Crypto and Stock Trading: Learn the Secrets of Profitable Live Trading during Bear Markets

All right, thank you so much for joining me, everyone. Just in case you haven't seen me before, my name is Adrian Reid. I'm the founder of Enlightened Stock Trading. And today we're talking about bear market survival. And as you know, no doubt we've had a very, very interesting couple of weeks in the markets and in the world. We've got some really crazy things going on right now with, with viruses spreading around the world, countries in lockdown, people isolating themselves, and we even had a Saudi driven oil price crash thrown into the mix for good measure, just to add some extra volatility to the market. So these are very uncertain times and.

I just wanted to have this session.

To share with you some thoughts, give you some perspective and also an approach or some approaches to basically improve your trading, protect yourself and position to either make money or come out of this situation, this crisis with a better outcome, either with a higher, bigger account or with an account that is well positioned to benefit from the recovery on the other side. So, so this is bear market survival training. Bear markets don't come along that often. As you know, we've had a few big corrections over the last few years, but the last time we had a real bear market was in 2008. And that's a long time certainly before many modern day traders really ventured into the market. You probably, or most of you will remember it, but whether you traded through it or not, there's some lessons to learn from that market and also from some of the differences as well. So let's get into what we're going to cover.

So today what I plan to cover is first of all, I'll talk through a brief disclaimer, as always, some perspective on the markets, just to kind of put things into context, where we are, where we've come from and just to step back from everything that's going on a little bit because there's a lot of panic in the world and it's very hard to make good financial decisions, good trading decisions, when we're really in the thick of it. And so I just want to bring a little bit of perspective to the start of this conversation and then we'll go into some of the detail. I'm going to give you a bit of an update about what's happened so far and obviously most of you will have seen what's going on in the markets. But you know, I want to put a little bit of context around that. I'm going to talk a bit about what a bear market looks like, the anatomy of A bear market, just so that you know a little about what to expect and how it feels and you know what works and what doesn't. We'll cover some possible market scenarios, and I'll use a model that I've developed called the Market System Map to talk through some different scenarios that could play out from here. This may or may not be over, and I think highly likely it's not going to be over. And I'll cover why. We'll talk about some different trading strategies and what different strategies have done to date, how they've behaved and responded to the situation in the market, and then also what those strategies.

Could experience going forward over the next few weeks and months. I'll talk about portfolio maintenance, what to do with your portfolio, and capital allocation, how to protect yourself while also positioning for profit. And then finally, we'll stop. I'll stop preaching and we'll take Q and A. And I've already got a bunch of questions from the email that I sent out, so thank you so much for everyone who sent those. But I'll also take questions from the chat roll and then later on also I can unmute people and we can take specific questions from you as well. So that's the agenda. Does that sound okay? If there's anything else you want me to cover, please add it to the chat roll. If that sounds okay, just hit yes or type yes into the chat roll and let me know I'm good to go. So. So this is what I'm going to be focusing on primarily. Okay?

Yeah. Okay. And look, some people are on webcam, some people are not. You can feel free to turn off your video if you want on the zoom window. If you hover your mouse over the zoom window, there's a little camera button. You can turn that off if you don't want to be on camera. I'm happy for you to be on camera. Totally fine. At least that means I can see your facial expressions. I know if I'm hitting the mark. But if you want to turn yourself off camera, that's cool, too. Okay, here we go. So, first of all, a disclaimer. Look, you can read this in your own time. This is the disclaimer from my website. But I want to say right up front that your finances are your responsibility. Nothing in this presentation should be considered financial or any other sort of advice. And it doesn't replace the advice that you should seek from your own independent financial advisor. Everything I talk about here is for educational purposes only. And look, you know the drill. It's your money and it's your responsibility and you need to take that responsibility. So please remember that this is not financial advice. I'm not going to be telling you what to do here. I'm going to give you some perspective about how to think about the markets as they're currently behaving. And that will allow you to go away and think about and make your own decisions. And if you've got questions, you can ask me and if I can answer them, I'll do so to the best of my ability. But also remember that you've got your own professional advisors that you can consult as well. Okay? So with that over, let's start with a little perspective. And what I've got here, just to bring things into context, is a long term chart of the S&P 500 index. And one of the big challenges that certainly the media face, but also many relatively new traders face is to remember to step back from what's going on. Because if you look at the markets right now and you look over the last couple of weeks, it's very easy to think that the world is coming to an end. But what I want to share with you or help you realize today is that what's going on is actually pretty normal in some sense. In some ways it's normal. In some ways it's quite extreme. Now let me, let me sort of elaborate on that. This is a monthly chart and if you look at the very.

Far right of this chart, you know we've had there's two very big down bars and is a monthly chart or a weekly chart. I can't remember what I put on there. Anyway, there's two very big down bars and they're very extreme. And right now what we've experienced is probably one of the fastest 20% drops in the market in history. Not the fastest, but one of the fastest. And so in that sense, this is quite an extreme situation. But when you zoom back, when you step back from the market and look at 20 or 30 years of market history.

The trend is very clearly upwards. And there are also very clear declines or corrections within that trend. And if you look here, you can see, I can just scribble on this chart for a second. You can see the bear markets that we've been through in this time in 2000, when the tech bubble burst in 2008, and then now, whatever we're going into now remains to be seen whether it continues into a long term bear market or not. But corrections happen and they are big and steep. But the world is not coming to an end because when you step back and look at many years of market history, the market has an upward drift because economies recover, economies grow, businesses get better and businesses get more efficient. And so over time, the indices and stocks in general will rise. Now, does that mean that you'll never have short term pain? No, of course not. There's going to be short term pain in the market. But you know, this is not Armageddon. It might feel like it and it may go, the market may go down a lot further and I'll talk through some potential scenarios. But.

You know, the main message right now is that you don't need to panic because it's not Armageddon. You know, this is not a nuclear bomb that's been dropped in the world that has caused the financial markets to shut down. Now, could it get very bad? Yes. Could there be mass hysteria? Yes. Should there be? No, I don't believe so. But.

What we've got is a big correction and possibly a coming bear market in the context of a stock market that over time over the long term drifts upwards because the economy grows and gets more efficient. Okay, so let's just. Whenever you start to feel panic and stressed about what's going on and the huge volatility and everything, one of the most useful things to do is to step back, distance yourself from it and look at a bigger time horizon. Okay. Now this is a linear chart.

Which means that the exponential growth is sort of showing and it's hard to tell the percentage drop in this chart, but if we change it to a logarithmic chart, this is sort of a little bit more informative. You'll see here on the right hand side, I've put the scale, the vertical scale and logarithmic chart. And interestingly, what this shows is that while yes, we've had some pain recently in the correction in the last, last little while, it's actually pretty small compared to the previous two bear markets. Okay. So if this turns into a fully fledged bear market, we have further to go, further to go down. And it's really important to realize now this may or may not happen. I'll talk through the scenarios that could happen, but.

If you lose your composure and start to panic now, then the results for your account could get a lot worse. Again, what I want to impress on you is that we're not sure what's going to happen, but separate yourself from what's going on in the market, get some perspective and prepare for several different possible outcomes that could happen here. Okay, Sound good?

All Right. So let's zoom in just a little bit and see what's really happened. Now, can you see this chart? I've got.

Okay, great. Everyone can hear me. All right, I'm sorry about that. I'm not sure what happened. Hopefully we didn't miss too much. Okay, cool. So what you're looking at right now is the last few weeks of market action. This is the S&P 500 chart. And what you can see is a 27% decline.

From the absolute high. And what's unique about this situation, and what's probably never happened before, is that we've had a more than 20% drop directly off an absolute high. Okay, now this is really interesting and also something to be, you know, to add to your consideration set of mental scenarios because usually what you expect is that the market has a bull market which then slowly fails, fades, starts to drop, and then the bear market accelerates. But what happened, what's happened here is we've basically been going straight up and then some external events have spooked the market and caused a very dramatic decline off the highs, which is, which is quite rare. And what you can see is there's been already a couple of little rallies. Now we've had the first rally here a couple of weeks ago, a week or so ago. And then on Friday night we had a big, big bounce. Okay, greater than 9% update on Friday. And this is one of the things that really characterizes bear markets and it's the first thing that you need to be aware of in that once the market starts going down, the volatility goes up. If you measure volatility in the market, when the price is above the 200 day moving average, when it's in a bull market, the average volatility is really quite low. But as soon as you get below the 200 day moving average in the market, the volatility is almost always dramatically higher. And this is what high volatility is, something that characterizes a bear market. And you might have seen the VIX index.

If you follow the vix, just type VIX into the chat roll, let me know. But there was a massive, massive spike in the vix. And the vix, for those of you don't know, is measure of the volatility in the market and it's derived from the option prices on the US market. And when VIX spikes, basically fear is high in the market and volatility is high. Prices are bouncing around and people are very uncertain about what the correct price is. Now you've heard you might have heard fund managers in their marketing talk about or give you messages like this. If you missed the best five days in the market over the past 20 years, then your returns would have dropped by some huge amount of money. And that's kind of true. But what they don't tell you is that if you missed the worst five days in the market, your returns would be dramatically higher than what they are. Because the biggest up days and the biggest down days both occur in the middle of a bear market. And this is, this is really, really important because a rally like Friday, which is up 9% or a bit over on that, on the US market, does not signal the bear market is over, does not signal the decline is over. It's actually very typical of this sort of market because people still have hope that that's all it was. So there's been a huge decline, you know, 27 odd percent or whatever it is now. And then something has changed. An announcement has come out that caused people to rekindle their hope and rush in to buy. And so the market jumped dramatically. But all that has to happen is for a new wave of bad news to come and that that rally will be short lived and it can crash down again and sort of next down leg in the market. Now the reason, I can see, I can see the question there from co, what about the reason behind the rally? Now in a bear market there's always different reasons. Right. There's usually something about economic stimulus or recovery or government announcements or new action the Fed's taking, or in the case of the coronavirus action that the government is taking to stem the spread of the disease and all of those sorts of things. But.

The external action that is taken does not necessarily stop the decline in the long, in the medium term, it just gives people a little bit of short term hope. And I can see also Randy commented, you know, probably a lot of short covering too. Absolutely. I mean in both of these rallies my short systems took profits and covered and probably contributed to some of that. Right. Because you've gone down so far, they've hit profit targets and they've bought those shorts back and.

I've got out of the market in anticipation of the next down leg. So you're absolutely right. So the rallies in a bear market are fast and steep and volatile and they turn around just as quickly. So it takes way more than a couple of solid up days to tell you that this is over. So I guess that's the first message that I really want you to take away from this, is that don't rush to believe that it's finished. Because if you rush in on a rally, you may be right. The market may have bottomed and it may be now moving into a new market. But the reality is after a 27% decline, we're not going to rush in. We're probably not going to rush into a brand new bull market and hammer upwards for quite some time. Chances are there'll be some more down legs. So Anthony says look to confirm, look for confirmation, which is right and I would say more confirmation than you think. If you're a long term investor or a long side trader, the market's going to be around for a long time. And yes, there's some bargains right now, but don't be in a rush to jump back in and particularly don't be in a rush to jump back in with leverage. And I'll cover some of the reasons why in a little bit. So yesterday or last trading day was a greater than 9% rally. The day before that was the biggest down day since October 1987. Now that's got to tell you that something is wrong and that doesn't go away overnight. Even with the stimulus package, even with new CDC funding and even with all of these things that the government's announcing. So please, we've just had a big decline, we've just had a rally. But in the context of the decline so far, the rally is.

And also a rally of that percentage is expected within a bear market. So definitely not over yet. That's my short term perspective. So I hope that makes sense. I'm just going to clear my scribbles on the screen and we'll just move to the next slide. Okay, bear market anatomy. And where are we now? Is everyone with me? Can you still hear me? Just type in the chat, chat bowl. Tell me you can hear me. Tell me you're okay and keep asking a question. So I like the interaction. Now this chart here is the S&P 500 index in 2008, 2009. Now that index, sorry, in 2008, 2009 the index fell 56% from peak to trough 56%. And that's the index which is capitalization weighted. This really reflects the biggest stocks in the market. This is not the micro caps, this is not the small stuff. The biggest stocks in the market fell 56% in 2008. So again, for context about what could happen.

You know, if this bear market turns out to be like 2008, we could be only halfway there.

And 2008 was not the Biggest bear market in history. So there could be a ways to go, I guess, is the message. And you can see the arrow, if you can see the arrow on the right hand side of my screen, I'm not sure if my video is in the way of it. But, you know, decline so far has been 27%. And so we've got a way to go. We've also had a very small rally. But you see in 2008, there's some quite. There was a down leg, which was not too vicious, followed by an upswing, another down leg, a small upswing, and then a collapse. Okay, so the upswings are where the people who are still clinging to hope, who are still hoping to get back to even, are trading. Your people are buying a dip, hoping that it's just temporary and they're gonna get back to new highs and take a profit. But what happens in this down leg is that people experience more and more pain. Let me clear this and I'll draw this again for you. In this down leg, people experience more and more and more pain and they start to sell, accelerating the downtrend. Now, not everyone sells because it's only the first down leg in the market. And then it gets to a point where the major selling has paused or slowed down. And then some buyers step in because there's bargains, right? And that pushes prices up. And then what happens is the people who didn't sell in the down leg see their opportunity to get out with less pain. That's why these rallies eventually stop and they don't go on to new highs. We don't typically see new highs after the bear market started because people are rushing to sell as soon as they get a bit of a rally so they can suffer less pain. Right. And so when, when that buying is over and the selling pressure exhausts it, then we have another down leg. And then the same thing happens again. And you notice that the second rally is smaller. Doesn't always happen this way. But the second rally here was smaller, followed by a very drastic decline. And this is basically people giving up on the market, you know, wondering what on earth, where on earth. The bottom is basically dumping their stocks to get to safety. So these rallies are a progressive increase in pessimism.

So, yeah, and Mark says the peak to low for 2008 took three to four months. And so, yeah, we're, we're only a couple weeks into this now. Bear markets are of different duration, so it may take weeks, it may take months. Months is more likely in my view. But I don't have a crystal ball. No one here has a crystal ball. So we just have to basically follow the market and play this out and position ourselves as best we can. Lyn says that all the central banks are pumping, going to start pumping. Liquidity will then not push the prices or the markets higher.

The answer is potentially, but they've already done some of that and the market still fell. The question is, how much more ammunition have they got and will it actually help? And we don't know. The best thing that we can do is respond to what the market is actually doing and have systems that respond to what the markets are actually doing. Now, if you've been following me for a while, you'll probably know that everything I do is systematic. And when you have a debrief like this, it sounds like a lot of it is subjective, but I'll pull it together at the end and talk about how systematic trading can really help you, because none of my actions in the market now are actually discretionary. It's all systematic and it's all predetermined. And you guys can do the same thing, too. So Sira is saying, when you say protect your capital in a real sense, what does that mean and how.

We'Ll cover that, I think later on in the session. But the overarching principle is don't lose too much money when the markets get crazy. Minimize your losses, like Anthony says in the chat, because what you're doing is, yes, you can make money in a bear market when things go down, but what you really want to do is make sure that you're well positioned for the next upleg in the economy, for the next bull market. And if you lose 60, 70% of your money or more now in the bear market, you've got to grow from a really small base, and that just impacts your future wealth astronomically. If you can come out of a bear market even or a little bit better because you've made some money, and then you get the next bull market and you grow exponentially from there, your wealth is going to be 10 or 20 times higher in 15 years than if you lose 50, 60, 70% of your account. And you have to grow exponentially from there in the next fair market, in the next bull market. Okay? So that's really what I'm talking about, is how to position yourself, how to protect your wealth so that you don't lose too much, so that you can continue to grow your accounts exponentially. Okay, so possible market scenarios. I've got this model that I created called the Market System map. And this is how I think through what can happen in the market. No matter whether we're talking about up market, sideways markets or down markets, there's basically three directions the market can go in. Up, sideways, down, bull, sideways, bear. But within those primary markets directions, there's three things that can happen. That primary trend can continue. So if it's a bull market, it continue up. If it's a bear market, it can continue down or there can be a shock against the trend. Now, on the first day that the market really tanks, we were in a bull market and it looked like a shock against the trend. Now it's looking more like the third option, which is a change of trend. We're now down 27%. The bull market is over. Okay, it's not, it's probably not going to come back anytime soon. But from this model, what you can see is that there's nine possible behaviors that the market can exhibit. And when I talk with my students, and some of you guys are, some of my students are actually on the call. Now.

When I talk with my students, the way I talk about the market behavior is with this market system map. And if you've got a system or a set of rules that allows you to profit from each of these different behaviors in the market, then it doesn't really matter what the market does. Now if you've only got a long side trend following system, let's say you've got this one covered and you're going to make money when the market goes up. Now most people can do that. Okay, Trend following does this. If you've got a mean reversion system on the long side, then it will profit from this behavior. If you've got a mean reversion system, it can profit from a sideways market and you can even profit in a mean reversion system on the long side from a bear market. How do I know that? Because after the first big decline, one of my main reversions got long. It bought and then sold after the rally and made quite a decent chunk of money. But that's very short lived because then the market turns over again. So you've got to be nimble and get out. Now, most people are focused over here, right? Until something like this comes along. So what I want to encourage you to do is now and also for the future, think about the different behaviors the market can exhibit and consider how you can profit from each of these. And when I'm doing system development, when I'm designing and creating rules to profit from different behaviors in the market. I look at this map and I think, okay, what type of behavior do I want to profit from? So I've got several systems that profit from, from trends and alongside I've got mean reversion systems. I've got a couple of systems that profit from a change in trend from a bull to a bear. There's sideways systems that are basically mean reversion and then I have a couple of bear market systems. And you don't have to have all of these because another position that you can take is cash, right? You don't actually have to be in the market now. You can, you can just be alongside investor and you can hold when stocks are going up. When they start to go down, you sell out, go to cash and wait until the market improves. It's a perfectly valid strategy. Now if you're new to the markets and you're not sure what to do or you feel like it's, it's a, it's a volatile place, it's absolutely fine to stand aside, okay? I don't want you to feel like you've got to be doing something because traders who feel like they have to be taking action.

Unless you've got the right experience, they can end up losing a lot of money. Okay? So cash or standing aside from the market is a very valid strategy. And I can see a couple of things here. John, I'm not sure which John that is. There's a couple on the call, but John says sell into the next rally. Sell into rallies. Joseph says as well. And in bear markets, you know, we saw this on the previous slide. In bear markets the rallies are, can be steep, but they are short lived. So don't expect that a rally means the bear market's over and you can just hold on the long side. You can't because it will be followed by another crash or another decline. Or let me be careful with my words, it is more than likely to be followed by another decline. So do be careful, don't fall victim to the positive hysteria that it's all fixed. Because as we've seen, bear markets take several months at least to play out. Okay, okay, possible scenarios. This is where we are right now and we've had a 27% decline and a 10% rally. There's several ways this could play out and by thinking through them you can think about how you could position yourself. Now again, all of my trading is done from a purely systematic way and so I'll talk about some of my systems at the end. But.

You know, if you're if you're not a systematic trader yet, then this is going to be helpful. If you are a systematic trader, this will tell you what to expect from your systems. Okay, so we've had our first down leg and what happens as you go into the first down leg is your long side systems start. Let's just say this is some sort of trailing stop. Maybe it's a moving average or something like that. Your long side trade starts come down towards the moving average you, you're going to get or the trailing stock, they're going to hit their exits and you're going to start to peel off or reduce your exposure on the long side. This rally here is the first bear market rally. Now.

Something that can happen is you reduce your long side exposure, but you might buy for the bounce. This is a mean reversion style bounce and that's what happened to me. I got some mean reversion signals bought around this point here, made a little bit of profit and got out. But unfortunately some of my mean reversion trades didn't hit their exits. And so now I've been forced to sort of ride those down a little bit, which is unfortunate. But we start to reduce our long side exposure as the stops get hit and then, you know, the buying gets exhausted and we go into the next down leg and the same thing is going to happen here. We've just had a big upswing, so several things can happen. We could have a bit more of a rally.

Or it can go sideways for a little bit or it can collapse from here. Now if this is going to be a protracted bear market, any rally we have is probably going to be short lived because right now the market is scared. You know, if you just think about your experience looking at the stops, looking at the stock market, how many of you looked at the stock market and wondered how low could it go, you know, or how bad can this get or oh my God, this is Armageddon. Has anyone had thoughts like that? Let me know in the chat Roll, you know, what was you, what's your biggest fear about what could happen.

You know, with me?

Does anyone, anyone looked at the market and just started to freak out a little bit? Yeah, absolutely. So that fear is not just with you. And you guys are probably some of the more experienced and more rational people in the market, right? So any rally, the most irrational people in the market are going to try and grab that hot, slightly higher price and get out.

And then it's going to, if it turns over and starts to accelerate to the downside, Then the remaining irrational people are going to panic and dump their positions and so it will accelerate down. So whether we have more of a rally or whether the market.

Collapses from here, chances are there'll be another down leg either from tomorrow or from a couple of weeks time. Now again, I don't have a crystal ball, so I don't want you to hold me to this or say Adrian said that the markets going to rally and then crash or whatever. It may not. Okay. Another scenario which is quite unlikely is just a V shaped recovery where you know, all of a sudden the market believes that President Trump and the CDC and all of the other governments in the Fed and everyone else have fixed it and the markets will just recover and then go on their merry way. But I'm going to put it to you that that is a very low probability scenario could happen and you can prepare for that. But the upside of that scenario is nowhere near as big as the downside from another scenario. Because as Mark says, COVID 19 is not going away in a hurry. Right. So you got to think about the market now in risk reward terms. Okay? So let's say it recovers and starts to sort of edge upwards over the next couple of months. You know, the market might make 10, 15, 20% over the next few months as it kind of edges towards a recovery. But if it doesn't recover and the next rally fails and it collapses, you know, we're going to be looking at another 10, 20, 30, 40% down in the matter of days or weeks. And so the upside small and slow and the downside is large and fast. And so even if the markets could recover, what you want to do is think more about these scenarios down here and prepare for those because that's going to keep your account alive. Okay? Now you may or may not make money, but you can certainly go sideways if you're careful. And if you've got a good short system, you can make money. And Anthony is saying look for shorts now, which is a good strategy, you know, particularly after a bounce. And you know, there are opportunities for shorts because people have just, just had this 10% rally. The thing to remember is if you're new to the market, you know, shorting is probably one of the hardest ways to make money. I mean, you can have short systems that do make money. Absolutely. And I do. But your number one consideration should be to protect yourself. So if you don't have a system to make money on the short side, or if you haven't been through this and you're not comfortable with it, then consider whether standing aside and just being in cash is a better position for you. Because revenge trading, trying to take a new position in a knee jerk way to try and make the money back that you've lost is not going to help you out. It's actually probably going to end up punishing you because if you don't have a strategy wrapped around your decisions, it's going to be really hard to stay emotional and calm and know whether or not that strategy is going to be profitable. Okay.

All right. So basically, you know, again, the message is we can go upward, sideways, or down from here. The risk is very much to the downside. The rally could last a few days or even a few weeks. It doesn't mean it's over because you know the next big bit of bad news will send the market into a panic again. There probably is more bad news coming. You know, one of the things that you will have seen, I mean, everyone's following the spread of the virus, I'm sure. But you know, the actual cases, the real number of cases is well higher than the number of confirmed cases because not everyone's getting tested, not every country has tests. So, you know, as that information comes to light and the severity of the situation comes to light and hospitals fill up, that panic does have the potential to creep up.

So do just be aware that there is risk of another big downside leg in all this.

What's happened to different types of strategies in the last couple of weeks and what could possibly happen in the future? This is where the rubber hits the road. Because if you can better understand your trading strategies, the approaches that you're following, whether you're systematic or whether you're discretionary, doesn't matter. But if you can understand how they behave and how they could behave, then you can better position yourself to either profit or survive. Okay, now, survival is first number one priority. Profit is second. We don't want to take risky positions to try and make our money back if it exposes us to huge downside risk. Because the most important thing is to keep your account as you know, in as healthy a state as possible so that in the next recovery you've got more cash to build from. Okay, so what's happened to trend following in the last two weeks?

Well, obviously there's been fairly sizable drawdowns. You know, most. Yeah, John says smash. Okay, the next thing I want to encourage you to do is really, really watch your language and the way you talk about this. And John, I'm sorry to pick on you, but you Made the comment, so, yeah, there's been a drawdown. And when you think through what's happening in the market, Akim's got it, Joachim's got it. Think or communicate in a very factual way. Humans are emotional beasts, all of us. And it's the emotion that gets the better of us. So when emotion is high, our stress levels go up. Our body releases cortisol into the and adrenaline into our bloodstream. Our muscles get ready for action because it's all about the fight or flight response. And it's us getting ready to fight the beast or to run away from it so we can survive. Now, in the markets, there is no real wild animals, right? But there are bulls and bears in the forms of uptrends and downtrends. And when we let our language reflect the stressful, panic driven situation, our emotions do go up, whether we like it or not. And so when someone asks you how your trading is going or when you journal about it, watch your words. You know, be factual. You know, my trend following system is in a 15% drawdown. That's it. You know, it's not, it's not smashed, it hasn't crashed. It's not Armageddon, it's not the end of the world. It's not, you know, it's be exactly factual talent how it is. You know, Tony Robbins is one of my, you know, one of my favorite sort of mentors and teachers and everything in the world. You know, he says in many of his courses, you've got to see it as it is, not better than it is, not worse than it is. See it as it is. And noting that you're in a 15% drawdown. Okay, good, 15% drawdown. Where do we go from here? Okay, and typically trend following systems will be somewhere in the range of a 10 to 30, 40% drawdown, depending on what type of stocks you've held and how wide your trailing stops are. Swing trading strategies could be very similar over the last couple of weeks. Depending on how aggressively long you were, could be in a 10 to sort of 40% drawdown right now. Now on the short side, depending on when you got into the market will determine what the situation is. Now, over the last two weeks, I have a system called the Slippery Dip, which is a short side system that enters the weakest stocks in the market when the index rolls over and turns down. Now, it doesn't wait for a huge downturn. Basically when it rolls over an immediate short term and medium term moving average crossover, it gets short. Now that system got short early last week on the sort of second or third day of the decline and then basically got short about 30 different stocks. John says it's been very profitable, absolutely saved my skin. And then progressively managed to hit all its profit targets and go flat to cash again before the rally. I had a couple of positions that held through the rally, but then they hit their stops the other day. And so a short side system that got in quickly with a profit target has banked its gains and gone to cash and is probably just about to get in again. Now a trend following system on the short side where you wait for a real confirmation and get in for a long term hold mission yet. Okay, so you might have, might have got in.

But you know, chances are you're going to have a bit of a rocky ride there because if you, let's say you got into the short side trend following system just before the rally, then you're in a bit of a drawdown waiting for the next decline. And then there's mean reversion because mean reversion, the short side is when you, there's a solid rally and you short sell to profit from the next down leg. Now we've had one of those already.

And we're just about, probably just about to have another one. So what you can see is that different systems respond differently to the same market behavior obviously. And so if you're to profit from all different market behaviors, it helps to have systems from different strategies and combine them together into a portfolio.

Okay, so let's get on to the possible scenarios for each of these. Now if you've got a long side trend following system and you're not 100% in cash, that system will soon or should soon be in cash. You basically should exit, the system should exit all of your positions eventually because all of them should hit their stop losses and get out right now. This is a systematic approach. Okay. If you're, if you're not systematic, we'll talk about how to remediate and manage your portfolio shortly. But alongside systems should eventually get you out of the market and stand aside from the bear market and you can watch it go down and when it recovers then you can get back in.

So let me just see here. I wonder in this, I wonder in this panic situation, how come Adrian looks so calm and can remain calm. Really solid question. Thank you so much for being brave enough to ask. I appreciate it. And hey John, thanks for jumping in on the answer and co as well. The answer is largely because I am systematic and I have seen it before. But also my portfolio of systems is designed to survive events like this.

Because one of the things that most traders do wrong or do poorly is to prepare for or not prepare for extreme adverse events. Many people get into the market thinking that it's a bull market and it's going to go on forever. And they buy the stronger stocks and they leverage in and they make huge money because of their leverage while the market's going up. But then as soon as it turns and gets volatile, their account does collapse and their stress levels go up dramatically. But my account is basically going sideways. I've had a bit of volatility in the account. One system loses money, the next system makes money and loses money and so on. But it's stable because it's a combination of strategies. Long side, short side, mean reversion, trend following. And this is really, this is really the key. And being systematic, like CO says, allows you to follow several different strategies, allocate a bit of capital to each strategy, and then not worry too much about what the market does. And so it really is, I mean, it really is, in my view, the best way to trade because it really is calm. You don't have to worry about, what am I going to do, right? If you're not systematic, what you're doing now is thinking about, what the hell am I going to do, right? Who's wondering, what am I going to do? Comment in the chat, let me know if that's what you're wondering, what am I going to do next? What do I do? Because if that's you, then have a think about, you know, what if you had a system or a set of rules that was telling you exactly what to do, that was designed to do the right thing in these sort of situations. That's what systematic trading does for you. And so that's why when you have that sort of portfolio, several different systems profiting from several different market behaviors, you can actually remain calm no matter what's happening. Now, I watch the market out of interest, and I look at the news articles and I look at what's going on and people's reactions, but it's really more of a curiosity than anything else. I don't have to wake up in the middle of like panicking about whether or not I've lost half my net worth, because I know that's not going to happen.

And if you can sleep through.

On nights like the last two weeks, you know that your strategy fits you and is configured well, that's the key. Okay?

So trend following should get you to Cash. I'm just going to come back to the slides here. Swing trading should stop taking long side positions because these strategies should have a trend filter which basically says, you know, at the very simplest a trend filter for the long side would be only take a new trade if the stock is above its 200 day moving average. And it's very simplest because if the stock is below the 200 day moving average, your long side strategies are at a severe disadvantage. Okay, so I expect to not have any new long side signals until the market really settles down and recovers. There's a couple of exceptions, but as a general principle that's the strategy here. And yeah, absolutely. I mean moving averages really help because what it does is it puts a line in the sand, says look above this level I can trade, on the long side, below this level I can't. And it just takes that stress or emotion out of the decision. Right. It's like why would you buy in a market where chances are some panic is going to cause your stocks to collapse or get gap down? You know, it just doesn't make a lot of sense to take alongside risk in that situation.

Now on the short side in the next couple of weeks you should, you would start to see short side trend following systems kick in and give you more signals. Now you'll see swing trading systems on a short side as we have a decent rally and it rolls over. They'll get in for the next run down and then get out again. And then same with mean reversion. I actually haven't run my trades for tomorrow morning yet, so I'm not sure what my, my positions are going to be tomorrow. But I mean reversion system will kick in and short sell after a sudden spike in the market in the context of the downtrend. So you're going to have the long side going to cash. You'll get less and less to no signals on the long side. And on the short side you should start to have some signals. And just remember that if you don't have a system, if you're not experienced about shorting the market, standing aside is a perfectly valid and very sensible strategy. Okay. So please don't feel like you have to participate. I know there's some gurus around that say oh, the bear markets are the best time to.

Build your wealth and to make money really quickly and all of this. But if you don't know what you're doing, you don't have a set of rules that you've back tested and you're comfortable and confident in chances are you're going to get hurt. So please, if you don't know what to do, standing aside is very, very sensible and admiral thing to do. Don't let FOMO get the best of you one way or the other. Okay?

Okay, cool. It's another couple of questions here. Let me just have a quick look. Craig says, should you now use the systems that were monitored daily rather than weekly? Look, I think my view is always that you should do what the systems were designed for. If you've designed and back tested your systems on daily charts, use them on daily charts. If you've designed and back tested them on weekly charts, use them on weekly charts. But if you didn't back test them all the way back past 2008, let's say back to 1990, so that you've been, they've been through a bull market, a bear market, a bull market, another bear market. And then up to now, if you didn't back test them through multiple bear markets, then you've really got to be concerned about how big your drawdown is going to be because your systems haven't seen a bear market. And so if you, if you're not sure how they should behave in a bear market, then maybe it's time to stand aside as well. Okay, so I wouldn't go modifying my systems right now in a panic because the market has fallen dramatically. You know, one of the great things about systematic trading is that it helps you keep your head and stay calm when the markets are panicking. And that's why you can make money. So keep looking at the systems the way they were designed, but also assess whether they were designed to survive these market conditions. If you have, let's say you have a mean reversion system and there's no trend filter and it keeps buying all the way down, the system is really going to hurt you because there's no way for that system to switch off in a bear market. So do reconsider that. So if you've got rules right now and you're trading, sit, stand back from and look at them and say, okay, what will these rules do if the market keeps going down? And if you don't like the answer, then it's time to pause what you're doing because you don't want to keep going in losing more and more money if the market keeps falling. Okay, great question here. I think it was Henry says, what about shorter Time frames?

1 minute, 5 minute, 10 minute. Look, I don't trade intraday. I'm only an end of day Systematic trader. I know there's plenty of day traders around and some of them can make money. But the sad reality is most people who trade, who day trade, lose money. And so I never encourage it. If you have a system that works and you have a proven track record, great, go for it. All the same concepts apply, but on a smaller time horizon. But if you're not an experienced, profitable day trader now, this is not the time to start.

Absolutely. Do not start doing something new now because the most volatile markets are the most dangerous. And yeah, you can make some money, but you will lose money far more quickly than you make it. So that's my view on day trading. If you're already good and you already make money consistently, and I'm talking consistently over years, I'm not talking about over the last few months, okay. Because you know, this market behavior right now is not unprecedented, but it certainly hasn't, we haven't seen it for a long time. So I'm just gonna not encourage day trading right now. But if you can do it, then absolutely great. But just don't start doing it now if it's something new to you.

Let me see what other questions we've got here. Slippery dip. Best way to enter orders. So David says with the slippery dip, what's the best way to enter orders if you can't be in front of the screen? Now, for those, just a lot of people on the call, just for your context, if you're not a student, the slippery dip is one of the systems in the.

Trading system collection, which is part of the Trader Success system, which is my program. And so when you, when you're in that program, you get access to that system. But one of the things that you need to be careful of in all market conditions, but particularly in extreme conditions, is that you must do exactly what the system was designed to do. So if the system was designed and tested for you to enter at the open, you've got to be there at the Open to enter. If the system was designed and tested for you to put limit orders in before the market opened and just let them either get hit or not, then do that. But like right now, because my short systems have turned on, I stay up for the US Open every single night. And then when my short systems have turned off, I'll stop staying awake and I won't worry about it because I don't need to place those trades. But with this much volatility in the market, you know you're going to get very bad feels if you, if you just place Orders and hope for the best. So I definitely don't recommend that. I would just put yourself out for a few weeks and stay awake for the open place the orders and place your stops and then go to bed. That would be my view. If you're in the southern hemisphere, if you're in the northern hemisphere, then obviously it's no problem. If you're at work, then you just need to be careful. Book yourself a meeting at the time the market opens so that you can sleep, sneak away or place your trades on your phone. But don't just put in a market order and hope for the best because the market is too volatile and you'll get too much slippage.

All right, I'm going to keep moving. So, trading strategy behavior. When to suspend a strategy? Now, I trade systematically, like I've said to you and my students trade systematically as well. And the question inevitably comes up is, you know, should I stop trading this system because I'm in a drawdown. Now what I want you to do is if you're a systematic trader, if you're a systematic trader and you're a discretionary trader, there's two different things you've got to do here. If you're a systematic trader, you've got to look at the system and ask yourself, did the system do what I would expect under the current market conditions.

And is it broken? Because yeah, you might be in a drawdown with your trend following system. Is that what you would expect with the current market behavior? Yeah, absolutely. Is a drawdown bigger than any of the historical drawdowns that have happened in your out of sample backtest? Notice I said out of sample backtest, not in sample backtest because your in sample backtest is usually a little bit curve fit and the drawdowns are usually a little bit optimistic. So if you back tested your system and you look at your outer sample backtest and the, and the drawdown now is dramatically bigger than the biggest historical drawdown, then it's time to reassess the system. Either scale it down, pause it, and investigate to see what's going wrong. But if the drawdown is broadly within the behavior that you would expect from that system in the current market conditions, then the system is probably okay. Drawdowns are painful, but it's part of the thing that we have to get used to as traders. We've got to get used to the ebb and flow of the market. You know, we make new highs, then we have drawdown, make new highs and we have drawdown maybe highs. Sometimes it crashes down more than we expect, but it's just part of the game and the market will just come and go and will be in sync and out of sync and in sync and out of sync and it's just part of the flow. So when we're in a drawdown, the right thing to do is step back and say okay.

Is that what I would expect? Is the system broken? If the answer is it's what I would expect. Systems not broken, keep going. A well designed system should get you out of the market or should stop taking new trades if it's out of sync with the market. You know, all my trend following systems have a trend filter. If the market starts going down, they stop taking new signals and eventually they go to cash.

Same with mean reversion. You know, once all the stocks are below their 200 day moving average, typically a mean reversion system should turn off, shouldn't give you any more long side signals and then same on the short side.

So when, and that's for systematic trading. So only suspend your system if it's broken. If the performance metrics of the system are outside the historically expected performance in a long term backtest, make sure that backtest includes 2008 and 2000 bear markets. If you're a discretionary trader, as in you don't have a system, the question about when to suspend is really, really hard. And this is why systematic trading is so powerful in these sorts of market conditions. Because you don't need to ask yourself the question, you just need to say is my system broken? But when to suspend in a non systematic portfolio, basically when the losses are beyond where your trading plan says you should be trading, most good trading plans should have a limit. My drawdown tolerance is if I hit this level of drawdown, I'm going to stand back from the markets because I'm clearly out of sync. So that's what you've got to do. If you've lost more than you thought you should in your discretionary trading, you're out of sync with the market and it's probably time to stand aside and go to cash. Okay, but panic selling is not the right thing to do. You've got to do it in an orderly fashion. But certainly stop taking new trades if you're out of sync and you can't seem to be making money.

So Shiraz is asking, what's the number one piece of advice you give to buy only traders and already invested? I think the biggest piece of advice I would give or guidance, I'm going to say not advice but guidance is before you make any trade, you should have a plan for that trade. Buying and just hoping to make money is not really a plan. You've got to sort of have a strategy or plan behind it. So if you were going to hold that, buy those stocks and hold it for the next 20 years retirement and just harvest the dividends, that's your strategy. That strategy does not include selling when the market dips. The strategy was buy and hold for the very long term, be a dividend investor and just wait it out. So if that's your strategy, you can't really be surprised if you have some dips and you know, collapses in your portfolio every now and then. If you're, if you have a trend following strategy and you bought those stocks when they were going up and you plan to hold them until they stop going up and started going down, you need to exit according to that plan. So no matter what your trade is, think back to the original plan and if all else fails, follow that original plan. Because buy and hold investors might be panicking right now because the market is created. But if you're a buy and hold investor, you didn't have an exit plan. And so making a panic exit decision is really quite dangerous because you may, you basically you're capitulating. You're just going to sell at the lows and then chances are after that happens it's going to bounce and you'll miss out. So just think back to the original strategy and calmly assess the position. You know, if there's a good reason, if the story has changed, then change the position. And again, all of this is for discretionary traders, because for a discretionary trader, you've got to take into account what's going on in the price. You've got to take into account the story of the company, you've got to take into account the story of the market and what the government's doing and all of that. And you have to assess that. Very, very difficult to pull that together. The great thing about systematic trading is there's always a rule. If A and B and C happens, you buy. If D or E happens, you sell. And so it takes this fear and this emotion and this panic out of it.

So for existing trades, I want you to go back to the original strategy and if something has changed, then suspend that trade. Let's talk a little bit about existing portfolios that are non systematic. You've got four choices right now. If you're a buy and hold or a long term investor.

Basically you can hold, you can Scale up. You can scale down or you can exit. Now, again, I'm a systematic trader. And the reason I'm a systematic trader is because it eliminates the emotions and allows me to be consistent. And you can do the same thing if you become a systematic trader. If you're not already, it will allow you to consistently manage your trades. If you're a discretionary trader right now, you've still got to make these decisions. Now, what I would do is look at each of my positions individually, look at the chart and stand way back from the chart and ask myself, what has changed since I entered this position?

And I would never ever recommend averaging down. A lot of people will say average down because you know the market will correct and you'll get a better average price. All this, but it's not real. It's. It's what losing traders do to pretend or make themselves feel better that they didn't lose as much money as they did. The positions you're holding now are the trades you've got to deal with. If you make a decision to buy more, that's a separate trading decision.

It doesn't have anything to do with your existing position. If you've got 500 shares of ABC and they're down 30%, buying another 500 shares now does not lower your average price. It gives you a second trade in the same position, the same stock, and it gives you a higher exposure to something going wrong in that stock. So we don't want to average down to try and make ourselves feel better that we didn't lose so much money. Be rational. You know, we've got to think, okay, my current position is down. What should I do with my current position? Just making sense. I mean, averaging down is a really high.

There's a real high drive to want to do that to make yourself feel better. But it's just that it's application. It's not real. You've got to think rationally about your entries and exits for each individual buy and sell that you make and make them good decisions. So for an existing portfolio, if the position is doing what you expect to do and it's still adhering to the plan, then you can hold it. If that position has crashed through all of your exit points, all your stop losses, and it's now trending down, then maybe it's time to either slim it down or close it.

Because what you got to do is protect yourself. Yeah, there might be a bounce you might be able to get. You might be able to make some of the 27% decline back. But chances are if there's a bounce it's gonna be short lived and there'll be another down leg. So if it's past your exit points already, then you've got to do what you were supposed to do in the first place and that's close or slim down the position.

In terms of scaling up. I think scaling up in general into a volatile market is a really dangerous and unwise strategy because the reason volatility is high is we have no idea what the outcome could be. And the more uncertainty there is about the outcome, the more volatility there is and the bigger portfolio swings will be. And look, right now we're 27% down. If it really goes into a fully fledged bear market, we could be another 27% down before you blink. So scaling up I just don't think is a very rational strategy. If you've got a 10, 15 year time horizon and you want to buy well researched bargains in blue chip stocks that are good value, I have no problem with that. But make sure that you're targeted and make sure you do your research. It's not how I trade. Again, I'm 100% systematic. But if you have a value strategy, then yes, there is value around and there will be more value in the near future. So that, that can be a good thing to do if you're a long term value investor. The other thing you can do is just exit and stand aside. And after a brief rally in a bear market that's a good time to do that because after a rally comes a decline. And again any rally in a bear market is going to be short lived. So.

That'S, that's sort of my thoughts on existing portfolios. Any positions you've got right now, you should be monitoring very regularly, daily. And while it's still the weekend before the markets open, if you don't already have exit rules, create yourself snakes it rules because that's what takes the emotion away from the decision. You know you need exit rules on the upside and the downside in this sort of situation because you, if the market continues down tomorrow, you need to know at what point will you get out? When are you going to stop the bleeding? Because you must stop the bleeding if your portfolio keeps going against you or you'll end up with nothing. That's the sad reality of the situation we're in. So if you don't have an exit rule, then please spend the time between now and tomorrow when the market opens to create them. Now again, remember the strategy though because if your strategy is long term, buy and hold of high quality blue chips and you're just you plan to hold 15 years, you don't necessarily need to exit in this situation. But if that's not your strategy, then you need an exit rule. So while, while the markets are closed, figure out an exit rule so that you can get out and stop the bleeding.

Okay, cool. Capital allocation. How to protect yourself and profit. Let me just have a quick look at the questions. So Frank saying there might be good reasons not to go to cash. Do you use any systems or strategies to hedge a portfolio? Look, I typically don't hedge. I trade a diversified portfolio of systems that can profit from all different market behaviors. So I have systems that will make money when the market's going up, when the market's going sideways, when the market's going down. If you have experience in hedging and you want to do that, then yes, absolutely. If you don't want to sell your stocks, but you want to protect yourself from the downside, then hedge. Do be aware that hedging with options in an environment like this is hideously expensive because volatility is high, option prices are high. And so if you buy puts now to protect your portfolio, it's going to cost you a fortune. And think about this analogy. Imagine you own a house and you never had insurance and the house catches on fire and you call the insurance company and you ask them to insure you and they say, is there anything that you need to disclose? And you tell them, yeah, my house is on fire, but I need insurance. What do you think they're going to do? A, how likely are they to cover you? And B, if they did cover you, how expensive is your premium going to be? It's going to be prohibitive and probably not worth it. So think about how to hedge. If you want to neutralize your exposure. Because. Because you're a buy and hold investor and you want to just have a, like a short position on the index to neutralize your exposure. You can do that.

But remember, you've got downside and you've got upside. If you basically neutralize your exposure by going short the index to counter your long exposure, then you protect yourself from further downside, potentially. But if the market rallies, you're going to miss out. So you know.

There'S swings and roundabouts there. But if you're a long term investor and you don't want your account to crater, or if you don't want a 50, 60% drawdown, then that can be a good strategy.

So Specifically the question was do using option strategies or system to hedge a portfolio. So look, the time to buy put options is when you don't need them and when the VIX is spiking to super high levels, it's probably not the time to buy puts because as soon as the market comes down, volatility calms down, option prices drop very fast and.

You basically are going to lose money on the, on the option even if the price does move in the right direction.

What other questions we got here? BR says do I decide on each stock's position or decide action on all stocks based on how the index is doing ag the SPX in this market. Great, great question. I tend to look at both. Okay, I'll look at the index and I'll also look at my individual positions because if you're an active, somewhat active trader, your positions may not be reflective of what's happening in the index. Let's say you were heavy in oil and gas a few weeks ago and then the other week when the Saudis crashed the oil price, your positions would have taken a real hit. Now that is not representative of what's happening in the broader S and P because it's specific to one sector. But there is something going on that affects the whole market, which is the virus. And so look at your positions individually and the market and make a decision. I wouldn't look at what the market's doing and then panic, sell everything because there might be something in your portfolio that's holding up. Now I've still got long side trend following positions open because they're just, you know, they're just hanging in there. I mean eventually they'll probably hit their stops and, and I'll go completely to cash on the long side. But it hasn't happened yet. So do assess the strength of each of your positions if you're trading with discretion. But be aware that if, if the market does give up on them, they could decline very quickly. So any rally is a good time to sort of reassess and get to cash.

Benson says am I recording? Yes, I'm recording. I will share the recording with you afterwards. So thanks for that, thanks for coming on.

Okay, what else? Apparently John's eating something nice. I haven't had dinner yet, John, so I'm looking forward to doing that. What about bottom fishing? Is it the right time?

So look, bottom fishing implies you know where the bottom is. Now if you have a systematic way of getting into the market that you have back tested over many years that is profitable, then you can, you can go bottom fishing when those rules.

Kick in. But if you don't have a systematic way to do it, there's no real way to know if you're at the bottom. And you know, if this is a real bear market, 20%, 27% down is not the end of may rally from here and you might miss out if you don't do bottom fishing now. But if it doesn't buy now because you think it's the bottom and it collapses another 30%, how are you going to be feeling? You know, you can be happy with that. So you know, create that strategy and.

And stick to it. But create strategy now when the market is closed, I would say it's possible. My personal view is it's probably a little early, the market is probably going to go down further after a rally. But you know, I could be wrong. Okay, so don't hold me to that as your decision. If you want to go bottom fishing now, just know that you've got a fair bit of downside risk. Okay, I'm going to keep going. So how to allocate capital to protect yourself. And look, some of this is a little late in the game, but this is to one of the earlier questions. This is why I'm pretty calm. Okay, because.

Say you've got, you know, you've got a certain size account, 100% of your account. If you put a little bit to long side trend following, a little bit to swing trading, a little bit to mean reversion, a little bit to short side trend following, and a little bit to short side mean reversion.

Then your capital is spread across many strategies that make money.

In different market behaviors. So when one of them is losing money, the other one is making money, or when this one starts making money, that one is losing money or goes to cash. So allocating capital to different strategies, a portion of your capital to different strategies is the way you protect yourself long term. Coming into this, I had a lot of long positions, but not 100% long. Like all of my portfolio wasn't tied up because some of my long side trades had already closed out, had a bit of cash, had some longs. When the market turned down, those longs exited and then the shorts kicked in. But I didn't go 100% short because my capital allocation only allows me to put a proportion of my assets into any one strategy or direction. And that's what keeps you alive. So.

Yeah, so the number one way to protect yourself is to spread your capital across different strategies and different directions and different time frames. And if everything is in one strategy alongside trend following, for example, while it's a fantastic strategy and it is my favorite, when there is a bear market, it suffers, but you've just got to put up with that because that's the only one you've got. But as soon as you add a mean reversion, as soon as you add a short system, then you take a bit of capital from the long side, you spread it to the other ones, then all of a sudden your volatility in your account drops. And that's, that's a really good thing because you know, you can sleep sounder at night, you can make money into more market conditions and you know, basically trading becomes a lot easier. So if you're 100% long now and you're going to exit, what do you do with your money? Well, you can trade short if you have a short side system. If you don't have a short term system and you're not experienced in that space, then going to cash and standing aside is definitely one of the better strategies because at least you're safe.

A question here from David, which is a really good one, Adrian. Do you usually reassess and change capital allocation depending on broad market conditions? Really, really solid question. So thank you. And the answer is no, I don't. Because what I do when I set my capital allocation decisions, I do it by thinking through what could happen in the market and how would my systems perform. So when I, when I think about my capital allocation and I look at my trend following system, which I really love, my favorite system. But I'm never going to give it 100% of my capital. Why not? Because if the market goes, if we go into a bear market, it's going to have a big drawdown and I don't want my whole account to have a big drawdown. So I've thought through in advance the different market behaviors that could happen and then allocate my capital accordingly. So yes, sometimes, like in some periods, I'm going to underperform because I might be a little bit conservative. I won't be 100% long or 100% in trend following when the market's really hammering up. But that's going to save me when the market turns down. And similarly when we're in a bear market, I won't let any of my bear market systems go 100% short, basically short my whole portfolio. Because if I'm wrong and there's a massive rally, which there are big rallies in bear markets, as we've discussed, then I'm going to be in for another big drawdown. What I'd encourage you to do is look at your different systems, different strategies, and allocate capital by thinking through these different market scenarios. And if you haven't done that, then do that now. Think that. Am I putting too much money into one strategy or another? If you're, if you've seen what's happened in the market and you've gone like all out on the short side, hugely leveraged, because you're going to make money on the way down, that's fine if the market keeps going down. But what if the market doesn't keep going down and we do have a sustained rally? Then you will get hurt. So this capital allocation is your protection mechanism. And so I keep that pretty fixed. The only reason I change it is if I add a new system to my portfolio, then I'll reassess. Or if something changes in my personal situation and therefore my risk and return and objectives and lifestyle changes, then I might reassess my capital allocation. Good question. Okay, cool. All right. So we're just about. I mean, this is basically all I wanted to share, but no one system or direction or set of rules should have access to all of your money. I would also say that right now is not the time to be leveraged if you're not experienced in managing that. And it's not the time to be aggressive. Because yes, you can make money quickly in a bear market, but it can also kill you if you get stuck in a short squeeze. In 2008, I had this situation. I had a short position. I've talked to my students about this. I had a short position which had made me quite a lot of money. And it was very close to hitting its exit point, its proper target. And all of a sudden it went on trading hole.

And then a news announcement came out the next day that that stock was being taken over. There was a takeover offer at a 200% price premium, 200% above the current share price, with no opportunity to get up, to get out. So that that position, which was going well for me all of a sudden was well against me. And I had a pretty decent sized loss on that trade with no opportunity to get out. And this can happen sometimes in a bear market because there's bargains, right? And it's not just you, the investor that sees the bargains, it's also the market and the competitors and the other companies and the people with cash, you know, the companies with cash who are out there bargain hunting so leveraging up and trading aggressively on the short side can be really dangerous. You can get stuck. And it's not just takeovers. Sometimes there's short squeezes. If there's not a lot of stock available to short, then and you're short, then you know, the stocks can rally really, really quickly and you can get stuck and you end up getting really bad exit price and losing a lot of money. So the key messages are reassess the need to be in the market. If you don't have rules, if you've got all sorts of stress and you're really struggling with the market right now, consider just stepping aside. It's perfectly fine to live to fight and trade another day. If you've got trades that you should have already exited then. Now, while the market is closed, create yourself some rules that will tell you exactly when you'll exit and that will help clean up your portfolio. And those rules shouldn't allow you to have a much bigger drawdown. Don't hold on to a trade you should have sold hoping for a recovery, because chances are, if we go into it, if the bear market continues, you can end up with massive loss. Create rules that will stop the bleeding, because you must do that to protect your portfolio now and your future wealth. I mean, if there's any mathematicians in the group, all you need to do is do a compound growth formula projection of your account over the next 20 years. And if you just even with a conservative growth rate of, say, 10, 15%.

Imagine you grow from where you are now, 10, 15% on average for the next 20 years. And then imagine that you have another 50% drop from here because you held onto trades you shouldn't have. And then compound that at 10 or 15% for the next 20 years and look at the difference. It's humongous. You absolutely cannot afford to hold on to trades that you should have sold. You know, holding on to get back to even is a losing strategy, will absolutely lose your money. So there you go.

And spread your money around different trading systems and certainly don't concentrate too heavily. So what I'm going to do now is open the Q and A and I'm going to scroll back through the chat roll. There's still quite. Well, there's still 73 people on the call, so I'm probably not going to open the mics, but if you've got questions, put them in the chat roll and I'll go through them.

So Wayne says, is there a systematic way to take long trend signals, eg, the Unicorn Hunter, which is a fantastic System again, part of the collection courtesy of Wayne amongst other people, which is really great. When the market is near a bottom to capitalize on an upturn without having to wait for a stock high or index filter.

Or just wait for other systems. In the meantime.

There are trading systems that can profit from off the bottom. One of the things to remember when you think about the bottom, and I'm just going to scribble on the screen here for a second. When you think about the market, right, you think about has the market bottomed? You know, the S and P has been going up and up and up and up and up. I don't know if you can see my squiggly lines, if you can see my red squiggle on the screen, just say I can see red in the chat. So I know then we've had this big decline and let's say, you know, we have another couple of down legs and then the market starts going up, right? We have the next bull market. Cool. So right now we're about here.

And this may or may not play out, we may or may not have this decline. But at the bottom, when the index bottoms and starts moving up, what drives the index up? It's stocks that are leading the market. Because not every stock goes down simultaneously and turns around simultaneously and starts going up at the same time, right? Some stocks lead the recovery. And so yes, while the index is going down, there can actually be new stocks that are making a recovery before then. And when enough stocks start to make a recovery, then the index, which is the average of the stocks in the market, starts to make its recovery. So you've got to keep following your trend following system because you will get breakouts, you will get strong trends. And some of my best ever trades were the first long trend following signals coming out of the 2008 bear market because you've got, there's been a big correction. All the risks come out of those stocks. They've got a big Runway to continue. So keep watching for the breakouts on individual stocks. Now if you want to have a system that gets in early and doesn't wait for the index to come up.

You can absolutely develop that. So one of my systems, one of my favorite ones is the free freight train. And the freight train is in a bit of a drawdown now because it's alongside trend following system and it has an index filter which stops it from taking new signals when the index is going down and it waits for the index to go up. The reason it's got that filter is because it's psychologically really hard to take new long side positions when the index is going down and everyone is panicking. Plus those, any stock that's breaking out and making new highs when the index is going down has a lower chance of success. So I put that index filter in there because I know that those trades are less good than when the index is going up. But you can actually run a trend following system without an index filter. Just take it out. You have to back test it. And if you don't know how to back test it, then you need something like the, the trader success system to show you how to back test these rules and understand how to assess these decisions, make these decisions. But you can have a trend following system that will buy stocks that are rising even though the index is going down.

Can work, but you must test it. Can you have a system that gets in on the decline.

When a stock is going down in anticipation of the bounce? Yes, but it's a very low probability strategy. You know, it's very hard to pick the bottom systematically and consistently. So not my favorite strategy can be done. But again, you've got to back test it and really assess the probability and think carefully about your capital preservation strategy. In that case, you know, you probably want fairly tight stops and very small positions because if the market, if it's not at the bottom and you get a little rally and then it starts to accelerate down once, you've got to get out pretty quick to protect your capital.

Liftoff is one of those systems that does do that. So again, in the trader success system is a system called liftoff and that catches stocks that are coming out of a bear market. So definitely look at that. If you're in my group of students already, if you're not and you want to join, then you can look at lift off as a strategy that definitely helps as well.

VR says picking the bottom is as tough as getting out at the top. Yeah, absolutely. Definitely is. Both top picking and bottom picking is very low probability of success. But strategies like liftoff that have been back tested over 30 years, been through several major and many minor bottoms do actually work. They're just not as profitable in the long run as systems that wait for market confirmation. But if you want to try, if you want to make a bit of money on the first, first couple of rallies in the new bull market, then yes, you can, you can use strategies like that. Just be cautious, don't allocate 100% of your capital to them. And you know, again, if you, if you, if you ever Needed a reason to use less leverage. The last couple of weeks in the market is the reason. Okay, I use very, very little leverage and that's the reason I've never blown up an account and I've never had a drawdown. My biggest drawdown ever was 27% and that was uncomfortable, but it was within my designed tolerance and so, and I'm nowhere near that right now. So you using leverage increases your chance of drawdown, increases your chance of blowing up your account and reduces your ability to survive long term. So if you're only trading cash, give yourself a pat on the back because you didn't fall victim to FOMO and leverage in and try and buy the Googles and the Facebooks at all time highs. Well, good job.

And don't be tempted to go in high with what's leveraged now either, because it's just a path to disaster.

So this question here, I gather your strategy for handling difficult conditions is to use different systems, but only in the stock market do you have an option on trading other markets that aren't correlated to the stock market as a diversification strategy? Look, yes, you can trade different markets. I do just trade stocks, stocks and ETFs. But if you want to trade forex and futures and so on as well, that's a good diversification strategy. If you follow the futures by the commodity markets, you would have seen that most of them have created as well in the last couple of weeks.

Fear tends to permeate through other markets. So diversification is not the be all and end all. I think directional diversification, long and short is really, really powerful. And also being long and out of the market is very, very powerful. I do have one system in the stock market which again, I really love. It's called Bear Defiance. And again, part of the Trader Success system and what that does is it finds stocks that are moving in the opposite direction to the market. So when the market's going down, it finds stocks that are going up and typically that will buy inverse ETFs, it'll buy bond funds, it'll buy gold, all ETFs, and it'll buy the occasional stock that is.

Negatively correlated with the market. So you can find such instruments as well. You've just got to look for the negative correlation and design a system around that. But I've got a great system for.

If you wanted to do that, you can message me about it and I'll tell you about the Trader Success system. But I don't pitch it all here. Really what I want to do is help you survive the next couple of months.

And make some money or retain your wealth.

Anthony says, what markets do you recommend for trading now? Good question. Interesting. What I say to all of my students is.

Trade systems and markets that fit you. It's got to fit your personality objectives and your lifestyle. Now, most of that is around the system, right? Personality objectives is all about the system. But lifestyle is actually really important.

Let's say. I could say to you, I love the Australian market. Actually in a bear market, I don't love the Australian market. I prefer the US market. But if you can't consistently execute trades on a certain market, then you can't trade that market because as soon as you start making mistakes, you're going to. You're going to lose money. So the US market is great in a bear market because there's so many more stocks you can short than any other market and the liquidity is higher than any other market. So I do favor the US market. All of my short systems are developed for US stocks and ETFs. I don't trade short on the Australian Stock Exchange or on the Hong Kong Stock Exchange because there's just not enough breadth of stocks you can short. So, yeah, that's great. But if you can't trade the US Market because it doesn't fit your lifestyle, the time zone is wrong, then that market's no good for you. So that's. That's sort of the situation there. I have a portfolio of markets I trade and all of those are systematic. So I trade Australia, Hong Kong and the US Primarily. And I experiment with other markets. And I've put different markets in and out of my portfolio over the years. European markets and Shanghai and other Chinese markets and so on. But a little bit of capital allocated to each one traded systematically with diversification of those systems. Sometimes long side, sometimes short side.

That's the main thing. And make sure you can do. You can follow your rules consistently. So, Anthony, I hope that helps.

What else have we got here? Any other questions, please post them in the chat. I'm happy to hang around for as long as we need just to make sure we cover everything. Anthony says, do I only trade stocks? I trade stocks and ETFs. So basically anything listed on the stock market, I don't do options, I don't do futures, I don't do forex. Nothing wrong with those markets. It's just that I teach stock trading. I trade what I teach, I teach what I trade. It sort of keeps everything consistent. And what about CFDs? Again, good question. I use the actual stocks. I don't use CFDs.

Particularly for the long side. On the long side, if you're trading long term, as in more than a couple of days, holding period, CFDs are really bad because the holding cost, the interest costs are really high, far higher than holding stocks. If you want to trade very short term, see if these are okay. If you want to trade short, see if these are okay. So Jochim again, one of my mastermind students, very, very smart guy Joachim.

Trades short with ETFs, which is fine. So short with CFDs, but not for the leverage, only for the ability to go short. Okay? Anyone who says, oh, I trade CFDs because I can get 10 times leverage, I mean, they don't know, you know, that's dangerous. It's not what's going to help you survive. So don't do CFDs to get leverage. And if you're an American, you probably don't even know what we're talking about. Maybe with CFDs, because I don't think you have them over there, do you? I'm not sure, but don't worry about it. But I tend to trade in the underlying market, actual stocks. And so I just, you know, I have a margin account with Interactive Brokers, and that just allows me to borrow stocks and short them automatically. But if you don't have that, if you have a CFD account, yes, you can go short. Please, please, please be conservative with your exposure and your position size. Because in a bear market, rallies can be very vicious, very fast and unexpected. And liquidity can dry up all of a sudden. Spreads can widen all of a sudden. If you've got a position that's too big, end up in a world of hurt. So if you're going to short with CFDs, be conservative. Do it for the shorting capability, not the leverage. Hope that's clear. I can't be any more blunt than that. Anthony says in Australia, would you recommend the US Stock market? Depends on your lifestyle. I'm in Malaysia, so I've got a little bit of an advantage over the Sydney, it's because I'm three hours behind you. So the US Open is at a fairly sensible time in the evening.

If you can stay up till the US opens without hurting your lifestyle even temporarily while this bear market is going on, then sure, absolutely. But if, if you can't, and if it's going to hurt you, then consider a system or a set of rules that will enter and exit at the US Close, which is early in the morning Australian time or Eastern Australian time, then you can do it, right? So think about what you can fit in your lifestyle and trade in a way that you can consistently do it. And also make sure you've backtested it. If you don't know how to back test, then reach out to me because it's something you need to learn. Because if you're going to make any strategy changes now, you need to backtest them.

I can't read the name, but someone says, what's a cfd? It's basically a, it's a derivative that allows you to trade long and short with leverage on a stock. So it mimics the stock price, but it's.

But it's not holding the actual stock. So the CFD tracks the stock price and you put down a margin just like a futures contract or similar to a futures contract, but you pay interest.

On that position. So yeah, it's just basically like a leverage derivative of the stock, but not an option. CFDs don't expire. It's a contract for difference. It doesn't expire, it just lasts for as long as you hold the position.

So, next question. Nick says, if I understood you correctly mentioned, entering positions for your systematic systems on the market open manually, I.e. orders are not placed before the market open. Instead, during the first minutes, can you describe that process and how that relates to your systems net tested? Okay, good. Let me, let me clarify just a little bit. Great question, Nick. Thank you.

If you have a trading system, my guidance is do what the system was backtested to do. So if your system enter, if your backtest enters at the open, if that's what you've coded and backtested, you should be entering at the open. Particularly now when the markets are really volatile. Don't be reckless and just place market orders before the market opens, hoping to get a good price. Okay, you need to, I would encourage you to be there and monitor your positions and make sure that you know, the spread is not too wide, the slippage is not too big and you sort of manage your positions.

For me, when I want to get in at the open, there's two things you've got to consider. You've got the buyers lined up and I'm just drawing a little drawing on the right hand side of the screen here. And you've got.

The sellers line up.

When the buyers and sellers meet in the middle, a trade happens. Make sense? Now just before the open, you can see the buyers and sellers and I'm particularly talking about Australia here because.

Sorry, I lost my screen I'm gonna just go to a, let me just share my screen and go to a whiteboard so that you can, I can just do some drawing.

Can you see my whiteboard now? It should just be a blank white screen and I'm just gonna do some scribbles on it. So I hope that works.

Okay, cool. You can see the whiteboard. Thank you.

So just before the market opens, if you look at the market depth, so this is like a level 2 quote or market depth quote, you'll see the buyers lined up and you'll see the sellers lined up. And if it's a really liquid stock, usually the buyers and sellers overlap. Okay, now this is a really, this is quite an in depth concept. Okay. But I'm just gonna do, I'm not gonna do it justice today. But what happens is when the buyers and sellers are overlapping just before the market opens, as soon as the market opens, everyone in here in this overlap zone gets matched at an average price. And so what you want to do is you want to look at the volume of buyers and sellers at really.

Each price level here.

And the volume of the sellers at each price level here.

And position your order sensibly. If you're selling, position your order so that it does get executed during the matching, but it doesn't shift the price.

Now this is not really a big problem for small accounts where you're taking really small positions. But if your account's big, then you've got to be really careful how you place the orders so that you don't move the opening price.

So I look at the market debt and I place my limit order before the market, just before the market opens a couple of minutes at a level that I know will get executed when all of those shares, traders get matched. And if I miss it, then I'll get in very quickly thereafter by adjusting the price.

The other situation that can happen, and it does tend to happen a bit in bear markets, unfortunately, is when.

There is no overlap. You know, sellers want a higher price and buyers want to, want to pay a lower price. And there's a big gap in between. Okay, so there's this big gap in between where the sellers are willing to sell down to and the buyers are willing to buy up to. If, if there's a big spread, then you've got a problem, you know, and unfortunately, when liquidity is low, the spreads widen and you have to pay more to get in or you have to lose money and bid down to get out. And so if you're getting out, if you need to sell a trade, you don't have much choice. You've got to sort of place your order. What I do is I place my order.

Inside the spread, just inside. And I wait and see what happens. And if it doesn't get hit, then I'll progressively move it down, down, down, down, down, just to see if any buyers are going to be enticed into the market. And I'll do this over the first sort of 20 minutes. So it's pretty quick. And then hopefully a buyer comes up and takes my order and I'm out. But if, you know, if not, then you've basically got to get the price that you can get. You know, if the spreads don't overlap, you know, you got to get out wherever you can get out. But if you just place a market order, you're just going to hit the highest buyer, the highest buyer's price and then you're going to keep pushing the price down until your order has been filled. So it's really dangerous. So I always use limit orders or almost always use limit orders and gradually manage them down or using an algo order in interactive brokers to get a good price. If you're buying a stock or trying to establish a new position and the spread is really wide, you've got a decision to make because you probably like, let's say it's a 10 or 15% spread, which can really happen, then you probably don't want to cross the spread. You know, if you, if you have to bid up 10 or 15% just to get your, your position established that trades not going to be, not going to help be profitable. So when the spread gets really wide, I will skip trades. You know, if the spread is wide compared to the average profit per trade on the system, then all I'll skip trades and get out. So again, I hope that helps. Let me just clear this. So Mick says you're talking about getting a suitable order for the opening auction rather than placing the order after the open. Yes, absolutely. If I, if I'm trying to get the opening price like it at the opening auction, I don't want it executed afterwards because the market's already moving by then in a bear market, if it's, you know, it's probably moving in the wrong direction. So I do try and get in at the opening auction and if I miss it, if for some reason my order doesn't get executed, then straight away afterwards I'll adjust it and make sure that my, my trade gets executed. So I hope that helps. John says good info thanks for that. Hope that. Glad it helps.

All right, what else? Any other questions? Wayne says slippery dip through a few signals a couple of weeks ago for the US index cross, but nothing more. Now some of exit with max gain. When will it give more signals?

John says where can I buy some toilet paper? Well in Malaysia we still have, some people aren't panicking over here, but that's about it. I think everywhere else has run out.

I was thinking about starting a toilet paper futures market. Maybe we can make some money, we can go into business with that.

So back to the slippery dip. When will the slippery dip start giving signals again? You've got to look back at the rules of the system because what when, when the slippery dip shorts. It shorts when the index moving averages crossover. So a short term moving average crossing below a medium term moving average. So for it to signal again, the market's gonna have to have a decent rally and then roll over again and then it'll get short for the next download. So if this rally is very short lived, it'll miss it. It won't short again. But if the rally is longer and it does, it does sort of come up and then roll over, then it will get short again. But look, with the great thing about systematic trading is you just got to wait for the signals. You know, the trading trading process is really as simple as updating your data, checking your existing positions for exits, running a scan, see if you got any buy signals and then placing those trades with your broker. There doesn't have to be stress around what's going on in the market. Okay.

All right, just seeing if there's any other questions here. A few comments for someone. So CO says for someone starting but familiar with markets, is it best to have several systems to target each of these situations and not one single system that may not perform in some situations? Yeah, look, it's always better to have several systems. Good question. But the reality is you've probably got to start with one and if you start with one then yes, it's not going to make money in all market conditions. So don't use all of your capital with that one, that one system. If you've got, let's say you've got $20,000 in your account and you want to trade with several systems to get diversification. You know, your first system might take $5,000 and your second system might take another $5,000 and another 5,000. Another 5,000. You know, you basically build up your exposure by layering in the systems and as you found the systems you Want to use back test them to build confidence and then implement them. Implementing a portfolio of three or four systems simultaneously can be done, but you definitely want some support to do that because there's quite a bit of, you know, complexity in learning curve to get used to all moving parts. But it can be done. So you know, if anyone wanted to work with me to do that, I can absolutely help you do that. But if you're going to do it yourself and you just probably one system at a time, but just phasing your capital, give each system a little bit of capital.

What else? So John1 says how can you tell if a system is broken and not just having a bad run?

Typically when you do a backtest, you'll see the performance stats of the system, you'll see the maximum historical drawdown, you'll see the maximum number of consecutive losers.

The volatility of the equity curve and so on. The biggest indication is that the drawdown is bigger than the maximum historical drawdown. If the system, if the drawdown is bigger than anything you've seen before by a wide margin, it could be broken or it could just be that it wasn't prepared for the current market conditions, which is definitely the case. Many systems that I use and have used.

Now have a slightly bigger than expected.

Maximum drawdown. But if you've given each system a smaller amount of capital, then it doesn't hurt you too much. But if the drawdown gets to say maybe 25% higher than your maximum historical drawdown, then it's probably time to pause the system and think about what to do next. That would be my guidance on that. It's really about drawdown and system behavior. If your system has back tested and historically you've only ever got a maximum of 10 losing trades in a row and you're now sitting at 15, it's probably time to reassess the use of the system, to scale it back or to put it on pause until it's back in sync with the market. So basically any statistics that are dramatically outside the back tested boundaries, the warning to pause or suspend a system, ideally, and I know it's probably a bit late to say this now because the market has already come down, but ideally you should have these rules in place before you need them. The best place to have a map is before you head into the woods is a phrase that Brendan Burchard, one of my heroes and mentors says.

And I think that's absolutely true, the best time to have insurance is before your house is on fire. The best Time to have the stop loss is when you enter the trade. The best time to have the rules to suspend and turn off a system is before you start the system. That'd be my guidance on that. So that's helpful. If you already have a system and you're just not sure, then you can scale down, you can take some exposure off, or you can pause it and just go to cash. There's no harm in standing aside one of the great advantages we have as retail traders, all of us, that we can go to cash and we can just stand aside from the market, you know, let's just live to trade another day. You can do that. Perfectly reasonable. No shame, no need for fomo. Just live to trade another day and wait till the markets come down. If that's what you want to do, absolutely no problem.

Siraj says upon systematic trading, how to achieve trust in a system if our market does not have enough history as a. Like the S and P. Look, the fact is if you're going to trade systematically, you need to trade a system as a market that has enough history to backtest. Now, most markets have quite a few years of trading history. I mean, I can't think of any stock markets around the world that are really brand new that you would trade. So Suraj, if you've got a particular market in mind, let me know. But if a market's been around for 10 or 15 years, that's enough. That's enough. You strain a backtest. As long as you've got bull market, sideways market and bear market in your backtest, then you know that that market is well enough developed for you to develop a system. So I hope that helps.

So Siraz says, well, I'm back testing an end of day system since January 2000. Is that enough to have trust on? Yeah, potentially. Because that includes, well, it depends on which market it is. Right. But if that was correlated to the US market, that would have the bear market from the tech button, tech bubble boom, bust and it would have the bear market from 2008 and it would have several bull markets. So I think that's probably okay. The more history you have in your backtest, the more bear markets are included, the more comfort you can have. And I would say the less history you've got, the more conservative you should be.

With your capital allocation and position size.

Okay, what else? Adrian, what if your stop losses are still less than.

Less than you any profit taking? Anthony, I'm not sure I understand the question.

What if your stop loss. Maybe you can rephrase. Anthony, Your question about stop losses, if you can just rephrase that for me so I can understand. I'm sorry, I'm just not clear on exactly what you're asking there. Bong says, is it sensible to backtest manually? Let me put it to you this way. Good question. Manual backtesting is better than nothing, but only slightly better than nothing. Because if you manually back test, you can only back test over a handful of instruments over a handful of years. And if you're really, really disciplined, you might be able to generate 50 or 100 trades. Okay? But if all of those trades are within a low volatility bull market, then you actually know almost nothing about the way your system will perform. And so.

I much prefer exponentially, more prefer automated back testing. And it's a skill that is absolutely.

Vital for long term trader survival in, in my view. So I teach systematic trading and backtesting because it allows you to answer all your own questions. If you back test automatically with amibroker, for instance, which is what I use, then you can back test your system over 25 years, over thousands of stocks, over thousands of trades in seconds. And it gives you such good depth of information and it allows you to see how a portfolio would perform. If you back test manually, you cannot see how a portfolio performs. You can only see how that one stock performed. But in reality, you don't trade on one stock, do you? You trade a portfolio of stocks using the same strategy and you need to see how they fit together because positions are correlated to some degree and so automated back testing allows you to do that. So if you don't know how to back test an automated fashion, you want to learn that, reach out, let me know and I'll explain to you how my program works. But.

Backtesting manually is only just marginally better than doing nothing at all. I would definitely recommend automated backtesting. Santo says. Any view on the nifty? Look, I don't give views on particular markets because all of my trading is done systematically. And again, one of the great things about systematic trading, particularly in environments like this, like we're in now, going to stop sharing. I'll just come, come on screen here. One of the great things about systematic trading is that you don't have to have a view, you just have to follow the rules. And you know, the market might be stressing you out, it might be oscillating and gyrating, but you don't have to worry about that. You've just got to follow the rules. If your system is well designed and you're losing money eventually your system should get you out. The drawdown might be bigger than what you expect, it might be bigger than what you want, but sure, but it will get you out. So that's the, that's the key there.

So my view on the nifty is if you want to trade stocks in the nifty, take a system and back test it on those stocks and see how it performs.

David says if you reserve say 20% of your capital devoted to a short side system that is mostly out of the market, isn't that capital wasted in terms of growth or to the canes during the bear market.

For that 20% outweigh those realized gains? Yeah, good question. And look, absolutely, that's a downside of reserving capital.

You don't need to necessarily have a slice of capital that's specifically reserved for a short side system though. What you need to know is that when that short side system turns on, will you have enough capital spare in your account to allow the short side system to take up to 20% exposure on the short side, which is a different thing, right? Because let's say you've got a.

Buy and hold strategy on the long side and you're never going to sell those stocks, okay? And you're 100% invested.

When you come to a bear market, if you want to add in a short side system with 20% of your capital, you're in trouble because you've got no spare cash. In that case, you would have to allocate a slice of capital to go on the short side. But if you've got a long side system which doesn't get 100% invested, or when the market turns and your short side system turns on the long side system is largely in cash already, then you know, you'll have that 20% available and you don't have to go to, you don't have to, you know, reserve that cash all the way through the bull market just waiting for a bear market. Because you're right, it's a waste, you know, because bull markets last much longer than bear markets. But what you do need to do is think through all of your different strategy and systems and say if I want 20% with my current mix, will I have it available or do I need to reserve some? So think through a bit more strategically. Hope that helps.

Okay. Siroj says based on your experience, exit strategy based on 2 times ATR. Is it good targeting 1 times ATR? Look, these are questions that you need to back test. So anything about particular indicator Particular system, particular rule. My answer is always back test it and see, because the answer is almost never intuitive. Again, the best thing about systematic trading, the reason I can stay calm is if I have a thought or a concern, I can create a rule and I can test it and see what happens. And that gives us a huge, huge advantage in the market.

I think it looks like Henry, I think, says, do you need to work with a specific broker in order to back test? No, you don't. It's not so much the broker you have. When you're training systematically, you have several things. You've got your computer, you've got your backtesting software which is on your computer locally, like amibroker for instance. You've got your data feed, which is the end of day prices that you download each day. And then you've got your broker and you use your software to back test the rules and to generate the signals that you place into your broker. So you don't need a special broker to backtest. You have backtesting software to do that. And so I use amibroker and recommend amibroker because it's cheap, very, very powerful, very, very fast.

Relatively easy to learn. There's a little bit of a learning curve, but I could certainly help you out with that if that's something you wanted to do.

Pardon me. Wayne says, what is going to be your signal for near the bottom?

Certain indicators or oscillators or moving average or decline? Look, the only bottom picking system I've got is Liftoff. And so Wayne, you're in the program already. Have a look at Liftoff. That's the system. I don't actually currently trade that system, but it hasn't really given signals yet. So I'm certainly considering incorporating that into my portfolio. If you have other ideas, happy to kick them around with you separately. In our program Facebook group, we can design something that works or at least test some ideas. But yeah, liftoff is my current system and that's really just an early breakout in a downtrend, late in a downtrend. I'm not big on bottom picking. Just out of interest, I'm happy to sit in cash and wait for an established trend. So then, all right, what else we got? John 1 says, what's your overall drawdown at the moment after this big drop? Right now I think I've figured out I'm on about 6.7% drawdown. So not real big, but it's fluctuated quite a lot over the last two weeks. At its worst, I think I got to 12. And then I made a new all time equity high and then I had a bit of drawdown. But I have now I have a lot of cash in my portfolio because my long side system is clearing out, going to cash. My first short side system kicked in most, actually all of those trades hit their profit targets already and so they're out. And so now I've got to run my scans and see what I've got to do tomorrow. But I'm sitting on a lot of cash. I've got a few shorts and a few longs left over. But yeah, my drawdown has been pretty low because I've gotten that combination of trend following, mean reversion and short side which is really, really powerful. And you know, that combination and trading systematically is something that if you're not doing it now, then set up so that for the next market cycle you've nailed it because you're living through this now. And this is if this is your first bear market, it's a real eye opening experience. Believe me, I know because when I went through my first one I was like wow, no, that could happen. But.

You know, go systematic and diversify your systems long, short, long term, short term as well. So long side, short side, long term, short term and different markets. And it really changes the game, it changes the way you feel when this sort of move happens because you know it'll be okay, right? You'll get to cash in your losing position. Systems, other systems will kick in, they'll start making money and then when they stop making money and start losing money, another system will kick in and you'll start making money. It really, really is a solid way to trade. Anthony says stop losses are key to my strategy. Would you keep a stop knowing that at some stage it will recover or get out and wait for the stock to go up?

My view is if you have a stop loss in your system, I'm not sure if this is what you're asking or suggesting. If you have a stop loss in your system and it gets hit, you should get out. Let me rephrase. If I have a stop loss in my system and it gets hit, I get out. I don't care how bad the price is, I'm going to get, I get out. I never ever ever, never ever, never ever, never ever ever hold a trade after it's hit the stop loss, hoping for it to recover. Never ever. Just why? Because what if it keeps going down? You know, a down trending stock that's hit its stop loss going to lose you more Money and the small potential upside of getting back to even is just not a good trade off for the downside risks that you're facing. Because an individual stock can fall a long way. And in fact, you know, I've had stocks go to zero, literally, you know, in my account one day worth tens of thousands of dollars and the next day, poof, nothing. Zero value. And that can happen. So if something hits your stop, if it hits an exit rule, get out, you might miss some upside if it does recover. But it's not about making money on every trade. It's about surviving for the long run. That's the key. So I hope that, hope that helps. Again, sorry being a bit blunt, but that's my style.

Okay.

Let me see if there's any more questions. Happy to take more questions. I know the numbers are dwindling a little bit, but there's still 50 of you on the call. So someone must be hanging around with questions on their mind. So if you've got a question, you're hoping for someone else to ask it, don't hope. Ask me the question and I'll deal with it. I'll help you out.

Let me see.

Just scrolling down. All right, cool. All right, thanks, Anthony. Appreciate that comment. Okay, there's a few other questions I got asked by email. I didn't manage to get all. I got a lot of emails today, so I didn't manage to cover all of them or to look at all of them. But let me just have a look at my, my emails here and see what questions I've got.

Henry says, can I show a system? Look, I have other, I have other webinars pre recorded and so on that. Talk about that. I don't really want to get into that today because that'll take us a whole different tangent. But email me, Henry, and.

Ask me to point you in the right direction to some of my prerecorded stuff. That will give you some ideas. Okay, but do email me because I'll forget I'm focused on other stuff at the moment.

So let me just see how should. Here's a good question. How should I refine my strategy into something that can survive the current market volatility?

And I think there's a broader question here, which is should I change my system and strategy now to cope better? And I think changing a strategy.

Because the market conditions have changed in a short term is.

Pretty risky. I change my strategies fairly slowly and I would. Look, as this market plays out and we go through the next bear market, then come out the Other side of it, I would look to revise all of my systems, say, okay, well what worked? What went wrong? Where was the drawdown? Higher than I expected. Why did that happen? Could this just be improved somehow? And then I would refine them. But in the middle of the bear market, it's a difficult time to adjust your system because the emotions are high. You're actually live. So yeah, I'd be slow to adjust your systems unless you're talking about your risk and exposure level. If you want to de risk yourself and slow the pain, then sure, do that now. But certainly don't just go changing the rules, okay. Because that will probably end up with a worse of both situation. You'll have the current drawdown and then something will change and you'll have another drawdown.

Here's a good question. How deep and long lasting will the impact of the coronavirus be on, on the investor's psychology and sentiment? Really good question.

I think my perspective on this is that the market is made up of people and people are funny animals. We're quite short term and we're very motivated by pain and greed. And so right now, fear and greed rather, right now we're all focused on, well, most of the population is fearful and the media is on the coronavirus and it's still in its growth phase and we don't know how long it's going to last. But when that peters out and the next news cycle comes in and it's something different and the market starts to calm down and people start to forget, you know, in six months time.

Then it'll slowly fade.

But.

Typically the emotions around a big market event like this could last a couple of years, probably not five years. People tend to forget quicker than that, but I would say certainly.

Six months to three years. People can still feel a bit tortured by the experience if they've lost a lot of money. And some people will walk away from the game forever as a result of what's happened in this last couple of weeks. And I hope that's not you because it would be a shame because this is the best game in the world. Keep you entertained for decades. I love it. And the best thing about it is you can actually make money and have fun and be mentally stimulated. So don't let this event blow you out of the game because you'll be missing out on the best game in the world. Anthony says, are we in the bear market now? Yes, we are. We. The market's down more than 20%. There's some definition floating around that says if it drops more than 20%, then we're in a bear market. Don't know where that came from. But the main thing about a bear market is the primary trend is down and the uptrend has certainly been broken. And, you know, we've had a couple of little rallies, only tiny so far with lot, and then we've made new lower lows. So I would say, yes, that's a bear market. So tread carefully and conservatively. It could change. You know, if one of the stimulus packages or one of the intervention measures really affects investor psychology, then that could turn around and start rallying. I wouldn't expect a V recovery where it bounces straight back to where it was, though. So I would say be prepared for a bit of a rocky market volatile, further lows for a little while yet. Okay.

All right, thank you. A few nice comments there.

So appreciate you all attending. Anthony says I'm looking to go short the ASX 200 cash tomorrow. Okay, good. I mean, have a plan, right? Have a plan. Make sure you've got a stop loss and an exit point and position size conservatively because if you're wrong, you don't lose too much money. So that would be my main guidance on that one. I can't give advice on individual positions or stocks or anything like that, but just think about the principles of risk control and make sure that no matter what happens, you can survive to trade another day.

Siraj says can you give us a glance about what you teach in your course? Look, I can. Siraj. Send me an email and I'll point you in the right direction. Again, I don't want to make this about sales.

I just wanted to make sure that people could jump on, ask all their questions about the bear market, calm the panic and all of that. So I don't want to make this a selling thing, but send me an email and I'll point you in the right direction. I've got some resources out there to tell you about the program and you can learn all about it and then ask me any questions that you've got.

So thank you for the question. Dean says you have to question economic flow. On from COVID 19. Yeah, absolutely. No question.

If countries go into lockdown for an extended period of time and the economy really does slow, then for some sectors there will be quite some flow and it could really, it could really affect the markets and company's profitability for quite some time. I mean, you only have to look at. I mean, go look at airline shares, travel agent shares, cruise ships, this sort of thing right now, you know those, some of those will not recover quickly. But I don't make fundamental decisions based on information like that. What I do do is have trading systems that will buy or short stocks according to what they're actually doing, what the market behavior is. Remember back to the market system map.

Slide. There's bull market, sideways markets and bear markets and then there's three different behaviors. There's trend continues, shock against the trend, temporary trend changes. So if you've got a set of rules that profit from several different of those, several of those nine different combinations, then you have a better chance of making money overall. And one of the funny things about trading systematically, let's talk trend following, right Is sometimes a stock will be trending that you've never heard of and you look at it and you go what, where does this come from? Like why is that going up? And you can go research the story and figure out the reasons and all that. The fact is it's going up and your trend following system gave you a signal to buy it and so you'll buy it and that'll be the first one out of the recovery. And I funny story in the 2008 bear market.

I had a long system and I had a short system and my long system had a bit of a drawdown. As the market turned my short system kicked in slowly. It had quite a strict filter on it and made money on the way down. And I ran my long system every day for 18 months without a single.

Signal to buy. And when the buy came, the first signal, I nearly fell off my chair because I thought that it just like there was never going to be another buy again, right because it'd been so long. But you've got to have that discipline and consistency. That's what keeps you in the game, that's what allows you to keep going. You've got to be stubborn as all buggery, you know to put it bluntly because you've got to follow the rules and you've got to follow the routine and, and when you keep doing that you're going to get trades when you don't expect them. You take those trades and you make money.

John 1 says how many individual systems do you trade? I have quite a few systems actively I trade. I have about eight systems that I follow. They're not all on at any one time.

So you know when, when we're in a bear market alongside system will stop signaling new entries. I don't get out of.

My long positions when the index turns down. I wait for the stocks to turn down. So I stopped taking entries before I all my trades exit. I've got a system I really love in Hong Kong which has been out of the market for almost a couple of months now because the Hong Kong index was too weak and so it wasn't signaling. And then I've got a couple of short side systems. One of those is on at the moment. Two of those actually are on. One of them has not yet kicked in. So yeah, several systems, but they're not all on at once. Now I don't want you to think that trading systematically with a portfolio systems is uber complicated because it's not like I keep things really, really simple. And John, if you. John Durant, I can see you there. If you agree with me that the systems are pretty simple, just give us a nod there.

You don't need rocket science, you just need an edge which is back tested. And so.

You can run several systems on several markets at the same time. And it doesn't take very much time. I mean with those six or eight systems I'm running across three different markets. It still takes me 10, 20 minutes a day, almost every day, every day less than 30 minutes to run those systems. And I'm trading a seven figure portfolio and I could have up to 60 position 60 trades on at a time at different times. Right. And it still only takes me 10, 20, 30 minutes a day. It's simple.

I can't see the name. I think it might be Mark says, do you support levels when analyzing markets and stocks? Personally, I actually don't trade with support and resistance, mainly because support and resistance are really subjective.

It's easy to see when there's a low like a V low or a double bottom or something like that. And a trading system can incorporate say the lowest low of the last 50 days as a support. I'll use rules like that. But you know when the typical person gets out their chart and draws support and resistance lines, they've got all these horizontal lines on their charts. I don't do that because it's subjective and it's really hard to backtest. So I only trade with rules that I can easily code correctly so I can understand what's going on and back test them. If I can't backtest the rules, I can't build confidence in them. And if I can't build confidence in them, I can't trade them consistently when the shit hits the fan like this. So you've got to be able to test it. And so that's why I don't use support and resistance like, like most discretionary sort of traders do.

Have a couple of systems that use, like I said, 50 day low, 50 day high, 20 day high, something like that. But it's defined rule.

John says I just lift heavy things and I can run several systems.

John, you're smarter than you give yourself credit for. I'm going to say that to the group.

Yes, you can run several systems simultaneously. You don't need to be a rocket scientist. I am not a rocket scientist. And it really is a freeing and kind of enlightening way to trade. So if you haven't started on the systematic journey, please, if the market tells you anything, it should be telling, go in that direction because it'll calm everything down and allow you to back test and understand what to do. John, one says last question, what data provider do you use? I use several data providers depending on the market you're in and what you want to achieve. So most of my students use data from Metastock, not the software, just the data. And the reason for that is we're developing systems across many different markets and Metastock has the biggest breadth of markets. When I trade, so some people will say, oh, you need survivorship buyers free data. You have to use Nor Gate. And Nor Gate data is excellent. It is expensive though. And what it's excellent for is if you want to trade stocks that are within a particular index because the stocks that are in an index change over time. And so if you back test, say a trading system on the stocks that are in the current S&P 500 index over the last 20 years, you're cheating because.

20 years ago, when that system takes its first trade, it already knows which stocks are still in the S&P 500 fund 20 years later. Right. So you can't do that. So if you want to trade the index constituents, you need data from Nor Gate. But if you trade the whole market, I scan the entire stock market every day and that takes about three and a half seconds using amibroker. But then the index constituents doesn't matter. And the only survivorship bias issue is stocks that are delisted. And I deal with that in other ways. So I use metastock. I've got a link for that if you want to download it, you get a free month. But if you want to use index constituents. Pardon me, use Norgate.

I'm not sure if CO is an abbreviation, but I'm just going to say CO says do you consider the difference between long term CAGR of the S&P index versus the recent growth rate we've had in 2008.

Look, that's a really, that's a really cool idea. And it's basically what you're saying is like is there an overbought, oversold sort of situation on the index?

I don't, but it doesn't mean it's not a good idea. Okay. And I have actually now copied your comment because it's something I'm going to play with. What I do do is I keep a long register all my trading ideas like this, like, oh, what if I had a rule about, you know, when the growth rate is the index kind of goes above the long term average, maybe it's a bit overboard and I should scale down or you know, maybe when it drops below the growth rate is below the average then it's time to kind of get in. Any sort of rule like that is worth testing. And just because I haven't tested it doesn't mean you shouldn't test it. But don't use it unless you tested it. Just because it sounds logical doesn't mean it will work because logic doesn't necessarily work in the market. Counterintuitive works so you need to back test it to check. But I love talking to people like this because it gives ideas. And I just copied that one. I'll add it into my idea register and you know, whenever I've got time my computer to do system development, I just go to my list of ideas and I'll figure out which things I'm going to back test and try them. And most of them you throw away.

If I test 100 ideas, probably 99 of them end up in the bin as trash. But one of them might make a fortune. I've had individual rules like one idea responsible for hundreds of thousands of dollars of profit in my account. Like no joke, like literally real money because.

It increased the profitability of the system so dramatically that one rule.

So all ideas like that are worth testing. And Anthony says, what books would you recommend to start out?

My favorite book I would say is Way of the Turtle, Curtis Faith. Curtis Faith was one of the original Turtles and probably I think the most profitable. Excellent, excellent book about long term systematic trading. So I'd start with that one. I've got a whole list of others if you want some more technical than others. Two books by Richard Wiesman, also excellent. So probably start with those. All right.

Look, questions seem to be slowing down. Does anyone. I promise to stay on as long as you need, but I don't want to keep everyone up all night either. Oh, Susan O'Reilly. Hey Susan, how are you? Just got here. It's early in Toronto. Yeah, I know. Sorry, I couldn't fit this for everyone. And the Australians are getting late and they're yawning, so I had to make this early. But I'll let the recording process and then I'll email tonight with a link to it so that you can get to it. But if you've got any questions, feel free to jump in and ask now. And while anyone's thinking of their final questions on the call, I'm just going to go back to my emails because there was another couple of questions I didn't cover. A few people have asked me about buying options and I sort of covered it earlier. But the problem with options in this market environment is the volatility is super high right now, which means option premiums are super expensive. And that means even if you buy an option and you're correct on the direction, as soon as volatility drops, you're probably going to lose money. So the time to have the put options is while the market is quiet. Buying put options when the market is when the VIX has already spiked, probably not a brilliant idea.

So yeah, I probably wouldn't be hedging. Personally, I wouldn't be hedging with options at this point. But if you like the idea, then consider putting a set of rules in place about when you would hedge in future when the VIX is in single digits. That would probably be a sensible approach.

What else have we got?

Someone commented that the biggest issue they had was getting out of long positions early enough to miss the bulk of the drop and holding nerve after missing the optimum exit. So I'm not sure who asked this question, but I guess a slightly different perspective on that is when you're trading a long term system, you have to be comfortable with what's going to happen when the trend changes.

I actually spend a lot of time after I've done the back testing and designing the system, everything, I spend a lot of time thinking through how that system will behave in different market conditions and looking at the equity curve and zooming right in and say, okay, well when the market tanked, what happened and how did the positions behave and how did the buying and selling take place and just getting comfort with how the system works. And the fact is, with trend following, you do give up a lot of profit at the end of the trend. That's why it works, because what you're doing is you're giving the stock a lot of room to move. The stock price is going up and your exit price is going up and you're letting it wiggle and waggle around. And then when it finally goes down noticeably and hits your exit price and you get out and you go to cash or you start going short.

But that dip down to the exit is big. Could be 25, 30%. You know, I've got, I'm holding a position now.

Which, you know, I think I was up like 150% on the trade. 100% at least. I have to go look at the numbers. But it's back down towards the entry price. It's like, oh, like it's painful, right. But trading is not systematically. Trade. Trading systematically is not about that trade. It's about following the system over many, many trades. And if a stock goes down a long way from the entry price of the high.

That sucks. But trading a system is not about that stock, it's about that the hundred trades, a thousand trades that you're going to take with that system.

So got to worry not too much about the dip and worry about following the system for the long run. And if you don't like that dip, then add another system which will profit from some of that diploma. And you know, you can talk to me afterwards if that's something that you want to learn about. I can show you all about that. Okay. All right, looks like questions have sort of wrapped up, so I'm going to wind up. I hope that was helpful in the comments. If you found it useful, give me a thumbs up. I'd really love to, you know, just get some feedback and if you've got any, if you've got any specific feedback, please send me an email. Send me a note. I haven't done a live, impromptu kind of urgent training like this before, but I really felt it was important because I could feel the panic around and I could feel people being stressed about it. And I just wanted to make sure that I reached out to you guys as part of my community. Some students, many not, and just share some stuff, hopefully to kind of put some perspective on this and help you get through the next few weeks and come out the other side of this with your accounts looking healthy. You may not make a fortune in the bear market, but if we can keep you afloat, then that's a good outcome too. So thanks so much for participating. I appreciate you jumping on.

At short notice because I know I only sent out the email today. So good on you for spending your Sunday to come and learn a bit about this stuff. If you've got more questions, message me. If you're not already in my free Facebook group, Enlightened Stock Trading, please join. You're all on my email list, obviously, because that's how you came to hear of it. So feel free to let me know if you need help and support in kind of getting a systematic trading going. I can definitely help you with that. Or if you've got any other questions about tonight, I'll do my best to help you. And yeah, let's keep going. Trade conservatively. Be cautious. Don't make knee jerk reactions. Keep leverage low, position, size low. Protect your capital. So those should be the guiding principles. Right now. Making money is secondary. Survival is first, okay? If you don't survive, you can't make money. So don't risk the house trying to recover. Don't risk the house trying to make a fortune. Just aim to survive. And if you make money, then.

That'S a bonus as well. Bear markets don't last forever. Okay? This will pass. The volatility will pass. And if you want to just stand aside from it, do just stand aside from it and wait. You might be waiting six months or more, but that's okay because the markets will still be here at the end of the day.

So that's my sort of final parting thought. Hope that helped. Best wishes to all. Love to you and your family. Please take care of your health. It's not just about the markets. There is crazy stuff going on health wise. Do stick to the social isolation, washing your hands, avoid people. Yes, there's different views about all of this, but let's stop the spread, okay? So my family's at home. We're not going out. We're isolated. We're all about.

Looking after each other and keeping healthy and not passing it on to anyone else just in case anyone of us is sick and we don't realize yet. So look after you and yours, trade safe and I'll see you next time. Bye for now.