Adrian ReidFounder of Enlightened Stock Trading

The 50/50 Rule That Saves Traders

2 Apr 2026 · 1 min

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In this segment Adrian Reid outlines a practical framework for building a long‑term trend‑following trading system for Australian equities. He recommends randomly dividing the full set of Australian tickers into two equal halves: one half for developing the strategy and the other half for out‑of‑sample validation. He also stresses the importance of temporal holdouts—using a distinct slice of historical time for testing and reserving another period for final validation. After confirming the approach works on the Australian market, he suggests applying the same strategy to other markets such as Canada and the United States to verify that it does not completely break down, even if performance is not identical. The overall message is that a simple 50/50 split, both across securities and time, combined with cross‑market checks, provides a robust guard against over‑fitting and improves confidence in a trading system.

Chapters

If I'm developing a system to trade in Australia, Australian stocks, all stocks on the Australian market, let's just say it's a long-term trend following system. I would take all of the tickers and I would randomly select 50% of the tickers and to develop my system on a random 50% and then validate it on the other 50%. I would also take a slice of time and test it on that slice of time and save some other, another time period to validate on. I would also then take that strategy once I validate it on Australia and go apply it to Canada and the US and a couple of other markets and just check that it holds up. It doesn't have to work amazingly well on those other markets, but as long as it doesn't completely fall apart.