03 Jan The Simple Trading System That Pummels the Market
The Simple Trading System That Pummels the Market
January 3, 2018
Is trading hard?
After all, less than 5% of the people on earth beat the market. Clearly it’s a highly-skilled profession that only a very few can do.
Or is trading easy?
On one hand, buying an Index Fund takes a one-time outlay of 15 minutes. After that 15 minutes, you’ll end up being beating 95% of traders. That doesn’t seem hard.
On another hand, you can just copy the simple rules of a timeless principle and beat almost every trader that way, too.
So which is it?
It’s both. And that’s why I love trading so much.
To develop a viable daytrading system from scratch as a novice, it can take years.
First, you have to do a ton of research to find a trading idea to get you started…
- Then you have to pick something to trade.
- Then you have to test that system on a timeframe.
- Then you have to test another instrument to see if the system’s robust.
- Then you have to calculate the trading costs to see if it would work in real life.
- Then you have to determine how much it makes and decide if that profit is acceptable.
If, after doing all that, the system doesn’t make enough money, then you have to…
- Change the timeframe you’re testing.
- Or change the rules of the system.
- And then retest all of the rules of the system [Note: changing one rule means all the other rules are affected so you have to re-test all the other rules again. This can happen over and over.]
If that doesn’t work, you have to start over with a new trading system.
How much time has gone by at this point??
Then, if you make it through all that, you then have to spend months forward-testing (watching it trade live to see if the results match up to the testing). If the forward-testing isn’t accurate, you may have to go back to the drawing board and begin again.
See what I mean? It’s hard.
But, of course, there are timeless principles that have existed forever and will exist forever. You could use those instead (and save all the hardships of creating something new).
One such principle is momentum.
When something goes up, everyone wants to be a part of it.
My favorite example is: Why are people buying bitcoin? They’re buying it because it’s gone up. That’s the reason. And guess what? The same thing also happened during the housing crisis in 2007 and the dot com craze in 1999 (to just use two recent examples).
Momentum will always cause a mania. Those are the facts of the case–and they are undisputed.
So we can use the timeless principle of momentum and make trading easy.
Here are the easy steps to beating the market soundly:
- Trade when momentum is rising (going Long) or momentum is falling (going Short).
- Use a Daily chart so that work is minimal and signals have importance (and very little noise).
- Use an instrument that trends strongly.
- Beat the market soundly for the next ten years.
Let’s do it in real life now.
I picked the simplest trend following methodology I could find (I talked about the two most common trend following methods in my posts and podcasts).
I added one exit rule.
I picked the British Pound Futures contract on a Daily chart because it’s known to be a hard-trending instrument (and because the Turtles traded futures back when they were making millions).
How did it do?
On a hypothetical $10,000 account, accepting less risk than we’d have to accept using an Index Fund, this momentum-based system averaged 15.95% from 2007-now (no compounding).
The Index Fund only averaged 10.26%.
It’s that easy.
Trading can be difficult and not difficult. It depends on what you like. Do you like doing years of work or do you like the ease of trusting timeless principles?
If you like easy, I’ll be giving away the details and the settings on this simple system for free in tomorrow’s YouTube video.
You can Subscribe to my YouTube channel by going here: https://www.youtube.com/channel/UCxAWDDaTLVy_diMVJCkGl3A
Hope to see you there.