FIR 145: How To Systematically Grow Your Portfolio !!

Welcome, everybody. In this episode, we learn the secrets of systematic growth for your portfolio.

Grant
Okay, everybody, welcome to another episode of Financial investing Radio, I'm excited to have in the house with me today, Mr. Adrian Reid coming all the way from Australia, which is fascinating to me that I have this opportunity to get connected with this professional trader on the other side of the planet, literally from where I'm sitting at the moment. First of all, Adrian, welcome.

Adrian
I'm thrilled to be here. Thanks so much for having me on the call. And isn't this just a fantastic part of the world? You know, we we can communicate from the other side of the world we can we can help traders from all over the world. And there's just really no boundaries now.

Grant
There really isn't. I love that. And what I love is your willingness to get on and share tidbits and insights, right to help the everyday trader who's really trying to figure out how can I grow my portfolio in a way that's going to manage risk? And I know you've got some excellent insights on that. But before we get into that, would you mind stepping back and sort of thinking, what's your origin? How did you get into trading? What even brought you to that part of the world at this point?

Adrian
Yeah, absolutely. Sure. So I've been trading for about 20 years or so now, plus or minus, let's say, six months. And What first got me interested in was actually well, before that, well, before that, my family had a board game, in, in our holiday house, called the stock market game. And I have these amazing, fascinating memories of playing the stock market game becoming a paper billionaire by going around the board and buying lows and selling highs and collecting dividends and stock splits and all of these things. And it was just fascinating. Like, oh, this is this is the best thing ever, was my recollection as an eight year old. Now, I didn't trade or invest for a long time after that. But that was sort of my first memory of the stock market. Wow. And when I started work, I pretty quickly came to the realization that I didn't want to be in the corporate world forever. You know, I was commuting. I was working extremely long hours, I had a lot of high stress right from day one of my first job. And I said to my dad at the time, oh, it basically is this one. It's like, Aha, yeah, I don't want to do this forever. So what do I have to do to not have to do this forever. And we talked about investing, and we talked about stocks and the stock market and real estate and other forms of investing. And so I just started down that, that journey. And when I first came across some money, you know, from from work, I started, I started buying stocks. And I did the typical thing. You know, I didn't actually know anything, but I didn't know that I didn't know anything. So I bought stocks in companies that I recognized that I thought were big names, good companies. 

Grant
And now this is gonna go up, right? 

Adrian
Yeah, yeah, this is gonna go up. This is a great story. And there's a big company, um, you know, I recognize that this is gonna work and I'm smart. So therefore, I should make money. And of course, what happens? You know, I bought in exactly the wrong time it went down. I lost money. Very, very cool at the peak, right? Yeah, yeah, absolutely. And so I look, I played around with that for a period of time. And it took me three years of trying lots of different styles. Before I actually started making money on it in the corner. I tried that fundamental animal.

Grant
First of all, that's impressive that you were able to, so you didn't trade to the point where you lost all your capital, right? You are at least wise enough not or did you at times, say hey, I blew it all out. I gotta rebuild.

Adrian
Oh, I had no look. Absolutely. I have never blown up an account. So when I think one thing that I've really got, that I did well, from the very beginning was always very cautious about risk. And this is critical, right? Because if you blow up your account, the problem is you've got to then go back to work, you know, save money, and that takes time and You've got to build up the courage and that takes time and you're gonna put the money in the market and and then try again. And then chances are you blow it up again. So as soon as you blow up and lose your money, you've just wasted months and months and months. So from the very beginning, I took small trades, small positions, low risk. And I had learned a little bit about risk control from some of the books I read. And for three years, I was able to survive and on my account sort of went sideways and down a bit and sideways and down a bit, but never really made any gains. But the thing that turned the corner was I, I read a series of books called Market Wizards, which no doubt you've read or seen. And Market Wizards is fantastic, because it's a series of interviews with professional traders who have done extremely, extremely well. And as I was reading through it, I realized that all of these traders have their own unique style. And some of them really were like, really resonated with me. And some of them were like, it was an alien from another planet. And what I realized by reading through those interviews is I had to find a style that really fit me suited my personality. And the one that resonated, the ones that resume the most were the systematic traders, the ones that have rules and did tests to check those rules worked, and then followed those rules. And the reason I resonated is because they didn't spend every waking and sleeping hour staring at the screen. Mm hmm. They spent 15-20 minutes, 30 minutes a day running their rules, placing the trades and that was it. And that's what I needed. Yeah, because I was working a job I you know, I didn't have enough capital to live on my trading back then. Yeah. And so I started trading systematically. And you know, I took three months off work to develop my first trading system.

Grant
Really? Yeah. So you took some sort of sabbaticals?

Adrian
Yeah, I just I just said, Look, this is, I want to do this. And so I took three months off, and they my boss basically laughed at me and said, Good luck with that, you know, trading. Okay. Yeah, right, right. So I didn't get a whole lot of support them from from anyone else apart from my wife and my family. But you know what, when I implemented my first trading system, my results basically turned around on a dime. So if you look back at my equity curve, you can pinpoint to the month where that trading system went live. And that's because all of a sudden, I was consistent, and profitable, I had an edge. And from then on, it's just a matter of patience, of continuous improvement, and adding capital, and then eventually to get there.

Grant
So let me ask you this, in terms of the trading system that you've developed and matured over time, what's your general timeframe? And are you in your positions for a few days? Several months? I mean, what's, what range do you trade?

Adrian
Yeah, this is a good question. This comes back to the idea of it's got to fit your personality. So I'm a fairly patient sort of person, I don't like frantic activity, I don't like you know, really fast paced decisions in high stress. So I'm, I'm a longer term, sort of hold. My my favorite style is long term trend following. So that could be I could be in a position for many months. But I'm quite, I'm quick, systematically to cut my losses. So if I if I, if I enter a trade and hits my stop loss on day one, I'm out, I don't care. I'm very comfortable with that. So trend following is my natural kind of place that I gravitate to. But I have shorter term systems and mean reversion systems that are quite short term, because now having evolved as a trader and got comfortable with what the markets can do, and how they move, I can trade other styles outside my sort of natural center, if you like. 

Grant
So the key for us is to establish that main style of trading get good at that make that consistent, once you've got that producing now look at considering other styles that I hear you right?

Adrian
Yeah, absolutely. Yeah, absolutely. Absolutely. Because I think as humans, we, we have a natural sort of center or personality or style that will fit best with us. And let's face it, trading is kind of hard, emotionally. And so if you're, if you're challenging yourself with a style that doesn't fit, and the market is challenging you with all of the, you know, the volatility, the ups and downs, the uncertainty, it's pretty difficult to stick to the rules. But if you have rules that are somewhat natural for you, they fit you and you follow them, then you can learn all the emotional essence from the market deal with those and then branch out. I think that's key.

Grant
Well, so earlier, when you made the comment, hey, you went to your corporate job, and it was stressful. The thought that went through my mind was trading can be stressful. So what is it that protects you, right? It's a different kind of stress. How do you equate the two stresses? I've got corporate job, let's say and their stress is there. But wait a minute, I've got training in the stress. How are those different In your mind,

Adrian
I find that different, the types of stress are different in terms of the duration, intensity, and how much control you have over it. So in the corporate world, what I found was, I was just under constant pressure to do more and more and more and more and more and more, and anything that I could produce, the corporate machine still wanted more. And if I wanted to perform even better next time and get a bigger bonus, then I had to produce more. So it was relentless. Whereas in the market, and it's also externally imposed, you can't do much about it, apart from resigned from the job, if you no longer like it, you know, it's sort of outside your control is what I think you don't feel.

I felt that way. Now, in the market, the market is also outside our control, we cannot control the market. But we can control certain things which are really, really important. We can control whether we are in the market or not. And we do that through our system rules that we trade with, we can control how big our positions are. So that whether or not the volatility causes stress or not. So if you position size very aggressively, you're going to have more stress and more stomach acid in your life. If you position size conservatively, you're gonna have less. So we can also control what strategies we use. If you're long, lonely, and you're highly leveraged, it's going to be amazing and pretty stress free in the middle of a bull market, that the end of a bull market as it's turning, it's going to be extremely stressful. But if you're long only, you don't use that much leverage. And you've got some some short term systems and some long term systems, and you can make money from a bear market. And you can make money when the market turns because you've got different strategies, then some of that stress is really dealt with, because you're diversified in a way I saw.

Grant
So if someone's new to trading, does it make sense for them to approach it that way? From the beginning? Or do they still need to get really good at say, their first initial personality style related system? And then over time, then build that more equitable approach to trading?

Adrian
I get really good question I, I think the answer is you've got to start somewhere. And in order to start, you've got to make sure it's not too overwhelming. So I would say start with one system, or one strategy that you can quickly build confidence with. And it really helps to have a guide to kind of step you through that. But if you've got a like someone to model or someone to follow, you can quickly move from one simple strategy to a diversified portfolio. And so, you know, I teach traders and I teach a lot of brand new traders, and I've taken people from knowing absolutely nothing to a very diversified portfolio in a couple of months. So it really is just, oh, wow, a couple of months yet. Because when you when you are given a set of rules that work, and you're given the tools and knowledge to test and evaluate those rules for yourself, so you can build confidence in them, then you can start trading. And then you just you start trading one set of rules, then you get another set of rules, and you test and evaluate that. And then you can start trading now, and then the next set and the next set. So you can pretty quickly build a portfolio of strategies, if you're not trying to figure everything out on your own. Right.

Grant
Okay, so you started to address some of the questions I had for you, which is how long does it take for someone to get proficient using your system? And it sounds like the first part is they could begin some level of proficiency within two months. Is that accurate? 

Adrian
And for both a completely new trader who is motivated and willing to learn and willing to ask questions can be up and running in in with a system in a month or less, then with a portfolio of systems within two to three months.

Grant
And when you look at that person going after a portfolio, what sort of capital do they need to bring to to this trading style.

Adrian
So my style is all systematic, and each system is a diversified portfolio of instrumental positions that are hold so what let's say one of my trend following systems in stocks, that makes money as stocks just continue up on their their long trend and then when stocks turn around and go down, it gets out and takes you to cash, that system might hold 20 simultaneous positions. Okay, now, if you're trading the Australian market, the Australian market has this unfortunate rule where each trade has to be $500 in value. You can't place a new trade for $200 It's five Under dollar minimum, so for that system on Australian, you need $10,000 to trade it properly, but in the US not so. And in the Asian markets not so so. So you really, you can start with just a couple $100 Or a couple $1,000 If you choose the right market. And this is one of the reasons why the cryptocurrency market is so great, because you can you can trade a diversified portfolio in the crypto markets with very small positions, and there's no minimums, and the costs are very, very small to trade it. So you really capital isn't really a barrier to entry anymore. It's it's really the learning that is the barrier to entry, you've got to have rules that give you an edge. And you've got to have absolute confidence in those rules. That's what you need to win really.

Grant
So the biggest challenge that seems over the years in the years that I've been trading as, as the discipline trader mentality, right, the ability to stick with those rules. So what tips or techniques do you have for, for sticking with the rules, right? Not letting the emotions overcome saying, Hey, I'm just going to take the loss, not doing revenge trading, etc. Right? What What are your tips for sticking with the rules?

Adrian
Yeah, this is this is great, because when I before I, before I became a systematic trader, I was a discretion. I did discretionary technical analysis, and I did fundamental analysis, and I really struggled emotionally. And systematic trading really helped. Because there was no, there's no ambiguity. If you have a system, which is objective that tells you if A and B and C happens you buy if D or E happens you sell, you don't have to wonder, is it a buy signal? Or is it a sell signal? So I think most people will benefit hugely by trading systematically, rather than with discretion. That's the first thing. Second thing is your system won't make money all the time, and it won't be profitable on every trade. It's the the your account is gonna go up and down gradually on a path to building your wealth. So you've got to be comfortable as the account swings around. And the biggest trick to getting comfort is building confidence in the rules. So we have our rules, like I can give you the best trading rules in the world. But if you haven't tested and evaluated them for yourself, then when they start losing money and going into drawdown, it's gonna be really hard for you to keep following them. Right? If you've tested them, and you know, okay, for this set of rules, a 15% drawdown is perfectly normal, or three or five losses in a row was perfectly normal. And if I just keep falling it, I'll come out the other side, if you've done that work, not me telling you that's the case you actually doing the testing, then you can sit comfortably knowing this is perfectly normal.

Grant
So do you provide the traders with a certain level of back testing tips and techniques to prove that out?

Adrian
Yes, absolutely. I think this is the the most important thing, because what what most people ask is, what stock should I buy? What crypto token should I buy? The next level of question? It's a very basic question. Next level of evolution is what rules should I follow? Yep. And if someone asks you what rules should you follow? They've evolved beyond keep trying to get tips, right? They're trying to get a process. The Evolution above that is I these are my rules. And I have confidence in them, because I've tested them. And I've evaluated them. So the most important part of my program, my teaching is actually the the back testing, the evaluation, the optimization, improvement of systems, yes, I give systems, but I don't want you to believe and trust me that those systems work. I want to give you the skills and tools to make that decision for yourself. So you can actually follow them in good times and bad. Does that make sense?

Grant
Oh, total total sense. Yeah. That way that you have a greater probability of being disciplined of sticking with that system and not not bailing when you shouldn't? Or not being able to get back in when you should? That's, that's right. Yeah, yeah. critical aspect for them. So when you think about the portfolio's you've talked about you doing stocks? You doing crypto? Do you do have an approach where you separate the portfolio across those? Or is is crypto always part of it? Or do you just focus in crypto with some of your trading strategies, but different ones in stocks? I know it's a long question. And how do you distinguish between the two trading?

Adrian
Yeah, it's a good question. It's a good question. And one of the one of the things I realized when I started researching into systems is that different markets move and behave differently. So you know, gold moves differently to oil moves differently to the stock indices moves differently to the Australian stock market. So my rules are developed for each market. Now a great set of rules will probably work on several markets, but you design it for a certain market. So I have rules for the Australian stock market rules for the Hong Kong Stock market rules for the US stock market. And I have rules for the crypto markets and then different. What I have that sits above all of those systems is a capital allocation model. And I say, okay, for my portfolio, I have this X percent in system one y percent in system two, Zed percent in system three, and so on. And each day, when I'm calculating the size for my positions, I go all the way to the top and say, Okay, how much money do I have in my accounts? What are the percentages for each system? And then within each system, how do I size each trade. And by cascading it down like that, you do a couple of things, you make sure you stay diversified, you don't get concentrated, you make sure your risk on each trade is low, and red linked to the amount of capital you've got in that system and in in total in your account. So the systems are all separate, but they essentially trade a common pool of money and have an allocation to each system, which keeps everything safe and balanced.

Grant
Okay, so. So having that in place, then it makes total sense to, to organize it that way. And it sounds like because I've traded lots of different markets like you having the rules that are that are unique to market makes total sense. Because each one of them has different personalities, even with the same let's say it's us base stocks, then even even each of those have their own sort of personality and characteristics. And so the question is, you know, trading apples gonna behave differently than trading IBM, right? Or whatever, right, that they all have that? So my question is, what in your trading system in terms of your rules? How far down do you get? Do you get to individual stock sort of rules, or you keep it to sort of industry or sector rules, how far down you go with that.

Adrian
So for me, personally, I usually go down to a market, I trade one set of rules that would be applied to a, an entire market or a subset of that market, like, I have a set of rules that would be applied to stocks in the s&p 500, I have a set of rules that would be applied to the entire US stock market. So NASDAQ, Amex NYSC, not pink sheets, for instance, I have a set of rules that isn't applied to the entire Hong Kong market, and the entire Australian market. So I sort of play at that level, you can develop systems at a lower level. But the trouble is, the lower you go, the less trades you get in your back tests, the less confidence you have that the rules really work.

Grant
Yeah, that's what I was wondering about your comment about back testing, I started thinking, Oh, wow, because I know the personalities of some better than others, I obviously don't trade all of them. And after a while you find a few that you feel like you start to understand. So you focus on those, I started like, wow, if you're gonna do that back testing against each of those different types of personalities, that's that's a lot of work. To do that back testing.

Adrian
The back testing is probably not as much work as you think. Because the the way, the way I do it is I have a subscription to a data provider, which gives me all of the stock history for all of the stocks on all of the markets. Okay, I put that into some trading software, I use Amy broker, there's other software, but Amy broker is probably one of the best, best value trading sort of back testing software's. And in the software, I codify the rules and the portfolio management principles and rules in the position sizing. And then I can back test using those rules on the entire market all at the same time. So once I've coded to run a backtest, over 30 years of history, over 1000s of stocks listed on the US market takes about a minute. Oh, really? Wow. Okay, so we're not doing this manually? Oh, guess. It's not just a matter of pressing the backtest button and saying, oh, it's profitable. There's steps you need to go through in the analysis to validate Oh, it's profitable, it's stable, the rules are all significant. I haven't over optimized or fine tune my system to particular trades or the past data. So back testing is really a process. But the labor intensive stuff is taken out of it by the software.

Grant
So that makes it it makes total sense. Because I've both written code on as well as use multiple back testing systems. And I know they can become quite involved. My question is now with that back testing strategy that you have, as you then go to apply it, is it the human that's clicking the button, or do you do leverage software that actually says Oh, well, hey, here's the point to actually execute based on these rules. And therefore it executes that for you.

Adrian
Yeah, it can be both. So on the crypto side, my trading is 100% automated, I literally, I don't do anything, I just monitor that the program, the algorithm is working. And I get a report at the end of each day saying these are the trades you placed. And I just make sure that that's all, you know, in line. On the stock side, it depends on the style of the type of stocks you're trading. So if you're trading extremely high liquidity stocks, like let's say you only traded stocks in the S&P 500, it's pretty easy to fully automate that one. It's less troublesome to fully automate that. And I won't say too easy because there's a bit of tech involved in the automation, if you're trading penny stocks, or smaller caps, where there's a little more risk of slippage, and you want to be a bit more careful with your entries, probably less wise to trust that to a piece of software to place your trades for you. So I do most of my I do my stock trading manually. Okay, but I'm moving to automation on that side for selected systems, not for every system. Yes, but I think the advantage is, on the stock side, I'm only trading once a day or once a week. And so it still takes very little time, even though the execution is not automated, I literally spend 15 to 20 minutes a day, placing orders. And that's all I do on my trading, it's really quite quick when you trade systematically.

Grant
That's amazing. So if I pull it back then to you got a brand new trader, they're gonna put in about two months of effort before they can maybe get a portfolio in place. I'm assuming initially, that's probably manual trading activities, but over time, then they take on more and more automated capabilities. Is that fair?

Adrian
Yeah, they could if they wanted to, if they were comfortable with the technology to do so, as some people are not, you know, they're not programmers by background. And some of those, you know, the API's or that is it's not straightforward. So you don't have to do that. I've traded for 20 years, and I'm still doing some trades manually, that, you know, 1520 minutes a day doesn't stress me out too much. So I'm okay with that.

Grant
Yeah, yeah. If you are stressed out, Adrian, then yeah, I'd say well, wait a minute. No, that's not stress 15 to 20 minutes. Um, so quick question. When you talk about the profile of your, you know, the students, the people that you take through this, can you describe a few profiles of people that tend to do well at this,or I have literally taken all sorts.

Adrian
So, you know, I have on one extreme, the people who gravitate most naturally to systematic trading, and typically, typically analytical types, engineers, scientists, accountants, people who are comfortable with computers in code. And they will typically pick it up very quickly, they'll they'll see the value in the analysis, they won't be stressed out by the the software, the analytical work or the coding. And they'll be off to the races very, very quickly. But at the other end of the extreme, I've taught artists, people with adult someone with a dog walking business, some people who are stay at home moms stay at home dads, who with with no analytical background, so it works for all sorts. But the common the common drive or factor amongst all of them, is you is desire. You've got to and fascination, you've got to really want to learn to trade the markets. What I say to people, when they come to me say can you teach me to trade say, Well, yes, but why do you want to learn? And what do you think about the markets and people who say, Oh, look, I just think I, I should invest? I don't really know anything. And stock seems easier than property because I've got no money. I say, You know what, it's probably gonna be a hard journey for that person. But for someone who comes to me and says, Look, I just, I just love the way the markets move up and down. It's, it's kind of fascinating to me. I've tried, but I lost money. And I don't know why. And I just want to learn, you know, that person will succeed ultimately with the right guidance.

Grant
Awesome. That that's wonderful. Okay, so if someone wanted to find you, how do they find you? What's what's a call to action here so they can get

Adrian
Yeah, absolutely. So the the business in the website is enlightened stock trading and for your listeners, Grant, I've put together a page with some kind of free free content and courses just to get people started. So EnlightenedStockTrading.com/FIR, register there and they'll get a bunch of cheat sheets about how to avoid losing how to make money and how to build confidence in your systems and a course on the millionaire trader code which gets your mind right and shows you the path to success.

Grant
Excellent. Wow. Thank you for doing that. I didn't know you're going to do that. I appreciate that.

Adrian
Yeah, no pleasure. It's exciting because you You know, what I want most of all, is to stop people from getting into the market uninformed, and just losing their money. Because a little bit of education will keep people alive. And a little bit more education will actually show you how to make money. So, you know, what I'm aiming for is, first of all, make sure people who get into the markets just don't lose everything in the next two weeks, because that happens more often than you'd think. So absolutely. With that do people can be in the game.

Grant
And with the increased volatility in the market today, does the systematic trading, you still fill fill work? Well, I mean, it's obviously not. It's not that secular bull market that we've experienced over the last, you know, plus, you know, decade or more, right. So that's change. Any thoughts on that?

Adrian
Yeah, the key here is diversification. So you don't want to as you evolve as a trader, you'll become more and more diversified. And you can make money for more different market conditions, you can make money from quiet up markets, from volatile sideways markets, you can make money from volatile downward market, you just need the right set of rules. So none of the market conditions need to be scary. It's just a matter of finding rules that work and applying them consistently. And that can those rules turn themselves on and off. Well, at least in my world, I create the systems to turn himself on and off when the time is right. So my long side trend following turns off when the market isn't in a bull phase. So I'm not going to keep taking signals all the way down in the bear market, because that's just silly. It's low probability. But I will sell stock short when the indices, rollover, and everything is clearly going down. And I'll hold the short positions until the market comes up, or until I've got a decent profit and then hits my profit target. So it doesn't matter what the markets doing, you can have a systematic approach that works.

Grant
Great. I wanted to make sure that point came out that this is not just about because earlier we talked about, oh, well, I put it in I think the long term, the reality is for the different market conditions, you have the set of rules to handle what the current market conditions are. So that's key.

Adrian
Yeah, absolutely. That's really, really important. You've got to diversify. No one method doesn't matter what you're trading or investing in no one thing is your path to wealth. You need to have different strategies, different approaches, and systematic trading is no different.

Grant
Adrian, it's been a pleasure. Thank you. I know it's, it's already tomorrow. It's Saturday. From the future in Australia. It is from the future. What's the market look like? Yeah, just let me know. Right.

Adrian
I'm fortunately markets closed in the future because it's Saturday.

Grant
Ah, that's right. That's right. Well, Adrian, thank you for taking the time, especially on your weekend. I appreciate you doing that. And I look forward to chatting with you again, because I'd like to do a follow up with you in some time. And everyone please take a look at that call to action that you shared on that URL. What's that URL? One more time?

Adrian  
It's EnlightenedStockTrading.com/FIR

Grant
Thank you very much. Okay, everyone. Thanks for joining. And until next time, get some systematic trading.

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