Today (Sunday 15th March 2020), I ran a live training for my subscribers on how to survive and profit while trading stocks in a bear market. The current bear market, caused by the hysteria around the Coronavirus (COVID-19) and also the oil price crash caused by Saudi Arabia is an extremely volatile and risky time to be trading – this training shows you how to survive and profit in conditions like this.

The training was recorded live and went for 2.5 hours including a lot of great Q&A about how to make money trading stocks in the current environment.

(Please note I had a short problem with the sound at about the 10 minute mark for about 30-40 seconds – Please just fast forward over that section)

 

To find out more about The Trader Success System and how you can become a confident, independent, systematic stock trading in just 3 months, CLICK HERE

Here is some feedback from the live attendees of this session:

“Excellent webinar, Adrian! Thanks for sharing your knowledge and experience. Very much appreciated! I’ve got to leave now but will check the recording. I’m happy with my decision to join your program. You’re a good teacher!” ~ Frank S.

“Great! Amazing, thank you.” ~ Susan

“Thank you very much for your time, very generous of you Adrian.” ~ Jon

“Awesome session Adrian, thanks very much for your time and wisdom. Advice for anyone on the fence with joining the Trader Success System. Do it, it is fantastic, and Adrian is the real deal and is super helpful, just like this session.” ~ Wayne M.

“Brilliant session thank you so much” ~ Richard S.

“This was very helpful. I needed help to not freak out in this situation and get an idea of what can be done. Thank so much Adrian” ~ David

“Adrian. Awesome. Good stuff.” ~ Anthony

“Awesome Adrian. I think you could be a rocket scientist!” ~ Mark V.

 

These concepts are critical for you to understand if you are to survive and profit in the coming months. I talk a lot about the benefits of systematic stock trading and having a diversified portfolio of trading systems and also cover many concepts to help discretionary traders who use charts, technical analysis and fundamental investing and trading strategies.

This training is so important I am making it available for free here. I sincerely hope that it helps you survive the current volatile market conditions.

Please watch the video below ASAP and comment below the video if you have any questions. This is very timely information at the start of a new Bear Market.

Show Full Transcript

All right. Thank you so much for joining me everyone. Just in case you haven’t seen me before. My name is Adrian raid. I’m the founder of enlightened stock trading. And today we’re talking about bear market survival and as you know, no doubt we’ve had a very, very interesting couple of weeks in the market and in the world. We’ve got some really crazy things going on right now with with viruses spreading around the world, countries in lockdown, people isolating themselves. And you know, we even had a Saudi oil driven, a Saudi driven oil price crash thrown into the mix. We could measure just to add some extra volatility to the market. So these are very uncertain times. And I just wanted to, to have this session to to share with you some thoughts, give you some perspective and also an approach or some or some approaches to to basically improve your trading, protect yourself and position to either make money or come out of this situation, this crisis with with a better outcome, either with a higher, bigger account or with an account that is well positioned to benefit from your recovery on the other side.
So this has bear market survival training. Bear markets don’t come along that often. As you know, we’ve had a few big corrections over the last last few years, but the last time we had a real bear market was in 2008. And you know, that’s a long time. Certainly before many modern day traders really ventured into the market, you probably all, or most of you will remember it, but whether you traded through it or not you know, this and lessons to learn from that market and also from some of the differences as well. So let’s get into what we’re going to cover. So today what I plan to cover is first of all, I talked through a brief disclaimer as always some perspective on the markets, just to kind of put things into context. You know, where we are, where we’ve come from, and just to step back from everything that’s going on a little bit because there’s a lot of panic in the world and it’s very hard to make good financial decisions, good trading decisions when are really in the thick of it.
And so I just wanted to bring a little bit of perspective to the start of this conversation and then we’ll go into some of the detail. I’m going to give you a bit of an update about what’s happened so far. And obviously, you know, most of you will have seen what’s going on in the markets, but you know, I wanna put a little bit of a context around that. I’m going to talk a bit about what a bear market looks like, the anatomy of a bear market. Just to let you know a little about what to expect and and how it feels and you know, what works and what doesn’t. We’ll cover some possible markets scenarios and I’ll use a model that I’ve developed called the market system map to talk through some different scenarios that could play out from here.
This may or may not be over and I’m, I think highly likely it’s not to be over. And I’ll cover why. We’ll talk about some different trading strategies and what they’ve, what different strategies have done to date, how they’ve behaved and responded to the situation in the market, and then also what those strategies could could experience going forward over the next few weeks and months. I’ll talk about portfolio maintenance, what to do with your portfolio and capital allocation, how to protect yourself while also positioning for profit. And then finally, we’ll, we’ll stop all and I’ll stop preaching and we’ll we’ll take Q and a and I’ve already got a bunch of questions from the email that I sent out. So thank you so much for everyone who sent those. But I’ll also take questions from from the chat role and then later on also I can unmute people and we can take specific questions from you as well.
So that’s the agenda. Does that sound okay? If there’s anything else you want me to cover, please add it to the chat row if that’s, if that sounds okay. Just yes or type yes into the chat role and and let me know I’m good to go. So that’s what I’m this is what I’m going to be focusing on primarily. Okay. Yeah. Okay. And if look, some people aren’t webcam, some people are not, you can feel free to turn off your video if you want. On the zoom window, if you hover your mouse over the zoom window, there’s a little camera button. You can turn that off. If you don’t want to be on camera, I’m happy for you to be on camera. Totally fine. At least that means I can see your facial expressions. I know if I’m hitting the Mark, but if you want to turn yourself off camera, that’s cool too.
Okay. Here we go. So first of all, the disclaimer look, you can read this in your own time. This is the disclaimer from my website, but I want to say right up front that your finances are your responsibility. Nothing in this presentation should be considered financial or or any other sort of advice. And it doesn’t replace the advice that you should seek from your own independent financial advisor. Everything I talk about here is for educational purposes only. And you know, look, you know the drill, it’s your money and it’s your responsibility and, and you need to take that responsibility. So please remember that this is not financial advice. I’m not going to be telling you what to do here. I’m going to give you some perspective of that. I had a think about the markets as they’re currently behaving and and that’ll allow you to go away and you know, think about and make your own decisions.
And if you’ve got questions you can ask me. And if I can answer them, I’ll do is do so to the best of my ability. But also remember that you’ve got your own professional advisors that you consult, you can consult as well. Okay. So with that over, let’s, let’s start with a little perspective. And you know what I’ve got here, just to bring things into context is a, a longterm chart of the S and P 500 index. And one of the big challenges that, that, that certainly the media face but also many, many relatively new traders face is to remember to step back from what’s going on. Because if you look at the markets right now and you look over the last couple of weeks, it’s it’s very easy to think that the world is coming to an end. But what I want to share with you, or I’ll help you realize today is that what’s going on is actually pretty normal in some sense.
In some ways it’s normal. In some ways it’s quite extreme. Now, let me, let me sort of elaborate on that. This is a, I’m a monthly chart. And if you look at the very far right of this chart, you know, we’ve had this two very big down bars and there’s a monthly chat or a weekly chart. I can’t remember what I put on there. Anyway, there’s two very big down bars and they’re very extreme. And right now what we’ve experienced is probably one of the fastest 20% drops in the market in history. Not the fastest, but one of the fastest. And so in that, in that sense, this is quite an extreme situation, but when you zoom back, when you step back from the market and look at 20 or 30 years of market history, the, the trend is very clearly upwards.
And there are also very clear that declines or, or corrections within that trend. And if you look here, you can see, I mean, I can just, so scribble on this chat for a second. You can see the bear markets that we’ve been through in this time in 2000 when the tech bubble burst in 2008 and then now, whatever we’re going into now you know, remains to be seen whether it continues into a longterm bear market or not, but corrections happen and they are big in state, but the world is not coming to an end because when you step back and look at many years of market history, the market has an upward drift because economies recover, economies grow, businesses get better, and and businesses get more efficient. And so over time the, the indices and stocks in general right now, does that mean that you’ll never have short term pain?
No, of course not. You’re always, there’s gonna be short term pain in the market, but you know, this is not Armageddon. It might feel like it and it may go, the market may go down a lot further and I’ll talk through some potential scenarios. But you know, the main message right now is that you don’t need to panic because it’s not again, you know, this is not a nuclear bomb that’s been dropped in the world that has caused the financial markets to shut down. Now, could it get very bad? Yes. You know, could there be mass hysteria? Yes. Should they be? No, I don’t believe so. But you know, what we’ve got is a big correction and possibly a coming bear market in the context of a stock market that over time, over the longterm drifts upwards because the economy grows and gets more efficient. Okay. So let’s just, you know, whenever you start to feel panic and stressed about what’s going on in the huge volatility and everything, one of the most useful things to do is to step back, distance yourself from it and look at a bigger time horizon. Okay? Now this is a linear chart,
Which means that you know, the exponential growth is sort of showing and you know, it’s hard to tell the the percentage drop in this chart. But if we change it to a logarithmic chart, this is sort of a little bit more informative. You’ll see here on the right hand side of the scale the vertical scale logarithmic chart. And interestingly, what this shows is that while yes, we’ve had some pain recently in, in the correction in the last last little while, it’s actually pretty small compared to the previous two bear markets. Okay? So if this turns into a fully fledged market, we have further to go further to go down. And it’s really important to realize now, this may or may not happen, I’ll talk through the scenarios that could happen. But if we’re, if you lose, if you lose your your composure and start to panic now, then the results of your account could get a lot worse. And so again, what I want to impress on you is that we’re not sure what’s going to happen, but separate yourself from what’s going on in the market, get some perspective and prepare for several different possible outcomes that could happen here. Okay. Sound good? All right. So let’s let’s zoom in just a little bit and see what’s really happened now. Can you see this chart?
Okay.
Okay, great. Yes, everyone can hear me. All right. I’m sorry about that. I’m not sure what happened. Hopefully we didn’t miss too much. Okay, cool. So what you’re looking at right now is the last few weeks of market action. This is the S and P 500 chart and what you can see is a 27% decline from the absolute high. And what’s unique about this situation and what’s probably never happened is that we’ve had a more than 20% draw directly, often absolute high. Okay. Now this is really interesting and also something to be you know, to add to your consideration set of mental scenarios because usually what you expect is that the market has a bull market, which then slowly files fades and starts to drop and then the bear market accelerates. But what happened, what’s happened here is we’ve basically been going straight up and then some external events have spooked the market and cause a very dramatic decline off the highs, which is, which is quite rare.
And when you can see is this been already a couple of little rallies now we’ve had the first rally here a couple of weeks ago or a week or so ago. And then on Friday night we had a big, big bounce, okay. Greater than 9% update on Friday. And this is one of the things that really characterize as bad markets and it’s the first thing that you need to be aware of in that once the market starts going down, the volatility goes up. If you measure volatility in the market, when the price is above the 200 day moving average, when it’s in a bull market, the average volatility is really quite low. But as soon as you get below the 200 day moving average in the market, the volatility is almost always dramatically higher. And this is what high volatility is something that characterize as a bear market.
And you might’ve seen the VIX index. If you follow the Vicks just taught Vic’s into the chat roll, let me know. But there was a massive, massive spike in the VIX. And the VIX, for those of you who don’t know, is just a measure of the the volatility in the market and it’s derived from the option prices on the, on the U S market. And when VIX spikes, basically fear is high in the market and volatility is high prices of bouncing round and people are very uncertain about what the correct price is. Now you’ve heard, you might’ve heard fund managers in their marketing talk about or you’ll give you messages like this. If you miss the best five days in the market over the past 20 years, then your returns would have dropped by some huge amount of money.
And that’s kind of true. But what they don’t tell you is that if you miss the worst five days in the market, your returns would be dramatically higher than what they because the biggest updates and the biggest down days both occur in the middle of a bear market. And this is, this is really, really important because a rally like Friday, which is up 9% or a bit over on that, on the U S market does not signal the bear market is over, does not signal the decline is over. It’s actually very typical of this sort of market because still have hope that that’s all it was. So there’s been a huge decline, you know, 27% or whatever it is now. And then something has changed and announcement has come out that caused people to rekindle their hope and rush in to buy. And so the market jumped dramatically.
But all that has to happen is for a new wave of bad news to come and that that rally will be short lived and it can crush down again. And so the next damn leg in the market. Now, the reason I, I see, I can see the question there from code. What about the reason behind the rally? Now in a bear market, there’s always different reasons, right? It’s usually something about economic stimulus or recovery or government announcements or new action the Fed’s taking, or in the case of the coronavirus action that the government is taking to STEM the spread of the disease and all of those sorts of things. But the external action that is taken does not necessarily stop the decline in the loan in the medium term. It just gives people a little bit of short term hope. And I can see also Randy commented you know, probably a lot of short covering too.
Absolutely. I mean, in both of these rallies my short systems to profits and covered and probably continue contributed to some of that, right? Because you’ve gone down so far, they’ve hit profit targets and they have bought those shorts back and and I’ve got out of the market in anticipation of the next down Lake, so. Yeah, absolutely. Right. So the rallies in a band Mocket fast and steep and volatile and they turn around just as quickly. So it takes way more than a couple of solid updates to tell you that this is over. So I guess that’s the first message that I really want you to take away from this is that don’t rush to believe that it’s finished because if you’re rushing on a rally, you may be right, the market may have bottomed and it may be, you know, now moving into a new market, but the reality is after a 27% decline, we’re not gonna rush into it.
Probably not going to rush into a brand new bull market and hammer upwards for quite some time. You know, chances are there’ll be some more down legs. So Anthony says, look, to come from look for confirmation, which is right. And I would say, you know, more confirmation than you think. If you’re a long term investor or alongside trader, you know, the market is going to be around for a long time. And yes, there’s some bargains right now, but don’t be in a rush to jump back in and particularly don’t be in a rush to jump back in with leverage. And I’ll cover some of the reasons why in a little bit. So yesterday or last trading day was a greater than 9% rally the day before. That was the biggest down day since October, 1987. Now let’s go to tell you that something is wrong and that doesn’t go away overnight.
Even with the stimulus package, even with new CDC funding and even with all of these things that the government’s announcing. So please w we’ve, we’ve just had a big decline. We’ve just had a big rally, but in the context of the declines so far, the rally is small and also a rally of that percentage is expected within a bear market. So definitely not over yet. That’s my short term perspective. So I hope that makes sense. I’m just going to clear my scribbles on the screen and we’ll just move to the next slide. Okay. Ben Mokena now and that to me. And where are we now? Does everyone with me? Can you still hear me? Just talking the chat chat bowl. Tell me, you can hear me. Tell me you’re okay and keep asking a question. So I like the interaction. Now this chat here is the S and P 500 index in 2008 2009 now that index, I’m sorry, in 2008 2009 the index fell 56% from peak to trough 56% that’s, and that’s the index, which is capitalization weighted. This is really reflects the biggest stocks in the market. This is not the microcaps, this is not the small stuff. The biggest stocks in the market fell 56% in 2008 so again, for context about what could happen,
You know, if, if, if this had been a market, turns out to be like 2008 we could be only halfway that
And 2008 was not the biggest bear market in history. So there could be a ways to go I guess is the message. And you can see the arrow. If you can see the arrow on the right hand side of my screen, I’m gonna start my videos in the way of it. But you know, declines so far has been 27%. And so we’ve got a way to go. We’ve also had a very small rally, but you’ll see in 2008 there’s some quiet, you know, there’s a, there was a down leg which was not too vicious, followed by an upswing, another damn leg, a small upswing and then a collapse. Okay. So the upswings where the people who are still playing to hope, who are still hoping to get back to even our our trading, you know, people are buying a dip hoping that it’s just temporary and they’re gonna get back to new highs and, and take a profit.
But what happens in this damn Lake is that people experience more and more pain. Let me clear this non-pro this again for you. In this download, people experience more and more and more pain and they start to sell accelerating the downtrend. Now, not everyone sells because it’s only the first down leg in the market. And then it gets to a point where the major selling has paused or slowed down and then some buyers step in because there’s bargains, right? And that pushes prices up. And then what happens is the people who didn’t sell in the down leg see their opportunity to get out with less pain. That’s why these rallies eventually stopped and they don’t go on to new highs, right? We don’t typically see new highs after the bear market started because people are rushing to sell as soon as they get a bit of a rally so they can stop at less time. Right? And so when, when that buying is over and the selling pressure is also, then we have another down leg and then the same thing happens again and you notice that the second rally is smaller. It doesn’t always happen this way, but the second rally here was smaller, followed by a very drastic decline. And this is basically people giving up on the market, you know, wondering what on earth, where on earth the bottom is basically dumping their stocks to to, to get to safety. So these rallies a progressive increase in pessimism.
So yeah, and Mark Marks is the peak to low for 2008 took three to four months. And so yeah, we’re we’re only a couple of weeks into this now bear markets are different duration, so it may take weeks, it may take months, months is more likely in my view. But you know, I don’t have a crystal ball. No one here has a crystal ball. So we you know, we just have to basically follow the market and, and play this out and position ourselves as best we can. Now Lynn says that all those central banks are pumping, going to start pumping liquidity. Well then I’ll push the prices or the market’s higher and you know, the answer is potentially, but they’ve already done some of that and the market’s still fell. The question is how much more ammunition have they got and will it actually help?
And we don’t know. The best thing that we can do is respond to what the market is actually doing and have systems that respond to what the market’s actually doing. Now, if you’ve been following me for awhile, you’ll probably know that everything I do is just a Matic. And when you have a debrief like this, it sounds like a lot of it is subjective, but I’ll pull it together at the end. I talk about how systematic trading can really help you because none of my actions in the market now are actually discretionary. It’s all systematic and it’s all predetermined. And and you guys can do the same thing too. So Sarah is the same when I, when you protect, say protect your capital in a real sense, what does that mean and how we’ll cover that I think later on in the session.
But in the, you know, the overarching principle is don’t lose too much money. When the markets get crazy, you minimize your losses like Anthony says in the chat. Because what you’re doing is, you know, yes, you can make money in a bear market when things go down, but what you really want to do is make sure that you’re well positioned for the next up leg in new economy for the next bull market. And if you lose 60 70% of your money or more now in the bear market, you’ve got to grow from a really small base and that just impacts your future wealth astronomically. If you can come out of a bad market even or a little bit better, cause you’ve made some money and then you get the next bull market and you grow exponentially from there, your wealth is going to be 10 or 20 times higher in 15 years.
Then if you lose 50 60 70% of your account and you have to grow exponentially from there in the next and the next bull market. Okay, so that’s really what I’m talking about is how to position yourself, how to protect your wealth so that you don’t lose too much so that you can continue to grow your accounts exponentially. Okay, so possible market scenarios. I’ve got this model that I created called the market system map and this is how I think through what can happen in the market no matter whether we’re talking about upmarket sideways markets or down markets. There’s basically three directions. The market can go in, up, sideways, down, sideways bit. But within those primary markets directions, there’s three things that can happen. That primary trend can continue. So cause a bull market continue up, if it’s a bear market, it can continue down or they can be a shock against the trend.
Now, on the first day that the market really tanked, we were in a bull market and it looked like a shock against the trend. Now it’s looking more like the third option, which is a change of trend. You know, we’re now down 27%. The bull market is over. Okay. It’s not, it’s probably not going to come back anytime soon. But from this model, what you can see is that there’s nine possible behaviors that the market can exhibit. And when I talk with my students and some of you guys are so much students, we’re actually on the call now. When I taught my students what I toy, how, the way I talk about the market behavior is with this market system map. And if you’ve got a system or a set of rules that allows you to profit from each of these different behaviors in the market, then it doesn’t really matter what the market does.
Now, if you’ve only got a long side trend following system, let’s say you’ve got this one covered and you’re gonna make money when the market goes up. And most people can do that, okay? Trend-Following does this. If you’ve got a a meaner version system on the long side, then it will profit from this behavior. If you’ve got a Mainer version system, it can profit from a sideways market and you can even profit in a meaner version system on the long side from a bear market. How do I know that? Because after the first big decline, one of my main reversions got long, it bought and then sold after the rally and made quite a decent chunk of money. But that’s very short lived because then the market turns over again. So you’ve got to be nimble and get out. Now, most people have focused over here, right?
Until something like this comes along. So what I want to encourage you to do is now and also for the future, think about the different behaviors the market can exhibit and consider how you can profit from each of these. And you know, when I’m doing system development, when I’m designing and creating rules to profit from different behaviors in the market, I look at this map and I think, okay, what type of behavior do I want to profit from? So I’ve got several systems that profit from, from trends and along side I’ve got Minger vision systems, I’ve got a couple of systems that profit from a change in trends from bull to a bear. There’s sideways systems that are basically mean version. And then I have a couple of [inaudible] systems. And you don’t have to have all of these because another position that you can take is cash, right?
You don’t actually have to be in the market. Now you can you can just be alongside investor and you can hold when stocks are going up, when they start to go down and you still out go to cash and white until the market improves. It’s a perfectly valid strategy. Now, if you’re new to the market and you’re not sure what to do or you feel like it’s a, it’s a volatile place, it’s absolutely fine to stand aside. Okay. I don’t want you to feel like you’ve gotta be doing something because traders who feel like they have to be taking action,
Unless you’ve got the right experience, I can end up losing a lot of money. Okay. So cash or standing aside from the market is a very valid strategy. And I can see a couple of things he had John I’m not sure which John that is. There’s a couple of Nicole, but John says, you know, sell into the next rally. So into rallies, Joseph says as well. And in bear markets, you know, we saw this on the previous slide. In bear markets, the rallies are, can be steep, but they are short lived. So don’t expect that a rally means the bear markets over and you can just hold on the one side, you can’t because it will be followed by another crash or nothing. Decline. Or let me, let me be careful with my words. It is more than likely to be followed by another decline.
So do be careful. Don’t fall victim to the positive hysteria that it’s all fixed because as we’ve seen, bear markets take several months at least to play out. Okay. okay. Possible scenarios. This is where we are right now and we’ve had a 27% decline and a 10% rally. Now several ways this could play out. And by thinking through them, you can think about how you could position yourself. Now again, all of my trading is done from a purely systematic way and so I’ll talk about some of my systems at the end. But you know, if you’re, if you’re not a systematic yet, then this is going to be helpful. If you are a systematic trader, I’ll tell you what to expect from your systems. Okay, so we’ve had our first down leg and what happens as you go into the first down leg is your loan side systems start.
Let’s just say this is some sort of trailing stop. Maybe it’s a moving average or something like that. Your long sides trades that’s come down towards the moving average. You’re going to get all the trailing stock. They gonna hit their exits and you’re going to start to peel off or reduce your exposure on the long side. This rally here is the first bear market rally. Now something that can happen is, you know, you, you reduce your alongside exposure but you might buy for the bounce, right? This is a main revision style bounce and that’s what happened to me. I’ve got some mean reversion signals bought around this point here, made a little bit of profit and got out. But unfortunately some of my main reversion trades didn’t hit their exits. And so now I’ve been forced to sort of ride those down a little bit, which is unfortunate, but we start to reduce that alongside exposure as the stops get hit.
And then, you know, the buying gets exhausted and we go into the next downlink and the same thing is going to happen here. We’ve just had a big upswing and so several things can happen. We could have a bit more of a rally or it can go sideways for a little bit or it can collapse from here. Now if this is going to be a protracted bam market, any rally we have is probably going to be short lived because right now the market is scared. You know, if you just think about your experience looking at the stops, looking at the stomach, how many of you looked at the stock market and wondered how low could it go? You know, or how bad can this get? Or Oh my God, this is, I’m going to get it. Has anyone, has anyone had thoughts like that? Let me know in the chat role, you know, what was you, what’s your biggest fear about what could happen? You know, and with me, does anyone, anyone looked at the market and just started to freak out a little bit? Yeah, absolutely. So that fear is not just with you and you guys are probably some of the more experienced and more rational people in the market, right? So any rally, the most irrational people in the market, I going to try and grab that hot slightly higher price and get out
And then it’s gonna. If it turns over and starts to accelerate to the downside, then the remaining irrational people are going to panic and dump the positions and sort of like celebrate them. So whether we have more of a rally or whether the market collapses from here, chances out there’ll be another damn leg either from tomorrow or from a couple of weeks time. Now again, unintended crystal bowl, so I don’t want you to hold me to this or say Adrian said that the market’s going to rally and then crash or whatever it might not. Okay. Another scenario which is quite unlikely is just a V shape recovery where you know, all of a sudden the market believes that president Trump and the CDC and all of the other governments in the fed and everyone else has fixed it and the markets will just recover and then go on their Merry way.
Okay, but I’m going to put it to you that that is a very low probability scenario could happen and you can prepare for that. But the upside of that scenario is nowhere near as big as the downside from another scenario because as Mark says, pivot 19 is not going away in a hurry, right? So you’re going to think about the market now in risk reward terms. Okay? So let’s say it recovers and starts to sort of edge upwards over the next couple of months. Enter the market, Mike, make 10 15 20% over the next few months as it kind of it just towards a recovery. But if it doesn’t recover and the next rally fails and it collapses, you know we’re going to be looking at another 10 2030 40% down in a matter of days or weeks. And so the upside is small and slow and the downside is large and fast. And so even if the markets could recover, what you want to do is think more about these scenarios down here and prepare for those because that’s going to keep your account alive.
Okay? Now, you may or may not make money, but you can certainly go sideways if you’re careful. And if you’ve got a good short system, you can make money. And Anthony’s saying, look for shorts now, which is a good strategy. You know, particularly after a bounce and you know, there are opportunities for shorts because people have just, they’ve just had this 10% rally. The thing to remember is if you’re new to the market, you know, shorting is probably one of the hottest ways to make money. And then you can have short systems that do make money. Absolutely. And I do, but your number one consideration should be to protect yourself. So if you don’t have a system to make money on the short side or if you haven’t been through this and you’re not comfortable with it, then consider whether standing aside and just being in cash is a bit of position for you.
Because I’m revenge trading, trying to take an, you know, a new position in a knee jerk way to try and make the money back that you’ve lost is not going to help you out. It’s actually probably going to end up punishing you because if you don’t have a strategy wrapped around your decisions, it’s gonna be really hard to stay emotional and calm and know whether or not that strategy is going to be profitable. Okay. all right. So basically, you know, again the messages we can go upward sideways or down from here. The risk is very much to the downside. The rally could last a few days or even a few weeks. It doesn’t mean it’s over because you know, the next big bit of bad news we’ll send the market into a panic again and there probably is more bad news coming, you know.
One of the things that you have seen, I mean everyone’s following the the spread of the virus, I’m sure. But you know, the actual cases, the real number of cases is well higher than no number of confirmed cases because not everyone is getting tested. There’s not every country has tests. So you know, as that information comes to light and the severity of the situation comes to light and hospitals fill up, you know, and that clinic does have the potential to creep up. So so do just be aware that they, you know, there is risk of another big downside leg in all of this. Okay. alright, so what’s happened to different types of strategies in the last couple of weeks and what could possibly happen in the future? This is where the rubber hits the road because if you can better understand your trading strategies, the approaches that you’re following, whether you’re systematic or whether you’re discretionary, it doesn’t matter.
But if you can understand how they behave and how they could behave, then you can bet a position yourself to either profit or survive. Okay. Now survival was first. Number one, priority. Profit is second. No, we don’t want to take risky positions to try and make our money back if it exposes us to huge downside risks. Because the most important thing is to keep your account as you know, in a healthiest state as possible so that in the next recovery you’ve got more cash to build from. Okay. So what’s happened to trend-following in the last two weeks? Well, obviously there’s been fairly sizeable drawdowns you know, most yeah, John says smashed. Okay. The next thing I want to encourage you to do is really, really watch your language and the way you talk about this. And I’m John, I’m sorry to pick on you, but you made the comment. So yeah, there’s been a drawdown. And when you think through what’s happening in the market, ah, I came, just got it. You know, Kim’s got it.
Think or, or communicate in a very factual way. Okay. Humans are emotional beasts, all of us. And it’s the emotion that gets the bitter owners. So when emotion is high, as stress levels go up, our body releases cortisol into the and adrenaline into our bloodstream. Our muscles get ready for action because it’s all about the fight or flight response. And it’s us getting ready to fight the beast or to run away from it so we can survive. Now in the markets, there is no real wild animals, right? But there are bulls and bears in the forms of uptrends and downtrends. And when we let our language reflect a stressful panic driven situation, our emotions do go up whether we like it or not. And so when someone asks you how your trading is going or when you journal about it, what’s your words? You know, be factual.
You know, and my trend following system is in a 15% drawdown. That’s it. You know, it’s not, it’s smashed. It hasn’t crashed. It’s not Armageddon. It’s not the end of the world. It’s not you know, it’s be exactly the actual talent, how it is. You know, Tony Robbins, she’s one of my, one of my favorite sort of mentors and teachers and everything in the world. You know, he says in many of his courses, you’ve got a see it as it is not better than it is. Not worse than it is. See it as it is. And noting that you’re in a 15% drawdown. Okay, good. 15% drawdown. Where do we go from here? Okay. And typically trend-following systems will be somewhere in the range of 10 to 30, 40% drawdown depending on what type of stocks you’ve held and how wide your trailing stops.
Our swing trading strategies could be very similar for the last couple of weeks depending on how aggressively long you were could be in a tend to sort of 40% drawdown right now. Now, on the short side, depending on when you got into the market, will determine what the situation is. Now over the last two weeks. So I have a system called the slippery dip, which is a short side system that enters the weakest stocks in the market when the index rolls over and turns down. Now it doesn’t wait for a huge downturn. Basically when it rolls over an immediate short term and a movement meeting, term moving average crossover, it gets short. Now that’s just them got short early last week on the sort of second or third day of the decline. And then basically got short about 30 different stocks. John says it’s been very profitable, absolutely saved my skin and and then progressively managed to hit all its profit targets and go flat to cash again.
Before the rally I had a couple of couple of positions that held through the rally, but then I hit the stops the other day. And so a short side system and got in quickly with a profit target has banked at gains and go on to cash and it’s probably just about to get in again. Now I’m a trend following system on the short side where you wait for a real confirmation and get in for a longterm hold mentioned yet. Okay. So you might’ve might’ve got in. But you know, chances are you’re going to have a bit of a Rocky ride there because if you, let’s say you’ve got into the short side trend following system just before the rally, then you’re in a bit of a drawdown waiting for the next decline. And then there’s main revision because I mean revision the short side is when you, there’s a solid rally and you short sell to profit from the next down leg. Now we’ve had one of those already. And we were just about probably just about to have another one. So what you can see is that different systems respond differently to the same market behavior obviously. And so if you’re a prophet from all different market behaviors, it helps to have systems from different strategies and combine them together into a portfolio.
Okay? So let’s get onto the possible scenarios for each of these. Now if you’ve got a loan side trend following system and you’re not 100% in cash, that system will soon or should soon be in cash. You basically should exit. The system, should exit all of your positions eventually because all of them should hit their stop losses and get out. Right now this is a systematic approach. Okay? If you’re, if you’re not systematic, we’ll talk about how to remediate and manage your portfolio shortly. But long side systems should eventually get you out of the market and stand aside from the Bambach and you can watch it go down and when it recovers then you can you can get back in. So let me see here. I wondering, Oh, serratus says, I wonder in this panic situation, how come I didn’t look so calm and can remain calm?
Really solid question. Thank you so much for being brave enough to ask. I appreciate it. And Hey John, thanks for jumping in. On the [inaudible] and co as well, the answer is largely because I am systematic and I have seen it before, but also my portfolio of systems is designed to survive events like this because one of the things that most traders do wrong or do do poorly is to prepare for or not prepare for extreme adverse events. You know, many people get into the market thinking that, you know, it’s a bull market and it’s going to go on forever. And they they buy the strongest stocks and they leverage in and they, you know, they, they make huge money because of their leverage. While the market’s going up, but then as soon as it turns and gets volatile, their account does collapse and they their stress levels go up dramatically.
But my account is basically going sideways. I, I’ve had a bit of volatility in the account. As one system loses money, the next system makes money and loses money and so on. But it’s stable because it’s a combination of strategies, long side, short side, meaner version, trend-following. And this is really, this is really the key and being systematic like codices allows you to to follow several different strategies, allocate a bit of capital to each strategy and then not worry too much about what the market does. And so it really is, I mean, it, it really is in my view, the best way to trade because it really is calm. You don’t have to worry about what am I going to do, right? If you’re not systematic, what you’re doing now is thinking about what the hell am I going to do?
Right? Who’s wondering what am I going to do, you know, comment in the, in the chest. Like, let me know if that’s what you’re wondering. What am I going to do next? What do I do? Because if that’s you then have a think about, you know what, if you had a system or set of rules that was telling you exactly what to do, there was designed to do the right thing in these sort of situations. That’s what systematic trading does for you. And so that’s why when you have that sort of portfolio, several different systems profiting from several different market behaviors, you can actually remain calm no matter what’s happening. Now, I’ve watched the market out of interest and I look at the news articles and I look at what’s going on and people’s reactions, but it’s really more of a curiosity than anything else.
You know, I don’t have to wake up in the middle of like panicking about whether or not I’ve lost my net, you know, half my net worth because I know that’s not going to happen. And if you can sleep through on nights, like, you know, the last two weeks, you know that your strategy fits you and is configured well, that’s the cake. Okay. so trend-following should get you to cash. I’m just gonna come back to the slides here. Swing trading shouldn’t stop taking long side positions because these strategies should have a trend filter which basically says, you know, at the very simplest, a trend filter for the loan side would be only take a new trade if the stock is above its 200 day moving average. And it’s very simplest because if the stock is below the 200 day moving average, your loan side strategies are at a severe disadvantage.
Okay. So I expect to not have any new longside signals until the market really settles down and recovers it. There’s a couple of exceptions, but as a general principle, that’s the strategy here. And yeah, absolutely. I mean moving average is really help because what it does is it puts a line in the sand and says, look above this level, I can try it on alongside below this level account. And it just takes that stress or emotion out of the decision. Right? It’s like why, why would you buy in a market? Which chances are some panic is going to cause your stocks to collapse, will gap gap down. You know, it just doesn’t make a lot of sense to take long side risk in that situation. Now on the short side, in the next couple of weeks, you should start to see short side trend-following systems kicking in and give you more signals.
Now you’ll see swing trading systems on the short side as we have a decent rally and it and it rolls over. They’ll get in for the next run down and then get out again. And then same with mean reversion. I actually haven’t run my trades for tomorrow morning yet, so I’m not sure what my positions are going to be tomorrow. But I mean reversion system will kick in and short sell after a sudden spike in the market in the context of the downtrend. So you’re going to have the alongside go into cash. You’ll get less and less to no signals on the long side. And on the short side, you should start to have some signals and you know, just remember that if you don’t have a system, if you’re not experienced about shorting the market, standing aside is a perfectly valid and very sensible strategy.
Okay. so please don’t feel like you have to participate. I know there’s some gurus around that say, Oh, the bear markets are the best time to you know, to build your wealth and to make money really quickly and all of this. But if you don’t know what you’re doing, you don’t have a set of rules that you’ve back tested and you’re comfortable and confident in, chances are you’re going to get hurt. So please, if you don’t, if you don’t know what to do, standing aside is very, very sensible and Admiral thing to do. Don’t let FOMO get the best of you one way or the other. Okay. okay, cool. It’s another couple of questions here. Let me just have a quick little Craig says, should you now use the systems that were monitored daily rather than weekly? Look, I, I think my, my, my view is always that you should do what the systems were designed for.
And if you’ve designed and back-tested your systems on daily charts, use the ones that lead to us. If you’ve designed and back just at them on weekly charts, use them on weekly charts. But if you didn’t back test them all the way back past 2008, let’s say back to 1990 so that you’ve been, they’ve been through a bull market, a bear market, a bull market, another bear market ended up to now, if you didn’t back test them through multiple bear markets, then you’ve really got to be concerned about how big your drawdown is going to be because your systems haven’t seen a bear market. And so if you if you’re not sure how they should behave in a bear market, then maybe it’s time to stand aside as well. Okay. So I wouldn’t go modify my systems right now in a panic because the market has a full dramatically, you know, one of the great things about systematic trading is that it helps you keep your head and stay calm when the markets are panicking and that’s why you can make money.
So keep looking at the the systems, the way they were designed, but also assess whether they were designed to survive these market conditions. If you have, let’s say you have a Mainer version system and this no trend filter and it keeps buying all the way down, the system is really going to hurt you because there’s no way for that system to switch off in a bear market. So do reconsider that. So if you’ve got rules right now and you’re trading, sit, stand back from them and look at them and say, okay, what will these rules do if the market keeps going down? And if you don’t like the answer and it’s time to pause what you’re doing because you don’t want to keep going in losing more and more money if the market keeps falling. Okay. great question. He, I think it was Henry says, what about shorter timeframes?
One minute, five minute, 10 minute. Look, I’d don’t trade intraday. I’m only an end of day systematic trader. I know there’s plenty of day traders around and some of them can make money. But the sad reality is most people who trade who, who day trade lose money. And so I never encourage it. If you have a system that works and you have a proven track record, great, you know, go for it. All of the same concepts apply, but on a smaller time horizon. But if you’re if you’re not an experienced profitable day trader, now this is not the time to start. Like absolutely do not start doing something new now because the most volatile markets are the most dangerous and yeah, you can make some money, but you will lose money far more quickly than you might get. So that’s my view on day trading.
If you’re already good and you already make money consistently, and I’m talking consistently over the years, I’m not talking about over the last few months. Okay. Because you know, this market behavior right now is not unprecedented, but it’s certainly, it hasn’t, we haven’t seen it for a long time. So I’m just gonna not encourage day trading right now, but if you can do it then absolutely. Great. But just don’t start doing it now for if it’s something you need to. Let me see what other questions we’ve got here is the best way into orders. Ah, so David says with the slippery dip, what’s the best way to enter orders if you can’t be in front of the screen now for those? Just for the, there’s a lot of people in Nicole, just for your context, if you’re not a student. The slippery dip is one of the systems in the trading system collection, which is part of the try to success system, which is my program.
And so when you, when you’re in that program, you get access to that that system. But one of the things that you, you need to be careful of in all market conditions but particularly in extreme conditions, is that you must do exactly what the system was designed to do. So if the system was designed and tested for you to enter at the open, you’ve got to be there, the open to enter if the system was designed and tested for you to put limit orders in before the market opened and just let them either get hit or not and do that. But like right now, because my shorts systems have turned on, I stay up for the U S open every single night and then when my solar systems have turned off, I’ll stop staying awake and I won’t worry about it cause I don’t need to place those trades.
But with this much volatility in the market, you know, you’re going to get very bad fields if you if you just place orders and hope for the best. So I definitely don’t recommend that. I would just put yourself out for a few weeks and stay awake for the open place, the orders and place your stops. And then then go to bed. That would be my view. If you’re in the Southern hemisphere, if you’re in the Northern hemisphere then obviously it’s no problem if you’re at work, then you just need to be careful with yourself, a meeting at the time the market opens so that you can sleep sneak way or place your trades on your phone. But don’t just put in a market order and hope for the best because the market is too volatile and you’ll get too much slippage. All right, I’m going to keep moving.
So trading set strategy behavior when to suspend a strategy. Now I trade systematically like I’ve said to you and my student was traded systematically as well. And the question inevitably comes up is, you know, should I stop trading the system because I’m in a draw down. Now what I want you to do is if you’re a systematic trader, if you’re, if you’re a systematic trader in your discretion to try, there’s two different things you could do here. If you’re a systematic trader, you’ve got to look at the system and ask yourself, did the system do what I would expect under the current market conditions
And is it broken because yeah, you might be in a drawdown with your trend following system. Is that what you would expect with the current market behavior? Yeah, absolutely. Is the drawdown bigger than any of the historical drawdowns that have happened in your out of sample back test? Notice I said outer sample back test, not in sample back to us cause your in sample back test is usually a little bit cooked in the drawdowns are usually a little bit optimistic. So if you back to the studio system and you look at your out of sample back test and the, and the draw down now is dramatically bigger than the biggest historical drawdown, then it’s time to reassess the system. Either scale it down, pause it and investigate to see what’s going wrong. But if the drawdown is broadly within the behavior that you would expect from that system and the current market conditions, then the system is probably okay.
Drawdowns are painful. But as part of the thing that we have to get used to is try to, as we’re putting it used to the ebb and flow of the market, you know, we make new highs and we have to make new highs and we have to draw down. Maybe your Haas, sometimes it crushes down more than we expect, but it’s just part of the game and the market will just come and go and we’ll be instinct and out of sync and in sync and out of sync. And it’s just part of the flow. So when we in a drawdown, the right thing to do is step back and say, okay, is the, is that what I would expect? Is the system broken? If the answer is that’s what I would expect. System. So broken, keep going. A well-designed system should get you out of the market or should stop taking new trades if it’s out of sync with the market. You know, all my trend-following systems have a trend filter. If the market starts going down, they stop taking your signals and eventually they go to cash.
Same with meaner version. You know, once all the stocks are below their 200 day moving average typically in main revision system should turn off, shouldn’t give you any more long side signals and then same on the short side. So when, and that’s specific to Matic trading, so only suspend your system if it’s broken, if the performance metrics of the system are outside the historically expected performance in a longterm back test it make sure that back just includes 2008 and 2000 Bay markets. If you’re a discretionary trader as in you don’t have a system. The question about when to suspend is really, really hard and this is why systematic trading is so powerful in these sorts of market conditions because you don’t need to ask yourself the question. You just need to say, is my system broken? But when to suspend in a non systematic portfolio is basically when the losses are beyond where your trading plan says you should be trading.
Most good trading plans should have a limit. And my draw down tolerance is if I hit this level of draw down, I’m going to stand back from the markets because I’m clearly out of seat. So that’s what you’ve got to do. If you’re, if you’ve lost more than you thought you should in your discretionary trading, you’re out of sync with the market and it’s probably time to stand aside and go to cash. Okay. But panic selling is not the right thing to do. We’ve got to do it in an orderly fashion, but certainly stop taking new trades if you’re out of sync and you can’t seem to be making money. So Shiraz is asking, what’s the number one piece of advice you’d give to buy only traders and already invested? I think the biggest piece of advice I would give guidance, I want to say, not advice, but guidance is before you make any trade you should have had, you should have a plan for that tribe.
You know, buying and just hoping to make money is not really a plan. You’ve got to sort of have a strategy or plan behind it. So if you were going to hold that, buy those stocks and hold it for the next 20 years retirement and just pop us the dividends, that’s your strategy. That strategy does not include selling when the market dips, right? The strategy was buying hold for the very long term, be a dividend investor and just wait it out. So if that’s your strategy, you can’t really be surprised if you have some dips and you know collapses in your portfolio every now and then. If you’re, if you have a trend following strategy and you bought those stocks when they were going up and you plan to hold them until they stop going up and started going down, you need to exit according to that plan.
All right? So then no matter what your trade is, think back to the original plan and if all else fails fully, that original plan, you know, cause buy and hold investors might be panicking right now because the market is crowded. But if you’re buying hot investor, you didn’t have an exit plan. And so making a panic exit decision is really quite dangerous because you may use basically you’re capitulating, no, you’re just going to sell it the lows and then chances are after that happens, it’s going to bounce and you’ll miss out. So just think back to the original strategy and commonly assessed the position. You know, if there’s a good reason, if the story has changed, then change the position. And again, all of this is for discretionary traders because for a discretionary trader, you’ve got to take into account what’s going on in the price. You’ve got to take into account the story of the of the company. You’ve got to take into account the story of the market and what the government’s doing, all of that. And you have to assess that very, very difficult to pull that together. The great thing about systematic trading is there’s always a rule if a and B and C happens, you buy if D or E happens, you sell. And so it takes this fear and this emotion and this panic out of it.
So for existing trades, I want you to go back to the original strategy and if something has changed, then suspended that trait. Let’s talk a little bit about existing portfolios that are non systematic. Okay. You’ve got four choices right now. If you’re a buying hold or a longterm investor basically you can hold, you can scale up, you can scale down or you can exit. Now again, I’m a systematic trader and the reason I’m a systematic trader is because it eliminates the emotions and allows me to be consistent. And you can get the same thing if you’re S if you become a systematic trader, if you’re not already, it will allow you to consistently manage your traits. If you’re a discretionary trader right now, you’ve still got to make these decisions. Now what I would do is look at each of my positions individually, look at the chart and stand way back from the Chubb and ask myself what has changed since I entered this position?
And I would never ever recommend averaging down. And a lot of people will say average down because you know the market will correct and you’ll get a better average price and all this, but it’s not real. It’s, it’s what losing traders do to pretend or make themselves feel better that they didn’t lose as much money if they did the positions you’re holding now, the trades you’ve got to deal with, if you make a decision to buy more, that’s a separate trading decision. It doesn’t have anything to do with your existing position. If you’ve got 500 shares of ABC and they are down 30%, buying another 500 shares now does not lower your average price. It gives you a second trade in the same position, in the same stock, and it gives you a higher exposure to something going wrong in that stock. So we don’t want to average down to try and make ourselves feel better that we didn’t lose so much money.
Be rational. You know, we’ve got to think, okay, my current position is down. What should I do with my current position? Just making sense. I mean averaging down is a really high there’s a real hard drive to want to do that to make it so feel better, but it’s just that it’s application, it’s not real. You’ve got to think rationally about your entries and exits for each individual buy and sell that you make and make them good decisions. So for an existing portfolio, if the position is doing what you expect to do and it’s still adhering to the plan, then you can hold it. If that position has crashed through all of the exit points, all your stop losses and is now trending down, then maybe it’s time to either slim it down or close it.
Because what you’re going to do is protect yourself. Yeah, there might be a bounce you might be able to get, you might be able to make some of the 27% decline back, but chances are if there’s a bounce, it’s gonna be short lived and be another down Lake. So if it’s past your exit points already, then you could have do what you were supposed to do in the first place. And that’s closed or slimmed down the position. In terms of scaling up, I think scaling up in general into a volatile market is a really dangerous and unwise strategy because we don’t, the reason volatility is high is we have no idea what the outcome could be and the more uncertainty there is about the outcome and more volatility there is and the the bigger portfolio swings will be. And look right now at 27% down, if it really goes into a fully fledged banned market, we could be another 27% down before you blink.
So scaling up I just don’t think is a very rational strategy. If you’re, if you’ve got a 10 15 year time horizon and you want to buy well-researched bargains in blue chip stocks that are good value, I have no problem with that. But make sure that you’re targeted and make sure you do your research. It’s not how I trade. Again, I’m a hundred percent systematic, but if you have a value strategy then yes there is value around and there will be more value in the near future so that that can be a a good thing to do if you’re a longterm value and Vista. The other thing you can do is just exit and stand aside and after a brief rally in a bear market, that’s a good time to do that because after a rally comes a decline and again, you know, any rally and a bear market is going to be short lived. So that’s a, that’s so my thoughts on existing portfolios any positions you’ve got right now you should be monitoring very regularly dialing and while still the weekend before the markets open, if you don’t already have exit rules, create yourself snakes or rules because that’s what takes the emotion away from the decision.
You know, you need exit rules on the upside and the downside in this sort of situation because if the market continues down tomorrow, you need to know at what point will you get out, when are you going to stop the bleeding? Because you must stop the bleeding if your portfolio keeps going into or you’ll end up with nothing. That’s the sad reality of what you know of the situation where you’re in. So if you don’t have an exit rule, then please spend the time between now and tomorrow when the market opens to create them. Now again, remember the strategy though, because if your strategy is longterm, buy and hold of high quality blue chips and you’re just, you play it the whole 15 years, you don’t necessarily need to exit in this situation. But if that’s not your strategy, then you need an example. So while while the markets are closed, figure out an exit rule so that you can get out and stop the bleeding.
Sure.
Okay, cool. Capital allocation, how to protect yourself and profit. Let me just have a quick look at the questions. So Frank saying there might be good reasons not to go to cash. Do you use any systems or strategies to hedge a portfolio? Look, I I typically don’t hedge. I trade a diversified portfolio of systems that can profit from all different market behaviors. So I have systems that will make money when the market is going up, when the market’s going sideways, when the market’s going down. If you have experience in hedging and you want to do that, then yes, absolutely. If you don’t want to sell your stocks but you want to protect yourself from the downside, then hedge do be aware that hedging with options in an environment like this is hideously expensive because volatility is high option prices are high.
And so if you buy puts now to protect your portfolio, it’s going to cost you a fortune. And think about this analogy, you know, imagine you own a house and you never had insurance and the house catches on fire and you call insurance company and you ask them to insure you and they, they say, is there anything that you need to disclose? And you tell them, yeah, my house is on fire but I need insurance. What do you think they’re going to do? How I had locked the LA to cover you. And B, if they did cover you, how expensive is your premium going to be? It’s going to be prohibitive and probably not with you, not with it. So think about how to hitch. If you want to neutralize your exposure because you’re a buy and hold investor and you want to just have a like a short position on the index to neutralize your exposure, you can do that. But remember you’ve got, you’ve got downside and we’ve got upside. If you, if you basically neutralize your exposure by going short the index to counting your long exposure, then you protect yourself from for the downside potentially. But if the market rallies, you’re going to miss out. So you know, it, it come, you know, there’s swings and roundabouts there. But if you’re a longterm investor and you don’t want your account to crater, or if you don’t want a 50, 60% drawdown, then that can be a good strategy.
I didn’t
So specifically the question was, do you use any option strategies or system to hedge your portfolio? So look, the time to buy put options is when you don’t need them. And when the VIX is spiking to to super high levels it’s probably not the time to buy puts because as soon as the market comes down, volatility comes down, option prices drop very fast and your you basically are going to lose money on the, on the option even if the price doesn’t move in the right direction. What other questions we got here? Yeah it says, do I decide on each stops position or decide action on all stocks based on how the index is doing it, G the SPX in this market. Great. Great question. I tend to look at both. Okay. I’ll look at the index and I’ll also look at my individual positions because if you’re an active, somewhat active trader, you’ll positions may not be reflective of what’s happening in the index.
All right. Like, let’s say you were heavy in oil and gas a few weeks ago. And then you know, the other week when the Saudis crashed the oil price, your your positions would have we’re taking a real hit now that is not representative of what’s happening in the broader S and P, right? Cause it’s specific to one sector, but there is something going on that affects the whole market, which is the bars. And so look at your positions individually and the market and, and make a decision. I don’t know if I wouldn’t look at what the market’s doing and then panic sell everything because there might be something in your portfolio that’s holding up. You know, I’ve still got alongside trend-following positions open cause they’re just, you know, they’re just hanging in there. I mean eventually they’ll probably hit their stops and I’ll go completely to cash and alongside, but it hasn’t happened yet.
So do assess the strength of each of your positions if you’re trading with discretion. But be aware that if if the market does give up on them, they could decline very quickly. So any rally is a good time to sort of reassess and get to cash. Benson says, am I recording? Yes, I’m recording. I will share the recording with you afterwards. So thanks for that. Thanks for coming on. Okay, what else? Apparently Jones eating something nice. I haven’t had dinner yet, John, so I’m looking forward to doing that. What about bottom fishing? Is it the right time? So look what I’m fishing implies to know where the bottom is. Now if you have a systematic way of getting into the market that you have backed, tested over many years that is profitable, then you can, you can go bottom fishing when those rules kick in.
But if you don’t have a systematic way to do it, there’s no real way to know. If you’re at the bottom and you know, if this is a real bear market, 20%, 27% down is not the end of it. It may rally from here and you might miss out if you don’t do bottom fishing now. But if it does not by now cause you think it’s the bottom and it collapses another 30%, how are you going to be feeling? You know, you can be happy with that. So you know, create that strategy and and, and, and, and stick to it. But create strategy now in the market is closed. I would say it’s possible. My personal view is it’s probably a little early. The market is probably going to get down further after a rally, but you know, I could be wrong. I said, don’t hold me to that.
It’s your decision. If you want to go bottom fishing now know that you’ve got a fair bit of downside risk. Okay, I’m going to keep going. So how to allocate capital to protect yourself and look, some of this is a little light in the game, but this is one of the earlier questions. This is why I’m pretty calm, okay. Because let’s say you’ve got, you know, you’ve got a sentence size account, 100% of your account. If you put a little bit to long side trend following, a little bit to swing trading a little bit to the Mainer version, a little bit to short side trend-following and a little bit to short side and meaner version.
Then your capitalists spread across many strategies that make money in different market behaviors. So when one of them is losing money, the other one is making money or when one of the, well when this one says making money, that one is losing money all goes to cash. So allocating capital to different strategies, a portion of your capital to different strategies is the way you protect yourself. Long term. Coming into this, I had a lot of long positions but not a hundred percent long. Like all of my portfolio wasn’t tied up because some of my long side trades had already closed out, had a bit of cash, had some longs when the market turned down, those loans exited and then the shorts kicked in. But I didn’t go 100% short because my capital allocation only lasts me to put a portion of my assets into any one strategy or direction. And that’s what keeps you alive. So
Yeah, so, so the, the number one way to protect yourself is to spread your capital across different strategies and different directions and different timeframes. And if everything is in one strategy alongside trend-following, for example while it’s a fantastic strategy and it is my favorite, when there is a bear market, it suffers. But you’ve just got to put up with that because that’s the only one you’ve got. But as soon as you add a meaner version, as soon as you add a short system, then you take a bit of capital from the loan side, you spread it to the other ones and all of a sudden your volatility in your account drops. And that’s that’s a really good thing because you you know, you can sleep sounder at not, you can make money into more market conditions and you know, basically trading becomes a lot easier.
So if you’re 100% alone now and you’re going to exit, what do you do with your money? Well, you can trade short if you have a short side system. If you don’t have a short sound system and you’re not experienced in that space, then going to cash and standing aside is definitely one of the better strategies because at least you’re saying but a question here from David, which is a really good one. Adrian, do you usually reassess and change capital allocation depending on broad market conditions? Really, really solid questions. So thank you. And the answer is no, I don’t. Because my, what I do when I set my capital decisions, I do it by thinking through what could happen in the market and how would my systems perform. So when when I think about my capital allocation and I look at my trend following system, which I really loved my favorite system, but I’m never going to give it 100% of my capital, why not?
Because if the market goes and if we go into a bear market, it’s never been drawdown. And on a, one of my whole account haven’t been drawdown. So I’ve thought through in advance the different market behaviors that could happen and then allocate my capital accordingly. So yes, sometimes like in some periods I’m going to underperform because I might be a little bit conservative. I want to be 100% long or 100% in trend-following when the market’s really hammering up. But that’s going to save me when the market turns down. And similarly, when we’re in a bad market, I won’t let any of my band market systems go 100% short, you know, basically short my whole portfolio because if I’m wrong and there’s a massive rally, which you know, there, there are big rallies in bear markets as we’ve discussed, then you know, I’m going to, I’m going to be in for another big drawdown.
So what I’d encourage you to do is look at your different systems, different strategies to allocate capital by thinking through these different markets scenarios. And if you haven’t done that and do that now, you know, I think I am, I, am I putting too much money into one strategy or another? If you’ll, if you’ve seen what’s happened in the market and you’ve gone like all out on the short side, hugely leveraged because you’re going to make money on the way down, that’s fine if the market keeps going down. But what if the market doesn’t keep going down and we do have a sustained rally, then you will get hood. So this capital allocation is your protection mechanism. And so I keep that pretty fixed. The only reason I change it is if I add a new system to my portfolio, then I’ll reassess or something changes in my personal situation and therefore my risk and return and objectives and lifestyle changes.
Then on my my capital allocation. Good question. Okay, cool. All right. So what just about, I mean this is basically all I wanted to share, but no one system or direction or set of rules should have access to all of your money. I would also say that right now is not the time to be leveraged. If you’re not experienced in managing that and it’s not the time to be aggressive because yes, you can make money quickly in a bear market. But it can also kill you if he gets stuck in a short squeeze. In 2008, I had this situation I had a a short position. I’ve taught some with students about this. I had a short position which had made me quite a lot of money and it wasn’t very close to hitting its exit point is proper target. And all of a sudden that went on trading hole and then a a news announcement came out the next day that that stock was being taken over.
There was a takeover off the edit hundred percent price premium, 200% above the current share price with no opportunity to get up to get out. So that sit, that position, which was going well for me all of a sudden was well against me and I had at a pretty decent sized loss on that trade with no opportunity to get out. And this can happen sometimes in a bear market because there’s bargains, right? And it’s not just you, the investor that sees the pockets, it’s also the market and the competitors and the other companies and the people with cash. Know the companies with cash who are out there bargain hunting. So leveraging up and trading aggressively on the short side can be really dangerous. You can get stuck and it’s don’t just take over. Sometimes there’s short squeezes. If there’s not a lot of stock available to short then a and your short, then you know the stocks can rally really, really quickly and you can get stuck and you end up getting really bad exit price and losing a lot of money. So the key messages, a racist, the need to be in the market. If you don’t have the rules, if you’ve got all sorts of stress and you’re, and you’re really struggling with the market right now, consider just stepping aside, it’s perfectly fine to live, to fight and trade another day. If you’ve got trades that you should have already exited, then now while the market is closed, create yourself some rules that will tell you exactly when you’ll exit and that will help clean up your portfolio.
And those rules shouldn’t you to have a much bigger draw down. Don’t hold onto a trade. You should have sold hoping for a recovery because chances are if we go into, if the bear market continues, you’re gonna end up with a massive loss, great rules that will stop the bleeding because you must do that to protect your portfolio now and your future wealth. I mean, if there’s any mathematicians in the group, all you need to do is do a compound growth, a formula projection of your account over the next 20 years. And if you just, even with a conservative growth rate of say, 10 15%
I mentioned you grow from where you are now, 10 15% on average for the next 20 years. And then imagine that you have another 50% drop from here because you held on the trades you shouldn’t have, and then compound that at 10 or 15% the next 20 years. And look at the difference. It’s a humongous, you absolutely cannot afford to hold onto trades that you should have sold. You know, holding on to get back to even is a losing strategy will absolutely lose your money. So there you go and spread your money around different trading systems and and certainly don’t concentrate too heavily. So we’re going to do now is I’m open for Q and a and I’m going to scroll back through the chat role. There’s still well it’s still 73 people on the call, so I’m probably not gonna open the mix, but if you’ve got questions, put them in the chat roll and all, I’m an old Guth through them.
So I’m, Wayne says, is there a systematic way to take the long trend signals EG, the unicorn Hunter, which is a fantastic system again, part of the collection, courtesy of wine amongst the people which is really great. When the market is near a bottom to capitalize on an upturn without having to wait for stock high or index fields or just wait for other systems in the meantime there are trading systems that can profit from off the bottle. Right? One of the things to remember when you think about the bottom, and I’m just going to scribble on the screen here for a second, when you think about the market, right when you think about has the market bottomed, you know, the, the S and P has been going up and up and up and up and up. I don’t know if you can see my squiggly lines.
You can see my red squiggle on the screen just to say I can see red in the chat. So I know, and we’ve had this big decline. And let’s say, you know, we have another couple of down legs and then the market starts going up. Why don’t we have the next bull market? Cool. So right now we’re about here, and this may or may not play out. We may or may not have this decline, but at the bottom when the index bottoms and starts moving up, what drives the index? It’s stocks that are leading the market because not every stock goes down simultaneously and turns around simultaneously and stocks going up at the same time, right? Some stocks lead the recovery and so yes, while the index is going down, they can’t actually be new stocks that are making a recovery before them. And when enough stock start to make a recovery, then the index, which is the average of the stocks in the market starts to make its recovery.
So you’ve got to keep following your trend following system because you will get breakouts, you will get strong trends. And some of my best ever trades where the first long trend-following signals coming out off the 2008 bear market because you’ve got, there’s been a big correction. All the risks come out of those stocks. They’ve got a big runway to to continue. So keep watching the breakouts on individual stops. Now if you want to have a system that gets in early and doesn’t wait for the index to come up you know what you can, you can absolutely develop that. So one of my systems, one of my favorite ones is the freight train, right? And the freight trains in a bit of a drawdown now cause it’s a long side trend-following system and it has an index filter which stops it from taking new signals when the index is going down and it waits for the index to go up.
The reason it’s got that filter is because it’s psychologically really hard to take new long side positions when the index is going down and everyone is panicking plus those, any stock that’s breaking out and making new highs when the index is going down has a lower chance of success. So I quit that index built in there because I know that those trades are less good than we need. An X is going up, but you can actually run a trend following system without an index filter. Just take it out, you have to back test it. And if you don’t know how to back test it, then you need something like the, I’m the trader success is to show you how to back-test these roles and understand how to assess these decisions, make these decisions. But you can have a trend following system that will, we’ll buy stocks that are arising, even though the index is going down.
[Inaudible]
Can work, but you must test it. Can you have a system that gets in on the decline when a stock is going down in anticipation of the bounce? Yes. But it’s a very low probability strategy.
Yeah.
You know, you it’s very hard to pick the bottom systematic thing consistently. So not my favorite strategy can be done. But again, you got to back test it and and really assess the probability and think carefully about your capital preservation strategy. In that case, you know, you probably want fairly tight stops and very small positions because if the market is, if it’s not at the bottom and get a little rally and then it starts to accelerate down once you go to get out pretty quick to protect your capital. Okay. Liftoff is one of those systems that does do that. So again, in the trading, in the trader success system is a system called liftoff. And that that catches stocks that are coming out of a bear market. So definitely look at that. If if you’re in my group of students who are ready and if you’re not and you want to join, then you can you can look at lift off as a strategy.
That definitely helps as well. Vos is, I’m picking the bottom is as tough as getting out at the top. Yeah, absolutely. Definitely is. Both top picking and bottom picking is just very low probability of success. But you know, strategies like liftoff, there have been back over 30 years, been through several major and many minor bottoms do actually work. They’re just not as profitable in the long run as systems that white from market confirmation. But if you want to try, if you want to make a bit of money on the first first couple of rallies in the new bull market, then yes, you can. We can use strategies like that. Just be cautious, don’t allocate 100% of the capital to them. And you know, again, if you, if you if you ever needed a reason to use less leverage the last couple of weeks in the market is the reason. Okay. I use very, very little leverage and that’s the reason I’ve never blown up an account. And I’ve never had a draw. My biggest drawdown ever
Was 27%. And that was uncomfortable, but it was within my design tolerance. And so, and I’m nowhere near that right now. So you using leverage increases your chance of drawdown, increases your chance of blowing up your account and reduces your ability to survive longterm. So if you’re only trading cash, give yourself a Pat on the back because you didn’t fall victim to FOMO and leverage. And, and try and buy the Googles and the Facebooks at all time highs. Well, good job. And don’t be tempted to go in high with what’s delivered now either because it’s just a path to disaster. Okay. So this is a question here. I gather your strategy for handling difficult conditions is to use different systems but only on the stock market. Do you have an option on trading other markets that aren’t correlated to the stock market as a diversification strategy?
Look, yes you can trade different, you can trade different markets. I do just trade stocks, stocks and ETFs. But you know, if you want to trade Forex and futures and so on as well, that’s a good diversification strategy. If you follow the future, some other commodity markets you would have seen that most of them have created as well in the last couple of weeks. So fear tends to permeate through other markets. So diversification is not the be all and end all. I think directional diversification long and short is really, really powerful. And also being long and out of the market is very, very powerful. I do have one system in the stock market which again I really love. It’s called a bad defiance and again, part of the trader success system. And what that does is it find stocks that are moving in the opposite direction to the market.
So when the market’s going down, it finds stocks that are going up and typically that will buy inverse ETFs. It’ll buy bond funds, it’ll buy gold it only ETS and it’ll buy the occasional stock that is negatively correlated with the market. So you can find such instruments as well. You’ve just got to look for that negative correlation and design a system around that. But I’ve got a great system for that. If you know, if you want to do that, you can listen to me about and I’ll tell you about the trader success system, but I’m not, I don’t pitch it all here. Really what I want to do is help you survive the next couple of months and and, and, and make, make some money or retain your wealth. Anthony says, what markets do you recommend for trading now? Good question. Interesting. what I say to all of my students is trade systems and markets that fit you. It’s got to fit your personality, your objectives and your lifestyle. Now, most of that is around the system, right? Personality objectives, it’s all about the system. But lifestyle is actually really important.
You know, let’s say, you know, I could say to, you know, I love the Australian market actually in a band, MOC and I don’t love the Australian market. I prefer the U S market. But if you can’t consistently execute trades on a certain market, then you can’t trade that market because as soon as you start making mistakes, you’re going to you can lose money. So the U S market is great in a bear market because there’s so many more stocks you can short than any other market and the liquidity is higher than any other market. So I do favor the U S market and all of my shorts systems have developed for us stocks and ETFs. I don’t trade short on the Australian stock exchange or on the Hong Kong stock is changed because there’s just not enough breadth of stocks you can short. So yeah, that’s great.
But if you can’t trade the U S market cause it doesn’t fit your lifestyle, a time zone is wrong, then that Marcus n***a fee. So that’s, that’s sort of the situation there. I have a portfolio of markets I trade and all of those are systematic. So I tried Australia, Hong Kong in the U S primarily and I experiment with other markets. You know, and I’ve, I’ve put different markets in now, my portfolio over the years, you know, European markets and Shanghai and other Chinese markets and so on, but a little bit of capital allocated to each one, traded systematically with diversification of those systems, sometimes alongside, sometimes short side. That’s the, that’s the main thing. And make sure you can do, you can follow your rules consistently. So Anthony, I hope that helps. What else have we got here? Any other questions? Please post them in the chat.
I’m happy to hang around for as long as we need just to make sure we covered everything. Anthony says, do I only trade stocks? I trade stocks and ETFs. So basically anything listed on the stock market. I don’t do options. I don’t do futures. I don’t do Forex. Nothing wrong with those markets. It’s just that I teach stock trading. I trade what I teach, I teach what I trade. It sort of keeps everything consistent. And what about CFDs? Again, good question. I use the actual stocks. I don’t use CFDs particularly for the long side. On the long side, if you’re trading longterm, as in more than a couple of days holding period, CFTs are really bad because the holding costs, the interest costs are really high far higher than holding stocks if you want to, if you don’t, try very short terms.
If these are okay, if you want to trade short, see if these are a case. So again, one of my mastermind students, very, very smart guy. You’re Kim. Trades short with ETFs, which is fine. Sorry, short with CFDs, but not for the leverage, only for the ability to go short. Okay. Anyone who says, Oh, I tried to CFA is because I can get 10 times leverage. I mean they don’t know, you know, that’s dangerous. It’s not what’s going to help you survive. So don’t do a safety to get leverage. And if you’re an
You probably don’t even know what we’re talking about. Maybe it was safe days cause I don’t think you have them over there. Do you? I’m not sure. But don’t worry about it. But I tend to trade in the underlying market, actual stocks. And so I just, you know, I have a modular account with interactive brokers and that just allows me to borrow stops and short them automatically. But if you don’t have that, if you have a CFD account, yes, you can go short. Please, please, please be conservative with your exposure and your position size. Because in a bear market, rallies can be very vicious, very fast and unexpected and liquidity can dry up. All of a sudden, spreads can widen. All of a sudden if you’ve got a position that’s too big end up in a world of hurt. So if you’re going to short with CFDs, be conservative, do it for the shorting capability, not the leverage.
Hope that’s clear to can’t be any more blunt than that. Anthony says in Australia, would you recommend the U S stock market to mention your lifestyle? I’m in Malaysia so I’ve got a little bit of an advantage over the Sydney Heights because I’m three hours behind you. So the us open is at a fairly sensible time in the evening. If you can stay up till the U S opens without hurting your lifestyle even temporarily while his bear market is going on in short. Absolutely. But if if you can’t, and if it’s going to hurt you then consider a system or a set of rules that will enter and exit at the U S close, which is early in the morning, Australian time or Eastern Australian time. Then you can do it right. So think about what you can fit in your lifestyle and trade in a way that you can consistently do it and also make sure you’ve back-tested it.
If you don’t know how to back test, then reach out to me because it’s something you need to learn. Because if you’re gonna make any strategy changes, now you need to back test them. I can’t read, I couldn’t read the name, but someone says, what’s a CFD? It’s basically a it’s a derivative that allows you to trade long and short with leverage on a stock. So it it mimics the stock price, but it’s but it’s not holding the actual stock. So at the safety tracks, the stock price and you put down a margin just like a futures contract or some motor futures contract, but you pay interest on that on that position. So yeah, it’s just basically like a leverage derivative of the stock, but not an option. If these don’t expire, they there’s a contract for difference. It doesn’t expire. It just lasts for as long as you hold the position. So next question, Nick says, if I understood, you correctly mentioned entering positions for your systematic systems on the market open manually. I ordered the not place before the market opened instead during the first minutes. Can you just try that process and how that relates to your systems? Net tested? I can’t go. Let me, let me clarify just a little bit. Great question
Mate. Thank you. If you have a trading system, my guidance is do what the system was back tested to do. So if your system into, if your back test answers at the open, if that’s what you’ve coded in the back tested, you should be entering at the open. Particularly now in the markets are really volatile. Don’t be reckless and just place market orders before the market opens. Hoping to get a good price. Okay. You need to, I would encourage you to be there and monitor your positions and make sure that the spread is not too wide. The slippage is not too big and you sort of manage your positions. For me when I want to get in at the open there’s two things you’ve got to consider. You’ve got the bias lined up and I’m just doing a little drawing on the right hand side of the screen here and you’ve got the cell is lying up right when the buyers and sellers mate in the middle. I try and have it make sense now just before the open you can see the buyers and sellers. And you know, I’m particularly talking about Australia here because like, sorry, I lost my screen. I’m going to just go to a let me just share my screen and go to am a whiteboard so that you can I can just do some, some drawing.
Can you see my whiteboard now? It should just be a blank white screen and I’m just gonna do some scribbles on it so I have that works. Okay, cool. You can see the white whiteboard. Thank you. So just before the market opens, if you look at the market depth, so this is like a level two liberal to quote a market depth quote. You’ll see the buyers lined up and you’ll see the sellers lined up. And if it’s a really liquid stock, usually the buyers and sellers overlap. Okay? Now this is a really, this is quite an in depth concept. Okay, but I’m just going to do, I’m not going to do it justice today, but what usually what happens is when the buyers and sellers are overlapping just before the market opens, as soon as the market opens, everyone in here in this overlap zone gets matched at an average price.
And so what you want to do is you want to look at the volume of buyers and sellers at really H price level and the volume of the sale is at each price level here, position your order sensibly if you’re selling, position your order so that it does get executed during the matching, but it doesn’t shift the price. Now this is not really a big problem for small accounts where you’re taking really small positions. But if your accounts big, then you’ve got to be really careful how you place the orders so the you move the opening price. So I look at the market debt and I place my limit order before the market just before the market opens, a couple of minutes and a level that I know will get executed. When all of those shares traders get matched. And if I miss it, they don’t get in very quickly.
They’re off the by adjusting the price. The other situation that can happen, and it does tend to happen a bit in bear markets, unfortunately, is when there is no overlap. You know, sellers want a high price and buyers want to want to pay a lower price and there’s a big gap in between. Okay. So there’s this big gap in between where the sale isn’t willing to sell down to and the buyers are willing to buy up to. If, if there’s a big spread, then you’ve got a problem, you know, and unfortunately when the liquidity is low, the spreads widen and you have to pay more to get in. We have to lose money and bid down to get out. And so if you’re getting out, if you need to sell a trade, you don’t have much choice. If there’s sort of place your order, what I do is I place my order inside the spread just inside and I wait and see what happens.
And if it doesn’t get hit, then I’ll progressively move it down, down, down, down, down just to see if any buyers are going to be enticed into the market. And I’ll do this over the first sort of 20 minutes, so it’s pretty quick. And then hopefully a buyer comes up and takes my order and on out. But if if not, then you’ve basically, you’ve got to get the price that you can get it. And if the, if the spreads don’t overlap, you know you’re going to get out wherever you can get out. But if you just place a market order, you’re just going to hit the highest buyer, the highest buys price, and then you’re going to keep pushing the price down until your order has been filled. So it’s really dangerous. So I always use limit orders, almost always use limit orders and gradually manage them down.
Are you using an algo order in interactive brokers to to get a good price? If you’re buying a stock or trying to establish a new position and the spread is really wide, you’ve got a decision to make because you probably like let’s say it’s a 10 or 15% spread, which can really happen, then you probably don’t want to cross the spread. You know, if you, if you’d have to beat up 10 15% just to get your, your position established, that trade is not going to be not going to help you be profitable. So when the spread gets really wide, I will skip trades and if the spread is wide compared to the average profit portrayed on the system, then I’ll I’ll, I’ll skip trades and get out. So again, I hope that helps. Let me just clear this. So it makes sense that you’re talking about getting a suitable order for the opening option rather than placing the order after the open. Yes, absolutely. If I’m, if I’m trying to get the opening price I did at the opening auction, I don’t want to execute it afterwards
Because the market’s already moving by them in a bear market. If it’s, you know, it’s probably moving in the wrong direction. So I do try and get in at the opening auction and if I miss it, if for some reason my order doesn’t get executed, then straight away afterwards I’ll adjust it and make sure that my, my trade gets executed. So I hope that helps. John says, good info. Thanks for that. Put that. Glad it helps. All right. What else? Any other questions? Wines is slippery. Dip through a few signals a couple of weeks ago for the U S index cross, but nothing more now. Some of the exit with Mexican, when will it give more signals? Jog says, wait, can I buy some toilet paper? Well, in Malaysia we still have, some people aren’t panicking over here, but that’s about it. I think everyone else has run out.
I was thinking about starting at toilet paper futures market. Maybe we could make some money. It can go go into business with that. So back to the, the slippery dip. When will the slipper did start giving signals that again, you’ve got to look back at the rules of the system because what, when, when the slippery dip shorts, it shorts when the index moving averages crossover. So a short term moving average costs below a medium term moving average. So for it to signal again, the market’s going to have to have a decent rally and enroll over again and then it will get short for the next down Lake. So if this rally is very short lived, it’ll miss it. It won’t, it won’t show it again. But if the rally is longer and it does, it does sort of come up and then roll over, then it will get short again.
But look with the, the great thing about systematic trading is you just got to white for the signals. You know, the draining trading process is really a simple as updating your data, checking your existing positions, exits, running a scan, see if you’ve got any bicycles, and then placing those trades with your broker there doesn’t have to be stress around what’s going on in the market. Okay. all right. I’m just seeing if there’s any other questions, hit a few comments. And for someone, so coasters for someone starting but familiar with market is the best to have several systems to target each of these situations and not one single system that may not perform in some situations. Yeah, look, it’s always better to have several systems. Good question. But the reality is you probably go to start with one and if you start with one, then yes, it’s not going to make money in all market conditions.
So don’t use all of your capital with that one, that one system. If you’ve got, let’s say you’ve got $20,000 in your account and you want to trade with several systems to get to those vacation, you know, your first system might take five or $5,000 and your second system might take another $5,000 and another 5,000 another 5,000. You know, you basically build up your exposure by layering in the system as you’ve found the systems you want to use back. Test them to build confidence and then implement them implementing a portfolio of three or systems simultaneously. It can be done, but you definitely want some support to do that because there’s quite a bit of, you know complexity and learning curve to get used to all the moving parts, but it can’t be done. So you know, if anyone wanted to work with me to do that, I can absolutely help you do that.
But if you’re gonna do it yourself and you just probably one system at a time, but just phasing your capital, you know, give each system a little bit of capital. What else? So John one says Pat, can you tell if the system is broken and not just having a bad run? Typically when you do a back to SG, you’ll see the performance stats, the system, you’ll see the maximum historical drawdown. You’ll see the maximum number of consent, consecutive losers and you know, the volatility of the equity curve and so on. The biggest indication is that the drawdown is bigger than the maximum historical drawdown. If the system, if the drawdown is bigger than anything you’ve seen before, by a wide margin, it could be broken. Or it could just be that it wasn’t prepared for the current market conditions, which is definitely the case.
You know, many systems that I use and have used have now have a slightly bigger than expected maximum drawdown. But if you’ve given each system a smaller amount of capital, then it doesn’t hurt you too much. But if the draw down gets to say 50, you know, maybe 25% higher than new than your maximum historical drawdown, then it’s probably start time to pause the system and and think about what to do next. That would be my guidance on that. It’s really about draw down and system behavior. If your system has back-tested and historically you’ve only ever got a maximum of 10 losing trades in a row and you’re now sitting at 15, it probably time to reassess the use of the system to scale it backwards, put it on pause until it’s back in sync with the market. So basically any statistics that are dramatically outside the backtested boundaries have a warning to to pause or suspend a system.
Ideally, and I know it’s probably a bit light to, to say this now because the market has really come down, but ideally you should have these rules in place before you need them. You know, the best place to have a map is before you hit into the woods is a phrase that Brendon Burchard, one of my heroes and mentors says. And I think that’s absolutely true. The best time to have insurance is point house on fire. The best time to have to stop us is when you entered the trade. The best time to have the rules to suspend them turn off the system is before you start the system. That would be my guidance on that. So that’s helpful. If you already have a system and you’re just not sure, then you know, you can scale down, you can take some exposure off or you can pause it and just go to cash.
There’s no harm in standing aside. One of the great managers we have as retail traders, all of us is that we can go to cash and we can just stand aside from the market. You know, let’s just live to trade another day. You can do that perfectly reasonable, no shame, no need for FOMO, just live to trade another day and I’ll wait till the market’s come down if that’s what you want to do. Absolutely no problem. Siraj says upon systematic trading, how should chief trust in a system if our market does not have enough history as like the S and P? Look, the fact is if you’re going to trade systematically, you need to trade a system as a market that has enough history to test. Now, most markets have quite a few years of trading history. I mean, I can’t think of any stock markets around the world that are really brand new that you would trade.
So strategy, if you’ve got a particular market in mind, let me know that if a market’s been around for 10 or 15 years, that’s enough. That’s enough history to back test. As long as you’ve got full market, sideways market and bear market in your back test, then you know that that market is well enough developed for you to develop a system. So hope that helps. So a psoriasis will, I’m back testing and end of day systems since January, 2000. Is that enough to have trust on yeah, potentially because that includes, well it depends on which market it is, right. But if that was correlated to the U S market that would have the bear market from the button take bubble boom bust and it would have the band market from 2008 and it would have several bull markets. So I think that’s probably okay. The more history you have in your bag test, the more bear markets are included, the more comfort you can have. And I would say the list history you’ve got, the more conservative you should be with your capital allocation and position size. Okay. What else? Adrian, what if your stop losses are still less then
Less than you, any profit taking? Anthony? I’m not, I’m not sure I understand the question.
Okay.
What if your pro stop loss? Maybe you can rephrase Anthony, your question about stop losses. If you can just rephrase that for me so I can I can understand, I’m just not clear on exactly what you’re asking there. Ball says, is it sensible to back test manually? Let me, let me put it to you this way. Good question. My new backtesting is better than nothing but only slightly better than nothing because if you manually back test, you can only back test over a handful of instruments over a handful of years. And if you’re really, really disciplined, you might be able to generate 50 or a hundred trades. Okay. But if all of those trades are within a low volatility bull market, then you actually know almost nothing about the way your system will perform. And so I I much prefer exponentially more prefer automated back testing and it’s a skill that is absolutely you know, vital for a longterm trader survival and in my view so I teach systematic trading and back testing because it allows you to answer all your questions.
If you’d backtest automatically with any broker, for instance, which is what I use. Then you come back to histo system over 25 years, over thousands of stocks, over thousands of trades in seconds, and it gives you such good depth of information and it allows you to see how a portfolio would perform. If you backed us manually. It cannot see how portfolio performs. You can only see how that one stock performed. But in reality, you don’t trade on one stock dude. You trade a portfolio of stocks using the same strategy and you need to see how they fit together because positions are correlated to some degree. And so automated back testing allows you to do that. So if you don’t know how to back this in an automated fashion, you want to learn that, reach out. Let me know and I’ll explain to you how my program works.
But it’s back. Seeing manually is only just marginally better than than doing nothing at all. I would definitely recommend automated back testing. Santo says, any view on the nifty look, I don’t give you some particular markets because all of my sisters, all of my training is done systematically. And again, one of the great things about systematic trading, particularly in environments like this, like we’re in now, I’m just gonna stop sharing. I’ll just come up, come up screen here. One of the great things about systematic trading is that you don’t have to have a view. You just have to follow the rules and you know, the market might be stressing you out, it might be oscillating and gyrating, but you don’t have to worry about that. You’ve just got to follow the rules. If your system is well designed and you’re losing money, eventually your system should get you out the door that might be bigger than what you expect to mind.
Might be bigger than what you want. Sure. But it will get you at. So that’s the that’s the key there. So my view on the nifty is if you want to trade stocks in the nifty, take a system and back, test it on those stocks. And see how performance David says, if you’re as if say 20% of your capital devoted to a shortsighted system that is mostly out of the market, isn’t that capital wasted in terms of growth or did the canes during the bear market for that 20% outweigh those realized gains? Yeah. Good question. And look, absolutely, that’s a downside of reserving capital. You don’t need to necessarily have a slice of capitalist specifically reserved for short side system though. What you need to know is that when that shortsighted system turns on, when you have enough capital spare in your account to allow the short side system to take up to 20% exposure on the short side, which is a different thing, right?
Because let’s say you’ve got a, I’m a buy and hold strategy on the long side and you’re never going to sell those stocks, okay? And you’re 100% invested when you come to a bear market. If you want to add in a short side system with 20% of your capital, you’re in trouble because you’ve got no spare cash, right? So in that case, you would have to allocate a slice of capital, go on the short side. But if you’ve got alongside system, which doesn’t get 100% invested or when the market turns in your short side system, turns on, the loan side system is largely in cash already, then you know you’ll have that 20% available and you don’t have to go to K, you don’t have to you know, reserve that cash all the way through the bull market, just waiting for a bear market.
Cause you’re right, it’s a waste, you know, because bull markets last much longer than bear markets. But what you do need to do is think through all of your different strategies and systems and say, if I want 20% with my current mix, will I have it available or do I need to reserve? So, so I think through a bit more strategically how that helps. Okay. Sarah says, based on your experience exit strategy based on two times ATR, is it good targeting one times ATR easy questions that you need to back test? So anything about particularly indicator particular system, particular rule, my answer is always back test it and see because the answer is almost never intuitive. Again, the best thing about systematic trading, the reason I can stay calm is if I have a thought or a concern, I can create a rule and I can test it and see what happens.
And that’s that gives us a huge, huge advantage in the market. I think it’s it looks like Henry I think says, do you need to work with a specific broker in order to back test? No you don’t. It’s not, it’s not so much the broker you have. When you’re trading systematically, you have three, several things. You’ve got your your computer, you’ve got your backtesting software, which is on your computer locally. Like Amy broker for instance. You’ve got your data feed, which is the end of day prices that you download each day. And then you’ve got your broker and you use your software to back test the rules and to generate the signals that you place into your broker. So you don’t need a special broker to back test. You have backtesting software to do that. And so I use Amy broker and recommend a new broker cause it’s very, very powerful, very fast.
Relatively easy to learn. There’s a little bit of a learning curve, but you know, I could certainly help you out with that if that’s something you want to do. Pardon me. Wayne says what is going to be a signal for near the bottom? Certain indicators or oscillators or moving average or decline? Look, the only bottom picking system I’ve got is liftoff. And so Wayne, you’re in the program already have a look at liftoff. That’s the system. I don’t actually currently trade that system but it hasn’t really given signals yet. So I’m certainly considering incorporating that into my portfolio. If you have other ideas, happy to kick them around with you separately. You know, program Facebook group. We can, we can design something that that, that works or at least test some ideas. But yeah, liftoff is my current system and that’s really just an early breakout.
You know, I’m in a damn train light in a downtrend. I’m not big on bottom picking. I’m just out of interest. I’m happy to sit in cash and and white for an established trend. So then all right, what else we got? John one says what’s your overall drawdown at the moment after this big drop? Right now I think I’ve figured out I’m going to about 6.7% throw down so I’m not real big, but it’s fluctuated quite a lot over the last two weeks. At its worst I think I got to 12 and then I made a new all-time equity high and then I had a bit of drawdown. So but I have now I have a lot of cash in my portfolio because my long side system is clearing out, going to cash. My first short side system kicked in, most actually all of those trades hit their profit targets were ready and so they are out.
And so now I’ve got to run my scans and see what I’ve got to do tomorrow. But I’m sitting on a lot of cash. I’ve got a few shorts and a few loans left over. But yeah, my drawdown has been pretty low because I’ve gotten that combination of trend-following, meaner version and short side, which is really, really powerful. And you know, that combination and trading systematically is something that if you’re not doing it now, then sit up so that for the next market cycle you’ve nailed it because you’re living through this now and this is, if this is your first bear market, it’s a real eyeopening experience. Believe me, I know because you know, when I went through my first one I was like wow, now that could happen. But you know, goes systematic and diversifying your systems long, short, longterm, short term as well.
So long side, short side, long term, short term and different markets and it really changes the game. It changes the way you feel when this sort of move happens because you know, it’ll be okay, right? You’ll get to cash and you’re losing positions. Systems, your other systems will kick in and they’ll start making money and then when they stop making money and start losing money and the system will kick in and you’ll start making money, it really, really is a solid way to trade. Anthony says, stock close as a K two. My strategy, would you keep a stock knowing that at some stage it will recover or get out and wait for the stock to go up? My view is if you have a stuff lost in your system, I’m not sure if this is what you’re asking or suggesting, but if you have a solo single system and it gets hit, you should get out.
Let me rephrase. If I have a stock close in my system and it gets hit, I get out. I don’t care how bad the prices I’m going to get. I get out. I never, if I, if I never, ever, never, ever, never, ever hold a trade after it’s hit the stop loss hoping for it to recover, never. Just why? Because what if it keeps going down? You know, a downtrending stock that’s hit it, stop loss is going to lose you more money. And the small potential upside of getting back to even is, is just not a good trade off for the downside risks that you’re facing because an individual stock can fall a long way. And in fact, I, you know, I’ve had folks go to zero literally, you know, in my account one day with tens of thousands of dollars the next day, poof. Nothing, zero value. And that can happen.
So if something gets you, it hits an exit rule, get out, you might miss some upside if it does recover, but it’s not about making money on every trade. It’s about surviving for the long run. That’s the key. So I have that. I hope that helps. Again, sorry I’m being a bit blunt, but that’s my saw. K let me see if there’s any more questions. Happy to take more questions. I know the numbers are dwindling a little bit, but there’s still 50 of you on the call, so someone must be hanging around with questions on their mind. So if you’ve got a question you’re hoping for someone else to ask it, don’t ask me the question and I’ll deal with it. I’ll, I’ll help you out. So let me see.
Just scrolling down. All right, cool. All right, thanks Anthony. Appreciate that comment. Okay, there’s a few other questions I got asked by email. I didn’t manage to get all, I got a lot of emails today so I didn’t manage to cover all of them or to, to look at all of them. But let me just have a look at my, my emails here and see what questions I’ve got. Henry says, can I show a system? Look, I have other I have other webinars prerecorded and so on that talk about that. I don’t really want to get into that today because that’ll take us a whole different tangent. But email me Henry and and asked me to point you in the right direction to some of my prerecorded stuff that’ll give you some ideas. Okay. But do email me cause I’ll forget.
I’m focused on other stuff at the moment. So let me just see, how should I, he’s a good question. How should I refine my strategy into something that can survive the current market volatility? And he’s, I think there’s a broader question here, which is, should I change my system and strategy now to cope better? And I think changing a strategy because the market conditions have changed in a short term is it’s pretty risky. You know, I changed my strategies fairly slowly and I wouldn’t look as this market plays out and what goes through the next bear market and then come out the other side of it. I would look to revise all of my systems say, okay, well what worked, what went wrong? Where was the draw down Highland? I expected, why did that happen? You know, could this be improved somehow?
And then I would find them. But in the middle of the Bay market, it’s it’s a difficult time to adjust your system because you know, the emotions are high and you’re actually live. So yeah, I would I’d be slow to adjust your systems unless you’re talking about your risk and exposure level. If you want to do risk yourself and slow the pain, then sure do that now. But but certainly don’t don’t just go changing the rules. Okay. Because that will probably end up with the worst of both situation. You’ll have the current draw down and then something will change. And I have another drawn out. Here’s a good question. How deep and long lasting will the impact of the coronavirus be on the investor’s psychology and sentiment? Really good question.
I think my perspective on this is that the market is made up of people and people are funny. Animals were quite short term and we’re very motivated by, you know, pain and greed. And so right now fear and grade rather right now we’re all focused on, well, most of the population is is beautiful. And the maybe areas on the coronavirus and it’s still in its growth phase and we don’t know how long it’s gonna last, but when that is out and the next news cycle comes in and it’s something different and the market starts to come down and people start to forget, you know, in six months time then it’ll, it’ll slowly fade. But you know, typically the emotions around a big market event like this could last a couple years, probably not five years. People tend to forget quicker than that, but I would say, you know, certainly six months to three years, people can still feel a bit tortured by the experience if they’ve lost a lot of money.
And some people will walk away from the game forever as a result of what’s happened in this last couple of weeks. And I hope that’s not you because it would be a shame because you know, this is the best game in the world. Keep you entertained for decades. I love it. And the best thing about it is you can actually make money and have fun and you know, be mentally stimulated. So don’t let this event blow you out of the game because you’ll be missing out on the best game in the world. Anthony says, we in the bear market now, I guess we are we, the market’s down more than 20%. There’s some definition floating around that says if it drops more than 20%, and we’re in a bear market, I don’t know where that came from. But the main thing about a bear market is the primary trend is down and the uptrend has certainly been broken.
And you know, we’ve had a couple of little rallies only tiny so far with law and then we’ve made new, lower lows. So I would say yes, that’s a bear market. So tread carefully and conservatively. It could change, you know, if one of the stimulus packages or one of the intervention measures were really a fixed investor psychology, then that could turn around and start rallying. I wouldn’t expect a vigor recovery where it bounces straight back to where it was though. I would say be prepared for a you know, a bit of a Rocky market, volatile for the lows for a little while yet. Okay. all right. Thank you. If you noticed comments there. So I appreciate you all attending. Anthony says I’m looking to go short the Asics 200 cash tomorrow. Okay, good. I mean, I have a plan, have a plan, make sure you’ve got a stop loss and an exit point and position size conservatively.
Because if you’re wrong, you don’t lose too much money. So that’s that would be my main guidance on that one. I can’t give advice on individual positions or stocks or anything like that. But you know, just think about principles of risk control and make sure that no matter what happens, you you can start to trade another day. Psoriasis, can you give us a glance about what you teach in your course? Look, I can [inaudible] send me an email and I’ll point you in the right direction. Again, I don’t want to make this about sales and this is some I, I just wanted to make sure that people could jump on, ask all the questions about the band market, calm, the panic and, and all of that. So I don’t want to make this a selling thing, but send me an email and I’ll point you in the right direction.
I’ve got some resources out there that tell you about the system, about the program and you can, you can learn all about it and then ask me any questions that you’ve got. So thank you for the question. Dances you have to question the economic flow on from covet 19. Yeah, absolutely. No question. You know, if if country is going to lock down for an extended period of time and the economy really does slow, then for some sectors there’ll be quite some flow and it could really, it could really affect the, the markets and companies profitability for quite some time. I mean you don’t have to look at, I mean go look at airline shares, travel agent shares cruise ships, this sort of thing right now. You know, those, some of those will not recover quickly, but I don’t make fundamental decisions based on information like that.
What I do do is have trading systems that will buy or short stops according to what they’re actually doing, what the market behavior is. And remember back to the market system map. A slide. Yeah, there’s bull markets, sideways markets and bear markets. And then there’s three different behaviors. There’s training continues shock against the trend, temporary or trend changes. So if you’ve got a set of rules that profit from several different of those, several of those nine different combinations, then you you have a better chance of making money or rule. And one of the funny things about trading systematically, let’s talk trend-following, right, is sometimes a stock would be trending that you’ve never heard of and you’ll look at it and you go, what? Where does this come from? Like, why is that going up? And you can go research the story and figure out the reasons and all of that.
The fact is it’s going up and your trend following system gave you a signal to buy it and so you know you’re buying it and that’ll be the first one out of the recovery. And I you know, funny story in the 2008 bear market I w I belonged, I had a lung system and I had a sh a short system and my long system had a bit of a drawdown as the market turned, my short system kicked in slowly. It had a quite a strict filter on it and made money on the way down. And our ran my loan system every day for 18 months without a signal system, a single signal to buy. And when the bike came, the first signal, I nearly fell off my chair cause I thought that it just like there was never going to be another bar can, right?
Because we’ve been so long. But you’ve got to have that discipline and consistency. That’s what keeps you in the game. That’s what allows you to keep going. You gotta be stubborn as all buggery, you know, to put it bluntly, because you’ve got to follow the rules that you’ve got to follow the routine. And and when you keep doing that, you’re going to get trades. When you don’t expect them, you take those trades and you make money. John one says, how many individual systems do you trade? I, I’ve quite a few systems. Actively I trade, I have about eight systems that I follow. They’re not all on at any one time. So you know, when, when we’re in a band Mocket alongside system or we’ll stop signaling new entries, I don’t get out of mine long positions. When the index turns down, I’ll wait for the stocks to turn down.
So I stopped taking entries before all of my trades exit. I’ve got a system I really love in Hong Kong, which has been out of the market for almost a couple months now because the Hong Kong index was too weak and so it wasn’t signaling. And then I’ve got a couple of shortsighted systems. One of those is on at the moment. Two of those actually are on, one of them has not yet kicked in. So yeah, several systems, but they’re not all on at once. And I don’t want you to think the trading systematically with a portfolio systems is Uber complicated because it’s not like I keep things really, really simple. And John, if John Duran, I can see you there. If you, if you agree with me that the systems are pretty simple, you know, just give us, give us a nod there, right? It’s some, you know, you don’t need rocket science. You just need an age which is back tested. And so
[Inaudible]
You can run several systems on several markets at the same time and it doesn’t take very much time. I mean, with those six or eight systems, I’m running across three different markets. It still takes me 10, 20 minutes a day, almost every day, every day, less than 30 minutes to run those systems. And I’m trading at seven, pick a portfolio and I could have up to 60 positions, 60 trades on at a time, at different times. Right. And it still only takes me 10 to 20, 30 minutes a day. It’s simple. I can’t see the name. I think it might be, Mark says, do you support levels when analyzing markets and stocks? Personally I actually don’t trade with support and resistance. Mainly because support and resistance really subjective.
Yeah.
It’s it’s easy to see when there’s a low, like a V low or a double bottom or something like that. And the trading system can incorporate say, the lowest low of the last 50 days as a support. I’ll use rules like that. But you know, when the typical person gets out their chart and draws support and resistance lines, they’ve got all these horizontal lines on the charts. I don’t do that because it’s subjective and it’s really hard to back-test. So I only trade with rules that I can,
Yeah.
Easily code correctly so I can understand what’s going on and back test them if I can’t. Back to the rules. I of build confidence in them. And if I can’t put confidence in them, I can’t trade them consistently when the shit hit the fan like this. So you’ve gotta be able to test it. And so that’s why I don’t use support and resistance. Like most discretionary sort of traders do. Have a couple of systems that you use. Like I said, 50 day low, 50 day high, 20 day high, something like that, but it’s definable.
Okay.
John says, I just lift heavy things and I can run a simple system.
[Inaudible] John, you’re smarter than you. Give yourself credit for. I’m going to, again, I say that to the group. Yes. You, you, you, you can run several systems simultaneously. You don’t need to be a rocket scientist. I am not a rocket scientist. And it really is a fraying and kind of enlightening way to trade. So can we start on the systematic journey please? If the market tells you anything it should be telling, go in that direction because it’ll calm everything down in LA to back test and understand what to do. John one says last question, what data provider do you use? I use several data providers. It depends on the market you’re in and what you want to achieve. So most of my students use data from metastatic ms dot.com not software, just the data. And the reason for that is we’re developing systems across many different markets.
And minister has the biggest breadth of markets. When I trade so some people will say, Oh, you need survivorship buys free daddy, you have to use Norgay and nugget data is excellent. It is expensive. But and what is excellent for is if you want to trade stocks that are within a particular index because the, the stocks that are in an index over change over time. And so if you back test, say a trading system on the stocks that are in the currentS and P 500 index over the last 20 years, you’re cheating because,u20 years ago when that system takes its first tray, it already knows which stocks are still in the S and P 500 year fund. 20 years later. Right? Uso you can’t do that. So if you want to trade the index constituents in need data from gain,ubut if you trade the whole market, I scan the entire stock market every day and that takes about three and a half seconds,uusing a new broker, but then the index constituents doesn’t matter.
And the only survivorship bias issue is stocks that are dig listed. And I deal with that in other ways. So I use metadata. I’ve got a link for that if you want to download it and get a free month. But if you want to use index constituents, pardon me, use bed. I’m not sure if co is an abbreviation, but I was going to say codices. Do you consider the difference between longterm Kager of the S and P index versus the recent growth rate we’ve had in 2008? Look, that’s a really, that’s a really cool idea. And it’s basically what he’s saying is that like, is there an overboard oversold sort of situation on index? I, I don’t, but it doesn’t mean that’s not a good idea. Okay. and on, I have actually now copied your comment because it’s something I’m going to play with.
What I do do is I keep a long register of all my trading ideas like this. Like, Oh, what if I had a rule about, you know, when the growth rate is, the index kind of goes above the longterm average. Maybe it’s a bit of important I should scale down or, and you know, maybe when it drops below the growth rate is below the average, then it’s time to kind of get in. Any sort of rule like that is worth testing and just cause I haven’t tested it doesn’t mean you shouldn’t test it, but don’t use it unless it tested it. Just because it sounds logical, it doesn’t mean it will work because logic doesn’t necessarily work in the market. Counterintuitive works. So you need to back test it to check. But I love talking to people like this because it gives ideas and I just copied that one.
I’ll add it into my idea register. And you know, whenever I’ve got time I computer to do system development, I’ll just go to my list of ideas and I’ll figure out which things I’m going to back test and try them. And most of them throw away, right? If I test a hundred ideas, probably 99 of them ended up in the bid as trash, but one of them might make a fortune. You know, I’ve had individual rules and one ID responsible for hundreds of thousands stills a profit in my account, like no joke. Literally like literally real money because increased the profitability of the system so dramatically that one rule.
[Inaudible]
So all ideas like that are worth testing. And Anthony says, what books would you recommend to start out? My favorite book I would say is way of the turtle could have spiked cause faith was one of the original totals and probably I think the most profitable, excellent, excellent book about longterm systematic trading. So I’d start with that one up in a whole list of others if you want. Some more technical than others. Two books by Richard Weisman or so. Excellent. so let me start with those. All right. Look, questions seem to be slowing down. Is anyone, I promise to stay on as long as you need, but I don’t want to keep everyone up all night either. Oh, she’s a Raleigh. Hey Susan, how are you? I’m just got here. It’s early in Toronto. Yeah, no, sorry I couldn’t fit this for everyone and the Australians are getting late in the morning so I had to make this early.
But I’ll let the recording process and then I’ll email tonight with a link to it so that you can get to it. So, but if you’re getting questions, feel free to jump in and ask now and while anyone’s thinking of they final questions. And Nicole, I’m just going to go back to my emails cause there was another couple of questions I didn’t cover. A few people have asked me about buying options and I sort of covered it earlier. But the problem with options in this market environment is the voltage is super high right now, which means option premiums are super expensive. And that means even if you buy an option and you’re correct on the direction, as soon as volatility drops, you probably lose money. So the time to have the put options is while the market is quiet, you know, buying put options when the market is, when the VIX has already spiked. Probably not a brilliant idea. So yeah, I probably, I probably wouldn’t be hedging personally. I wouldn’t be hedging with options at this point. But if you’d like the idea, then consider putting us at a rules in place about when you would hedge in future when the big system, single digits. That would probably be a a sensible approach. What else did we go at?
Someone coming that the biggest issue they had was getting out of long positions early enough to miss the bulk of the drop and holding nerve after missing optimum exits. I’m not sure who asked this question. But I guess a slightly different perspective on that is when you’re trading a long term system, you have to be comfortable with what’s going to happen when the trend changes. And so I actually spend a lot of time after I’ve done the back testing and designing the system, everything. I spend a lot of time thinking through how that system will behave in different market conditions and looking at the equity curve and zooming right in and saying, okay, well when the market tanked, what happened and how did the positions behave and how did the buying and selling take place? And just getting comfort with how the system works. And the fact is with with trend-following, you do give up a lot of profit at the end of the trend. That’s why it works because what you’re doing is you’re giving the stock a lot of room to move. The stock price is going up and your exit prices going up and you’re living it wiggle and wiggle around. And then when it finally goes down noticeably and hits your exit price and you get out and go to cash
Or you’re stuck going short. But that dip down to the exit is big. It could be 25, 30%. You know, I’ve got to, I’m holding a position now.
Okay.
Which, you know, I think I was up like 150% on the trade. 100% at least I have to go look at the numbers, but it’s back down towards the entry price. It’s like, ah, play is painful, right? But trading is not systematically trade. Trading systematically is not about that trade,
Okay?
It’s about following the system over many, many trades. And if a stock goes down a long way from the entry price or from the high, it sucks. But trading a system is not about that stock. It’s about the a hundred trades, a thousand trades that you’re going to take with that system.
So don’t worry, not too much about the dip and worry about following system for the LoRa. And if you don’t like that dip, then add another system which will profit from some of that dip. And you know, you told me afterwards, if that’s something that you want to learn about and I can show you a little about that. Okay. All right. It looks like questions have sort of wrapped up. So I’m gonna want, I’m gonna wind up. I hope that was helpful in the comments. If you found it useful, give me a thumbs up. I’d really love to just get some feedback. And if you’ve got any, if you got any specific feedback, please send me an email, send me a note. I haven’t done a live, impromptu kind of urgent training like this before. But I really felt it was important cause I could feel the panic around and I could feel people being stressed about it.
And I just wanted to make sure that I reached out to you guys as part of my community. You know, some students, many not. And just share some stuff, hopefully to kind of put some perspective on this and you know, help you get through the next few weeks and come out the other side of this with your counseling healthy. I mean, you may not make a fortune in the bear market, but you know, if we can keep you afloat then that’s a good outcome too. So thanks so much for participating. I appreciate you jumping on at short notice. You know, cause I not only sent out the the, the email today, so I’m good on you for spending your Sunday to you know, come and learn a bit about this stuff. If you’ve got more questions, message me if you’re not already in my my free Facebook group enlightened stock trading.
Please join. You’re all on my email list obviously, because that’s how you came to hear that. So feel free to let me know if you need help and support any kind of getting a systematic trading going, I can definitely help you with that. Or if you’ve got any other questions about tonight, I’ll do my best to help you. And yeah, let’s keep going. Trade conservatively, be cautious. Don’t make knee jerk reactions. Keep leverage, low position size low and protect your capital. So those should be the guiding principles right now. Making money is secondary survivalist first. Okay. If you don’t survive, you can’t make money. So I don’t risk the house trying to recover, don’t risk the house trying to make a fortune. I’m just aim to survive. And if you make money, then that’s a, that’s a bonus as well.
Bear markets don’t last forever. Okay? This will pass. The volatility will pass. And if you wanna just stand aside from it, do just stand aside from it and wait, you might be waiting six months or more, but that’s okay because the markets will still be here at the end of the day. So that’s my, my sort of final parting thought. I’m hope that helped. Best wishes. Your love to you and your family. Please take care of your health. It’s not just about the markets. There is crazy stuff going on health wise. Do stick to the social isolation, washing your hands, avoid people. Yes. You know, there’s different views about all this, but let’s stop the spread. Okay. So my family’s at home. We’re not going out with, we’re isolated. We’re all about the looking after each other and keeping healthy and you know, not passing it on to anyone else just in case any one of us is sick and we don’t realize yet. So look after you and yours trade safe and I’ll see you next time. Bye for now.