Hey hey, what's up my friend, so in today's video i want to talk about a video that i've actually published a few weeks back. It's called this. This simple trading strategy has 88.89 winning rate okay. So if you have not watched that video right i'll put the link below so you can watch it first before watching this video, because this is kind of like a follow-up to that previous video.

Okay and the reason why i'm doing a follow-up video - something that i rarely do is because there's a lot of a feedback, engagement and critique right to that video. So i wan na you know address that. So here are some of the feedback that i've gotten right. Some of them say is that you know, or rather a number of them says that you know the number of a trading opportunities for that particular system is too little some asking about.

You know: where do you exit your trade? Some say the system is too risky for small account and stuff like that, and - and i want to you know, take the time and to answer this - concerns that you might have okay. So if you have not watched that video, yet right in essence that trading system right, it's a mean reversion trading system for the stock market, so in essence, you're looking to buy, identify uh the stock market, which is in an uptrend to buy the dip and sell The rally again, the exact rules is in the video that i've shared with you earlier. The thumbnail i'll put the link below this video, so you can watch it if you have not, but first right. Let's talk about the the uh issue right with low frequency of trade, so jonathan here mentioned that it's not a bad strategy, but let me describe the flaws with it.

Then you know he says: there's about 30 trades about 1.5 trades per year and basically saying that uh, you know it's better to just invest in the u.s stock markets. I think buy and hold higher returns and you know don't have to do any work. Okay, then again sunny similar feedback. Basically, you know after taking account inflation there's.

You know not much uh left right for this strategy or from this person here, mandra singh right, basically again same thing, right, low trading opportunities, and if you look at the video that i shared right towards the end of it, i actually mentioned that, and actually i Also agreed right that the system has low frequency of trades and what i suggested is to trade individual stocks for more trading opportunities. So i am not sure if you know many traders miss this point or they choose not to see it or they genuinely genuinely. You know miss that point, but i put it up in that slide. You can go and watch that video, and i put it up, you know, for you all to see is that you can trade individual stocks for more opportunities.

Okay, so just because a trading strategy or system doesn't offer too many trading opportunities doesn't mean that it's useless here's. Why so imagine this right? Imagine that you live in this uh, pretty secluded area right somewhere in the world, with only let's say: 500 people living in your hometown and in this hometown right, you managed to you know: grow your own coffee bean. You set up your own little mini cafe, and you know it's attracting a lot of crowd in your hometown. Right people love the coffee, they love the ambiance.

They love your service in this hometown and you think to yourself you know. Yes, you know it does make money, but you realize that you can't really make much money from this system and concept that you have developed right, because your hometown only has 500 people. So what do you do? Well, there are two ways to look at it number. One you might think that this isn't a uh worthwhile business to run i'll just fold it up, because you know it's nowhere as profitable right as as because your hometown is only 500 people or you can think to yourself.

Hmm, this concept is clearly working. People love the coffee, they love the ambiance, they love the settings. What i could do is maybe take this concept and this system into other parts of the world, to the us, to india, to china and see how it works right to scale up and see whether you know we can, you know, make money overseas. So this is the same as trading right.

If you have a trading system that offers few trading opportunities, it doesn't mean the system is useless or doesn't mean that you shouldn't trade it. You should take that system and trade other markets and see if it works as well, because if it does, then that's where you know you get your money making opportunities. So in the previous video i mentioned right to consider trading stocks and i'm going to share with you uh the results right of what happens when you take that that trading system right that concept and you apply it to the stock markets right. In fact, this one is to the russell 1000 stocks.

So again, the concept here is the same right. We are identifying stocks in an uptrend waiting for a pullback, buy the pullback and sell the rally. So you can see that when you apply it to the individual stocks stocks in the russell 1000, now your no returns about almost 15. This is the results right over the last, i would say uh from 2000 to 2019 right.

This is the year on year. Breakdown of the results you can see that uh, your drawdown over this period is about 31 over this period as well. So you can, you know, look at this and you know now, if you want to compare this to a buy and hold. Obviously, this one involves a lot more work, but at the same time, you increase, increase your overall returns and you reduce your max drawdown with the buy and hold approach right.

Your max drawdown right from 2000 is anywhere from you know, 50 or 60, especially after the 08 financial crisis, for this particular system right about 31 max drawdown. Okay. So again, this is this system doesn't make money every single day a week a month you will have losing period, but in the long run it makes money and whether you know 15, 14 15 a year, whether it's worthwhile to you only you can decide and by The way this is only for the russell 1000, what, if you're, applying to the smp 500, what if you apply to other etfs right that track the stock markets? What, if you do it on a weekly time frame? How will your results fare again? I'm not going to spoon feed you. I want you to figure it out and decide for yourself, but the key thing that i want to share over here is that, just because a system has low frequency of trades doesn't mean that it's useless and doesn't mean that you shouldn't trade it you should take That concept, that system and apply it to other markets and see right, whether you can make money out of it: okay, so onward next one.

What was your stop-loss? Where do you exit? So so this system is different from my other videos, where you know. Usually when i talk about loss, it's, like you, know, a fixed stop loss like you know, let's say 100 pips above resistance and stuff, like that. This stop loss is all right. Is a time stop so the first part of the exit are basically exiting your winning.

Trade is quite straightforward. You exit when the 10 period rsi crosses above 40 right, and this part over here is: where is the exit right? If you are wrong otherwise known as your stop loss, so this is a time stop, so you only exit your trade after 10 trading days, so there's no fixed level on the chart where you will manually get out of the trade you only exit it after 10 Trading days, so after 10 trading this, if the price, if the market the 10 period rsi, did not cross above 40, then you will manually exit the trade after 10 trading days, which is, in other words on the open right of the 11 trading day. And at this point some of you might be wondering: hey reyna, if you, you know exit your trade based on time. Right then won't you have the risk of you know.

Blowing up your entire trading account now get this right. This particular system there is no leverage involved. So nowhere right would you have seen me say: oh you got to use leverage. In fact i didn't mention the word leverage at all.

So if you were to trade this system using cash right, it's unlikely that you blow up your trading account because it's unlikely the smp futures will go to zero. I won't say that it's impossible, but i would say it's unlikely and again, if you trade stocks, let's say the s p 500 stocks you, but you trade 10 of those stocks for your portfolio. For that account of yours to go to zero. You need all 10 stocks in the s p 500 to go to zero.

Now again, what are the odds of the some of the biggest stocks in the u.s, the 10 stocks that you buy, going down to zero again possible but unlikely? So that's pretty much! The exit right, we, we uh, use the time stock instead of our traditional stop-loss next one right. I tested this in a few places, including the s p, of x parameters. I found many times the price to continue to deep a lot lower. Okay and basically people with small accounts could easily get stopped out and lose a lot of money following this and this i agree right people with small account.

There are limitations right to what you can trade, for example. If you have a small account right, you want to avoid trading stocks or futures. Why is that? And the reason is simple, because a small percentage move in these instruments could wipe out a huge chunk of your capital. For example, let's say if you have a 500 500 account and you trade one contract of the s p futures, i'm not sure whether you can.

But let's say you can right. A small percentage decline in the s p futures could actually easily wipe out your 500 because that's a leveraged instrument. Okay, so if you have a small account right again, you have limitations right to the type of strategies that you can trade and the instruments that you can trade. So my suggestion is that if you have a small account number one is: do you know grow the size of your trading account, maybe through savings or number two consider trading the fx markets.

Where you can trade, nano lots micro, lots right where you know you can really better manage your risk because they allow you to buy. You know fractional size in the fx markets, otherwise right uh. You want to be aware of your limitations because of having a small account so this this statement here it's valid right, but it's not because of the strategy. It's not because the strategy doesn't work, but rather it's more of a function of you know having a small account that comes with the limitations of having a small account.

Okay and next thing on the point now and talk about it's also, a concept right from the video is to avoid shorting stocks after a strong down move. So, as you have seen right stock markets in the long run, they are in an uptrend. So what this means right is that whenever there's a pullback in the stock markets, more often than not, that pullback will end and stocks will continue higher. That's the nature of the u.s stock markets.

If you look at the chart of you know the us s, p, 500, the russell 3000 or whatever, since it's inception to now right, it's in a long-term uptrend. So this should signal to you that if you are trading stocks, you want to focus on buying stocks and avoid shorting stocks. Yes, you can, you can short stocks right, but don't do it especially right after the stock market has declined for a few days or few weeks in a row, because this is where a rebound is likely to happen. In fact, if you're new to trading, i wouldn't even recommend you shorting stocks because, as you have said in the long run stock markets, it's in the long term uptrend i can actually just use this chart.

Obviously, a cherry pick chart right to illustrate my point, so you just zoom out and you can see the number of times when there's a pullback there's a pullback there's a pullback. What usually happens well, pullback ends market continue higher. So you can see that the path of least resistance when trading the stock markets is towards the long side, not the short side, and when you are, you know, looking at the chart. Oh the market is so bearish right.

Recession market is going to collapse. That's usually when the rebound right will really hurt even more okay, and the final point that i want to bring across is to do the work. So when i made that video right that video wasn't meant to spoonfeed, you with strategies, techniques for you to copy and paste, is to actually make you think deeper, take the concepts that i've shared and validate and verify it for yourself, because that's the only way right. You will find trading success.

You can't find trading success based on just copying. The work of others doesn't work that way. You have to validate the concepts, the ideas, the strategies and see whether you work or not, because only by doing the work by doing the verification, the validity, the validation will you have the confidence to trade, the strategy. So i am, i would say, disappointed that i didn't see too many traders like showing signs of them doing the only one that i come across.

Was this person here this island trader? Who who actually you know, signals to me man, this guy, you know uh clearly is someone who is willing to do the work. So really you must do the work right. I know i sound like you know your parents when you're young - oh hey, you know you should be studying hard right. You know you want to get a good grade, so you can go out there.

You know and then you know, join the workforce and you know you have a better quality of life. You know that's what my parents used to say right when i was young and i hated it, okay, but thinking back right now, it's meant for your own good right by you know, by nagging at me to study her blah blah. They just have the best interest at my heart and whether i study hard or not, it's not going to impact them one bit and i totally get it it's the same as me right now telling you to do the work to you know, validate the concepts out There do the work right. It's not going to impact me one bit whether you do the work or not, but it's for your own good.

If you do the work, you find success. Congratulations right! I'm pretty sure you're, not gon na. Send me money my way. Okay! So do the work, because, whether you do the work or not, youtube is gon na pay me ads anyway right, but it's for your own good to do the work, i'm just being honest down here.

Do the work it's for your own good, okay, so with that's! It i've come to the end of today's video. I wish you good luck and good trading do the work, and i will talk to you soon. You.