Here is what I have for you this week:
- How to improve your trading based on your personality
- The stock market decisively picks a direction
- Enlightened Stock Trading system update
- Why does it always feel like you are behind as a trader?
- Trading Quote of the week by Jesse Livermore
A great experience – The best way to eat at home
How to improve your trading based on your personality
If you’ve ever thought, “Why isn’t my trading working out?” – you’re not alone.
The truth is, most traders aren’t failing because of poor strategies… they’re failing because they’re trading in a way that conflicts with who they are.
That’s exactly why I created the Trader Personality Test – a quick, insightful quiz that shows you what trading style fits you best. When your system aligns with your natural strengths, consistency and confidence come so much easier.
It takes less than 2 minutes and could change how you trade forever.
Stop second-guessing. Stop following strategies that don’t suit you. Start building your trading edge around who you really are.
The Stock Market Decisively Picks a Direction
The markets certainly picked a direction this week. After spending most of last week hugging the 200 day moving average, we expected it to pick a direction one way of the other and it certainly has. The US markets gapped up significantly on Monday and kept grinding higher all week.
The Nasdaq 100 jumped a total of 6.8% this week alone. Another piece of really positive news in the chart below is that the TSX Composite is now at all time highs again. This is a significant show of strength and is potentially a very strong sign for our Canadian trend following and rotational momentum strategies.
Globally the story is much the same with pretty much every market except Russia up this week.
Enlightened Stock Trading System Update
In my conversations with members of The Trader Success System an important lesson we share is how important effective monitoring of your trading systems is. In my newsletter last week I shared my approach to quickly and easily monitoring my systems. Here is a quick summary for you:
- Set data to update automatically every day
- In Amibroker, create an analysis project file (.APX) for each system you use that includes all the settings to run the system backtest
- Using these analysis project files, create a Amibroker Batch File which runs each system sequentially, copies the equity curve and saves it into a CSV file
- Use Excel to import these CSV files and analyse the recent performance and movements to ensure they are behaving as expected
- Run this process weekly to stay on top of the performance of all of your trading systems
Of course in The Trader Success System we have the tools all set up for you to do this quickly and easily. I would suggest you do this weekly to monitor system drawdown levels and the performance of the equity curve in the last 1-3 months compared to the entire backtest to ensure the recent behaviour is as you expect.
During my weekly review I like to look at all of the equity curves to in the format below as well as individually, so I can see if any of them are diverging from their steady historical growth rate. The chart below shows the long run performance of all of the systems that are included in The Trader Success System.
The more regular you are in your system monitoring the less likely something is likely to slip through the cracks and cause a problem in your portfolio. That is why I recommend monitoring your systems on a weekly basis.
Why does it always feel like you are behind as a trader?
As you can see on the chart above, the systems from The Trader Success System have a strong edge over time. However if you look closely you will see that all of them have drawdown and flat periods. This is normal and unavoidable in trading.
Something that many traders find difficult is the constant feeling of being behind and giving back profits. This is a really challenging part of trading because even the best system in the world will spend a lot of time in some level of drawdown.
Any level of drawdown will feel like negative feedback, so we really need to be prepared for this!
Let’s do a quick bit of analysis on one of these systems: The TSX Simple System:
This system has a compound annual return of 21%, a max historical drawdown of 28% and is extremely simple and robust. The equity curve looks good apart from a couple of reasonable (but expected) drawdowns.
What the equity curve doesn’t show you is how much negative feedback you would get trading this system (and any system – this is one of the biggest reasons why trading is so hard). Analysing the equity curve in excel for this system we can see:
- 42% of trading days you lose money
- 85% of days are in some level of drawdown from the previous all time high
- The longest time between equity highs is 805 trading days
Now this system is perfectly good, it makes solid returns, it beats the market, but these three bullet points tell you why it is so hard to be a trader – that is a lot of negative feedback!
One of the best things you can do to improve your confidence is to analyse your system’s equity curves like this so that you know what is actually happening on the day to day level.
Just looking at the pretty upward sloping equity curve does not show you the discomfort that you need to be ready for. Plus, if you are not ready for it then the system will feel very uncomfortable to trade.
Trading is HARD, but you can give yourself the advantage by understanding exactly what the day to day will look like before launching a new system.
Trading Quote of the Week
This quote may feel superficial, and even a little simplistic, but it is the absolute essence of trend following which is one of the best long term trading strategies (also my favourite strategy).
The Jesse Livermore quote feels spot-on for a week where the market gapped up and kept grinding higher. It’s a reminder to ride the momentum when prices are moving in your favour, rather than fighting the trend or overthinking the ‘why.’ Momentum like this can be a trader’s best friend – until, of course, it bends.
On the Home Front
On a personal note, last night we did something super fun which I highly recommend. One of our favourite restaurants has a deli attached where they sell the meals packaged so they are super easy to reheat (Kind of Sous Vide style I guess, except the meals are already cooked and we just used the water bath to reheat them). We had a mixture of cheeses, chicken liver pate, arancini balls, braised lamb shoulder, meatballs and the most amazing cheesecake I have ever tasted!
So we brought entrée, main and dessert from the restaurant and prepared them at home for some friends. Had an amazing meal at home and we didn’t have to cook a thing.
More restaurants should be doing this – it adds scale to their operation and is a great marketing tactic because we spoke about them all night!
We forgot to take any photos of the food, but here is the table before everyone arrived. We even got the cheese, bread and pate from the same restaurant.
Given you have read this far, please do me a quick flavour (see what I did there?) and reply to this email and let me know one area of trading that you would like to learn more about. This will help me write more useful lessons for you in the coming weeks.
I appreciate you – thanks for reading.
Remember – You are only one trading system away!
Adrian Reid
Founder – Enlightened Stock Trading
P.S. Whenever you’re ready… here are 3 ways I can help you improve your trading:
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