Adrian Reid explains that successful active trading depends less on being right and more on having a good, rule-based trading system applied across a diversified portfolio. Key advice: "if in doubt, zoom out" (use longer timeframes), avoid concentrating on a single holding, trade many instruments with the same rules, keep losses small and let winners run. He gives a numerical example showing profitability even when wrong most of the time: out of 10 trades, if wrong 7 times losing $1 each and right 3 times gaining $5 each (total +$8), the system is profitable. Reid notes his own experience over ~20 years with a high loss rate but net gains due to position sizing and letting winners be large.
Questions this video answers
7 trades are wrong; each losing trade loses $1.
3 trades are winners; each winning trade gains $5.
Chapters
There's a couple of reasons why it's hard. Most people zoom in way too much. They're looking at five minute charts or you know, they're looking at a one day like you see, watch social media. When Bitcoin jumps 6 or 7% in a day up, it's like, oh, it's over. Quick buy before you miss out. Rah, rah, rah. But no, bitcoin fell from 69,000 and it's kissing 20 right now. 5% is nothing. 5% is not a change in trend. So when you, when you, when you looking at the markets and you're seeing, you know, little price moves and volatility, you want to zoom right out. You know, I look at a much longer time frame and there's a good saying, if in doubt, zoom out. Right? Because if you zoom out and get some perspective, you'll see what's really happening beyond the noise. That's the first thing people focus on. Too short a timeframe. Second thing is that if you hold one thing, bitcoin, Apple stock, Facebook, whatever, you hold one thing, that one thing means everything to your success right now.
Right? And if that one thing means everything to your success, if that starts going against you, that's really going to hurt. It's really going to be stressful. But if instead you have a set of rules that allow you to trade a portfolio of things.
Cryptos, stocks, whatever, and they're all following the same rules, but they're getting in and out at different times because they all move a little bit differently.
So let's say I have a system, and that system holds 20 different stocks or 20 different crypto tokens. If one of them goes against me, I don't care, because in that 20, something else will be doing well.
The whole game becomes a game of numbers.
If you have a set of rules that makes money, and I'll tell you how to confirm that it makes money in a second. But let's assume we have a set of rules that works. It doesn't work every time because nothing works every time. But if you apply it many times in a diversified portfolio, then there'll be enough winners to offset the losers. And if you allow the winners to be big and you keep the losers small.
You can make a lot of money. Let's just do some simple math. Out of 10 trades, if you're wrong 70% of the time, 70%, 7 out of 10, you're wrong and you lose $1.
But when you're right, you make $5 on each trade.
You know those seven losses are going to feel really hard, right? But you only lose seven bucks, and then on the other three trades, you make 15.
So overall, you make good money. So you've got to get past the idea that I need to be right.
And this is where most people struggle, right? Because at school, what are we taught? You've got to be right. You've got to get the correct answer. But in investing while trading, at least active trading, that's not correct. You need to be able to be wrong. And I've been wrong way more than most people, which is why I can trade well, because out of thousands and thousands and thousands of trades that I've made over the last 20 years, I've been doing this. On average, I'd say 60% of them have been losers.
Say, whoa, Adrian, you must be really dumb. No, actually, I have a high tolerance for losses, but I keep my losses really small, and I allow my winners to be really big so that when the math works out, I make money overall.
