Stock Market Update|What you can learn from my trading pain & why I don’t daytrade

Usually I start my updates with observations about the market, but this week I have an observation about traders… apparently you like learning from the pain of traders that came before you. 

I know this because one of my most popular videos at the moment is called “27 Losing Trades in a Row… My Turning Point“.

Here is the video, you should watch it if you haven’t seen it yet:

That was a pretty tough time in my trading journey, but it lead to some great learnings that have really made a difference for me over the last 20 years!

Click here to watch the video, and if you are open, please like and comment on the video and share your turning point – what happened that finally got you on the right path in your trading?

Stock Market Update

This week in the stock market was pretty much a continuation of the tentative recovery we saw last week. US, ASX, TSX and HK are now all above their 200 day EMA and are grinding up slowly towards the level just before the US Tariff announcements (in the US) and the ASX is now well above that level.

At the moment it looks like the markets think this might all blow over, but to be honest who knows what will happen next on the US political scene and how it will impact the markets. All I can say is I am super glad I have a portfolio of trading systems to guide my decisions because uncertainty like this can be stressful and emotionally crippling for discretionary traders.

In any case, there is some strength in the markets at the moment, but after several weeks of upward grind, I would not be surprised to see a correction or retest of recent lows. Once something triggers this correction we will really see just how much strength there is in the markets.

If the next pullback finds support above the tariff panic lows then there is a good probability of a solid up move to follow… if not, then the markets will get messy. I strongly suggest have trading systems in place that will benefit you in either scenario!

The interesting observation I made digging into the market performance this week was the difference in strength of the largest vs smallest stocks. The chart below shows the percentage of stocks that are above their 200 day moving average in a number of ASX, TSX and US indices.

The particularly interesting thing about this is the massive difference in strength in the US market between the large capitalization weighted indices and the broader, small cap indices. Approximately 50% of Nasdaq 100 stocks are above their 200 MA, but only 25% of Russell 2000 stocks are above this critical level.

The difference on the ASX is much less stark, with 62% of ASX50 stocks above their 200 MA and 46% of Small Ordinaries stocks above this level.

What does this mean for traders?

The behaviour of the largest stocks can vary dramatically verses the smallest stocks on the market. This has a couple of implications. 

Trading only small cap stocks can leave you struggling when in periods (like the last few years) when large cap stocks are out performing. We need trading systems for large stocks and systems for small stocks. If you don’t have these then you are probably leaving a lot of profit on the table.

It also shows that market indices can be very misleading as an indicator of the overall market health. Large stocks might be doing ok, but small stocks might be getting hammered. As much as there is correlation between stocks, there are significant areas of over performance and under performance. Our portfolios of systems need to be nimble and diverse enough to capture these.

I believe systematic portfolios should have strategies for large caps and strategies for small caps. I have a trend following strategy for small cap stocks that I have made a lot of money from over the years. However, in the last couple of years the performance of this strategy has been much weaker than my top 100 relative momentum (rotational) trading system.

Both of these strategies deserve a place in the portfolio… but either one in isolation is suboptimal in the long run. 

I have been playing with the idea of long term bottom picking using market breadth indices like the Percent of stocks below the 200 MA. I don’t have a workable system just yet, so if you have any ideas on this I would love to hear from your (rely to this email and let me know your thoughts and I will test them). 

What I have observed though is when the % of Russell 2000 stocks above their 200MA drops to below 10%, there is a solid chance of a substantial upmove in the S&P500 over the next 100 trading days (See red box below). This does not happen often and only occurs in the most extreme bear markets. This could be a good bottom fishing indicator for once in a decade type crashes but I have more work to do on this.

Currently, as at 2 May 2025, 25% of Russell 2000 stocks are above the 200MA, and the chart below shows no increased probability of a big S&P rally using this indicator. If anything there may be an elevated probability of a decline, but I think acting on that in advance would be a mistake.

I like digging around in market behaviour like this to see if anything jumps out that might be tradeable. It helps me satisfy my curiosity for how markets move, and every now and then a decent system idea comes out of it.

Reply to this email and let me know what ideas the above sparks for you and I’ll add them to my testing plan and see what I can make of them.

Trading Tip: Finding New Trading System Ideas

One of the best ways to generate new ideas for trading system development is to dive into the charts and observe market behavior. Spend time looking at hundreds of charts across different timeframes and markets. Pay attention to patterns, trends, and anomalies.

Ask yourself questions like:

• What happens before a strong breakout?
• How do stocks behave after a sharp correction?
• How many down days has there been in a row before a bounce in this market
• How often do breakouts fail in this market

Document everything you notice including patterns, behaviours, and potential setups. This process not only helps you generate ideas but also builds a library of insights you can test later. Remember, not every idea will work, but the more you explore, the more likely you are to uncover that golden opportunity.

Quote of the Week

Trading system development is a process of trial and elimination. Just like panning for gold. You start with a flood of ideas, most of which won’t amount to anything. But by testing each one systematically, discarding what doesn’t work, and refining what does, you gradually uncover reliable, profitable systems. 

The key is persistence and a process. Most traders stop too soon or chase shiny distractions, but those who stick with it and work methodically are the ones who find the nuggets that can truly transform their results.

The final thing I wanted to do is answer a very common question I get:

“Adrian, why don’t you daytrade?” (Click here to learn why I don’t daytrade…)

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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