What is your job as a private trader?

Hey, Adrian Reed here, founder of Enlightened Stock Trading. And it's Friday afternoon, and I wanted to share something, cover some concepts that probably are a bit misunderstood by a lot of new traders. And the first question I want to really address is, what is your job as a private trader? And then the subtext to that is, and what is the market's job as a private trader? What are you actually doing? What are you trying to achieve? And what is the market as a whole, as a collective trying to achieve?

And your job as a private trader is actually pretty straightforward, pretty simple at its essence. The first thing is your job is to invest your capital. Okay? You're going to have some money, you got to put it into the market. There's a couple of things. Provides liquidity, provides investment capital for businesses, and so on. But in order to survive as a private trader, you've got to do more than just chuck your money into the market. You've got to actually have an edge. So you've got to find a profitable edge that you can trade, that you can follow so you can extract profit from the markets. A profitable edge is critical. If you don't have that, you will never, ever survive, no matter what else you do. But once you've got a profitable edge, you've got to do a third thing. The third thing is to exploit that edge over and over and over and over again in a consistent way. See, one of the big challenges a lot of new traders have, a lot of experienced traders even, is they get an edge. They get a method and they start following it, but then start tinkering with it, changing it, varying it, you know, trying different rules, trying different position sizes, getting attached to a position, making it bigger, cutting a position early, and so on. All of these things are variations to the edge. But your job as a private trader is to take the edge, the rules that actually extract profit from the market, and, and to follow them consistently, day after day or week after week, whatever time frame you're trading on. So you've got capital to invest, you've got a profitable edge, and you're exploiting that edge over and over again consistently. Now, the next job is the trickiest one. It's once that edge starts to degrade, starts to decay, you have to be aware enough, present enough with your trading and your results and your analysis to notice that that edge is decaying. Because if that edge starts decaying and starts losing money, your job as the trader, this is your fourth job, is to stop trading that edge and go looking for a new One. Now, here's the trick. The market is working against you on all of these different dimensions of your job as a private trader. So what is the market actually trying to do? Now, don't get me wrong, I'm not. I mean, I'm personifying the market, right? But it's not a thing that's out to get you. It's a collective which has behaviors which force us human beings to do, to act a certain way, to react a certain way. And if we personify it, it's sort of helpful to understand what it sort of does, the effect it has on us human traders, so that we can then protect ourselves or prevent that from impacting us. So the market does a couple of things. The first job of the market is to shake you out of your positions, okay? You're going to establish a position, and then the market is going to move in a way which is going to cause you uncertainty, cause you unrest. Right? Now, unless you're a particularly Zen sort of person, as soon as you put money into the market, the level of anxiety goes up just a little bit, okay? And what I've experienced over many, many years of trading, working with many hundreds of traders now, is that the, the anxiety levels rise when money is at risk in the market. And when a position is going against you, there's always a level of excitement. And when a position is going. Sorry, when it's going for you, there's always a level of excitement. And when a position is going against you, there's always this level of anxiety and those ups and downs, those emotional swings that are natural to the market. As the market participants jostle around trying to discover where the true price, where the true value is. Those gyrations play havoc with our human emotions. So what those emotions do is try and shake us out of our position. But your job as the trader is to know you've got that edge, right? You've got that edge, and you're going to follow that edge and not worry about the emotional gyrations that are trying to shake you out of that trade. That's at an individual trade level. Every single trade you put on, you've got to be on your guard about how the market is making you feel and how emotional you're getting about it. The more clinical you can be and the more obsessively you can just follow the rules, your trading rules, the better you can do because you're taking the emotion out of it and you're just getting back to the raw edge which is defined or captured by your Rules. So the first job of the market is to shake you out of your positions. The second job of the market, the second one is to shake you out of your system or out of your approach, your strategy to the markets. Because if you're trading, and let's say you're trading a trend following method, you might have many, many positions on each of those individual positions is going to cause you some level of stress and anxiety as they're moving. And hopefully they move in your favor, but many of them won't and they'll hit your stop losses. And these movements against you, the emotional ups and downs in your equity curve is going to cause you stress and anxiety about the approach in general. So we get stress and anxiety about each individual trade, but we also get stress and anxiety at the account level or at the system or the method level. And so the market is always trying to shake you out of that method. Now there's no trading strategy that just goes up and makes profit in a straight line. Okay? There's always swings and roundabouts, there's profits and there's drawdowns. And the drawdowns are constantly putting you at risk of quitting because you can't cope with it. So when I'm working with traders in the trader success system, my students, one of the first things we do is work on your drawdown tolerance. Drawdown is the percentage drop in your account from peak to trough that's likely to occur following a particular strategy. And you can determine the drawdown by backtesting a strategy over many years through many different market conditions. Right? And so if you are uncomfortable with the level of drawdown that your trading strategy will experience in the future, then the market will have succeeded at shaking you out of your strategy. Because as soon as you get uncomfortable and ditch your positions, change strategies, or throw your strategy out the window, the market has won because you've let emotion get control and you've, and you've resorted to, you know, basically gambling in the markets because you no longer have a profitable method, right? So the market second job is to shake you out of your systems. Ultimately, what the market will do if you don't follow your job as the trader, your job is to invest your capital, have a profitable edge, exploit that edge consistently over time, and stop trading that edge when the edge is no longer existing. If you don't follow your job as a trader, the market will take your money. But if you do follow your job as a trader, those four points, four points that we talked about, then you will succeed over time you'll make money, you'll grow your account and succeed. I want to talk a little about or share a little with you about your.

Monitoring of your strategy. Hey, Adam, thanks for dropping in. Nice to have you here. I'm glad you're watching.

So I want to talk a little bit about monitoring your strategy because one of the things that we can do, one of the risks of getting dogmatic about following our strategy, because we've got to be dogmatic, right? Because the market is gyrating, our positions are going up and down, and we have to obsessively follow our trading rules so we can obsessively follow them and follow them and follow them. But one of the things that I've learned is that there's a point where you've got to decide to stop following the rules. Now, I don't mean break the rules, but I mean turn the rules off, cut them, because they're no longer viable. So how do you know when that happens? How do you know when to stop trading your rules? Well, what you've got to do is be obsessive about following your rules, but also obsessive about monitoring the performance of the rules. Now, what I don't want you to do is obsess about your own performance, your dollar performance, your ups and downs in your account. That's not the answer. That's the path to destruction. Because it's all about emotion and your account equity and how good you feel about yourself. That's death for a trader. Okay? But what I do want you to do is be obsessive about the performance metrics of your system. Okay? So if you have a trading system, you need to monitor how that performs over time, monitor how accurate the entries are, monitor the size of the wins and losses, monitor the equity curve, monitor the drawdown, and make sure that all of those things are within the bounds of what you would expect from that strategy based on your backtesting. Now, if you don't know how to back test your trading system, that's the first thing you're going to do. You need to have a trading strategy that is back tested so you know it's a profitable edge. Once you've got that skill, then you can monitor your system, your strategy, through the backtest over time, right? And be obsessive about executing that strategy exactly as programmed, exactly as written. But be obsessive as well alongside that about monitoring the performance metrics. And if you see the strategy decaying, then you've got to suspend the system.

And either do a deep dive Investigation to find out what's going on with the system or go and find a new strategy. Now, I'm not talking about a time frame of days or weeks here. Systems, good systems should last months and years, okay? But we've still got to be vigilant because market dynamics can change. You know, we had in 2020, early in the year before COVID we had all time equity highs and then the market turned on a dime and went straight down. And from all time equity highs into a bear market had never really happened before. It was a new market dynamic. And that can play havoc with your strategy. Coming across new market dynamics really plays havoc with some strategies if you're not careful. So you got to monitor your performance measures, monitor what your system is doing and make sure that it's behaving as you would expect. And if it's not, then you've got a pause trading, suspend what you're doing and investigate. Okay, now the trick to this not disrupting your trading career is, is to not have a single strategy. One system that's profitable is great. It's gonna transform your trading, help you actually build a ton of wealth. I had one trading system when I first discovered systematic trading. One trading system for about seven years. And it made me an absolute ton of money, hundreds of thousands of dollars. So fantastic if you're not systematic. Step one, get a trading system that works. Get confidence in it and start trading it. But then continue to diversify, build several different systems. Because then if one edge starts to decay, one system starts to decay, you have others to pick up slack. And so your trading doesn't become this start, stop, in, out, you know, fully invested, fully in cash kind of problem. We don't want our accounts to be a yo, yo, in and out of the market. We want our accounts to more move smoothly and navigate the market conditions. And the only way we can do that is by having several different strategies which have a profitable edge that you can allocate capital between. And then one of them is making money and the money goes over there and then the other one's making money, it goes over there and your account moves smoothly between those different strategies. That's how you make sure that your account isn't a yo yo, in and out of the market. Okay, so let's just recap. Your job as a trader is to invest your capital with a profitable edge, with a system that actually works back tests with a positive expectancy, and exploit that edge over and over again consistently, exactly as written, but obsessively monitor that system Those rules so you can stop trading them when they no longer work or when the edge is decaying. The market's job is basically to screw all of that up for you. The market is going to try and shake you out of an individual position by making you nervous or excited or elated about it. Because don't forget, you can get shaken out of an awesome position because suddenly got a real quick profit. You think, okay, cool, I'll take that. That's like more profit than I expected in two days. So I'm going to take that profit. But then the market just continues on its merry way and would have made you a fortune, but it's left you behind, right? The market in that instance has shaken you out of your position. So the market will try and shake you out of your position either with super profits or rapid losses or giving back profits that have occurred during the life of the trade. And you've got to avoid that. You've got to stick to your rules and don't let the market shake you out of your trade. The markets then going to try and shake you out of your strategy by having drawdowns and volatility. And it's going to make you second guess whether your strategy is still working. But you're going to be obsessive about following those rules and about monitoring the performance and making sure it's consistent. Now there's an interesting idea here, or interesting challenge here is how do you know if.

The system is just temporarily out of sync with the market verse it's broken, right? And the biggest factor, the biggest thing that tells you about that is how big your drawdown is and the performance metrics. If the performance metrics are all out of.

Out of the acceptable range based on your backtest, then there's a good chance that your strategy is decaying. But if the performance metrics in the last three months, six months, 12 months are within the range of what's normal for your backtest over the last 20, 30 years, then the system is probably okay. So you've got to distinguish between the system is temporarily out of sync with the market. First the system is broken. And you do that by looking at your performance over a short period of time compared to a long period of time. And again, all of this sort of analysis, I don't time to go into it in this video, but once you learn to back test fully and deeply and correctly, all of this sort of stuff comes out when you analyze the system. So what do you have to do? Basically in the markets, the strong survive and make money and the weak get decimated and lose their accounts. So what we got to do is get you, all of us, from the weak side to the strong side as quickly as possible. And the quickest way to do that is to have a set of rules that you can follow. You specifically, right? It's no good me giving you the best set of rules in the world. But if it makes you so uncomfortable, so nervous, if you have so much trouble executing because it just doesn't fit your personality or grades with your lifestyle, then you won't get a follow them, right? So it's got to be a set of rules you can follow. So a simple system, simple set of rules that actually makes money, you need that. First you got to systemize because that's going to help you get the emotion out of your trading. So put a system in place. Second thing you got to do is learn to back test that system so that you can truly and deeply understand what the system actually does, right? How it behaves, where the money comes from. And if you can do that, if you can back test the system properly, then you'll know what to expect. You'll also know what's normal. So then you'll be able to distinguish between is the market just trying to shake you out of this trade or this position, or is the system broken because you know what's normal for the system? If the system is profitable and stable and you follow it.

Consistently, then you're going to make money. But you have to have a system that you can follow. There's plenty of systems I can't follow. I mean, I tell a story in plenty of videos about how many years ago I decided that I began it was going to be clever and try day trading, because everyone was day trading. And that seemed like a great way to make a quick buck. And in the space of about three weeks, I lost $30,000 because the system didn't fit me. I made so many mistakes executing it and I was so frantic, so busy trying to execute this system that I didn't even notice I was making all of these mistakes. So the system has to fit you. When I went back to my core, you know what really works for me? My personality, my lifestyle, which essentially is trend following. Making money became easy for me again. And so you've got to choose a method, a system that is really right for your personality. If you need help with that, then just comment below, comment help and I'll give you some ideas about how to choose a strategy that's right for you. So if you want help trying to choose the right strategy? Comment help in the comments below and I'll send you some information to help you get started with that. Okay? Next, there's a couple of other things you're going to do to make sure you survive because we want you to move from the weak side to the strong side. The strong side are the ones that build their account, that make the money, that grow the wealth, the weaker, the ones that get decimated in the markets. So the next thing you got to do to stay on the strong side is to avoid both stock specific catastrophic risk or manage it and market catastrophic risk. Market level catastrophic risk. So we talk about we could have a stop loss, you've got to manage your risk per trade, all that sort of thing. It's all important and somewhat obvious. Now. If you're risking more than 1% of your account on any one trade, you're crazy. You're going to actually blow up over time. You won't stay in the strong pool of traders, the 5% that actually make money. But if you do manage your risk per trade and keep it low, half a percent, 1% per trade, you've got a good chance of survival. But you've got to go further, okay? You got to manage your stock specific catastrophic risk. What happens if you get a total failure on a stock and then you've got to manage your market level catastrophic risk? What happens if there's a catastrophic failure in the market and a crash or a sudden decline? You got to manage those two things as well as your risk per trade. You won't see those two things so much in your backtest or in your analysis because they don't happen very often. But if you're going to trade for 20 years, I mean, I started trading about 20 years ago now, if you're going to survive for 20 years, you've got to make sure that a low risk occurrence, a low probability event doesn't wipe you out. Okay? So you've got to think beyond the normal everyday trading situation. You got to think beyond the backtest and think what could go wrong that I need to protect myself from here? And you've got to do that hypothetical analysis, right? Because if you're going to survive, if you're going to stay on the strong side, the 5% that actually makes money, you've got to stay in the market. And if you don't stay in the market, you're out, you've lost, right? It's game over. So you've got to manage your trade level risk, your Stock specific catastrophic risk and your market level risk. And you're going to monitor your edge like a hawk. You're going to monitor your edge all the time to make sure that it's stable. Your system, your rules are performing in line with what you expect.

My lights out. That's terrible. I don't know what to do. But you got to not freeze when something goes wrong, right? Someone likes to just crap themselves. But just like in the market, you're gonna have losses, you can have things go wrong, you have sudden shocks, okay? But you've got to keep following the rules. Okay? The video is live. I'm gonna keep talking, I'm gonna share my thoughts, I'm gonna get them out, because I can't get up there and go fix the light bulb. Now you've got to keep going. And while your edge is intact, while your system rules are working, you've got to keep going. You've got to follow them until you've got evidence the system is broken, the edge is decayed. So monitor that edge. Check the backtest regularly. Make sure that the stats of the system, the trades, the trade level statistics, and the equity curve performance are all in line with what you expect. And if it starts to decay, that's your warning sign to either scale down or close down the system. And by having more than one system in place, you'll be able to close down a broken system and keep trading smoothly without it disrupting your life and your wealth. Good. Makes sense. Okay, great. So your job as a trader is to get a system that has a profitable edge, follow it consistently, manage your risk, and stop trading that method if it breaks. And you've got to be cognizant. The market is trying to do a couple of things, trying to shake you out of every single trade, and it's trying to shake you out of every single strategy. And you've got to stick to those trades and those strategies dogmatically until your analysis proves that they're broken. That's your job as a trader. If you can do that, you've got a fighting chance of surviving for decades in the market. And that's what we want. You don't want to be a flash in the pan. You see, you could make 100% this month, but if you blow up the next month and lose it all, you're starting again at zero. Right? It's not going to help you, not going to help your family, not going to help your kids or anyone in the world. You've got to stay in the game and keep growing consistently. So it's far better to make a slightly more modest return, but stay in the game. Don't risk blowing up and losing everything blowing out of the account. Okay, so next steps, what do you need to do from here? Here's what I want you to do. I want you to comment below when you're watching this, whether you're watching it live or after the event in the recording, comment yes, if you have a system in place already that you have backtested and you monitor consistently, comment no if you don't yet have a system, yes if you have a back tested system that you monitor and you follow no if you don't, comment in the comments below right now, yes or no. And when you comment, I'll send you access to some information, some training, just completely free training to help you take the next step. Regardless of whether you've got one system, five systems or no systems, there's a next step that you can take to improve your trading and solidify your place in the 5% of trading traders that actually make money. So comment below yes or no, do you have a system? Do you not? And I'll get back to you with some free training that's going to help you take the next step in your trading, survive, improve, make better returns more consistently. So hope that helps. My name is Adrian Reid. This is Enlightened Stock Trading. Comment below yes if you've got a system, no if you don't and I'll get back to you with something useful to help you take the next step. Bye for now.

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