Obviously, if I bought Bitcoin a year and a half ago, could you have outperformed where I’d be now, if I’m still holding it?

Adrian Reid:

Yeah. Great question. Would you be outperforming? Yes, absolutely. And the reason is in the crypto markets, the bear markets are so big. So you don’t actually have to sit in Bitcoin from 69,000 all the way down to 32, just waiting for the next high. It’s actually pretty, with an objective set of rules, you’re not nicely get out towards the top of that down trend and then get back in nicely, just at the start of the new up trend. And taking big chunks out of the long term mega trend that we are hoping to see in Bitcoin and all and other cryptos is where the huge profits are in my view. So I don’t like to sit through massive drawdowns. I don’t want to see my account go from a hundred all the way down to 20, and then back up to a hundred over a space of three years.

Adrian Reid:

And why would you do this? If you look back in crypto history, which is not very long. But if you look back in crypto history, from the peak of the biggest bull markets, there could be a period of years where you are waiting to recover. And most people just aren’t that patient. And I’m probably not that patient, truth be told. So I would rather a systematic approach that takes advantage of the bull markets than gets out and waits on the sidelines. And then when the next bull market starts get back in a systematic way and that way it’s a far more tolerable market to trade. The results you can get with some very simple market timing in this market are incredible.

Kerry Lutz:

All right. So obviously, you’ve dealt with a lot of different people, a lot of different traders. Who shouldn’t use your system?

Adrian Reid:

Who shouldn’t? Oh, good God. I’ve never been asked that’s a great question. Look, people who are completely unable to follow the rules. Now I say completely unable, because most people can’t stick to a process initially, but why? They can’t stick to a process typically, because they don’t have confidence in the process. And once you’ve got absolute confidence in the process, pretty much anyone can do this. But you’ve got to learn enough to actually have that confidence to follow it. And so I’ve put a big focus into my training on this is what works, this is why it works, this is what to expect when it is working, this is what to look out for to tell you what’s going to stop working and how to test it and evaluate it for yourself.

Adrian Reid:

So if you’re willing to go through that learning upfront, ongoing trading in crypto or stocks becomes very easy. It’s because once you’ve got the system in place, to follow that system takes just a couple minutes a day because I’m trading on daily charts, right? So if you can do that work up front, which takes in crypto a couple of weeks, I get people up and running, then follow the rules. That’s great. But if you’re unwilling to learn and unwilling to do that work up front, forget it. Don’t trade, let alone don’t trade systematically.

Kerry Lutz:

Yeah. So emotions when it comes to trading, controlling your emotions, probably the most important thing. And you hear about guys trading 20, 30 years, and then they all of a sudden lose their edge. You lose your confidence and you just can’t trade anymore. If you do, you’re going to lose big time.

Adrian Reid:

Yeah, absolutely. Because as soon as you start letting the emotions creep in, then your sort of either revenge trading or you are being aggressive because you’re trying to make it big or you’re trying to make it back. Or, any of those things are a real warning sign. And so the key to success is boring consistency. Now that’s not going to sound exciting and that’s not going to thrill people, but getting rich, getting wealthy is not about exciting. It’s not about doing the exciting thing. The excitement comes as a result of the wealth, right? The thing that you have to do to build the wealth, doesn’t have to be day to day, the most thrilling roller coaster in the world. What it needs to be is reliable at making money. And I think that’s it. You got to keep the emotions out of it.

Kerry Lutz:

Yeah. So on an average trade 1,000, $5,000, what type of profit do you seek?

Adrian Reid:

Yeah. So on stocks, the average profit it’d be depending on the set of rules I’m using, somewhere between five and 150%. So my trend following would be going for the really big games. My short term systems, which are mean reversion systems would be going for sort of five to 10%. On crypto, similar sort of thing. The mean reversion systems would be aiming for about a 20% sort of profit. The longer term systems, 250%.

Kerry Lutz:

All right. Well, Hey, you’ve answered all our questions. Appreciate that. Just tell us again, your site, how to sign up, what you get.

Adrian Reid:

Yeah, absolutely. So if you go to EnlightenedStockTrading.com/fsn, I’ve got a bundle, a trader transformation bundle there, especially for your listeners, Kerry. So what you get in there is a free trading course to help you get that mindset right, understand the parts of becoming a successful trader and some cheat sheets to help you turn your trading around today, start making more money immediately and a bunch of other resources to help you get moving in the right direction. Because again, what I’m all about is empowering traders to be successful. So EnlightenedStockTrading.com/fsn, and I’ll see you there.

Kerry Lutz:

All right. Excellent. Well, Hey, we appreciate you to taking time out from your day, educating us about this. Adrian, sounds fascinating. You’ve got a question for Adrian, shoot an email off to [email protected] And don’t forget, go over to FinancialSurvivalNetwork.com, sign up for your free newsletter and we’ll have a link of course, to Adrian’s course in the show notes of this interview. Appreciate your taking time out, Adrian. We’ll talk to you again soon.

Adrian Reid:

Thanks so much, Kerry. Great to be here, really enjoyed it.

Speaker 1:

Thanks for listening to Kerry Lutz’s Financial Survival Network. Your solution to today’s trying times. For are the latest go to FinancialSurvivalNetwork.com. Financial Survival Network, now more than ever.