Trust The Strategy | Podcast Episode #302

0:07
Hey, I’m Ryan Mallory and this is my swing trading the stock market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you.

0:28
How, hey, everybody, this is Ryan Mallory with swing trading the stock market. In today’s episode, we’re going to talk about trusting your trading strategy. What do you do about the doubt that Creeps in when it comes to executing your strategy perfectly you back test it you realize it works tested through different markets yet.

0:46
You can’t seem to trust it enough to actually follow up. So today’s email comes from the other side of the pond and based off the guy’s name, he sounds Eastern European. So he asks me to come up with an Eastern European red nickname, though. I gotta admit I’ve never done this before.

1:02
I’m not even sure having never gone to the other side. The ocean myself, what an Eastern European redneck name would be to conceal his own identity, but I’m gonna give it my best shot. It’s trying to think of somebody. That sounds like man. If you came across him in a dark alley, maybe you think he’d be breaking thumbs?

1:18
If he told you his name, I came up with Bogdan Bogdan is my Eastern Romanian. Red, nickname, Bogdan rights. Hi Ryan, my name is Bogdan and I’m an aspiring Trader originally from Romania. Currently living in the Netherlands. I currently work in the biotech sector but I am in a Aspiring Trader.

1:36
I’ll start by giving you a challenge in case you decide to share this in your email podcast, namely to find me an Eastern European. Redneck name bonus, if it’s a redneck name, I have to say I only started listening to your podcast about a month ago and I have many episodes ago, but so far it’s been a great resource for me to develop as a Trader.

1:51
So thank you for that great content. That’s available and free. Anyways, my trading story is briefly this, as I mentioned, I am working in a biotech sector as a researcher. However, a few years ago, I discovered trading, I started like many other people with Grand Illusions, to Very rich, very quick, but those dreams were quickly shattered and the process.

2:09
However, I realized that I find trading in the financial markets, quite exciting. So I started to properly learn what trading is and how to do it. I only seriously started doing this at the beginning of 2022, but I think the progress has been significant. Do I still have a long ways to go to become consistently profitable as a Trader?

2:28
What I really love about learning how to trade is the process that I also go through and learning about myself and my own psychology. He asked for my trading style. I came to the realization that swing trading is best suited for me, particularly at Trent falling as a result. I looked at some strategies and came up with a simple yet.

2:44
Promising Trend, following strategy based on a 20-day exponential moving average plus a few extra rules. I made based on back-testing, I back tested the strategy on multiple instruments, mainly stocks, and crypto in the results were pretty good. I went back many years tested, it even tried it in ranging and sideways Market since it performed the worst in the ranging markets And the results are still pretty good.

3:07
So based on back-testing. I am confident that I have at least a decent strategy, but I am still struggling to stick to it. For example, I look for stocks that have my setup and my entry signals and often. I see that my entry signal was there two days ago. If I don’t enter on the day when my signal forms, my strategy just doesn’t perform well enough yet.

3:27
I still convinced myself that I should be able to trade because my entry signal is there since it is a trend following strategy 2 to 3 days shouldn’t make a big difference if price goes in my direction, but it will make a huge difference. If it goes against me as my stop loss is preventing me from losing too much only when I buy on the same day when my entry rules are triggered, I feel that I do this because I want to forward test my strategy ASAP and confirmed what back testing has shown me that is that the strategy works well, and I want to take as many trades as possible to gain trust in my strategy as soon as possible, but these actions actually make me distrust it instead.

4:05
Question would be, how do you get to trust a strategy that showed good results when back testing so that you can stick to it fully when live trading. Maybe you had a similar struggle when beginning to trade, or maybe you just have some tips on this. Thanks a lot Bogdan.

4:20
All right. That was a pretty long email, but it was to the point. Nonetheless, what am I drinking today? I am drinking. Get ready for this folks. Rip Van Winkle and Year. Yes, Rip Van Winkle, I got my hands on some and I’m pretty excited about it. Fifty three and a half percent alcohol. 107 proof big expectations for this one and just look at I mean it’s a like this deep deep like copper color to it.

4:45
Beautiful. Beautiful, absolutely beautiful. And then you pick up a like a lot of like when you’re given a good sniff it’s like caramel it’s vanilla. It’s really good. All-around in the flavor. Holy cow strong Oak flavors. That’s rich. I mean marvelously flavorful.

5:01
I mean this is good stuff guys and the finish and I think I like this. Art the best because the initial taste, it’s very smooth. It’s very flavorful. It’s very rich deep, right. But then you get this finish that spicy and long, but it has no ethanol flavor to it. None at all. And I hate that ethanol flavor it comes in at last a long time.

5:20
It tingles the tongue, which seems like forever. And I like that too. So the Finish is long and strong that flavor is deep and meaningful. The smell nice caramel, vanilla flavor. I’ll give this a nine point four. You might think, man, Ryan, you’ve given some others higher ratings in the past and that’s true.

5:37
I did it not realizing how good this stuff was. For instance, I gave, uh, Taylor. I’ve gave WhistlePig in like, almost 200 episodes ago. I did the Whistle Pig, which I was really just starting out in this Venture of doing bourbon review. So I really didn’t know what was out there in front of me. But yeah, I think I got to go back and do some reviews on these because I know what I know now about the Van, Winkle a 10-year makes me want to.

6:00
Okay, what’s this 2301? Like what is the 18-year of one? Like what’s the 12 years? It’s got to be better, right? Because it’s been aged longer and most situations. So I really have to go back and do the eh the Blanton’s the WhistlePig and just really think about might given these things too high of a rating in the past and I kind of thought that that would happen at some point just as I gain more and more experience and more flavors and more bottles like man, I could be a little bit too hyped up on some of these other ones.

6:26
Now, when it comes to Guadalupe I still think that’s one of the best ones I’ve ever had the Garrison Brothers. Yeah, but this one here I’m giving 9.4 Rip Van Winkle. Ten year. All right. Now to the actual content of this podcast, what we’re going to be talking about here, first off, when you’re taking traits, that fall outside of the parameters of your tree, you’re not following your system, you’re not following it at all, so you can’t expect it to work.

6:50
You got to follow it to a tee. What makes the back-testing work is what you have to do going forward. When you’re for testing it, IE making the actual trades to prove that the strategy does work. You can’t go outside of the parameters of what you did to get. The Results in your back.

7:06
Testing, you have to stick to it. If you missed the trade, find you missed the trade but you can’t go chasing after it especially knowing what we know with Bogdan here. He says the risk is best managed when you get in initially. If you wait a couple of days and you see it triggered. Oftentimes, he’s probably seen that it’s already working out.

7:23
I doubt that he misses the trade and he sees that. Oh, it’s down to three percent, right? By the stop-loss. I’m going to go ahead and get into it now and probably get stopped out. No, he’s chasing after these gains. Lee after he seen it, go up a percent or two or even more. He’s seeing it work.

7:39
And he’s saying, oh man, I missed out on that one. He other thing I would tell him he needs have a better way of spotting these things today of whether that’s through alerts, whether that’s through scans or keeping a watch list of those that are about to break out that would work too. But needs to have a better way in order to prevent chasing after these things are seeing these signals two days or three days after the fact, it shows me.

8:00
The infrastructure is not in place to be able to properly manage this trading system. So He’s to have scans needs to have alerts. Needs to have a watch list that is set up in such a way to be able to organize and know immediately when these signals are going off and when you’re using the 20-day exponential moving average, yet it’s probably going to be based off of some Crossovers and whatever other indicators that he’s using, maybe he’s just an office, some bums but those are all readily available for trade alerts for email, signals for putting into your watchlist, definitely has to do a better job of that and those are for Straits.

8:35
You’re forcing the trade that you shouldn’t have taken again, if it was down two or three percent doubt that he probably be taste like, oh man, I avoided that one. I’m not gonna take that at all, but if you want, your trading strategy to be successful, you’ve got to get into it. When it triggers, all your trading, systems depend on risk management.

8:54
And so, when you’re expanding that risk management, you’re taking away from future winning trades. And oftentimes the successful trading system is dependent on that, you perfectly executed each. And every time you can’t just pick and choose. I don’t know if I’m going to do that one. I’m going to bypass that one. I can tell you.

9:11
Oftentimes, in a trading system the ones that do the best are the ones that you won’t expect to the ones that you think. There’s no way. This thing is gonna go up and then all of a sudden, it rips off for 30-40 percent, you’re like holy cow, I’m glad I took that triggers, I did not think it would do that, but essentially, if you start chasing with your entries, after the fact, you’re breaking the rules of your trading system.

9:30
And he talks about how, how do you trust a strategy that showed good results when back-testing and stick to it? When you were Fully live trading it. Well you don’t trust it because you’re not following it, how would Would you be able to trust it if you’re not actually following or not even trading the system technically?

9:48
So whatever works you got to follow it. Kind of like that verse in the Bible. James 4:3 says you have not because you ask not, you don’t trust it because you don’t follow it, you gotta follow the system.

10:03
Also, I would encourage Bogdan here to go back and see where the system performed poorly. And why, why was it was if you’re trading off the 20-day exponential moving average, where you just getting a lot of false signals when there was like a crossover and you were just getting chopped up, what did that choppiness? Look to when you Capital and how much of a drawdown did you get? Because draw Downs are huge. You could say, hey yeah, we went through a 50% drawdown, but the next year man, we were up 75 percent. Well, that’s great. You’re still down significantly. You need a hundred percent just to break. Even draw Downs.

10:20
Are the number one thing that keeps a trading system from working and so if you see that there is even a one time where there was a significant drawdown, you got to figure out how to avoid that. That’s why it’s so important and bear markets. When if it’s like a long only strategy, you To see how does it perform.

10:36
And how long does it take to before? It’s reaching new highs again because the draw Downs are what kills you in a trading strategy? Followed by. Not not following your trading strategy like Bogdan was talking about here and remember if you have a successful back-tested strategy in your confident that it’ll work, then your job isn’t so much about chasing after profits, but managing the system, because if you manage the system and the parameters that you set in it, the prophets should take care of themselves.

11:01
Also, I would say go back to the periods where it performed. Best find out why it performed its best. Was it a certain type of Market condition and if so, is there a way that you can trigger those kinds of market conditions, for only trading that system during those times, if you can still make money off of all market conditions than find? That’s great. But if there’s a period where you really don’t want to be trading during those periods, and you can put that into your trading system in order to avoid it even better.

11:19
So it’s good to look at the reasons that Mark the. Why behind your trades? What makes the trade work during Certain periods of time and not work and how can you avoid them?

11:37
If possible? Sometimes you might say, hey, I have to go through in order for this to happen every once in a while. I have to go through a 8 to 10% drawdown, but six months later, I’m up 50%. Okay, that makes sense. But what you don’t want is like a 50 or a 75% drawdown in your or really even a 20 or 30% those suck too.

11:56
And they are very, very difficult to come back because what if you like double dip on the drawdown, you get a drawdown, you start to come back and then you get hit with another one that can happen to imagine how many Systems were just starting to get back into the green, following the 2002-2003.com bubble and they were just starting to get back up to profitability and then all of a sudden 2007-2008 hits and it’s even worse, probably wiped out a lot of Traders, during that time and a lot of trading systems.

12:22
But here’s one thing that I think is really good and that swingtradingthestockmarket.com, guys. This is my Patron website that goes along side of this podcast. You’re going to get all my stock market research each and every day. That’s including The market updates, you’re going to get updates on all the big tech stocks all throughout the week.

12:40
You’re also going to get daily list of setups that I’m following. And considering trading also different charts that I find extremely enticing and worth bring it to your attention. Check it out cheap. Definitely worth becoming a member of and you become a supporter of this podcast, not to mention, you’re going to learn a crap, ton about technical analysis.

13:00
So one of the things about trading systems that give people a lot of problems is The idea of actually following them especially when you start stringing together a lot of losers. Now it’s also worth going back and looking throughout the history of your back, testing to see how many streaks, how many losing trades was there.

13:18
And then asking yourself, is this A system that I can go through? What if there’s 15 losing trades in a row? Is that a system that you can continue to pull the lever on and keep taking those trades? Knowing still that it’s a profitable trading system. You got to ask yourself these questions because trading systems and it’s amazing.

13:33
I’ve seen this in the past where You can have a good trading system and it’s a very profitable trading system but not everybody can execute it. Why? Because it doesn’t match the psychology in the makeup of the person. The person is not built for that. I’ve seen really good trading systems that are only right, a quarter of the time that means you’re losing 75% of the time yet.

13:50
It’s extremely profitable. A lot of people can’t handle the idea of losing 75% of the time and then within that 75% of the time, you might be, you know, have periods where you’re losing 10 or 15 trades in a row from a probability standpoint, that’s possible. And so When it comes to the trading system, even if you find a good trading system, you’ve developed when you got to ask yourself, are you set out to be able to follow this trading system?

14:13
There’s trading systems that I couldn’t follow very well. I can tell you a trading system that says, hey, you’ll have a 50% drawdown but then every time within six months you’ll be up to hundred percent from those lows. Yeah that’s a good trading system. Could I follow that? No I couldn’t. I just I’m telling you that my psyche and the need to keep brisk tight.

14:31
That’s not going to work for me and it’s not going to work for a lot of people. And then oftentimes when they start to do this kind of trading systems where there is a lot of volatility, they start to quit at the worst possible time. They start making modifications at the worst possible time and they start like what Bogdan has already started doing here?

14:46
Adding trades that don’t match the parameters. If you’re not following at every level, including from entry risk management profit-taking, whether a stock meets the parameters of the tree, you’re not following the actual trading system, you’re just doing something else, and if there’s an area Light trade entries, where you’re having a struggle with, then you need to add more concrete parameters.

15:04
So you Don’t mess up there. That means putting together an exact window when you have to make that trade. Now all this is fine and dandy but there’s also an element of discipline that’s required. You can have all these parameters but if you’re not following the system and the concrete do’s and don’ts of the trading system then is really not worth anything.

15:23
Right. So in summary, what is Bogdan need to do here, he needs to follow his trading system to a T. He needs to follow entries. Not chasing after him just because it looks like it would have been a good trade and he passed up on it. It. He also needs to focus on the risk management side of the trade, because when he’s chasing after these things in these trades, that he missed early on, he’s expanding the risk side of it, which takes away from future trait.

15:47
He needs to also go back and see what caused the system to do. Its best. What caused the system to perform at its worst and are there variables there that he can spot in that he can avoid in order to improve the performance of the trading system. And please don’t add trades to your trading system.

16:05
Don’t meet the parameters. And if you’re struggling with a certain aspect, your trading system, add more concrete parameters to avoid you going outside the lines. If you enjoyed this podcast episode, I would encourage you to leave me a five star review. I do read them, I do appreciate them, and keep sending your questions.

16:22
ryan@shareplanner.com, I love hearing from you guys. Love hearing how the podcast is help. Make you guys a better Trader and taking your questions, so I can make them into a podcast episode. And you can do that by sending me an e-mail ryan@shareplanner.com, don’t forget to sign up for swingtradingthestockmarket.com as well.

16:38
Thank you guys. And God bless. Thanks for listening to my podcast. Swing trading the stock market. I like to encourage you to join me in the SharePlanner trading block, where I navigate the stock market. Each day with Traders from around the world with your membership, you will get a 7 day trial and access to my trading room including alerts via text email and WhatsApp.

16:58
So go ahead, sign up by going to shareplanner.com trading block that’s www.shareplanner.com/trading-block and follow me on SharePlanners, Twitter, Instagram, and Facebook, where I provide unique market and trading information every day. Do you have any questions?

17:15
Please feel free to email me at ryan@shareplanner.com all the best to you and I look forward to chatting with you soon.