Transcript for:
Insights on Systematic Trading with Adrien Reed

hey hey what's up my friend so today we have Adrien Reed on the show baby so Adrien is a systematic Trader who trades both stocks and cryptocurrencies and what's interesting about Adrian is that he wasn't always a systematic Trader in fact he started off with fundament fundamental analysis then he moved on to technical analysis being a discretionary Trader before finding success as a systematic Trader so today he trades multiple Trading systems across different markets like us Hong Kong Australia Etc and he has trading systems that both goes long and short in other words he can make money when the market goes up or goes down yeah so if you want to connect with Adrian I'll put his social media profile on the description below now moving on in today's conversation right you'll discover firstly how Adrien got started in trading and it's really a very unique story and hopefully something that I can Inspire my kids you know to take up as well right then we talk about the struggles he face as a discretionary Trader and how he find success in systematic trading we also spoke about how he developed a trading system for a completely new markets that he has never traded before he will share his approach to doing that I thought that was really fascinating because those are principles that you can use right especially if you want to dive in into new markets that you have not explored before then we also spoke about the different type of trading systems that he employs so he can profit in Bull and bare markets and towards the end we he also shared with us right a complete mean reversion trading system right that works he talks about the principles behind it the lessons learned and how you can actually implement it on your own so all this and More in today's episode sounds good then go listen to it right now all right so Adrian welcome welcome to the show thanks so much for having me I'm super excited about this I've been looking forward to this for a long time Raina I'm happy to have you as well Adrian and as I Shar earlier right I actually came across I mean I got deeper and know you better through the better systems Trader podcast a fantastic podcast by the way and I think what really I think brought me laughter while listening to the podcast is actually how you got started in trading so maybe you can just just give us a quick backstory how you got started in trading because I thought that was a great a great one yeah yeah great um look way back at the very very beginning um I was about eight years old and uh we're at my family's uh holiday house and we found this game in there which wasn't ours someone had left it there it was called the stock market game and um in that game you go around the board and the market moves up and down and you buy and sell stocks you collect dividends and you become a billionaire very very quickly and I thought that was the best thing ever and uh so if you if there was a good in a positive introduction to the market I definitely had it because that was amazing um of course it was a while before I actually got started trading for real um and when I finished University uh graduated and uh got my first job you know I discovered what the workforce was like and uh I quickly realized that I didn't want to do that forever and so I uh I talked to the adults that I knew I talked to my father and I said hey uh Dad I really don't want to work forever what do I have to do so I can you know retire retire early and of course he laughed at me I'm like 20s something and he's been working for how long and uh then he said well look if you want to if you want to um retire early you don't have to work your whole life you got to learn to invest and so we talked about investing you know property shares other Investments and uh I didn't have the money for property uh so I um I I got interested in the stock market and I started researching started uh started buying stocks that I knew you know companies that I thought were good companies companies with good products companies that people recommended and of course none of that worked uh and then I um I tried fundamental analysis you know I looked at balance sheets and I looked at uh profit and loss and earning statements and dividends and of course that didn't work and uh so I tried lots of different things and then I tried uh I came across technical analysis and I studied engineering right so um the the charts the mathematics of it the you know trend lines all of that just appealed to me I thought that was the best thing ever so I started drawing lines on charts and indicators and had squiggly lines all over the place and of course that didn't work either but you know I really loved it and so I was spending four or five hours every single night running scans drawing trend line support and resistance looking at indicators for confirmation blah blah blah all this stuff and you know it I just wasn't getting anywhere and uh I was so frustrated because I knew there was something there I knew money could be made but I just wasn't making any I wasn't losing much I was very conservative I had good position sizing good risk management right from the beginning but I just wasn't making any money and uh you know I was sort of at the verge of quitting and and uh instead of quitting I I decided I'd double down and I started ordering books from Amazon and I'd get boxes and boxes of books I was reading all sorts of things and uh I came across Market Wizards which is still on my shelf over here I read all of the market Wizards books and that was amazing right because I read the interviews in Market Wizards it's like oh that that person they got a horrible life I would never trade like that like you know screens in the bathroom screens in the bedroom wake up every you know 15 minutes at night to see what was going on forget that and then there was another person that was like doing deep deep fundamental research I was like oh you know I could never do that it's so boring and uh so I basically crossed out all of these interviews and I found the ones that really appealed and this is where the magic happened is where I sort of turned the corner because the ones that really appeared were the systematic Traders you know like the turtle trading style um purely objective rules all back tested and uh again the engineering me just went ah that's it and so uh I just doubled down on um systematic trading and I I read book after book I did a few courses and I just went all in on that and I launched my first system I took three months off work to build my first system and uh once I launched it count turned around started making money and uh been systematic ever since it was a trend following system did I get it right if I absolutely um yeah first system was a trend following system I remember the trade that changed everything it was a small Mining Company MCR uh it went from I don't know I can't recall 13 14 cents 14 and a half cents something to 42 cents uh so it it's Penny Stock and um but that that was a huge profit because I pyramided in a couple of times and that was a trend trade and from then on I was just hooked on systematic Trend following and uh you know I did that for a long long time seven years in fact before I changed anything and maybe to take a little step back I was curious you mentioned the stock market game I'm very curious is it is that game still around I think something that I could get I have it actually yeah I um I I um I salvaged it from the um the family archives I I I keep it here um I should have brought it in I could have shown you but um I don't think you can buy it anymore it's um you know I think it's Dlisted okay so it's probably made by some smaller game production companies and then no longer around okay I I definitely want to look for something similar right to get my kids involved expose them as early as possible yeah oh yeah absolutely and the kids get it right I mean I I started um actually I was saying to you earlier you know we lived in Singapore from uh 2014 to 2017 um around that time I started uh teaching my kids about trading and my daughter was five and uh so you know I showed her charts I talked about you know the long-term moving averages I talked about stop loss risk management position sizing friends and it's amazing how much they get you know when they don't have all of the junk that school has taught them she was very young you know I think she was in kindergarten or uan and uh when they don't have all of the preconceived ideas and the rules that school kind of Beats into them you teach them traded principles they're like oh yeah i' show her chart say oh no you don't want to own that stock that's trending down so you know the kids get it yeah the school will go along the lines of the efficient Market hypothesis you can't beat the markets you know so and then you kind of like you know just kill whatever hopes of you know profiting from the markets from then on absolutely so you know looking back you know you when you share your journey as I you know sent a few emails to he like it's like an older brother going through the same Journey as me I went through some so similar you know trying you know value investing you know checking the fundamentals of the company it got slower oh it's even cheaper it's a better buy right now but guess what slow becomes slower so same process yeah so you also spoke about you know you tried indicators trend lines and stuff so I would like to know why do you think that didn't work for you and then systematic trading worked for you yeah the big um I think the big thing about discretionary technical analysis that's hard is the discretionary piece right you can have indicators and say okay well the IND this indicator says it's going up this indicator says it's going up but that indicator says it's going down and I think this is a support line but hang on a minute no now I need to redraw it now because it's gone a little lower and just or maybe it should be a little like maybe it should be a little higher and this is the trend line oh hang on no this is the trend line or maybe this should be the trend line that's the problem you know it's not repeatable and it's very easy in the middle of the chart like oh yeah that's a buy yeah that's definitely a buy right oh yeah I would have sold there like no you wouldn't if you look on the far right hand edge of the chart these things are almost impossible to do with consistency and I you know I I survived only because I had good risk management you know I had very small risk per trade when I was doing discretionary technical analysis but as soon as I went systematic all of a sudden the emotions are gone um there's cons a consistent process I can test and evaluate the process so hang on a minute that doesn't look like a good trade and the system says buy so why doesn't that look like a good trade oh it's because it's too too volatile Let's test a volatility filter and see if that hypothesis is true you know and you can get evidence you know back tested data to tell you should or shouldn't kind of trade that sort of stock so you can really test and evaluate um rather than just be blindly driven by your emotions and uh you know that that's what discretionary Traders really struggle with is the inconsistency in the emotion right and also like you know because I have done discretionary trading systematic trading I've done both sides of it and I think one of the struggles that many discretionary Trad Traders find is that yeah I know you know systematic trading there benefits to it but I can't program Adrian you know I'm not sure how to you know write the quotes and stuff like that what would you say to someone who you know can't program for for nuts and they want to be let's say a systematic Trader look that I I hear that so frequently and to be honest my my belief is that it's it's an excuse um and I had you know I had to sound harsh but I couldn't program when I started either but I had the desire to learn because I knew that I wanted to be systematic so that I could eliminate the emotions I could be consistent I could test my ideas I could prove that I had an edge and if you want to do all of those things and if you could do all of those things and that could make you hundreds of thousands or millions of dollars wouldn't it be worth learning something new right and you know I found actually that it's it's not that hard if you're a somewhat analytical person to learn to code a strategy and the good thing is if you're a if you're not a coder I'm not a coder you know I I didn't do computer science I didn't study any coding in school anything like that so if you're not a coder the tendency is to keep things simple and that works if you are a coder the tendency is to make it you know really complicated and rocket science and trying to all of the formulas and rules and you know loops and fancy programming and that doesn't work at least not in most cases so people who aren't coders I would say don't let that hold you back have the vision of being a systematic Trader so that you can have consistency so that you can prove you've got an edge so that you can test your hypothesis and know for sure one way or the other is it a good idea or is it not and use that as the drive to learn the skill yeah um because once you do it's just so powerful yeah so maybe for those who are still watching so for me the path that I took is that I think maybe I had a little bit of a entrepreneurship background so I hired a developer K right to help me do the testing and these days there's so many marketplaces some of them are not really expensive especially get it from developer developing countries like I know Indonesia Vietnam or Philippines right pretty decent price and pretty decent work so again options for other non-systematic traders to consider if they want to step forth into systematic trading yeah and maybe let's let's talk talk a little bit about the stock markets I understand that you offer a number of trading systems that covers different Market if I'm not wrong is this Canadia the US Australia so I'm I'm I like to hear right you know what are some Concepts that that work in let's say in the US Stock Market but maybe not so much in other markets or maybe we kick things off first like you know what are some proven Concepts that work for the US Stock markets well look there I sort of Step stepping back I think about systems Trading systems or strategies in a couple of different uh buckets right we've got Trend following we've got mean reversion we have uh rotational momentum uh which is somewhat similar to Trend following a little bit different we've got seasonality right and then there's some other strategies as well so there's definitely um uh Trend following strategies that work there's rotational momentum strategies that work meanor version can work but um you know there's been some shifts in the US market over time and so some strategies that worked say 10 years ago don't work now so Market behaviors can shift um and then there's definitely some seasonal patterns in the US market that work yeah um the Santa Claus Rally For example there's um the Ultimo effect which is at different times of the month the market is tends to be strong or tends to be weak so those are tradable as well so I would say in most markets you can find strategies that are either Trend following mean reversion uh rotational momentum or seasonality that work but what works specifically in the US vers what works specifically in Australia or Hong Kong may be different because the markets have different personalities yeah so in the US I've got a I've got a trend following system I've got a rotational system I've got a short side system um I'm not trading mean oh yes I am trading mean reversion system in the US right now um so and I've got a seasonality system so I have the whole set in the US um and I think that's really powerful because that diversification is what Smooths your returns is what means if there's not a really great trending period something else might be making money yeah um the interesting thing and one one one lesson that I struggled with at the beginning when I was learning is I was ordering all of these books I was talking about to you about earlier and I all of the authors or almost all of them inevitably were American and so I get these books and I'd look at the strategy and I was only trading Australian stocks and I'd try the strategy and it wouldn't work it's like this is a famous Trader why doesn't it work I hadn't realized that different markets had slightly different personalities because they've got you know different participants different exchange rules different levels of liquidity different size of companies and so I think the big learning is that yeah the generic strategies will can work in most markets but they need to be adapted because the markets are a little bit different could you maybe give an example of the concepts working let's say between the Australian and the US market but maybe the strategy has to be twe let's say something that works for the US has to be TW to cater to the Australian Market maybe something yeah good one good question um so look a trend following system is a good example I mean in Australia Trend following on small cap stocks works really well long-term Trend following so um buying a long-term breakout holding for a long uh uptrend with a wide wide trailing stop and if you have a system like that that filters for low volatility stocks and has a portfolio of say 20 different positions managed by the same system um that will work very well in the long over the long run in Australia uh that same system translated directly to the US um doesn't work so well like just a pure breakout I found uh on the US Stocks doesn't work as well so like let's say in Australia the 200 if the closing price is the highest in the last 200 days 200 day highest high that um that breakout entry works pretty well for Trend following in Australia on its own in the US it doesn't work so well so I found instead that like a volatility breakout where the stock jumps a certain amount within a short space of time that works well because there were a lot of false breakouts on just the 200 day highs high for example in in US Stocks so the general concept of these two strategies is very similar but just the precise trigger you know one yeah might be a little bit different from one market to the next oh got it understand and I think also like uh for example like based my on my own testing like mean reversion trading the US Stock Market I think like you know 5 10 20 day low it's possible to make money me reversion trading but if you kind of like do a little bit deeper like the 50 or 100 day it kind of stops working so I would't be surprised if let's say the 500 day that doesn't work for the US Stock Market could work for some other stock market around the world I have no idea which Market could be but I think that's kind of like expanding on the concept which you Shar earlier the concept works but I think the parameters or the tactics to execute that concept that has to be Tweed for the individual yeah countries around the yeah yeah I mean we're going to talk about a strategy later on in this um in this conversation which I I'll share the details of but it's a mean reversion strategy and that strategy works well on the Canadian Market works okay on the Australian Market used to work well on the US market but not anymore because the market Behavior has changed and you know that's an example of like certain behavioral patterns or certain uh price movements um used to be a good signal but maybe the edge Fades over time as too many people are using them um or maybe the edge Fades over time or changes if the market rules change the participants change for example high frequency trading comes in change the Dynamics of the market so you know strategies that just because it doesn't work in one market doesn't mean it might not be a good strategy in another Market as well and since you talk about uh Australian and us so far how about Hong Kong are there any certain distinct patterns in the the Hong Kong markets that is different from the rest yeah I actually really like the Hong Kong market it's probably um when I added it to my portfolio I found it a really powerful addition for a couple of reasons firstly diversification um often times the Hong Kong market will be strong when the US market is weak or vice versa um a really great uh s of effect of trading the Hong Kong market was um it turned around and started dumping during Co before the US market um so I got short Hong Kong very early in the co decline which was nice um but behaviorally um sort of behavior characteristics the Hong Kong market tends to be more kind of um boom and bust like more pump and dumpy if you like I don't know what the technical term is for that but I see a lot of stocks rock it up and then kind of fizzle off whereas you Australia for example I would see there's there's a lot more instances of very long kind of grinding Trends uh in the US probably also more like long grinding moves or step changes between earnings announce you know at earnings announcements that sort of thing um so the behavior is definitely different between the different markets and what comes to mind is that since you mentioned that the behavior is different if Hong Kong is more pump and dumb then I think the trailing stop loss will probably have to be tighter not you risk giving back too much compared to let's say a market with more St stepping you can have like a I maybe a wider traing stop loss to take into account the I don't just some some something that comes to my mind yeah I use quite different exits in Hong Kong than I do in the other markets um so there's there's one that is is quite neat where if the stock hasn't made a new high in a certain amount of time I'll get out so I'm not necessarily waiting for it to hit a trailing stop I'm just waiting for it to I want it to keep making new highs but if it hasn't made one for a while then maybe the move is over and I want to get out before it dubs okay so you're looking for the momentum and if momentum starts to show signs of weakness bum you're out of there yeah so there's a lot I mean when I'm developing systems I I try and um I try and test all of these different styles of rules in each market I don't want to go into a new market with a preconceived idea about what will work I want to kind of do the full investigation understand all of the different um uh types of strategies or types of entries and exits and how do they actually uh contribute to the performance of a system and uh that's really when I go into a new market that's quite a deep investigation and then once I understand the market then I can develop systems more quickly sort of after that so how would you then let's say let's say there's a new market I know Saudi Arabia or something along those lines and you want to maybe apply a a trend following system to it and you don't to have any precon bu so how do you go about doing a test on market like maybe let's say Saudi Arabia right and and to see what type of behavior what type of pattern that you can exploit right using a trend following approach well the first thing I'd do is I i' um I would ideally step back from the trend following hypothesis and say okay I think this Market is valuable in terms of diversification for my portfolio how can I profit from the way that market moves so I'll start with a more generic approach and um I have some let's call them generic strategies very simple Trend following very simple mean reversion very simple rotational momentum and I've got a shorts side strategy that works across quite a few different markets and I'll start with those strategies on a new market and I'll just test each of them okay well does it look like there's any potential for that strategy in this market and if there is then I will do the work to investigate and dig further but often I'll discuss the idea of trading for example um I I tested um quite a lot of ideas on the Japanese stock market and I just frankly I just don't have a good system for Japanese stocks I'm sure there are good systems out there I just don't have one but I tested you know my generic systems on there I was like well there's clearly nothing there so I don't want to just try and optimize it and make it work it should work in some way with a very simple generic strategy and if it does then I can investigate further but if there's if there's no Edge and it clearly loses money then I'm not going to take it any further because you just run the risk of over optimizing makes sense yeah they did didn't thought of that myself I think something similar to uh andreus Keno he trades the Futures market and he talks about Market whether does he have a trending Behavior or mean reverting Behavior so he's like you know like what just say he does a very simple test see what typ of behavior this market exhibites and then he dig deeper oh this Market is a trending Behavior let me apply some Trend following strategy Etc so let's see yeah so uh I think I saw on your website you have this uh system called the US slippery deep right it's a trading system you know yes could you maybe give an overview of that how that one works I think it's a short trading system if I'm not wrong it is a short trading system and actually it's it's my favorite short trading system because it works across a variety of different markets I have versions for us Australia and Hong Kong um and there's not that many stock markets globally where it's easy to short a very broad range of stocks um us and Hong Kong are actually two which are quite neat for for shorting um and also having the two of them on the short side adds a lot to the to the portfolio so basic the basic concept is um stocks are correlated and when the broad Market is dumping stocks will also be be dumping and so what I'm doing is waiting for a clear downtrend in the index there's a rally and then it rolls over again when it rolls over again you know that this downside momentum is continuing and that means individual stocks are likely to be falling or accelerating downwards so what I'm going to do at that point is short short a um a broad cross-section of weak stocks uh based on the indic on the index rolling over when the index rolls over we get short and then we're going to ride them down if any of the stocks show any sign of um ticking up in the medium term or the index starts rallying in the medium term we're going to get out because if the index starts rallying we um we don't want to have uh you know we don't want to have a short squeeze on our hands we don't want to have to um you know you give back very quickly on the short side if you're not careful and then the other neat aspect of it is on the short side you know you you can short sell a stock at 100 it can only go to zero right it can't go down that far so generally on the short side it's good to take profits uh so I take profits really relatively quickly on the short side whereas on the long side with Trend following I don't have profit targets I just let it run and run and run and run because it can go from 100 to 1,000 um but it can only go from 100 to zero on the short side so if you get out partway down you capture most of the profit you take the risk off the table and uh so that gives a a pretty neat risk return profile what's interesting is when you trade the short side in stocks often the system on its own isn't that exciting like if I showed you the equity curve you'd go you know doesn't look that great it makes single digit annual returns and the draw down is you know certainly double digit but it's negatively cor correlated to everything else in the portfolio so it's making money when everything else is losing and then when you combine them together that's a beautiful thing you know that's that's where the magic happens so um having the ability to make money from a bare Market when and combine that with say longside Trend following mean reversion and rotational momentum has a huge impact on your ability to build wealth uh to navigate bare markets without big draw downs and to basically smooth out your Equity curve and make it psychologically much easier to trade yes I agree and I think that's one of the biggest advantage that systematic Trader have over discretionary Trader in terms of like you know having multiple systems that could work in different market conditions where whereas a discretionary Trader they typically would do well in certain market conditions and if they can't adjust you know quick enough or adapt that's why they you know go into a draw down and stuff like that yeah yeah I think you also as a discretionary Trader there's only so much ground you can cover right you how I mean how many stocks can you look at in one night to find your signals for the next day I mean maybe if you spend four or five hours you could look at 20 30 40 50 stocks in detail right but as a systematic Trader I can have 20 different strategies that each have between one and 30 trades within each strategy across Australia us Hong Kong Canada and crypto and I can do it by pressing a button on the computer so you can cover so much more ground you can get much more diversification keep your position sizes much smaller and uh basically the trading becomes a lot easier a lot safer as well so good all right in terms of your time as well right putting minutes and then you can just you know get everything up and running yeah I mean I don't want I don't want I don't want it I don't want to sound like it's easy there's a lot of upfront work to do that the execution is pretty straightforward as you know um but of course you've got to do the testing you've got to build the confidence you've got to establish the portfolio figure out the waiting so there's work to do but once you've done it the work is done and then the computer when you run the back test to generate the signals it finds the trades very very quickly whereas for a discretionary Trader there's always a large volume of work to do to find the trades to fill the portfolio and since you trade a number of markets you know us you know canadi and stuff let's say a new Trader new to this I don't think he's going to trade everything all at once which markets would you recommend someone new to start with look it depends a little on how much money you've got um as an example the Australian Market is not that easy to trade with a small amount of capital because we have a minimum $500 trade size and so you you can't buy $200 worth of a stock to open a position it has to be $500 or more so if you only had a couple of thousand bucks it's pretty hard to get diversification across Australian stocks plus our commissions are a little bit higher than other markets like in interactive brokers I think it's minimum $6 per trade now um for Australian stocks and $6 as a percentage of 500 is moderately high right way better than when I started I was paying $40 aide $40 to buy $40 to sell that was hard it's easy now but it's still harder than say the US market where you know $1 or $1 commissions or free commissions and not really any minimum trade size um so Australia is hard with a very small amount of money us is easier uh Hong Kong is very hard with a small amount of money because the minimum lot size for many stocks is is Big you know some some stocks uh you have to buy 2,000 4,000 12,000 um shares as a minimum lot size and so the positions can be can be quite large so you have to have a fairly decent size account to make that work um so the capital is a is one of the constraints as to which Market you should um consider trading the other is do you have a strategy that works you know I mean there's strategies for US Canada Canada Hong Kong Australia there's strategies for all the markets that work but but you need a strategy that works so um to some extent you've got to find a market you can afford to trade and a strategy that works and then you've got a combination that you can you can start with most of my students uh to be honest start with either Australian stocks or US Stocks the ones who start in Australia typically have a little more Capital um and they're Australian uh the ones who have a little less Capital usually start in the US and let's say for example someone like me I I trade primarily the the US Stock Market and let's say I want to diversify which markets would you say is a lower hanging fruit for me to to tackle once I have the US site kind of settled um the best way to do I I'll give you a direct answer to the question but the best way to answer the question is to um find some strategies for different markets and do a correlation analysis and um when you do do that you you'll see out of all of the markets that you can trade actually Hong Kong adds a lot of value to a US portfolio for example because the markets have quite different underlying drivers Hong Kong obviously very China um driven us quite different um uh both are easy to short sell so you can go long and short equities in both markets which is really neat um helps with the diversification smoothing Equity curve um and I found that when I combine those two in a portfolio makes a big difference nice thank you that was a one question that I'm curious myself man something figure out right yeah so okay now let's maybe talk about about crypto so later on right uh we will talk about the specific stock trading system that you want to share with with us but for now let's you know take a leap into the crypto markets and let's talk about maybe what are some you know Concepts right you know that works in the crypto markets yeah I mean it's a good question because and the answer is the crypto markets have changed quite a lot over time yeah so um a few years back um there were a lot of um fads you know so there was the nfts and then before that there was you know whatever it is I don't really pay that much attention but there were fads where certain tokens just took off and Trend following in those tokens with a very large profit Target was hugely profitable it was just insanely profitable um now at least over the last couple of years there hasn't really been fads like that and so what we're seeing is that um strength in the large caps let's say Bitcoin ethereum um so if you're if you're holding them when they're uh strong and moving up then you're going to make money and then when the um the strength in Bitcoin starts to fall then you're going to cash so basically in and out of the strongest couple of coins based on momentum works now and works very nicely um longterm Trend following can work but you don't really get the crypto returns right because you've got a filter for lower volatility St um tickers to make the long-term Trend following really work well so you end up with more of a stock style of return in your portfolio I mean it's a little better than stocks but it's not again like the triple digit returns that you know you used to be able to get from the um the the big fads and memes in crypto the other thing that works really well I mean mean reversion just works beautifully in the crypto markets particularly if you're very selective and you wait for uh very oversold conditions in a strong Trend so um I've got a portfolio of um of crypto systems um that trade basically each of those different concepts I've talked about you know relative strength in the large caps um there's a little bit of trend following in there couple of mean reversion strategies um and there's a shorts side strategy which um you know works well in a in a big bare market so again all of those same strategies work same as in stocks but you've just got to adjust them to the personality of the market I would say the challenge in crypto is that the personality of the market has changed a lot over the last five years and will continue to do so I think with um with the introduction of uh the Bitcoin and now ethereum ETFs Bitcoin has diverged from the altcoin market and while I think there'll still be altcoin bull markets at some point the market is clearly dominated by Bitcoin at the moment yeah and holding Bitcoin has been super profitable that's been that's particularly recently right um but uh holding a broad basket of altcoins maybe not so much so I think the ETFs have changed the the Dynamics of the market and it's also very political now as well you know what does the US president say about crypto and what are you know there's a lot of big public figures in policy that um that affect the market um and some of them are are pro some of them are against whereas previously the the The Regulators were all anti- crypto in some way or almost them so I think that sh that's shifting as well so we need to be on our toes in the crypto market and really monitor is the strategy still working do we need to turn it off do we need to adjust it and I think that will continue for a while as the market continues to mature and for crypto it's not like stocks where you know the S&P 500 500 you know you trade the largest 500 stocks whereas crypto you don't really have such index next to say which are the basket of large cap tokens that you want to trade so how do you go about defining which large cap tokens you want to trade yeah there's a couple ways to do it um one is just um absolute liquidity you know only trade tokens that have more than a certain amount of turnover on a certain exchange or in aggregate across all of the main exchanges um so you make sure that you've got a high liquidity token the other uh other one you can do other way you can do it is um look at the rank the tokens by liquidity or turnover and say okay I'm only going to trade the top five or the top 10 and I'm going to hold those uh according to liquidity if they break out I'm going to hold them for example um so that's uh that's another way to do it you've got to be very careful because you know in the S&P 500 for example you know you've heard of survivorship bias you you if you develop a system you have to take into account the fact that the constituents of the S&P 500 change over time yeah in crypto it's very tempting to say oh I'll only trade the top five tokens you look at coin market cap you find the top five tokens you get a strategy you test it over those five tokens for the last you know five 10 years and it's like wow that made a fortune right but there's survivorship bias in there they're the ones that became the biggest tokens and you didn't know that five years ago or 10 years ago and so um we've got to be very cautious of choosing the current biggest tokens for trading strategy because the back test will be inaccurate it's it cheats because you're using survivorship buyers and also they may not be the top five tokens in five years time so how do you then tackle this survivorship issue um well you've got to design the system so that it doesn't have it there's no survivorship bias so one way is to um trade a broad universe so basically trade every token on the exchange have your system rules filter them out yeah so we're not um assuming that we're only going to trade the best tokens today and and our back test doesn't doesn't cheat by looking forward to today and finding the best tokens we know that we'll trade all of the tokens and you just have a strong Trend filter a high liquidity filter a volatility cap and um you have the entry and exit rules and you just apply it to the whole market so that's one way to do it the other way to do it is to rank all of the tokens on a daily basis so if you want to trade the top five liquidity tokens you have to program your strategy to for today what are the top five now take your rules and apply them to that top five tomorrow rank all of the tokens find the top five apply your strategy to the top five so you've got to sort of redo the ranking every day if you only want to trade the big ones because the top five now are different to the top five five years ago and going by what you said then is how do you then back test this using this approach since when you back test they wouldn't know what's the top five I don't know 10 years ago yeah it's a much more it's a much more challenging coding exercise to be honest I mean it it is doable um because basically what you have to do is get the code to look on each day of the back test do your right okay on every single day of the back test and then based on that ranking you can then make your decision so you know that's hard harder not impossible just harder um the simpler solution is to use the broad basket and just have your rules filter out the junk too gappy too volatile not trending strong enough that sort of thing and where do you get crypto data I know for stocks I lot people use nor but what what about crypto yeah so for crypto um for for for trading I use the um the data straight from the exchanges so you know I'll download data from binance I'll download data from Kraken from Qin Etc um and I just have an automatic downloader that pulls that data it's in in CSV format and it goes into to um Amy broker so I can do the back testing there um that goes back only so far because basically the exchange will have data from when the exchange listed each token which is maybe not the whole life span of that token um so you can buy other data sets separately that um separate different companies have aggregated over time from different exchanges and different data sources to make a longer term time series unfortunately that tends to be expensive um so I for example I paid $450 a month for the data subscription for the the crypto data um I'm I'm not comfortable to I don't want to plug that company so I'm not going to mention it by name um not there's anything wrong with the company it's good data but you know it's a it's a high cost subscription and I feel like it's a bit highway robbery to be honest so okay understand and and for stocks uh when you say you're trading Hong Kong stocks does norget provide Hong Kong stocks no it does not so Norgate provides US Canada Australia um and I I think that's all they're going to do in stocks I don't think they're going to expand to any other markets um and so that's great I use Norgate for those markets because it gives you Dlisted stocks it gives you the historically accurate index constituents which is important for um for back testing strategies like on the s&p500 stocks you need the historical index constituents for Hong Kong I use metastock data and metastock is is neat because for one subscription which is actually pretty cheap you get every single stock market in the world so all stocks currently listed um but that's the catch it's currently listed so don't get the listed stocks and you also don't get the information on index constituents So like um let's say what stocks are in the hangsang index you know it's like you know today but you don't know 5 years ago and so outside US Australia Canada I don't have any strategies that trade stocks in an index all of my strategies trade the entire Market because you have to you can't afford to you can't back test a strategy that trades only stocks in the index unless you've got the historically accurate index constituents and Norgate is the only data provider I'm aware of that provides that and it's only for Australia US and Canada so for the US stocks do you do a back test till I mean from 1950s or you take into account the more recent years uh look generally no um however uh i' like to understand what happens during different economic conditions so you know inflation up inflation down high interest rates low interest rates interest rates Rising interest rates falling um these things like it's important to understand how stocks move in different macroeconomic environments and until recently you know most of our lifetime what were interest rates doing falling right and then they started to go up uh postco but we didn't really have a lot of data to say how would the different markets behave when interest rates were rising and or high or when inflation was out of control but if you go back a little further in history then you can see what happened to the stock market and I think that's you know I think that can be useful um I have a trend following system for US stocks and it's not my best strategy but it's a good strategy it's solid right and uh I think it's uh it's valuable but the great thing is you can test that back to 1950 including all Dlisted stocks and it worked the whole time just like grinding up right so didn't didn't shoot the lights out it's not making like 30% return per year but it works and that gives me a lot of of confidence like no matter what happened interest rates up down inflation up down War famine you know pandemic it worked and I I just think more data is better than less and what if let's say a mean reversion trading system it works the last 20 years but if you dig back further to the 1960s 70s it didn't work what would then be your take on that yeah it won't quick hint for everyone listening is is is mean reversion strategies generally won't work back that far at least not in my in my experience I think the market dynamics have really changed a lot over time and um so you've got to look at the nature of the strategy and say okay well how long do I expect this type of strategy to survive and I would say a trend falling strategy should have a long lifespan yeah Trends exist they've always existed they will continue to exist and so a simple robust Trend following strategy should work over decades you might have to tune it up and and whatever a little bit but the way the market moves in the short term has changed so much liquidity has increased massively the size of companies has increased um high frequency trading and um exchange rules all of that changes over time and that affects short-term strategies much more than long-term strategies I would say and so generally for mean reversion I'd be looking much more recent data yeah and just to be clear I don't optimize and fine-tune a trend following strategy on old data like back post 1990 sort of thing that's just for sort of for validation and understanding of okay what could happen if certain economic conditions emerge so when you talk about Trend following strategies that you know seems to be robust right what about ear you spoke about relative momentum how does that hold up during you know the 50s and 60s actually actually it's a good question to be honest I haven't taken a rotational momentum system um all the way back I'm going to do that for homework after this call sure and yeah so we were talking about mean reversion earlier so I think now a good time maybe I think you prepared some presentation slides for us to talk about a me reversion trading system so Adrian right let's you know see you know what you have prepared for us for the viewers to learn a simple Min reversion system that they can you know yeah account and use okay yeah let me let me share my screen here so what what I'm going to do is um I've called this presentation it's not really a presentation I've got some slides uh basically talking through some Concepts but what I'm going to do is draw out some lessons from a meanor version system um I'll I'll talk about kind of what the system is how it works and um and show you some trades and some individual uh lessons that I think are useful for people to hear um and then I'll show you how you can show everyone how they can get the rules the exact rules for it later on awesome is that okay sound good sounds good okay great so uh lessons from a mean reversion system let me um come over here so first I'm going to show you a back test for this U meor verion System now just in case anyone is not familiar with back testing what this means is you've got your trading rules this is a system which means it's got absolute rules if certain things are true you buy if certain things happen you sell and so those rules have been coded into uh in this case Amy broker formula language and I've applied those rules to every stock in the market over the last 30 odd years now in this case this is applied to the Canadian stock market including d stocks right so had we followed this strategy over the last many years the chart on the the left is the equity curve that's what um that's how the performance would have looked the chart on the right is the draw down profile so this is how big a dip the um the strategy would have had in your account so you can see in 200 looks like about 2008 the biggest dip here in the account was about 9% and that would correspond over on the um the leftand chart to this big this dip here which was right at the start of the global financial crisis so as the market turned in the global financial crisis this system had a few trades on but then eventually it went to cash and just waited until the bare Market was finished and it started trading again so this is the performance of the system and it looks you know it looks pretty good bottom left to top right it's kind of a relatively um straight line there's some rallies and there's some flat spots but it's a it's a system that has clearly worked over time right so how does it work what are the rules well first of all there's a trend filter uh the trend filter basically says we only want to buy stocks that are trending up you know if we're going long uh we only want to do it on stocks that are trending up because that just gives us an increased Edge um the there's a volatility filter volatility filters are important for mean reversion because higher volatility stocks tend to perform better with a mean reversion strategy um you get a bigger move higher average profit per trade more chance of overcoming the cost of slipp slippage commission so we're looking for high volatility stocks here uh liquidity uh liquidity is important we need to have enough liquidity to get in and get out of the system uh really easily so here the the average daily uh dollar value um dollar turnover is a million dollar or more per day so imagine if a stock trades a million dollars per day if you're trying to get in and get out with a $5,000 or $10,000 position it's pretty easy to do it without much slippage but if the stock was only turning over $100,000 a day and you're trying to get in out with $10,000 u a $10,000 position slippage can become a real problem and for mean reversion that's critical because mean reversion we've typically got small average profit per trade and we can't afford to have that eaten up by slippage and and commission we need to make sure that we got high enough liquidity so we can get in and out and preserve that small Edge that we've got um the next rule is price uh so we we want to filter out very low priced stocks and that's useful because in the Canadian Market um you pay commission as a certain amount per share that you buy so if it's a 10cent stock penny stock then you pay the same commission per stock as if it was a $100 stock and obviously that's a higher percentage on the 10cent stock than it is on the $100 stock so we want to trade slightly higher price stops in this case I've got the minimum price F set to $5 and then there's an entry and the entry is is a fairly typical mean reversion entry it's a oversold RSI um in this case it's a three period RSI hitting a very oversold level so when the stock has tanked heavily we're going to buy in anticipation of a bounce and then there's two sell rules one which uh gets you out if the stock bounces just a little bit above a short-term moving average and one which gets you out if the stock continues to go down and um crosses below the long-term Trend filter so generically these are the rules now um listen to can get access to the exact rules I just didn't want to burden people in the you know on the show with all of the technicalities of what the the rules are because the lessons I want to draw out um are irrespective of what the exact rules are so I didn't want to be distracted by you know the technical rules in any case people can go to enlin stock trading.com free and download these rules for themselves so they can they can get the exact rules all right so let's talk about some of the lessons from this does that make sense or do you want to ask some questions before we go go on crystal clear to me crystal clear all right so I ran a back test and here is part of the back test results and the first thing to point out is that the annual return was 7.34% per year on average and a lot of people will look at that and go oh well that's not much money you know I could have got better returns doing XY Z why would I trade that system the annual return is low and this is a mistake to to think that the return of a system is low therefore I it's not a good system because in this system the return is low but the exposure is very low the exposure is only 1.45% so what that means is that the M it's only invested 1.45% of the time the rest of the time it's in cash waiting and so the return per unit of time invested is really good you know we make great returns when we're invested otherwise we sit in cash now the cool thing about that is we can then combine this with several other strategies very very easily because this doesn't use much Capital we can add it to another strategy that doesn't use much capital and another strategy that doesn't use much capital and stack them on top of each other in a portfolio and our returns start to grow the absolute return of any individual system doesn't matter that much it's how much value does it add to the portfolio of systems that's the important thing I find that a lot of Traders will look at a strategy on its own and go yeah it's not really good enough for me to trade I'm going to pass but looking at a strategy on its own it's a huge mistake you know we we should look at the strategy in terms of how it can contribute to our portfolio strategies not look at the strategy in terms of how good is it in isolation does that make sense yep I think the way I look at is like you know you we have 24 hours a day you can spend maybe a strategy you spend 20 hours a day working to make $500 or would you rather spend five minutes a day and you make maybe let's say $50 $50 is smaller than $500 but you only spend five minutes a day spending that $50 yeah and if you have 20 different ways to make 50 bucks at different times during the day you end up making really good returns for very little effort yep exactly and so this is this is how I think about trading and I can't tell you how many times I mean I know you get it right but I can't tell you how many times I've had a conversation with a Trader about a system and they've gone oh no I don't I don't like that system that's not good enough I want a better system whoa hang on a minute you're thinking about it all wrong and and I think this is the magic if you can get if if if if we can get our heads around this it's then a very short leap to creating a portfolio strategies that work really nicely together yeah so I think that's the first lesson I wanted to call out just because a strategy has low return doesn't mean it's a bad strategy actually another another good example example of this concept you know you asked me about the slippery dip system that system has a very low annual return you know it's about um I think my version of it it's about eight 8 to 10% per year compound return but it makes all of that return during a bare market and during a bull market is completely in cash so you can combine that eight 8 to 10% return per year from bare markets with a longside trend following system that makes money in Bull markets and they don't overlap because the trend falling systems in the market in a bull market the slippery dips in the market in a bare Market they can use the same Capital so the returns are additive which is kind of magic really when you think about it yeah yeah it's like maybe have a long only system that does 15% a year and this one let's say your the one you sh was 8% so it's like 15 plus 8 23% annualized return a year yeah absolutely and lower draw Downs as well oh yes combining systems is the magic 100% okay what's the next l so this system doesn't trade very often you look at the equity curve there's long flat spots you can see flat spot flat spot flat spot you know all the way up the equity curve and on average it only had about 13 trades per year so the lesson here is this is going to be really boring if this was your only system and you're only taking about 13 trades per year it's going to be very hard to you know maintain focus and attention and do it consistently so this sort of system is really great for automation because the computer doesn't get bored you know so my automation runs every day it just updates the data runs the back test places the trades and reports the results um that's gold because I can have a whole bunch of systems that don't trade very often and combine them together into a portfolio and I don't have to worry about having the discipline to follow those systems every day yeah some systems are very boring to trade like this one but it doesn't mean it doesn't work so that's the sort of lesson two um one system in isolation it might not be very exciting to trade so combining into a portfolio will give you more activity and um that'll make it more interesting in your uh in your day-to-day operations you keep you focused but automation really really helps for for systems like this okay um now I've got some trades that this system generated so I thought I'd show you the chart and then just talk about the lesson from that chart make sense yep um okay so here's a um here's a a stock Trend that um this is a a profitable signal that the the system picked up and I've just picked this um signal at random out of the back test and you can see it's a strong uptrend it's pretty volatile and then the stock uh corrected very sharply um we bought right at the low and then we sold a couple of days later the best trades from a meor version strategy are often the most uncomfortable so after several very heavy down days and a big gap down the system says buy that's not going to feel good that's going to feel like trying to catch us a falling knife but what I've learned is that the vast majority of the time my best trades didn't feel good putting them on and this is true in mean reversion and it's true in Trend following it's true on the short side they don't feel good but that doesn't mean they're not profitable and so here our lesson is we've got to be really careful to not let our emotions get in the way of the system of the strategy you know we've got a system we've back tested it we've proven that it's uh profitable we've built confidence in it now we need to follow it and if you hadn't have taken this trade because it really looked like the stock was going down and it was going to keep going then you would have missed out on a big profit that happened very very quickly over just two and a bit days so we've got to take the signals even if they look uncomfortable and here's another one um this uh this stock uh had a very long uh strong uptrend in this is in 2024 you can't see the the numbers at the bottom uh the scale at the bottom probably but um that would have been a pretty difficult Trend trade because the stock was very volatile and most Trend falling systems probably would have kicked you out but we do get large retracements pretty frequently in strong Trends and you can see on the left hand side this is the trade so we've entered after this very strong retracement we bought right at the bottom the S the system gave us this signal and then a couple of days later we we sold out here um and if on the right hand side I've just zoomed out on that chart and again this is a trade where you looked at it and you thought oh you know that trend is over at this point where it's highlighted in green you would have thought you know very likely on the day of the signal that would have been pretty scary to take because the trend line is clearly broken and it's been very volatile it's gapped down a couple of times you're not going to you're not going to feel good taking that trade but this is a very common um mean reversion trade that tends to perform well doesn't feel good but uh after a very heavy period of selling the market does tend to bounce just a little bit and you can get out and make a profit so this was a moderately good trade but it would have been scary to take as well here's another one and this is um this is a really important lesson um this stock rallied really hard and then rolled over and collapsed but the first wave of the collapse was a sudden selloff and then it bounced and collapsed again and as the stock sold off heavily the first time we got this system got an entry a signal to enter so it bought long right at this low here at the open and then two days later it rallied and and we got a signal to exit a lot of people at this point are going to be hoping it comes back to previous highs because maybe that was just bad news maybe it was overdone maybe it's not over what if it keeps going what if it takes a next leg up and I I don't want to miss out so it's tempting to not take the exit and so here the lesson is you have to take the exit because this is the strategy it captures small bounces we can't turn it into a Trend trading strategy because that's not what it is if you don't take this exit you would have ended up holding all the way down and psychologically that's very very damaging but easy to do so the lesson out of this one is if you get an exit take it take it on time every time right because if you don't who knows what pain you're going to end up finding yourself in yeah what else we got okay here's a example of a losing trade right this stock was trending up um couple of weeks it went down very very heavily and we got a signal to to buy but sometimes in mean reversion you buy the dip it does keep dipping right you've seen the meme online I bought the dip but it kept on dipping um that does happen right uh so what do we do about that we can't predict which ones uh which which trades are going to keep dipping and which trades are going to bounce and give us um big profits we just don't know in advance you only know after the event so the way you you um resolve this is firstly understand what's possible right so do the back test look at all of the worst trades and see what can happen that's the first step second step is run the back test and sorry is um run the back test and look at your position size and what you'll see is that if you're sized too aggressively trades like this really really hurt but if you have a broad um portfolio where you're sizing very conservatively on each individual stock a trade like this doesn't hurt that much and so the big lesson is size small smaller than you think make sense yep all right then we got uh another loss this was a this was a good one um so the trade um the trade bought here so so the system bought here and the next day it um the stock dumped and it had a really long lower wick on the candle and if you had an in Market stop loss this trade would have been really really bad but often the market overreacts during Market hours and so on this sort of system I really don't like to have an in Market stop loss I rather have a next bar on open stop so if it gets touched today we get out next bar on open because that way I'm not locking in the extreme of emotion that's happening during the trading day when the market is is um really uh really collapsing often overnight there's a bit of a breather people go oh it wasn't that bad the the stock tends to um tends to recover a little bit and you can get out at a better price that's not always true obviously but if you back test a inm market stop versus a nextar an open stop for every strategy that you use um often you'll find that a next bar open stop is more profitable and I think that's useful information to know uh is this useful yep it's really insightful thank you that okay cool um here's another losing trade um this was a 20 um 20.5% loss so we had um a big Decline and then the market gapped down and we and the system um system bought uh that wasn't that was a pretty reasonable entry but it kept going down on the day of Entry so there's a red candle we entered at the open it kept going down so it wasn't the perfect entry um and the market did rally the next day and so we got out but sometimes the rally is just not big enough to give us a profit um and if we'd have just held a little longer you could see there's this big green candle that would have been magic but the system already got us out and I think the you know the lesson here is fomo is um f is really a big problem for for Traders you know you could look at this and go oh you know I should have held on you know next time I'll hold on a little bit longer and just see if it bounces a little more uh that way I'll make more money right this is the emotional rationalization that's going on but if you did that and you held on a little longer what would have happened on this trade you know we would have ended up down here somewhere waiting for a big bounce and so we've got to take the exit and then not worry about what happened after the exit like the system doesn't know the system doesn't care it just got out so you know don't I I I actually very I don't want to say never I very rarely look at the charts of stocks that I've exited why because I'm out of it you know I don't I don't want to have that emotional reaction to oh should have would have could have you know I rather just follow the system and move on it's emotionally much much easier what else oh here's a good one um this shows you uh the time between equity highs so the system made a high and then how long was it before it made a new high above that um above that level so basically how long do you have to wait to feel like you're making money yeah and I I think the the lesson here is interesting in that as um as people in the out in the non-trading world we're trained to go to work get paid go home go to work get paid go home but the Market's not like that obviously you know the market gives us money takes it away gives us money takes it away and sometimes we go to work in the market for months on end and we don't make any money the market doesn't pay us uh and we we have to learn to be okay with that because we have to keep doing it so that eventually we can come out the other side and go on to new Equity highs and this is one of the powerful things about back testing right if you didn't back test your strategy how would you know that there could be this many months between from one Equity High to the next you you wouldn't you'd be getting you know 5 or 10 months in thinking oh this is not working you know not making money you know maybe I should do some maybe I should go get a job maybe I should do something else but if you test your strategy you know what's what's normal what's possible what's happened in the past and that's really powerful knowledge so we' got to be patient and be willing to sit through flat spots and draw down um I also looked at the distribution of trades right so this is a histogram plot of how often or how many trades there were in the back test in each these different buckets and this is a mean reversion strategy so most of the trades are in the plus 5 to 10% profit bucket right there's a few trades in the minus 45% bucket and we should look at this and go okay every now and then there's going to be a trade that cuts in half where we have a 50% loss or more and we need to be prepared for that we need to accept that that's real we need to accept that in with enough time that's going to happen to us right and so you know we we uh we need to position size and manage our risk accordingly so we don't bet the farm on each trade we don't use a little leverage because if one of these bad trades came along it's going to going to wipe you out but if your size small it doesn't matter um oh this one's interesting I think this is the last one it shows the time in trade where this this column here is one day in trade all the way up to 10 11 12 uh 13 days in trade vers profit so with mean reversion the most of our profits come from very quick trades and then the trades that drag on for longer and longer tend to be losing trades because they haven't bounced they're just dribbling down and so often with a mean verion strategy it's really useful to have a Time based exit that just says if it hasn't bounced after 5 days or 10 days or 12 days just get out because it's you know it's it's not going to bounce the signal has passed uh we now need to just you know cut our loss and move on and go to the next trade yeah so a few good lessons out of back testing this strategy which I think are really powerful um I do have the entire rules for the strategy I just didn't want to as I said I don't want to burden the whole conversation with you know this indicator and that indicator you can scan the QR code and um and get uh the complete code fully um fully coded for you in um am broker formula language so you can back test it for yourself and play with it so I think that hopefully that's useful anyway for the for the group yep it is and I also put it in the uh the link in the description below the video so people who uh don't have a QR code or whatsoever just go to the description you should be able to find the link to access the uh the rules yeah brilliant so I mean that's the strategy I thought I'd share what do you think uh questions comments yeah so that was very insightful thank you for that Adrian and definitely a lot of uh quite a bit of preparation on your part right to actually deliver that short presentation so thank you for that uh question Yeah question that comes to mind it's uh oh just one point to add right where you mentioned earlier that some of the best trades are the most uncomfortable trades and I really can relate to that I remember covid stock market dropped 30% and then one of my momentum strategies say it's time to long because the V shap recovery was very fast gosh I didn't want to click the buy button but hey guess what system says byy okay I'll just buy just before the all-time highs where you know who knows you could double top and goes back down lower bloody paid off man I'm sure you know right just went up so yeah so I can really relate to that I think even for discretionary Traders I'm not sure how discretionary Traders you guys can take into account the uncomfortable feeling that you have but if you maybe Journal your trades you realize times where you feel the most uncomfortable those are usually where your trades really do pretty Dar well in that circumstance of your feelings so that was a very good point you know click with me yeah yeah my my solution to that is automation you know I I um I know myself enough to know that my emotions will get in the way if I let them and so uh I've I found a lot of benefit in just automating all of my strategy IES the capital allocation is automated and um it just runs and I monitor everything so monitoring is far easier than executing right and so you know I've basically got myself out of the way and uh I develop strategies I plug them in and then I monitor them and that that helps a lot too speaking of automation maybe could you give me an overview of how the automation work because I think that you you just few clicks a day and your system just kind of like run on its own did I get it right well I no no even a few clicks it's um it's fully fully automated so the way our um we we developed our um our API and automation engine so it replicates what we would what I would do right so the automation um uh application will update the data open Amy broker run the back test um find the signals talk to interactive brokers find what trades I've got on place the exits size the entries place the entries report back um what trades it took and what the current positions are and then close down Amy broker and turn off so the whole thing happens and it will look at the position the um the account balance in the net liquidity in interactive brokers and it applies the capital allocation percentages to all of the different strategies and then automatically does the sizing and everything so everything I previously did on a spreadsheet it does and the the great thing about that is I can now diversify far more broadly than I would want to if I was doing it manually because I don't want to do so much work you know I'm I'm a little bit lazy it's not that I'm lazy it's just that I've got other things to do you know I I prefer to talk about trading than to click buttons and place trades that's kind of boring you know I like to develop systems I like to work with Traders and so I spend a lot of time doing that I don't really like to spend a lot of time just placing trades rather than the automation does it um the other thing is I found that you know your account grows uh I I became more and more concerned about um you know risk like external events power failure internet failure um I got locked get locked out of the house you know I'm away on holidays my laptop gets stolen these sorts of things start to become very troubling right and it all really came home to me one day when I um this was just before I went live with my automation I pulled up at the house pressed the garage door opener nothing happened power was out couldn't get into the house computers in the house laptops in the house like okay I haven't done my training for today this is a problem right and so um like clearly I need a better plan so the first plan was to have a key instead of a garage door opener so I implemented that plan straight away but then beyond that like well clearly things can go wrong I need to um make my trading a bit more robust so I put it on a VPS virtual private server in the cloud all of the software is up there always on backup power backup internet and it will run whether I have access or not whether I'm in Australia or Bali or Africa nice it's like a ATM machine that just keeps printing money right a look if only that true right yeah I mean if if only that were true I it's not the magic plugin to algo and get rich like you know obviously you're tongue and cheek but it it's it's not it's not like that because you have to monitor it you know automate Kevin Davey who um you know I'm sure many of your listeners know he he says um automated trading does not mean unattended trading and I think that's a really great saying right we have to monitor it to make sure it's working we have to check the trades are executing right we have to stay um on top of the performance of our strategies to make sure they're still working nothing's going wrong you the draw down isn't too big so we have to be attentive uh anyone who tries to sell you a plugin algo where you just say plug it in put your money there you'll get rich that's a scam that's not real obviously um automation just makes it easier to have discipline and easier to be consistent and I think that's key and it also unlocks a level of diversification which is very very hard to achieve if you trade manually and from what I'm hearing is there's this automation engine you mentioned it's kind of like a robot that replicates what would you have done you to click this open this file calculate position size manual Excel it kind of like does all that for you automatically that that particular software whatever you call it yeah yeah so it's it's it's a it's a Python program it's been custom developed to do basically all of those steps you know it Amy broker it updates Norgate it refreshes all of the watch lists and everything opens the um the batch file has all of the systems in it runs them gets the results does all the calculations everything yeah and because you treat like multiple systems across different time zones you need to update your Norgate at different times of the day as well I'm guessing that's oh yeah absolutely yeah yeah yeah so it it will run it'll run the Norgate update before each system that it runs to make sure it's got the most recent data it'll also update the metastock data and um and run that so I've downloaded for the Hong Kong which I use metast stop for um and it'll pull that into the broker database so yeah basically we've developed it to um to automate all of the steps that a systematic Trader with Amy broker and interactive brokers um would would do all of the steps that we would have to take nice because right now I I'm not automated I'm still like I have to spend like five minutes a day doing that clicking so whenever I'm overseas I got to say daring what's the time I'm going to be there Market open to do my clicking right yeah at a hotel you know WiFi I need all this yeah yeah we had this problem we had this problem right um and you know my wife tells this story because my wife is involved in our business as well she's um does a lot of the psychology coaching she's a high performance coach but anyway she uh bought us a weekend away from my birthday one year and we were driving I was like um I've got to do my trading Are we almost there oh no it's like so far it was a surprise right and I said okay I can wait is there wi-fi oh I don't know didn't check it's like well because it was a long weekend it was Friday right um and ended up being no Wi-fi so it's okay well I'll attach my computer to my phone I've sort of got a cell phone signal um you know that sort of thing was was horrible CU you know I've also I've also been driving down the freeway not driving but in the passenger seats like I got to do my trading because we're like we're not there yet we're late with traffic so you know cell phone signal lap top trying to get it working I mean it's just I mean that's not the way to run a trading business right yeah so so um yeah we we had a similar thing but now automated right last year my son and I went to Africa we climbed Mount kilamanjaro together and um I didn't even take a laptop I just took my phone and the VPS in the cloud runs the trading I'll get you know local cell coverage I just log into my VPS on my phone check everything's working I get get the email notification so I was away for a couple of weeks didn't even have a laptop it's amazing wow yeah I mean it's a different level it's just I mean I think she loves automation more than I do because now you know we don't have to rush back from the beach in the morning we go out for breakfast very often down to the beach and um I used to have to rush home to make sure that my trades were going in right and everything don't have to do that now and um we go away don't have to worry about it it's I mean I existed for a long time it's like oh my trading only takes 5 minutes a day like why do I need to automate it's only 5 minutes but it's every single day but it's every single day exactly right and so the um the automation honestly I say to my students it's lifechanging like it it really is and it's not because it makes you way more money although it does help because it reduces mistakes but it just you know that that worry like oh my laptop's not starting up or oh I'm overseas or oh will I have internet or oh I'm stuck in traffic you know all of that goes away which is whoa that's next level yeah next level and maybe just to touch a little bit about risk management before we we know we conclude today's session so you you know you trade multiple trading systems across different markets so how do you they manage this Capital allocation across this different Marketing Systems yeah solid question I think it's really important um because the it's a complicated decision right how much money do I put into each system how much risk do I take on each trade so the way I do it is I I let the numbers tell me so I run a back test for all of my strategies and then I have a model which pulls all of the equity curves together in different weightings and so I can say okay let's give this one 5% this one 10% this one 1% this one 15% and see how they would combine together and that model takes into account returns but also exposure so what you can do is say okay if I have 50% this strategy and 50% that strategy you can see all right how much money would I have made but also you see oh they don't use their money at the same time so there's a lot of cash sitting around just wasted so I can add another strategy that uses cash when these strategies don't use cash and I can give that a bit of a waiting and you can you can play with the capital allocation to find the best combination that meets your objectives so I I do this um Amy broker can't do that so I do this in um in Excel there is software that can do it so for example in real test you can combine multiple systems together um but you know I've got a lot of Legacy in Amy broker and it's all working so I'm I'm using that primarily so um yeah I I'll I'll combine the different systems and what's interesting is it'll often be surprising when you'll find oh this strategy adds a lot of value but it didn't look like a very good strategy like my short you know we talked about slippery dip earlier low returns High draw down doesn't look very good in isolation but because of the negative correlation you can see oh it should have quite a high waiting quite a high Capital allocation compared to if I just add another Trend following system that would have quite a low Capital allocation and uh and and the the model will will tell you that so and when do you decide to stop trading a trading system yeah I mean again that's probably one of the biggest challenges that systematic Traders have is when do I turn it off right um and the best way the best way I found to have that is to have absolute rules going when you start up a strategy all right I'm going to turn this off if this this or this happens um a lot of people don't have that so what I will also do is Monitor a system on a very regular basis so I'll I'll run a back test of all of my strategies so I have a a batch file in Amy broker that runs 57 strategies so it'll back just all of them I don't trade them all but I monitor them all right and so it'll spit out the equity curves of all of those strategies and I can quickly look through and say okay how are they all performing I can look at the recent performance stats and if the draw down is getting beyond what is historically normal I'll have a really close look at it if it's had a lot of losing trades in in a row I'll have a really close look at it if the average profit per trade is dropping compared to the original back TST I'll have a close look at it um so basically on a regular basis I'm I'm investigating is this system still good and then I'll look to turn it off if it's not most of the time it's just uh yep it's okay yep it's okay it's tick the box every now and then I'll look a little deeper and then every now and then I'll turn something off right got it what's sorry what's Just One Last Thing what's interesting is the more strategies you have the more Diversified you are the easier it is to turn something off if you have only one system as a Trader it's like oh you know it's my only system if I turn it off I'm not a Trader anymore right if you have 20 turning one off you're still a Trader it's okay that's just a bad strategy just turn it off put a new one in yes so many people cling to their one or two strategies they love but that actually makes it much hard because what if one of those strategies stops performing well you need to be get over attached to it then yeah right exactly it's like having a 20 girlfriend and one girlfriend if 20 girlfriend one leaves you here you see 19 man it's not like that at all that's stressful 20 systems is not stressful when his system helps you sleep at night so I'm gonna I'm gonna beg to differ on that example and and where do you get new trading ideas do you know to test on yeah um look a lot of places I spend a lot of time looking at charts um just because I kind of debrief what's happened in my trading I look at different um trades in in um from different systems and that stimulates ideas I have a subscription to um to technical analysis of stocks and commodities so I kind of every now and then I see some ideas in there um I look at lots of trading websites um I have spent a fair bit of time on your website I look at uh uh Kevin Davey he's a great example of um you know good system developer I really like his stuff he trades Futures I trade stocks but some of the ideas are transferable um so I look at competitors like other Educators other Traders um I look at Twitter uh you know a lot of people are just sharing ideas on Twitter a lot of them are not good but it stimulates ideas um what else books I've got a lot of lot of strategies from books over the years and a lot you know a lot of no good like they used to work but they don't anymore but that then Sparks new ideas um I think the best one is you know looking at charts for yourself okay what sort of move is happening on this chart you know how could I capture that and could I capture that over and over again and put if I put that into a system would there be enough positive moves to offset the negative moves um I really like the creativity of that process okay and we're going to move on to the closing section now and maybe this question is something that I'm curious what are some formative moments in your life it doesn't have to be trading right so what comes to mind I can talk a little bit first while you have some time to think so for me I think one of my formative moments is uh in Singapore all of us have to serve the army so I was enlisted into uh Commandos pretty brutal two years but it taught me a lot about discipline it taught me a lot about perseverance it taught me a lot about mindover matter and basically equi me with all the trades to handle trading now today so I don't know looking back maybe I was destinate for this right so so that was definitely one of my formative moments right during the two years and during the two years I hated every moment of it but looking back right now I'm glad I went through every moment of it funny how life you know you know teaches us new things yeah wow that's such a good one and I've actually you know I've heard that from a few people that that military experience has has done that I I didn't have we don't have military service in Australia um look a a big one for me was my university studies um I I I studied chemical engineering it's not an easy course uh in fact there's some subjects there that are incredibly difficult and I saw a lot of people really struggle and the people that struggled didn't ask for help and like I I was pretty good at asking questions and putting my hand up and looking stupid in front of 300 people and and all of that um but I saw this big divide between the ones that learned and grew and the ones that really fell behind and and struggled and I think observing that was was one big thing and you know when I'm working with trading students now at the beginning before I even accept someone as a student one of the most important things is I I I I make sure they they have to be willing to ask questions they have to be willing to look dumb like they have to be willing to admit they don't know because you'll never make it if you don't and I think that's true of many things in life right the people that succeed are the will ones that are willing to keep going and ask and ask and ask and ask until they get it the other the other part of university which really got me is um I thought I was pretty smart right I I did pretty well at school and I I got into a good course I got a scholarship and all of that and that was great but I got in it's like all of a sudden I'm not I wasn't the best anymore you know there are people who are always smarter than me doing the same course as me I was thinking oh this a bit confronting right I thought I was pretty clever um and so I sort of accepted that and I went through the first couple of years I was doing well I was trying to do well but then I set myself a real goal like a really clear goal and it was absolute so my goal was I want to get the university medal which means I have to come first in the course and not just first in the course but do really well and and um I basically decided that at the end of second year of uni in a four-year course and um at that time I was nowhere near it there were people that getting way better grades than me and even though I was doing well um but that clear absolute goal it was absolutely measurable I was either going to get it or I didn't there was no in between there was no Shades of Gray and it was time bound obviously you know at the end of the course I have to be first right and um so that was a really great goal it was a really big goal and I really wanted it I don't know why I wanted it like it doesn't really mean that much but I just decided that's what I wanted and that was my thing and that's what I'm going for and I didn't I didn't even tell anyone right I just decided internally with conviction that that's what I what I wanted and you know long story short with a goal that big that clear with conviction things align around it and I did the work I found the support I got the grades I made you know I achieved the goal and that was like oh wow I did that and I only did that because I decided two years earlier I was going to do that and this is relevant for Traders right because a lot of people come to the you know Market going oh you know I'd like to make a bit of extra money I'd like to you know get some extra income on the side or you know I kind of want to retire early but there are weak goals there's no conviction maybe I should trade I should learn to trade you know that's a that's a weak intention it's not even a goal the people that succeed have absolute firmly held goals that are crystal clear held with conviction and they run after them and when I that that was the that was the first really big goal that I achieved and I was like oh it worked right it's like hm was kind of unexpected even and I I I think that's the power of having really good goals and most people don't have them and I think that's a shame because that means most people are underachieving what they're you underachieving their potential and I believe that when you reach that goal of yours it kind of like open up a lot of opportunities to you because you now have the mindset of what can I achieve can stop me and dude you just keep you know hitting the all the different goals you have said for yourself since you know you've achieved it before what's next yeah exactly right that's really powerful that having that that optimism about life is if I want something I can I can go do it you know as opposed to oh you know I've never really achieved anything and you've proven to yourself that you can do it based on soal back test yeah back test that's right absolutely right so I think I think that's that's that that was really important to me not not so much achieving the thing like that was great right good in the moment but the lesson from that that that was what was powerful and before we sum up is there anything that you know you like to add that you didn't have a chance to talk about earlier yeah we haven't talked about the typical Traders Journey you know most people come to the markets and they go oh yeah I'll learn about stocks and they read some books and they do some stuff and they trade a little bit they take some tips they do some things and typically it takes 3 to 5 years for some to figure it out if they're lucky and most people never figure it out and they give up but some people do but it takes long that Learning Journey is really costly because that's 3 to 5 years of lost compounding and in 10 years time in 20 years time that's worth a fortune if you could just have those three to five years back because you learned quickly and you you got to Mastery by following someone who knew how to do it then that's worth you know Millions I worked out how much my three-year Learning Journey cost me and it was Millions yeah if I'd have just you know learned quicker and then started the compounding at the beginning uh I would be so much better off now I mean I'm all right I'm doing okay but you know so much better and so I really want to encourage people to throw themselves into it to find someone who can teach you to um to shorten in the learning curve um and go for it like actually put in the work don't Tinker because that you know that's a that's a decision that will change your life all right and where can the audience find and connect with you um yeah anyone who wants to talk to me I mean I think the best thing to do we talked about that system today go to Enlighten stock trading.com free um put in your details there you'll get an email from me and then we can start up a conversation you'll also get all of the details for that system and a bunch of other good which is kind of cool um so Enlighten stock trading.com is my website I've got a lot of trading articles videos and everything on there um Facebook enlightened stock trading um YouTube and Twitter same thing so um basically I'm I'm I'm everywhere if you Google Adrien Reed Enlighten stock trading you'll definitely find me so um I you know I'm very happy to receive emails with um you know questions comments challenges all of those things so uh we' love to hear from the from the audience awesome and I'll put your social media profile and website in the description somewhere below the video in case the audience want to find the real Adrian written noway so many scammers and PS yeah you know I I have someone whose job every month is to look for the scammers and report them and and have them removed like literally this is a standing recurring task for someone in my team um so be careful out there we'll have the real links I'll give them uh I'll give them to you so you can put the real links underneath there's not many scammers because we're pretty good at taking them down but every now and then one one creeps through so yeah okay thank you so much for your time Adrian I appreciate you happy to have you on the show it was a pleasure right speaking with you AB absolute pleasure thanks so much for having me