Adrian Reid says beginner traders should build a diversified portfolio of systems across different markets and timeframes so they naturally hedge each other. Don't kill a system just because it's in a drawdown if it's still within its historical range. Current markets show why you need multiple systems: US is weak, Hong Kong very weak, Australia sideways.
As a beginner, when you implement your trading systems for the very first time, what do you do if you go straight into drawdown? In this video, I'm going to explain exactly how you should think about that to make sure that you don't trip yourself up and make some really common mistakes that a lot of new systematic traders make. So stick around. But before we go any further, make sure you hit the subscribe button and give this video a thumbs up so that you get notified of all of my future videos, because I've got new trading content coming out all the time.
And I don't want you to miss a thing. So the question is, as a, as a beginner coming into the market right now, we're experiencing a little bit of turmoil, volatility and indecision. Okay, the market is up one day it's down the next it's up, the next it's down. Then people think, oh, it's going down, but then turns around, goes straight back up. So it's basically bouncing around sideways. And we have long side systems that are largely out of the market, but not totally. And we have short side systems that are in the market and some days they make money and some days they don't. So the real question is, what do you do with that when you're starting trading? You know, if you started and the market becomes volatile and sideways like this, and your system goes into drawdown, should you stop? Did you start the wrong system? This is sort of the big, the big question. I think a lot of people will be thinking, and I want to take a step back from the current market conditions and talk about where we're going, like the goal, the objective here. So the objective as a systematic trader is to have a portfolio of systems that make money in a variety of different market conditions, that also trade a variety of different markets that may be in different market conditions themselves. So if you think about the markets right now, the stock markets.
What is the Hong Kong market doing right now.
In a very distinct bear market? Okay, it's very weak and has been for quite some months.
What is the US Market doing?
Well, it's pretty weak. It's not the weakest it's ever been. Right. It's still sort of holding up a little. And I'll show you some charts in a sec.
And if you think about the Australian market, what's the Australian market doing?
It's kind of just going sideways.
So to say the markets are all going down is not right. The market's going up is not right. To say the markets are all going sideways is not right. So how do you trade that? How do you make the choice between systems? Well, the answer is you don't.
Because what you should have is a portfolio of systems that make money in a variety of different market conditions. And those systems will turn themselves on and off. They'll go into the market now go to cash according to the rules of the system. So my approach is to select a portfolio of systems and follow them.
And depending on exactly when you start, that may be a good point to start or it may feel like an unfortunate point to start in hindsight. Just depends on, you know, what happens, right? But if you have a portfolio of systems, some long, some short, some long term, some short term, someone Australia, someone us, some on Canada, someone Hong Kong, and I know you don't all have this yet, but just think about the end goal. If you have all of those things.
Then some of at all times, not just when you start at all times, some of those are going to be profiting and some of those are going to be losing.
Just because the system goes into drawdown.
Doesn'T mean you cut the system unless there's something wrong with the system, like it's broken. But if it's well within its tolerances, its normal behavior, you don't cut it just because it's in drawdown, you just trade through. That's the whole point of the back testing and building the confidence in the system that you can keep following it, knowing it will come out of the drawdown and go out the other side to make money.
So when you encounter difficult market conditions, the question to ask yourself is, is my mix of systems right?
Not should I turn some of my systems off because they're in draw?
It.
