Market Chaos, Trading Psychology & Position Sizing

I have four things for you this week:

1. A very interesting market update given the turmoil in the markets this week
2. A psychological bias that is super common and really hurts traders
3. Position sizing tip to keep you in the game
4. How to think about stop losses to improve your performance

Let’s jump in…

Stock Market Update for 15 March 2025

This week was certainly not the most fun long side traders and investors have had in the last year! 

I am sure you have felt the pain but just in case you have been covering your eyes and not looking.. the Nasdaq 100 was down another 2.5% this week and a 10.6% decline over the last 4 weeks. 8 out of 10 US sectors were down this week and all sectors are lower than they were 4 weeks ago.

There are a couple of positive signs though:

• The VIX fell to 21.77 this week down from a high of 29.57 a few weeks ago
• Energy and Utilities sectors were strong
• Most markets closed up on Friday

I just thought I would share a few rays of sunshine so you don’t spend your whole weekend thinking it is all doom and gloom!

Looking at the charts of the major markets my systems trade you will see that all of them (except Hong Kong) have been melting down consistently day by day over the last few weeks. If you thought the Nasdaq correction was depressing, spare a thought for us Aussies and look at the All Ordinaries Index below… We have now experienced a 9.8% drop from the all time high on the 14th of February 2025

I might have said it last week but I am very grateful to have a decent allocation of capital to Hong Kong stocks. It has helped my portfolio more times than I can count and this week is no exception. 

My main long side system for the HK market is up 14.6% YTD (up 10.6% in March YTD) The long side has done pretty well and is so far managing to maintain it’s low correlation with the US markets. You can see the equity curve backtest below. I know it looks a little ugly in the last few years, but Hong Kong was in a bear market from 2018 to the end of 2023 when it bottomed, so this long only system held up pretty well all things considered… 

… and my short stock system in HK did extremely well during the last few years as well (image below)

My point here I guess is that if you are freaking out that the Nasdaq is tumbling or your ASX positions are getting hammered then you could benefit from some more international exposure in your portfolio of trading systems. There are a lot of markets that respond very well to a systematic approach, Hong Kong is certainly one of them and it does typically have a low correlation to US markets.

I was looking at the internal strength (weakness???) of a few markets this weekend and thought the chart below was interesting. it shows the percentage of stocks above the 200 day moving average in main US indices, TSX60 and ASX 200. The yellow bar is the current percentage of stocks in an uptrend by this definition, the green dash is the highest reading in the last year and the red is the lowest reading in the last year.

As you can see, the current performance is pretty weak with all of these indices close to the lowest they have been in the last year. Interestingly Canada is showing much more strength with over 50% of stocks still in above their 200 day moving averages. Sadly this has not been enough strength for my Canadian trend following system to be positive YTD (not shown), but it has held up very well compared to it’s Australian cousin.

US small caps are getting hammered with less than 30% of the Russell 2000 above their 200 day moving average. If it falls much further most of my US exposure will be on the short side which always gets interesting.

The good news is measures like the % of stocks above the 200 MA revert to the mean and strength comes back to the market… but the reality is the market can fall a lot further than it has so far.

The global market performance update is below. Lots of red this week, with China, Russia and Brasil being the bright spots. I am not sure it trading Russian stocks is practical, but I would be interested to hear if anyone has any experience with that. Interestingly the China 50 has decoupled from Hong Kong stocks this week and is showing strong performance. Might be time for me to have another look at stocks on the Shanghai exchange (I have being saying this for a while now so time to bit the bullet and get it done. For my Trader Success System Mentoring Program members I will discuss this and share results in our Breakthrough Workshop this week).

The recent performance for Crypto is shown in the table below. Still now great news here with another volatile week. My systems are mostly in cash in my crypto portfolio right now so the volatility is not hurting at all but it could be a while before this turns around… but watch closely as this market can turn on a dime.

One of my biggest reliefs in trading is automation. For situations like the current crypto market, trying to stay focused while trading manually is just so hard. Each day I see my automation report and I am so relieved that it is just running for me and I don’t have to monitor the market so closely.

That’s all I have got for this week, but I am working on some new and interesting analysis to share with you each week so keep a lookout for that next week.

In the mean time please send me a comment and tell me which markets you are trading our of US / TSX / ASX / HK / China / Other. I would love to hear so I know where to focus my discussion.

I don’t know if this correction is over yet. Friday’s green is just a tiny little blip, so I am not getting my hopes up. 

So what to do next?

• If you are long only >>> Learn about the short side
• If you are only in one market >>> Look at international diversification
• If you are only in US / ASX / Canada >>> look at low correlation markets 
• If you are a discretionary trader >>> the fear and stress you are feeling this week can be largely eliminated if you adopt a purely systematic approach
• If you find trading hard to fit in with life >>> systemise and automate

If you want help to do all of the above and more in the next 6 months then check out The Trader Success System

Psychological Biases in Trading

We are in the middle of publishing a series of articles on the psychological biases that impact traders and I must say, it is FASCINATING! 

We have published articles on 18 different biases so far and it is really ‘enlightening’. One I found really interesting was Hyperbolic Discounting.

Hyperbolic discounting is one of the most powerful yet least understood psychological forces in trading. This cognitive bias leads investors to choose smaller, immediate gains over larger future rewards, fundamentally altering how they approach position management and long-term strategy. It’s a pattern that repeatedly undermines thoughtful investment plans, turning carefully constructed trading systems into exercises for short-term gratification.

If they’re offered $100 today or $120 in a month, most people would take the $100, even though waiting would give them a 20% return, far better than most investments!

So, how does hyperbolic discounting impact stock traders?

It fuels impulsive decision-making; his common scenario plays out countless times daily across markets as traders routinely sacrifice larger future gains for the immediate satisfaction of booking smaller profits. The psychological relief of securing a “sure thing” overwhelms the rational understanding of greater potential rewards.

Read more here: Hyperbolic Discounting in Trading

Trading Tip of the Week: Smart Position Sizing

One of the biggest mistakes traders make is risking too much per trade.

Here’s a simple rule: Never risk more than 1-2% of your trading capital on any single trade. Reduce your position size to keep risk manageable.

Actionable Step: Review your last 10 trades. Were you risking more than 2%? If so, it’s time to fine-tune your risk management strategy! In fact, most of my trades risk much less than 0.5%. That way I know that no single trade can really do me much harm.

Quote of the Week

Successful traders don’t chase every move—they wait for high-probability setups and execute with discipline.

Featured Video: How to Think About Stop Losses

Ever had your stop-loss hit right before the market reversed?  It’s frustrating, but there’s a better way to manage stops—and it’s backed by data.

In this video, I break down:

✔️ What stop hunting is and why it happens

✔️ How to set stops based on backtesting, not emotions

✔️ Why exiting on the next bar open can increase your profits

Watch now and start placing smarter stop-losses:

Watch the Video

Just like last week, if you have read this far, please reply with a single number 1-10 to let me know how interesting and useful this update was. If you have any suggestions please let me know as I would love to make this weekly stock market update even better.

Remember – You are only one trading system away!

Adrian Reid

Founder, Enlightened Stock Trading