SCOTT WELSH TRADING BLOG

Easy is the Enemy

Easy is the Enemy

Dec. 23, 2020

Smartphones are horrific.

In many ways.

Sure, they’re the root cause of the largest mental health epidemic in the history of humanity.

But they’ve also trained us to be awful traders.

Why?

Because the smartest people in the world have successfully taught us to be short of attention and to crave quick, easy answers.

Yes, there’s an app for that. And a blown out trading account to go along with it.

It would be easy if we could email a stranger and order an automated trading strategy that would grow a $200 account into $100k with no drawdown.

Hmm, I’m short on money. I think I’ll try trading. 

[writing]

“Dear Sir. I’d like to buy a trading system from you that makes 120% per year with less than a 5% drawdown. 

Thanks.”

Well, my money situation is fixed. What’s on TikTok??

Unfortunately, trading is not easy. It’s the opposite of easy.

That doesn’t mean trading is complicated, though. It doesn’t mean that trading requires hard work.

It just isn’t easy.

Take losing weight, for example.

It’s not complicated. Don’t eat certain things and don’t eat late. And it’s not hard work. We’re eating less, not more.

But not stuffing our face is really hard. That’s where we come up short.

Trading is no different.

Here’s a system on Gold that has worked for many decades and will, in all probability, work many decades into the future.

Just buy Gold on a 40-day breakout and sell when it crosses below the 20-day low. No Short trades.

Here are some recent trades:

The cyan lines show winning trades; red lines show losing trades.

What’s complicated about that system? Nothing.

Is it hard work trading that system or researching that system? No and no.

Is it easy?

Nope. It’s darn near impossible for traders in the Age of Smartphones.

Why?

Because it loses. And it has losing years. From 2000-2020 it’s negative in 2004, 2008, 2013, 2015, and 2017.

I’m not sure I know anyone who could trade the same system again after just one losing year.

But does this system work?

Absolutely.

If you compound gains during that time period, here is the report:

On a hypothetical $20k account, we would have seen less absolute drawdown than an Index Fund, similar overall drawdown and would have beaten the market return-wise.

This is a simple, hypothetical example but it proves the point.

Unless we’re willing to do what’s simple and difficult, we won’t be able make dramatic changes.

In our next Newsletter, we’ll look at a small portfolio of simple, hard systems. The results are great but the path isn’t easy.

Next email is on Sunday. Happy holidays!

Talk to you soon.

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Disclaimer:
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.