Dearest readers, I am sure that for many of you, YouTube has replaced Google at least partially as search engine- it certainly did that for me. There are endless tutorials, podcasts, opinion and explanation pieces that just work better as videos then they ever would as static image and text web pages. One category that many people I know who are eager to get into stock trading and learn it right would be trading strategy videos. True, over the last few years they got really, really good; seems like even more experienced traders would find something interesting in the content produced lately, as it is no longer just for newbies any more. However, after a debate I had with a friend (a debate I lost- shocked I know haha), I now see that many, many of these videos are grossly misleading if you are interested in stocks. How? Why? Let us discuss that and maybe all of us can save some money, time and avoid a ton of grief and hair pulling.
Most of these videos use Tradingview as a charting platform and I use it in my quest to learn how the stock market and trading really work. Best I can tell, it is popular because it is really decent, many popular stock trading channels on YouTube rely on it which makes the rest of us choose it faster, and finally its coding language that people use for indicators and strategies is very popular and has resulted in a huge and still expanding library of free and premium indicators and strategies to experiment with. It is therefore a self perpetuating cycle where a platform with a large library of strategies and indicators fuels many YouTube trading strategy and backtesting channels, which in turn fuels creation of more and more indicators and strategies and on and on it goes. Everyone seems to benefit as well. Tradingview gets more subscribers and more free and premium content that it does not have to pay to create, stock trading Youtubers get to grow their channels and make money from ads, and us users get a wealth of knowledge from both the platform and the channels on the cheap!
Except, there is a huge problem.
A typical trading strategy video goes a little something like this. First, the Youtuber picks one or more likely a few indicators from the Tradingview library, defines rules for entry and exit points for both going long and going short. Then, our dear Youtuber proceeds to backtest the strategy over a long period of time on one of these two things- a forex pair or a S&P 500 Index.
Wait, hold up! You want to trade stocks, right? Why on earth are these Youtubers using forex pairs or indexes then?!
Yes, here we are right in the middle of our huge problem with these videos. You see, forex pairs and indexes function different from individual stocks, way different. The S&P 500 index and a typical forex pair always have investors' interest, always have eyes on them, always have some momentum and are always hot (trying to keep things simple but accurate here). Stocks, on the other hand, have momentum and hype going in and out of them. They can be hot and breaking out for a month, then trade sideways, then be forgotten for weeks, months or years- each stock on an almost entirely unique schedule (or a sector schedule- a sector goes up, a sector goes down). So, in forex world, you test a strategy and get a 70 percent win rate or something crazy like that. You take that same strategy and use it on a single stock, you get really bad or really good results depending on whether the stock was hot or not in your given backtesting time frame. This, dearest readers, is why many of these channels will not test strategies on individual stocks! It is just too hard for them to pick the right times for the right stocks and test the strategy only then when all they have to do with forex is pick a currency pair and easily test away. That does not work for us stock traders or would be stock traders.
Now, to be honest, the fault is partially ours as well. If a Youtuber picks a strategy and then picks a stock and a backtesting time frame when it was hot, we say hey this is not accurate because that person is cherry picking results. This is where I was at in my debate. Then, my opponent dropped a bombshell on me! He said "You see, this is one of the stupidest things many of us would be traders can ever say! Cherry picking stocks and timing their hot periods to get in and get out is precisely, 100 percent, without a doubt what you want to do and this is why stock screeners exist in the first place!". Mind...blown! That took me a little bit to process. You know how it is when you are emotionally refusing to let go of something that you believed in firmly so that you can begin to embrace something that seems, logically and empirically speaking, to be right or at least more right than what you held true before. Once I finished vomiting all that ectoplasm (haha), I wiped my mouth and said well hold on, if what you are saying is true, this means that almost every sound trading strategy you pick actually works extremely well, so long as you have a system to pick high conviction stocks, and those would be literally any stocks that are showing signs of momentum and unusually higher interest in them or something like that. He said yes, precisely- any trading strategy works as long as you pick the right stock.
Now, you might be asking yourself something very, very interesting. If almost all trading strategies work if you pick the right stocks, and especially by using screeners, should screener settings videos not be more plentiful and popular? Yes they should. Why are they not? It is because of the fact that if people believed stock picking strategies for stock traders beat trading strategy tests on forex pairs, then every single person interested in stocks would stop watching those videos almost completely; bye bye eyeballs, bye bye huge chunks of ad revenues. And so, the misleading continues.
To finish this off, think about the greatest damage done here to stock trading enthusiasts. We see tons of these strategy and backtesting videos, we see some of them tested on the S&P 500 index, and we begin to believe that when this index is going down, the market is going down. Have you ever considered that, if every stock was going when the index was going down, the index would go down to zero??? So, what is holding the market up? Which stocks are going 100 percent in a week while Apple is going down? I am not sure, but I think that learning how to spot these reliably enough is what us stocks fans should focus on more than anything else.
Most of these videos use Tradingview as a charting platform and I use it in my quest to learn how the stock market and trading really work. Best I can tell, it is popular because it is really decent, many popular stock trading channels on YouTube rely on it which makes the rest of us choose it faster, and finally its coding language that people use for indicators and strategies is very popular and has resulted in a huge and still expanding library of free and premium indicators and strategies to experiment with. It is therefore a self perpetuating cycle where a platform with a large library of strategies and indicators fuels many YouTube trading strategy and backtesting channels, which in turn fuels creation of more and more indicators and strategies and on and on it goes. Everyone seems to benefit as well. Tradingview gets more subscribers and more free and premium content that it does not have to pay to create, stock trading Youtubers get to grow their channels and make money from ads, and us users get a wealth of knowledge from both the platform and the channels on the cheap!
Except, there is a huge problem.
A typical trading strategy video goes a little something like this. First, the Youtuber picks one or more likely a few indicators from the Tradingview library, defines rules for entry and exit points for both going long and going short. Then, our dear Youtuber proceeds to backtest the strategy over a long period of time on one of these two things- a forex pair or a S&P 500 Index.
Wait, hold up! You want to trade stocks, right? Why on earth are these Youtubers using forex pairs or indexes then?!
Yes, here we are right in the middle of our huge problem with these videos. You see, forex pairs and indexes function different from individual stocks, way different. The S&P 500 index and a typical forex pair always have investors' interest, always have eyes on them, always have some momentum and are always hot (trying to keep things simple but accurate here). Stocks, on the other hand, have momentum and hype going in and out of them. They can be hot and breaking out for a month, then trade sideways, then be forgotten for weeks, months or years- each stock on an almost entirely unique schedule (or a sector schedule- a sector goes up, a sector goes down). So, in forex world, you test a strategy and get a 70 percent win rate or something crazy like that. You take that same strategy and use it on a single stock, you get really bad or really good results depending on whether the stock was hot or not in your given backtesting time frame. This, dearest readers, is why many of these channels will not test strategies on individual stocks! It is just too hard for them to pick the right times for the right stocks and test the strategy only then when all they have to do with forex is pick a currency pair and easily test away. That does not work for us stock traders or would be stock traders.
Now, to be honest, the fault is partially ours as well. If a Youtuber picks a strategy and then picks a stock and a backtesting time frame when it was hot, we say hey this is not accurate because that person is cherry picking results. This is where I was at in my debate. Then, my opponent dropped a bombshell on me! He said "You see, this is one of the stupidest things many of us would be traders can ever say! Cherry picking stocks and timing their hot periods to get in and get out is precisely, 100 percent, without a doubt what you want to do and this is why stock screeners exist in the first place!". Mind...blown! That took me a little bit to process. You know how it is when you are emotionally refusing to let go of something that you believed in firmly so that you can begin to embrace something that seems, logically and empirically speaking, to be right or at least more right than what you held true before. Once I finished vomiting all that ectoplasm (haha), I wiped my mouth and said well hold on, if what you are saying is true, this means that almost every sound trading strategy you pick actually works extremely well, so long as you have a system to pick high conviction stocks, and those would be literally any stocks that are showing signs of momentum and unusually higher interest in them or something like that. He said yes, precisely- any trading strategy works as long as you pick the right stock.
Now, you might be asking yourself something very, very interesting. If almost all trading strategies work if you pick the right stocks, and especially by using screeners, should screener settings videos not be more plentiful and popular? Yes they should. Why are they not? It is because of the fact that if people believed stock picking strategies for stock traders beat trading strategy tests on forex pairs, then every single person interested in stocks would stop watching those videos almost completely; bye bye eyeballs, bye bye huge chunks of ad revenues. And so, the misleading continues.
To finish this off, think about the greatest damage done here to stock trading enthusiasts. We see tons of these strategy and backtesting videos, we see some of them tested on the S&P 500 index, and we begin to believe that when this index is going down, the market is going down. Have you ever considered that, if every stock was going when the index was going down, the index would go down to zero??? So, what is holding the market up? Which stocks are going 100 percent in a week while Apple is going down? I am not sure, but I think that learning how to spot these reliably enough is what us stocks fans should focus on more than anything else.