In this instructional video, Adrian Reid shares his personal evolution from three years of gut‑feel discretionary trading to over two decades of systematic trading. He explains what discretionary and systematic trading are, highlighting the subjectivity and lack of testability of discretionary approaches versus the rule‑based, back‑testable nature of systematic methods. Reid showcases the US Edge System portfolio—a backtested, diversified set of seven US market strategies delivering a 20% compound return with a 17% max drawdown (including slippage and commissions) as concrete evidence of systematic performance. He cites ASIC data (68.42% of retail CFD traders lost money in 2024) and a 2014 academic study (under 1% of day traders are consistently profitable) to illustrate the poor outcomes of most discretionary retail traders. Reid introduces the “Stranger Test,” a single question that determines whether a trader’s process is truly systematic: could a stranger replicate the trades from your notes? He provides a downloadable checklist for applying this test. While advocating systematic trading, he acknowledges its risks—over‑fitting, excessive leverage, and intolerable drawdowns—and stresses the need for confidence through thorough backtesting across market regimes. The video concludes with actionable advice: write clear rules, use the checklist, and engage with the community to transition toward a systematic approach.
Chapters
I traded on gut feel for 3 years and I couldn't make money consistently. And then I made one change and I've traded that same way for more than 2 decades. Today we're talking about discretionary versus systematic. Which one actually works and how to tell which one you are as a trader. Here's the whiplash that you face as a discretionary trader. Today you make some money, tomorrow you give it all back and more. The brain keeps asking, is this the right decision? You lack confidence and you spend hours on the charts every night trying to find trades to place the next day. In this video, we're going to talk about what discretionary and systematic trading actually mean. I'll cover what the data says about traders who make their own calls versus those who use a system. We'll talk about the honest downsides of trading systematically. And I'll give you a quick 3-question test to tell which one you actually are. Before we go any further, let me show you what's possible when you use a systematic approach with a diversified portfolio of strategies. Here's the US Edge System portfolio, a portfolio of 7 different trading strategies on the US market. Backtested since 2010, showing a compound return of 20% with a maximum drawdown of 17%, including slippage and commissions. This is what a portfolio of good trading systems can achieve—the consistency that you've been looking for. You can see several lines in this chart. Down the bottom, the squiggly lines are the individual trading systems, which all have an equal weighting that combine to give you the results at the portfolio level indicated by the gray line. The magic of systematic trading is having multiple good strategies that make money in different market conditions and combining them together like this into. into a portfolio. This is something that you just can't do when you trade with a discretionary approach. So discretionary versus systematic trading, which one actually works? As a discretionary trader, you decide each trade on the day that you make it. Typically the rules live in your head. Maybe you've got a checklist that you follow and that checklist may be even written down but has some subjectivity in it so that you've got to make the ultimate decision about whether a stock is a buy or a sell. The challenge with discretionary approaches like this is because there's subjectivity, you can't test it. And so you don't know whether you're actually going to make money until after the event. With systematic trading, the written rules determine each trade. They look at the charts the same way and apply the same rules every time to generate your trading signals. And the great thing about that is you can backtest those signals before you risk a dollar in the markets and see whether they actually made money in the past and determine whether they're likely to make money in the future as well. So I'd like to introduce a simple test called the Stranger Test to determine whether you're actually discretionary or whether you're truly systematic in your trading. And here it is. All you have to do is ask this one question: could a stranger trade your account from your notes and take exactly the same trades that you would take? If your rules are written clearly enough that you could give them to a stranger and they could produce exactly the same trades as you produced, then you can say that you're truly systematic. If that's not the case, then unfortunately you have some subjective areas in your trading, and it's going to be very hard for you to be consistent long term. A very sad statistic from ASIC showed that 68.42% of retail CFD clients lost money in their trading in 2024. And the more often they traded, the more often they lost. 76% of retail traders who traded more than 50 times a month lost money on their CFD trading. Further to this, a 2014 study showed that under 1% of day traders were predictably and consistently profitable. Now these studies measure retail traders who mostly make trade-by-trade discretionary calls. So that I don't necessarily label traders as discretionary or systematic, but the fact is the vast majority of retail traders are discretionary in their trading approach. The problem I had for the first 3 years of my trading when I was discretionary in my decision-making was that it just was never clear which setups made money and which ones didn't. I'd spend hours every night looking at charts, drawing trend lines, analyzing indicators, and trying to come up with the perfect setups and trades for the next day. But what I realized years later was that was all just me trying to control the markets by drawing trend lines and picking entry and exit points and trying to outsmart what the market was doing. Just recently, my wife and I test drove a Tesla because we wanted to try out the full self-drive. When most people think about full self-drive, their control freak nature kicks in and they say, oh no, I couldn't possibly let a car drive for me. I felt a little bit that way before we test drove this car. And what happened when we took it out of the car park, drove onto the main road, and then put it in full self-drive, I had this immediate freakout reaction that I was letting go of control. And then a moment later, this instant relax because the car was actually doing a fantastic job of exactly what it was supposed to be doing, getting us from point A to point B safely. It followed the road rules, it followed the process, it indicated where it was supposed to indicate, it stopped where it was supposed to stop, it gave way when it needed to give way, and it accelerated when it needed to accelerate. It was following a proven process that had been tested over millions of driving hours. And in fact, self-drive is arguably better than the vast majority of human drivers, and that's why insurance premiums for self-drive cars are coming down and accident rates in self-drive cars are so low. And in 12+ years of teaching, there's a very common pattern in all of the traders that I've spoken to. The number of people that blow up their account who are truly systematic is extremely low. The number of people who blow up their account who are discretionary in nature is much, much higher. People tend to blow up their account because they make irrational, illogical, or emotionally driven decisions. They either go too hard, risk too much, take on too much leverage for fear of missing out, or greed drives their decisions and the emotion takes control and they end up losing huge amounts of money. But systematic traders follow a process. And when you follow a process, you do it consistently. It's much harder to blow up your trading account. In fact, in all of my time working with traders, the only people I've seen blow up their account are either discretionary traders or systematic traders that are way too overleveraged and aggressive. So here's why rules win for most people. First of all, you can test them before you risk your money. If you have objective rules written down and there's no no discretion. Those rules can be coded into computer and backtested over decades of data through bull markets, sideways markets, and bear markets to make sure they're actually profitable and they'll keep your account alive. Secondly is consistency. You get the same inputs, the same trades, same signals every single time. Then it's time. It fits into a working life. When you trade systematically, it only takes 20 to 30 minutes a day and even less if you're fully automated. The fourth one is emotion. Your emotions get a much smaller vote in the decisions when you've got a systematic approach because you're not having to make every single decision yourself. The rules tell you objectively, this is a buy, this is a sell. There's no emotion about it. If you want to find out if you're still trading on gut feel and emotion, I've made a checklist for you that runs the stranger test on every aspect of your trading. There's a link in the description where you can get it right away, or just go to learn.enlightenedstocktrading.com/stranger-test. Of course, the reality is systems can fail too. There's lots of different things can go wrong. And early in my systematic trading journey, I had a system that had 27 losing trades in a row after copying a system with stops that were too tight from a course that I'd done. Other things that can happen include curve fitting or overfitting your strategies to historical data so they don't make money in the future. And trading with systems where the drawdown is above your tolerance, so you get nervous and quit the system while you're in the middle of a dip before you can benefit from the recovery. The reality is a system only removes emotion if you follow the system consistently. And to do that, you have to have confidence in your system. And to have confidence, you need to backtest your strategy through all sorts of different market conditions to make sure that it behaves in a way that you're comfortable. Now, of course, you've probably heard that discretionary traders make the most money. And in a very small number of cases, there are professionals who trade with a discretionary approach that make huge returns. The reality is though, for the vast majority of the population, that's just never going to happen. There's always a small number of unicorns who just have a natural innate feel for the market. But most people make very bad traders, and systematic is a much more consistent, reliable way to get to your trading goals. So which one are you? Could a trader take your exact trade from your notes? Do you know the win rate and the expectancy of every setup that you trade? And if the same setup appears tomorrow, would you take exactly the same trade every single time? If you have any no to these three questions, then you've still got some discretion in that area of your trading. And what you need to do is start by writing. Writing your rules down so you can see them on paper in black and white and start to see where the gaps are so that you can fill in the blanks and write a complete set of rules that tell you exactly what to do and exactly when to do it. The sad reality is the majority of retail traders lose money. We can see it in the statistics. But the reality is the majority of retail traders are also discretionary and subjective in the way they approach their market. A proven tested process drives far better results than your emotions do. That's why you need a system to drive your trading. So get the Stranger Test checklist from learn.enlightenedstocktrading.com/strangertest. The link is in the description. And watch this video next to find out how to improve your trading even further. And finally, tell me honestly in the comments below how many of the last 10 trades you made were generated by proven written rules that you backtested. Remember, you're only one trading system away from getting the results that you want.
