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Hey hey, what’s up my friend! Over the years, my trading has evolved, and today, I’m primarily a systems trader. This refers to trading in a rule-based manner without subjectivity or guesswork. If I could turn back time, this would be the approach I wish I had known when I first started. Here’s why… Backed by data, not emotions Have you ever traded two similar trading setups? And then one is a winner, and the other is a loser. Then you wonder to yourself… “How do I know if what I’m doing is right or wrong?” That’s the struggle most traders face. Like asking your wife if she's angry and getting the response "I'm fine"—you're screwed either way. That’s why, as a systems trader, one of your advantages is backtesting. This allows you to test your trading system on past data to see how it has performed. Here’s an example… As you can see, this is the trading result of a trading system that has lost consistently. Will you want to trade it in the live markets? Of course not. At the same time, look at this… This is a trading system that has generated % over the last Y years. Will you attempt to trade this in the live markets? Most likely. And that’s the power of backtesting. It allows you to quickly find out whether a trading system works or not, so you know whether what you’re doing is right or wrong. More trading opportunities Many discretionary traders only have one trading strategy. Anything more, the cognitive load gets overwhelmed. You’re probably thinking: “What is cognitive load?” Cognitive load happens when you scan the markets for trading setups and decide if a setup is valid or not. The more markets you trade, the higher the cognitive load. And the higher the load, the more mistakes you’ll make. This explains why trend traders seldom take counter-trend trades (or why pullback traders struggle with breakout trades). However, for a systems trader, there’s no cognitive load because the scanning is done by the software (or scanner). You just define your trading rules, and it’ll scan for trading setups that meet your criteria. This gives you more opportunities, more profits, and time freedom. Profit in different market conditions Since a systems trader has no cognitive load, you can trade many strategies without “burnout”. And this is the secret to profiting in bull & bear markets, even during a recession. Let me explain… The purpose of a trading strategy is to profit from a particular pattern in the market. E.g. when the market is trending, a trend follower will profit from it. At the same time, market conditions are always changing. It could go from an uptrend to a downtrend, from low volatility to high volatility, etc. This means no trading strategy works all the time because market conditions change all the time. Like how my wife thinks I’m the best husband in the world till I leave the toilet seat up for the 37th time. To prove my point, here’s the yearly result of a Trend Following system I teach in The Ultimate Systems Trader... It makes good money when there’s a crisis or a recession (like in 2000, 2008, 2020, and 2022). But loses when the markets are choppy. So, how can you reduce the number of losing years? By adding more trading systems, In this case, let’s add a mean reversion and momentum system. Here’s the result of it… As you can see… On its own, each trading system has multiple losing years. But when you combine them, you reduce your drawdown and the number of losing years. In other words, you’re making a profit almost every single year regardless of market conditions. Whether it’s a bull market, a bear market, or even during a recession. Can you see how powerful this is? It's like having both an umbrella and sunscreen business. No matter what Mother Nature throws at you, you're covered! (Unlike my hairline, which gave up coverage years ago.) Anyway, if you want to discover more about systems trading, I wrote a book that goes into more details, and even equips you with 3 proven trading systems that work (backed by data). Cheers, Rayner “trade-like-a-robot” Teo |