Global Stock Markets

Last week in our update I mentioned that the markets had been down for quite a few days in a row and we should probably expect a bounce in the markets. As you can see from the charts below that certainly happened. All 4 of the stock markets that I trade actively experienced a bounce.

The surprise was Hong Kong which has really come through with some strength and broken through to the highest price since November 2023. This was particularly interesting for me because while I was starting to look to my short systems to load up, my shorts in Hong Kong have now all closed and my systems went long HK this morning for the first time in many months

This is a great example of how trading requires mental flexibility and vigilance. Had my processes (Automation) not been hyper-vigilant and run all of my systems every day, I might have missed this long side signal as my system loaded up because I was really on the lookout for short trades emerging in my systems!

In the table below you will see that the stock markets were up across the board in the last week. Note that this does NOT mean that we are in a new bull market… in fact we tend to see high correlations between international markets during bear markets.

My suggestion is that you be open to the possibility that this is a rally before another down leg in stocks. Of course, I am not predicting that or making any discretionary calls here because all of my trading is 100% systematic and automated, but it is psychologically helpful to have a range of scenarios about how the market might play out

SIDE NOTE: I have had a lot of people ask me how I am producing these awesome dashboards of stock market performance. I use the XLQ addin for Excel which allows me to pull a wide range of stock / index / commodity / forex and other financial data into Excel. The cool thing is it can pull data from Norgate Data into Excel(which is what I have used for the table above), Yahoo and a variety of other sources into Excel too. It is hugely useful for tracking your positions, open trade profits and a range of other reporting functions that traders need to do. Check out XLQ here and get a $50 discount.

I have been talking about the Cryptocurrency markets quite a lot recently as a result of the great bull run we have had from the end of 2023 to the first couple of months this year. As you can see in the chart below crypto is in a sideways consolidation at the moment, but because we are at the lower end of this range it is really a correction from the highs of early March.

At some point this consolidation will breakout either to new highs, or further corrections. I know it can be frustrating waiting for clear direction, but as traders this is unavoidable and we really need to get comfortable with the uncertainty and with waiting to see what happens.

Just know that whenever the crypto markets decide to move up again, the upswings are typically fast and extremely profitable if you are nimble enough to get in. Don’t lose interest just because it is not exciting right at the moment… if you do, you will regret it!

Your Trading Psychology

Overconfidence is a common pitfall among traders, often leading to a dangerous disregard for market realities and prudent risk management. This psychological bias can distort a trader’s perception, making them overly certain about their knowledge, predictions, or control over trades, which can result in significant financial losses.

Overconfidence can manifest in various harmful ways:

1. Excessive Trading: Overconfident traders may trade too frequently, convinced of their ability to capitalize on market movements, which can increase transaction costs and the likelihood of making mistakes.

2. Underestimation of Risks: Traders might underestimate the risks associated with their investments, leading to inappropriate levels of exposure.

3. Failure to Plan: Overconfident traders might not adequately plan their trades, neglecting to set stop-loss orders or to manage their positions according to a predefined strategy.

4. Disregarding Process: Overconfident traders may also be tempted to skip steps in their process assuming that they know best. This opens up the risk of missing crucial information or insights that might cost the trader in the form of losses or missed opportunity.

Strategies to Combat Overconfidence

1. Education and Continuous Learning: Stay informed about market conditions and trading techniques. This helps maintain a realistic assessment of one’s skills and the complexities of the market.

2. Trading Plan: Develop and adhere to a comprehensive trading plan that includes risk management rules and specific criteria for entering and exiting trades. This plan should be based on thorough research and backtested strategies to ensure its effectiveness.

3. Risk Management: Implement strict risk management protocols, such as setting stop-loss orders and limiting the amount of capital risked on any single trade. This protects against large, unexpected losses.

4. Reflective Practice: Regularly review and analyse your trading decisions and outcomes. This reflective practice helps identify mistakes driven by overconfidence and improves future decision-making.

5. Seek Feedback: Engage with a community of traders or a mentor who can provide objective feedback on your trading strategies and decision-making processes. External perspectives can help counter personal biases and overconfidence.

Conclusion

For traders, particularly those new to the field, it’s crucial to recognize the risks of overconfidence. By embracing a disciplined, well-researched approach to trading and continuously seeking knowledge and feedback, traders can guard against the pitfalls of overconfidence and improve their long-term success in the markets. Remember, even the most experienced traders must remain humble and cautious, understanding that the market is always capable of surprise.

Member Wins

I’m really proud of our Member of the Week, Iain… Iain has been a member of EST for some time and has consistently put in the work and, when he comes up with any trading challenges, has always done the smart thing and ASKED THE QUESTION.

Iain has also demonstrated great tenacity in resolving technical issues. Having experienced a recurring software problem that may have caused others to give up, Iain eventually recognised the actions that were causing the problem and has resolved it with a tweak to his daily processes.

Being a great trader means having the tenacity to see it through and identifying and resolving the root cause of any problems. Iain has certainly demonstrated this and is on his way to mastery with a portfolio of trading systems including very soon diversifying internationally.

We always say the only bad questions are the ones you don’t ask, so great problem-solving Iain, it’s great to see you utilizing the Forum to help you achieve your goals.

All round Iain had a seriously great month in the TSS and is a fantastic example of a winning trader mindset and commitment.

News from EST

I am so excited this week because I have been hard at work building my AI Clone.

My members of The Trader Success System will very shortly have access to a AI clone of me which has been trained on all of my course material (621 videos), including all of the Q&A sessions I have ever run – 531 hours of video of me discussing all aspects of systematic trading.

This is going to be a mind-blowing advantage for my members because they will have access to ‘me’ any time they want to ask questions and discuss their trading. My clone has perfect recall – knows every video I have ever recorded, every article I have ever written and even talks and writes like me. If you are interested in having 24/7 access to my clone to help you with your trading, there has never  been a better time to join The Trader Success System!

On the Home Front

Over the last week the kids have been home from school and my mother has been visiting us from Sydney. It has been a really great week with some awesome meals, great walks by the beach and spectacular weather in Port Macquarie. My mother is our family gardening guru, so we also got to work in the garden and changed over a bunch of my garden doing the Autumn planting (remember I am in Australia) as the weather cools and our days are shortening.

We are now ready for winter in the garden… we now have literally dozens of pumpkins maturing and almost ready. If you have a great pumpkin soup recipe that is something a little different then comment and let me know because I would love to try it. I made a pretty spectacular pumpkin and coconut curry soup recently!

Remember – You’re only one trading system away!

Adrian Reid

Founder – Enlightened Stock Trading