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Making your decisions on the basis of stock trading tips when the markets are gyrating wildly just won’t work. So how do you make money when world leaders keep doing crazy things, making announcements, it sends the markets gyrating up and down all over the place? I had this great question from one of my readers, subscribers today and I thought I would record a quick video to talk about that because you know, a lot of people understand how to make money in bull markets. The best way, incidentally, to make money and bull markets is with a trend following system on the long side and that holds strong stocks as they rally through the bull market and then when the stocks stop moving up and they start moving down, the primary trend is over, you get out and you move on to the next stock.
A lot of people also understand how to make money in bear markets, which is shorting stocks which are weak but typically in a bear market, you want to short not on weakness, you want to short after a rally. You short after a rally because in bear markets, it’s really volatile. The rallies in a bear market will typically stop you out if you’re entering on weakness so far better to enter on a rally short in a bear market and then ride the downswing.
But how do you make money in an environment where the markets aren’t really moving in any particular direction, but announcements and events at a global scale are causing big gyrations from one day to the next? Well, the best way to make money in that sort of environment is with a mean reversion system. Because what mean revision does is it enters in the opposite direction to extreme moves. When the market is skittish because of what’s happening at a geopolitical level, you know, world leaders, negotiations, trade wars, tariffs, those sorts of announcements, the market gyrates dramatically from one day to the next and each move either up or down is typically in overreaction.
So the best way to profit from that systematically with mean reversion is you have a system which buys on a rapid decline in the market and then very quickly sells off to the bounceback. Then also, if the market rallies very, very heavily over a short space of time, you can short and make money on the correction.
Now mean reversion is psychologically pretty difficult to trade. I’m not afraid to say it. Turn following is pretty easy because you’ve got a long period of time where the market is moving in your favor, you get lots of positive feedback and all of that. But mean reversion, you have to enter when it feels the absolute worst to enter. You’re going long when the market is panicking and you’re going short when the market is excited and happy.
Now that sounds obvious, right? We all know that you know, the market kind of axioms that you’ve got to be fearful when others are greedy and greedy when others are fearful. But when it comes to trading in your can and your money, I know that that is way more difficult than it sounds. So if you’re going to trade mean reversion, you have to have the utmost faith in your system, so you need to have backtested that system, have tested it for robustness and sensitivity, tested all of the variables.
If you don’t understand what all of that means, then private message me and I’ll talk to you about how to backtest your trading system correctly and how I can help you out with that. But you must follow your main reversion system exactly and you have to do it in a really timely fashion because in markets like this where the market are gyrating up and down, the moves happen really, really quickly. So if you miss that entry, chances are half the [inaudible] will be over by the time you get in. So if you’re going to enter, if your system says enter at the open, you’d better be there at the open to place your order and get that trade executed right away because the bounces happened really quickly.
Now I’ve got a mean reversion system at the moment, which is just fantastic. It’s part of the trading system collection and it’s doing really, really well in this market environment. What I’m finding is that when I’m getting a buy signal, typically the very next day I’m getting the sell signal with to exit with a profit. So these main reversion trades are happening really, really quickly, but that’s how you make money when world leaders are doing crazy things.
When you get tweets from presidents about negotiations and about the economic conditions and about interest rates and a sense of the markets up and down in a really skittish fashion, this is how you got to trade. You’re not trend trading, you’re not swing trading, you’re trading mean reversion because that’s the way to catch those rapid moves up and down in the market.
I hope that helps. My name is Adrian Reid coming to you from John Day in Oregon. We’re on our way in the RV, which is just over there between Boise, Idaho and Crater Lake national parks. Super excited to do some videos for you from Crater Lake in a couple of days. But what I want you to do right now is subscribe to this channel. No matter where you’re watching it, like the video, subscribe to the channel so that you can keep getting my updates because I’m doing videos every day on this a nine-month world journey that I’m doing with the family and bringing trading lessons to you inspired by what’s going on both in the markets and in the environment around me.
So hit the subscribe button, like the video, share it with some friends and if you need help developing your trading systems, if you need some mean reversion trading systems, then you need to click the link below and check out the trading system confidence cheat sheet because that’ll show you how to build confidence in your trading systems.
Also, there’s another link below to help you find out about the trading system collection and you can get access to the exact same systems that I trade with my money every single day. My name is Adrian Reid, this is Enlightened Stock Trading, and I wish you all the best in the current volatile markets. Bye for now.