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Did you know that most active traders in the stock market lose money and quit without ever having made a profit? Do you want to know why so that you can avoid it and actually make money trading?
My name’s Adrian Reid and I’m the founder of Enlightened Stock Trading, and I’ve been a profitable systematic trader in the stock market for over 15 years now. Without the right approach to the stock market, you’re doomed to be among the 95% of traders who lose money and fail. But with the right approach, trading can become simple, easy, and stress-free, and you can make an awful lot of money in very little time each day. You can’t get rich overnight, that’s completely garbage and it’s just not possible, but what you can do is build your wealth and make money by trading just 30 minutes a day, and over time you can generate very substantial returns in the stock market.
So why do most traders fail and lose money when it comes to active trading in the stock market? It comes down to three things: confidence, conflict, and consistency. Confidence is a real problem, because if you don’t have absolute confidence in your trading rules then it becomes very difficult to follow them consistently, particularly when your account goes into inevitable drawdown. Because you don’t make money every single day, or every single week even. When your trading stops you’ve got to be able to put up with the ups and downs in your account, and if you don’t have absolute confidence in the rules that you’re using, or if you’re not even using rules to trade, then it’s going to be very difficult for you to keep going and keep following the rules when you hit a drawdown.
You must have absolute confidence that the rules you’re using to get in and get out of the stock market, to buy and sell your stocks, are profitable, and if you keep following them then you’ll end up with a profit at the end of the day. If you don’t have that confidence then it’s almost impossible for you to succeed in the long run, because chances are you’ll hit a drawdown that’s too big for your comfort, and you’re going to give up because you’ve lose confidence and you feel like you’re going to keep losing money. You must have absolute confidence in your trading rules.
The second problem most traders face is conflict. I’m not talking about fights and arguments and all that sort of thing, I’m talking about conflict between different pieces of information, different inputs into your trading decisions. You see, most traders approach the market, or make the decisions in the markets, by looking at lots of different information, by reading the news, by looking at analyst reports, by looking at different indicators and different chart patterns, and piecing together what they think they should do by weighing up all of those different inputs. But the big problem is that, when you’re looking at lots of different inputs and trying to combine them together in a discretionary way like that, there’s inevitably a lot of conflict between the inputs that you’re using. One indicator says buy, another indicator says sell, one news report says the market is going to be bullish, the next news report says it’s going to be bearish, and all of that conflict, all of those different messages and signals that you’re getting as a discretionary trader, make it virtually impossible to make money.
The third challenge that most traders face is consistency. If you don’t have an approach that you unfollow consistently, it’s very difficult to make money. Why is that? Well you need to follow a process that churns out profits. You think about a factory, right, let’s think about a factory that makes cars. If that car factory doesn’t follow the same process day in, day out, for every single car that goes down the production line, they’re going to end up with a crappy product. They’re going to end up with returns, and cars that don’t work, and all sorts of mistakes in production, and not only that, they’re going to end up with a higher cost of production. What you need to do in a factory setting like that is to have processes that are followed in a regimented way, exactly the same way every single time, because that way the quality of the product is consistent, and the factory can actually make money.
Trading is very similar. If you’re making your trading decisions one day using the XYZ indicator, and another day using the ABC indicator, one day you use MACD, the next day you use RSI, and the next day you’re using moving averages, you don’t have consistency in your process. When you don’t have consistency in your process you can’t learn from the feedback the market gives you, and you can’t refine your approach and make it better. Because as you chop and change you get all different results, and chances are chopping and changing is into going to give you a profitable result. You need to have a set of rules that you can follow consistently every single day. The challenge is, those rules need to be profitable. If they’re not profitable then you’re going to lose money.
So how do you tie all of these things together? How do you build confidence, how do you eliminate the conflict, and how do you build consistency into your trading approach? The best way for the vast majority of traders to do that is to move from being a discretionary trader to being a systematic trader. To move from things like charting, like reading indicators, like drawing chart patterns and trend lines and those sorts of of things, like interpreting, candlesticks, to move from all of those to becoming a systematic, rules-based trader. Everything that you do in the market is determined by your trading rules, and it’s all simple logic. It’s things like, if A and B and C and D happen, I’m going to buy. If E or F happen, I’m going to sell. They’re absolute rules that you can follow day in, day out. You’re not looking at lots of different pieces of information and trying to piece together a view about what you should do in the market, you’re relying on system rules to tell you what do in the market.
The great thing about trading like that is, once you’ve got absolute rules, if A and B and C and D are true buy, if E or F are true sell, once you’ve got those absolute rules, you can test those rules. And you can test them to make sure that they’re profitable. The great thing about that is, when you back-test your rules you can build confidence, and when you build confidence it allows you to follow those rules consistently. So having a systematic approach that is absolute, that’s not discretionary, it’s objective. Allows you to back test and build confidence. It also eliminates the conflict I was talking about earlier, because you’ve got only your rules that you need to follow. If A and B and C and D are true, you buy. You don’t have to worry about everything else that’s going on. You don’t have to read the news articles, you don’t have to look at the analysts’ reports. You just follow your system. You don’t have to worry about the indicators that people are talking about in their chat sites and in their Facebook groups and all of that, because you’ve got your rules, your absolute rules, that you’ve built into your trading system.
Once you’ve got a trading system and you’ve tested it, you’ve back tested it to build that confidence, you can trade with much more consistency. Because what you do, your trading process each day, becomes running a scan to check if you’ve got any buy or sell signals based on your absolute rules. My trading process now is really simple. Every day all I’m doing is pressing a button to update my historical data, then I’m pressing the button to run the scan to see if I’ve got any buy triggers and sell triggers. If I’ve got a buy trigger or a sell trigger, I’m going to my broker platform and I’m placing the trade, and that’s it. You can see that once you’ve got a systematic approach to trading, it becomes a much simpler day to day exercise, and the great thing about that is, you can make money with very little time, effort, and stress, because all you’re doing is following the rules.
I’m not saying that you’re going to get rich overnight, that’s not what it is. What I’m saying is that you can trade consistently and profitably and build your wealth over time. My trading only takes me 20 to 30 minutes a day, maximum. I’ve been trading for a long time now, and when you compound your results year on year on year, you can build really substantial wealth in the stock market when you’re trading systematically. Because you’ve got that confidence, you can follow through with your rules, because you’ve back tested them and you know that they work.
The reasons that most traders lose money and quit before they learn stock trading successfully is because they don’t have that confidence. They’ve got conflicts between the signals and inputs that they’re using to make their decisions, and they’re not consistent. Systematic trading solves all of those problems.
If you know someone who’s struggling with trading, who’s not making the money that they really want, tag them in the post below, tag them in the comments so that they can see this video. Because the shift from discretionary trading, from chart reading, from looking at different indicators, from interpreting candlesticks and patterns and trend lines, the shift from that to systematic trading is what’s going to get most people profitable. Because it builds that confidence, and it allows you to be consistent, and it eliminates all of the conflict in the inputs that you’re using in your trading.
Again, my name’s Adrian Reid, this is Enlightened Stock Trading, and if you’re not getting the results that you want, the results that you deserve, then it’s time to make that shift into systematic stock trading so you can build confidence, so that you can eliminate the conflicts between all the different inputs that you’re using, and you can start trading and making money consistently. That’s all for this video, I’ll see you in the next one. Bye for now.