25 Sep Doing The Opposite
Doing The Opposite
Sept. 25th, 2019
Sometimes we get stuck.
Maybe we don’t like our system but can’t for the life of us come up with a new one.
Or maybe we like our system but can’t for the life of us figure out a way to make a flat period more profitable.
The reason we get stuck is that we fall too deeply into a trading rut. If we’re very narrow in our beliefs about trading, we won’t have any good ideas when we hit an obstacle.
The truth is: ideas are infinite. We never really run out of good ideas.
But we can get stuck in a narrow channel and lose sight of what might be going on outside of the high walls we’ve built around us.
So, here’s one thing we can do.
We can just do the opposite.
Let’s say we’re a buy-and-hold investor of stocks we hold dear. That’s the only way to trade and the best way to trade. That’s what we believe.
Of course, we’re going to get toasted in years like 2008 and struggle in other years like 2018.
Can we do anything about that?
Well, if we’re solely drinking buy-and-hold Kool-Aid, there isn’t anything to do. We have to lose horribly in 2008 and suffer drawdowns in all the other down years, and that’s just a part of life.
But if we’re not so closed-minded, we could expand our horizons and maybe solve that problem.
What’s the opposite of buy-and-hold?
I can think of a couple things off the top of my head. Maybe we could buy bonds. Bonds are kind of the opposite of stocks. When stocks go down, bonds tend to go up. They’re opposites. And, sure enough, bonds were slightly positive in 2008 (up 4%) when stocks definitely were not.
Or maybe we could add trend following. Trend following is a trading system (opposite of buying-and-holding stocks), goes both Long and Short (opposite of buy-and-hold), and buys highs and sells lows. Stock holding does nothing of the sort.
If we did the opposite, how would trend following have done in 2008. One of the most famous trend following firms is Dunn Capital, and they were up 51% in 2008. That would’ve either made our whole portfolio profitable or at least made us break-even in the ’08 meltdown.
In those examples, doing the opposite gave us a whole new perspective and gave us the chance to make a lot more money. Opening our minds made a big difference.
Would doing such a thing help my homemade automated systems?
Would it help the periods where the automated systems have a hard time thriving?
And what would it look like to do the opposite in simple systems?
We’ll find out in our next email.
Talk to you soon.
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It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.