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00:00practice makes perfect except that it doesn't and i believe this is the reason why people continue
00:16to lose ladies and gentlemen because you can practice and practice and practice you can do
00:20everything right you can read all the books take all the weekend courses
00:24and still get nowhere in trading why because practice makes permanent and there are literally
00:33thousands of trading books and millions of hours of web seminars that is supposed to help you
00:39trade well but it doesn't and all you are achieving
00:45by training the same way is merely cementing your bad behavior
00:50okay now i want to tell you a story that truly changed me as a person do you remember the story
01:04of northern rock when i tell this story in denmark people don't know northern rock but i imagine you
01:08guys know northern rock what i found disturbing about northern rock was that when i worked at city
01:15index no one cared about northern rock it had a base around 600 for a long time and then in late 2005
01:25it was as if
01:26it went on fire and it rallied 50 percent from 700 to 1300 that's not even 50 that won't do it 80 90
01:37but do you think that any of the city index clients were on board this no they weren't
01:44but it gets interesting because northern rock peaked did a double top and then fell back
01:52and then the curious things happened no one had been interested in northern rock
01:58but now they became interested in it all of a sudden people began to buy northern rock
02:07now a broker doesn't ask a client why do you buy northern rock but they did
02:12now my thinking is that they thought that northern rock had become cheap
02:20i call it the supermarket mentality and the supermarket mentality is a mentality that you see in investors
02:28traders scalpers and anything in between and it doesn't matter whether you're based here in the uk
02:36or you're perhaps based in ukraine where i gave this talk in kiev now i may not speak russian
02:43but i sure as hell know 11 off or 14 off that's universal and it could be in holland
02:52where i also gave a talk and i might not be the best at dutch but i can see 35 off or halve price
02:59which is half price yeah it's universal it appeals to us you love a good bargain you go down to the car
03:09dealer and uh he says you know what this is your lucky day i'll wipe i'll give you an extra thousand
03:15for that thing that you call a car there on the forecourt because it's you and i feel generous yeah sure
03:21and you feel like yay i'm getting another thousand pounds for that was that a sign for me to stop
03:26it is universal we all suffer from it and i'm okay with it when i'm down in the supermarket
03:35quite all right by all means buy two chickens for the price of one chicken or load up on butter ahead
03:41of christmas please if it's is it on offer i'm i'm the worst i go down there and i'm thinking to
03:47myself here i am saturday morning you know and oh my god toilet paper is on offer how many times have
03:53i come home with 16 rolls of toilet paper you look at my cupboard there's toilet paper for a fourth world
04:01war i can supply you all with toilet paper because i love a good bargain and i laugh at myself i literally
04:09walk around in the supermarket giggling at my behavior because here i am a hard-nosed trader that would
04:16never buy something which is cheap and there i am like the worst of them hand soap is on offer
04:21oh you know you know that trick when you have the trolley and you take your arm in behind the shelf
04:28and you sort of scoop the whole thing out into the basket trolley that's how i shop when it's on offer
04:35sadly
04:37the financial market is a very different proposition
04:42and what really affected me was a phone call that i received
04:47after that long thing there
04:49it was saturday morning and someone called me
04:52and said
04:53hey you gave a talk up here up north and
04:56i just wonder if i could have your opinion
04:59my brother and i want to invest in northern rock
05:01because we think that it's a fantastic stock and it's probably a rare opportunity that is so cheap
05:09what do you think about that
05:11and i said well
05:13i'm not so sure it's a good idea and there's two reasons for that one
05:17supermarket
05:18aside
05:20that mentality doesn't work in the financial market and secondly
05:24let's say you do buy it here
05:27and it miraculously does turn around
05:30you now forged a pathway in your mind that says
05:34hey
05:35next time a really good stock comes along and it's fallen 66 percent from its peak
05:40now might be a good time to buy as well
05:42and you might get away with the first time
05:44you might get away with the second time
05:46but overall
05:47you are playing russian roulette
05:49and sooner or later
05:51you are going to get your head handed
05:54on a silver platter
05:55thank you very much
05:56and
05:57i don't know
05:59he probably went ahead and bought it anyway
06:02but this is the story of northern rock
06:05and it happened 100 meters from where we are today
06:08approximately 12 years ago
06:10people queuing up
06:13and that picture
06:15is a fascinating picture ladies and gentlemen
06:17why
06:18because the night before
06:20the government had announced
06:22that no account depositor
06:25of northern rock
06:26would lose as much as a penny
06:28yet even though the government
06:31of all entities
06:32had guaranteed people's deposits
06:34people still queued up
06:36well if you don't trust the government
06:40to honor
06:41an IOU
06:43who will you trust
06:45it was pointless to queue up
06:48it was a futile exercise
06:51the money were guaranteed
06:52but such is the power of fear
06:55and it made an impression on me
07:00and it leads me on to a story
07:05that I'm not particularly proud of telling
07:07because I think that the
07:08Me Too generation
07:10has done an incredible amount of work
07:13to shine light on behavior by men
07:18that shouldn't be there
07:20nevertheless
07:21in a much less
07:22illuminous times
07:24the father of modern economics
07:29lightened speculation
07:30to a beauty contest
07:31he said
07:33you will be presented by
07:35in front of you
07:3630 beautiful ladies
07:38and your job
07:40is not to say
07:41who's the prettiest
07:42no
07:42your job is to say
07:44who do everyone else think
07:46is the prettiest
07:46and the second prettiest
07:47and the third prettiest
07:48that was his premise
07:50for the financial markets
07:51our job is not necessarily
07:53to think
07:54about the markets
07:56in the context
07:57of what we think
07:58will happen
07:58but to think about
07:59what do I think
08:01you think
08:02what do I think
08:03you think
08:03and you think
08:04and you think
08:04he called this
08:08once removed thinking
08:10the idea of
08:11don't attack the market
08:13from the point of view
08:14of
08:15where do I think
08:16it's going to go
08:17think
08:18where do everyone else
08:19think it's going to go
08:21he likened it
08:22to a beauty contest
08:25where the job
08:26wasn't to select
08:26who you thought
08:27was the prettiest
08:28but who you thought
08:29everyone else would think
08:30was the prettiest
08:31otherwise
08:32you wouldn't win
08:33the competition
08:34where
08:34in the newspaper
08:36where this was presented
08:37okay
08:38so now we come
08:39to thinking
08:40in scenarios
08:41and this is what
08:41I want to cover
08:42in the web seminar
08:44that we will be
08:46holding later on
08:47will probably be
08:48next week by now
08:49I want to start off
08:50with a piece of
08:51analysis
08:52that I did
08:54a while ago
08:55this is the statistics
08:57of the Dow Jones index
08:58over the last
08:59seven and a half thousand
09:02trading days
09:02or 30 years
09:04what I find
09:04incredibly interesting
09:05is that
09:07this is the distribution
09:08of the losing days
09:10and the winning days
09:11now
09:11when we started
09:13trading the Dow
09:1330 years ago
09:15the Dow was trading
09:16at 1700
09:17today it's trading
09:18at 29,000
09:19so all
09:20however way
09:21you think about it
09:22we have been through
09:23an amazing bull market
09:25over the last 30 years
09:26yet
09:26the distribution
09:27of winning days
09:29and losing days
09:30in the Dow Jones
09:31is exactly
09:3250-50
09:33over those
09:35seven and a half thousand
09:36trading days
09:37half of them
09:39were winning days
09:40and half of them
09:41were losing days
09:42so for all this talk
09:43of technical analysis
09:44when I come to work
09:45in the morning
09:46I realize
09:47whether we are
09:48in a raving bull market
09:50or in a devastating
09:50bear market
09:51the odds
09:52of a winning day
09:53or losing day
09:54is 50-50
09:55and it's very
09:56it's a sober thought
09:57because you go to work
09:58and you're thinking
09:59anything can happen
10:00absolutely anything
10:02can happen
10:03so what I would like
10:07to show you
10:08over the next
10:0915-20 minutes
10:11is to
10:12perhaps touch
10:15on the things
10:15that you had hoped
10:16I would touch on
10:17an hour and a half ago
10:18and instead
10:20I got well traveled
10:22down the road
10:23of psychology
10:24what you'll see
10:27is statistics
10:28for the last
10:28256 trading days
10:30and these are
10:31some of the questions
10:32that I have asked
10:33myself
10:33and answered
10:34if Thursday
10:35is higher
10:36than Friday
10:36then what does
10:38the following Monday
10:39look like
10:39if I only traded
10:42extended bars
10:42on a scalp basis
10:43how would I perform
10:45would I make money
10:47is there evidence
10:49to support
10:50that what Monday
10:51starts
10:51Wednesday
10:52will continue
10:53how often
10:55is the high
10:56or the low
10:57of the Dow Jones
10:58made
10:58in the first
11:0130 minutes
11:01of trading
11:02how often
11:04do gaps occur
11:05and how often
11:06are they filled
11:07how often
11:09does a trend day
11:10occur
11:10and if you don't
11:13know what a trend
11:13day is
11:14you will
11:14are there any
11:17common denominations
11:18between strong
11:18trend days
11:19is there support
11:21for the comment
11:22that if you have
11:23a strong Friday
11:23you'll have a strong
11:25Monday
11:25if Tuesday
11:26is lower
11:27than Monday
11:28then what does
11:28Wednesday look like
11:29these are some
11:31of the questions
11:32that I have
11:32asked myself
11:33and the reason
11:34why I ask myself
11:35those questions
11:36is because
11:36it gives me
11:37a road map
11:38of what I can expect
11:39doesn't necessarily
11:40mean it will happen
11:42exactly as I hoped
11:43but it's
11:44an incredible
11:45guide
11:46into
11:48what I can expect
11:50and it has been
11:52invaluable
11:53for my trading
11:54let's take an example
11:56how often
11:57is Monday
11:57the high
11:58or the low
11:58of the week
11:59not a particularly
12:00interesting question
12:01because frankly
12:02I will only know
12:03until
12:03until Friday night
12:05whether Monday
12:06was the high
12:07of the week
12:07or the low
12:07of the week
12:08but it actually
12:09happens that
12:0960% of all
12:11trading weeks
12:12Monday is the
12:13high of the week
12:14now this information
12:15by itself
12:16is not particularly
12:18helpful
12:19however
12:20say you prepare
12:21for trading
12:21on a Thursday
12:22and you see
12:24that Monday
12:24so far
12:25is the highest
12:26day of the week
12:27could that piece
12:29of information
12:29help you
12:30when you are
12:31trading the Dow
12:31and by the way
12:32why am I so
12:33focused on the Dow
12:34the fact of the matter
12:35if the spread betting
12:38companies
12:38and the CFD
12:39companies
12:39were reporting
12:40what products
12:42were traded
12:43you will find
12:44that Dow Jones
12:45is one of the
12:46most traded
12:47products
12:48I happen to know
12:50a CEO
12:51of a spread
12:52betting company
12:53here in the UK
12:54who has stated
12:56for me
12:56that 90%
12:57of all their
12:58trades
12:59by volume
13:01and by stake
13:03size
13:03are executed
13:04in the Dow
13:04Jones index
13:05yes
13:06wow
13:07that's what I
13:08thought too
13:09so let's take
13:10a look at it
13:10the result
13:11I'll show you
13:12they're manually
13:12tested
13:13it means that
13:13I have printed
13:14out about
13:157,500
13:16charts
13:18that I go
13:18through manually
13:19yes
13:21it's
13:21it's quite
13:23the library
13:24I have at home
13:25maybe not
13:26everyone's idea
13:27of a library
13:28I have asked
13:30myself this
13:31question
13:31if Monday
13:32so far
13:33is the highest
13:33traded point
13:34for the last
13:35three days
13:35i.e.
13:36Monday,
13:36Tuesday,
13:36Wednesday
13:37then how
13:38often is
13:38Thursday
13:39going to
13:40trade below
13:40the low
13:41of Wednesday
13:42I found
13:43that there
13:44was a total
13:45of 25
13:45times
13:46when I was
13:47faced with
13:47this possibility
13:48and out
13:50of those
13:5025 times
13:51Dow traded
13:53below the
13:54Wednesday
13:54low
13:5421
13:55out of
13:57those
13:5725 times
13:58to me
14:01that's a
14:01significant
14:02piece of
14:02information
14:03let me show
14:06you some
14:06examples
14:07over here
14:09is Monday
14:10then Tuesday
14:12then Wednesday
14:13and then
14:15finally Thursday
14:15another
14:18example
14:18Monday
14:20is the
14:20high
14:20and by
14:21the time
14:22we get
14:22to Thursday
14:23big move
14:25down
14:25even though
14:27it was a
14:28gap up
14:28another good
14:33example
14:34and I will
14:35show you
14:35bad examples
14:36too
14:36this is not
14:37a one way
14:37street
14:38where I'm
14:38just trying
14:38to present
14:39the facts
14:40in a
14:40biased way
14:41oh I'll
14:42present it
14:43as is
14:43Monday
14:50Tuesday
14:50Wednesday
14:50Thursday
14:51I call
14:53this scenario
14:53analysis
14:54and I have
14:54never ever
14:55come across
14:55anyone
14:56dissecting the
14:58markets that
14:59they are trading
15:00in this
15:00manner
15:01let's
15:06carry on
15:06if
15:07Thursday
15:08is higher
15:09than Friday
15:09then what
15:10does Monday
15:11look like
15:11over the
15:15last two
15:16weeks
15:16there were
15:1721 instances
15:18where the
15:19price action
15:20on Friday
15:20was unable
15:21to trade
15:22above the
15:23highest point
15:23of the
15:24previous day
15:25which was
15:25Thursday
15:26I then
15:28looked at
15:28what happened
15:29on the
15:29following
15:29Monday
15:30and if
15:31there was
15:31a holiday
15:32on the
15:32Monday
15:32I would
15:33view the
15:34price action
15:35on the
15:35Tuesday
15:35considering
15:37the random
15:38nature
15:38of the
15:39markets
15:40remember
15:40the random
15:41nature
15:41of the
15:41markets
15:42over the
15:42last
15:4230 years
15:43we've
15:44had
15:447,500
15:45trading
15:46days
15:46and out
15:47of those
15:477,500
15:48trading
15:48days
15:49half of
15:49them
15:49were winning
15:50days
15:50and half
15:50of them
15:51were losing
15:51days
15:51that's
15:52random
15:53yet
15:55out of
15:56those
15:5621
15:57instances
15:58what you're
16:03seeing here
16:03is Thursday
16:04and Friday
16:04and then
16:05the subsequent
16:06Monday
16:06and you'll
16:07see that's
16:08a rather
16:08sizable
16:09gap
16:09one more
16:14example
16:15Thursday
16:15Friday
16:16and on
16:16the following
16:17chart
16:17Monday
16:17a very
16:20recent
16:20example
16:21from two
16:21weeks ago
16:22Thursday
16:23Friday
16:23and then
16:24a big
16:24gap
16:25down
16:25on the
16:25Monday
16:25do you
16:28think I
16:28go home
16:29short
16:29on a
16:29Friday
16:30night
16:30of course
16:31I do
16:31have I
16:33sometimes
16:34got my
16:34head
16:34handed to
16:35me
16:35on a
16:35Monday
16:35morning
16:36when the
16:36market
16:36opens
16:36of course
16:37I have
16:38but the
16:39stats
16:39are
16:40outrageously
16:42compelling
16:4220
16:44out of
16:4521
16:46times
16:47based on
16:48the last
16:49252
16:50trading
16:50days
16:51based on
16:52the last
16:5221
16:53observations
16:54the market
16:55has traded
16:55lower
16:55on the
16:56Monday
16:56as my
16:57friend
16:58put it
16:58he was
17:00rather
17:01minion
17:02like
17:02what
17:03yes
17:06gaps
17:09how often
17:11do gaps
17:11I've
17:13investigated
17:13every single
17:14gap since
17:142008
17:15and I
17:16found
17:17that the
17:20odds of a
17:21gap being
17:21filled on
17:22the day
17:22is 58%
17:24and here
17:25I'm talking
17:25about gaps
17:25more than
17:2610 points
17:26we're not
17:27caring about
17:28a gap
17:28of a 5
17:29point
17:29but any
17:30gap more
17:30than 10
17:31points
17:31there's a
17:3258% chance
17:33that the
17:33gap
17:33will get
17:34filled
17:34on the
17:35day
17:35so you
17:36will have
17:36to admit
17:36with me
17:36that's
17:37kind of
17:37random
17:37that's
17:38the kind
17:38of statistics
17:39that you're
17:39thinking
17:40I can't
17:40really use
17:41that
17:41but that's
17:42okay
17:43oh my
17:44god
17:44ladies and
17:45gentlemen
17:45I once
17:46investigated
17:47the tide
17:48in the
17:48Hudson
17:48River
17:48and correlated
17:50with the
17:51S&P 500
17:51futures
17:52it was an
17:53immensely
17:54interesting
17:55project
17:55taking the
17:57tide table
17:57from the
17:57Hudson River
17:58drawing it
18:00on a chart
18:00and then
18:01correlating it
18:02with the
18:02S&P 500
18:03do you know
18:04what I found
18:05there's absolutely
18:07no correlation
18:08between the
18:08tide in the
18:09Hudson River
18:10and the
18:10S&P 500
18:10futures
18:11but it was
18:12interesting
18:12and I thought
18:13I was onto
18:14something there
18:14and every now
18:15and then I
18:16thought this is
18:16looking promising
18:17but when I
18:18viewed the
18:18whole thing
18:19dispassionately
18:20I came to
18:22the conclusion
18:23that there's
18:23absolutely
18:24zero correlation
18:25between the
18:25tide
18:26and the
18:26Hudson River
18:27you may ask
18:28how did you
18:28get onto
18:29such a
18:29crazy idea
18:30of the
18:31correlation
18:31of the
18:32tide
18:32to the
18:32S&P 500
18:33well you
18:34heard the
18:34idea that
18:35the full
18:35moon
18:36will influence
18:37the water
18:38and you
18:39know you
18:39probably heard
18:39that notion
18:40of well
18:41lunar tech
18:42you know it
18:42comes from
18:42lunar
18:43full moon
18:43and
18:44so the
18:46idea I was
18:46thinking well
18:47hang on
18:47if the
18:48moon can
18:49affect the
18:50waters
18:50to such an
18:51extent in
18:52the Hudson
18:52River
18:52surely it
18:54must be able
18:54to affect
18:55us
18:55no
18:57it doesn't
18:58I don't
19:00care
19:00there has
19:01been
19:01I actually
19:02studied this
19:03because I
19:03was quite
19:03curious and
19:04this has got
19:04nothing to
19:05do with
19:05trading
19:06but the
19:06evidence
19:07the scientific
19:08evidence
19:09on the
19:10effect of
19:11the full
19:12moon
19:12on us
19:13it is
19:14just
19:15rubbish
19:16there is
19:19zero
19:20understanding
19:21but that is
19:21the danger
19:22of half
19:23knowledge
19:24half wisdom
19:24well you
19:25know a
19:26nurse comes
19:26out
19:26that was
19:27a crazy
19:27night in
19:28this hospital
19:28oh my god
19:29it is full
19:29moon
19:30this is what
19:30we call
19:31an observational
19:31bias
19:32so the next
19:33time
19:33that was a
19:34crazy night
19:35but you are
19:35forgetting all
19:36the other
19:36nights that
19:37was absolutely
19:37quiet when
19:38it was full
19:38moon
19:39anyway
19:4158%
19:42doesn't
19:43really make
19:43a trend
19:44does it
19:44it's
19:44slightly
19:45biased
19:46to one
19:46side
19:47but it's
19:47still
19:47pretty
19:47random
19:48however
19:49if I
19:50look at
19:50all the
19:51times when
19:51the gap
19:52is not
19:52filled
19:52on the
19:53day
19:53I'm
19:54beginning
19:54to get
19:54something
19:55which is
19:55a little
19:56harder
19:57hitting
19:57evidence
19:58I found
19:59that 78%
20:01of all
20:02gaps
20:02get filled
20:03at least
20:04within three
20:04days
20:05so if you
20:06have an
20:06unfilled
20:07gap
20:07on day
20:08two
20:08and you're
20:08coming to
20:09day three
20:10you're thinking
20:10well there's
20:11four chances
20:12out of five
20:13that we're
20:14going to
20:14fill this
20:14gap today
20:15it doesn't
20:16mean that I
20:16necessarily
20:16take a
20:17position
20:17according
20:18but it's
20:18good
20:19knowledge
20:19to have
20:19in your
20:20background
20:20see this
20:21is what
20:21I call
20:21awareness
20:22just like
20:23the mayonnaise
20:23example
20:24I'm aware
20:25that it
20:25is there
20:26the higher
20:30the day
20:30and the lower
20:31the day
20:31no I don't
20:32know if this
20:33is any
20:33interest to
20:34you
20:34but
20:35when I
20:37trade
20:38where I
20:39make my
20:40my biggest
20:42killings
20:42isn't when
20:44the market
20:44is having
20:45what we
20:45call a
20:46trend
20:46day
20:47a trend
20:48day
20:48is defined
20:49by that
20:50the high
20:50of the
20:51day
20:51or the
20:51low
20:52of the
20:52day
20:52not that
20:53I know
20:53it at
20:53that time
20:54the high
20:55of the
20:55day
20:55or the
20:55low
20:55day
20:55occurs
20:56very early
20:57in the
20:58trading
20:58day
20:58and by
20:59the time
20:59the market
21:00closes
21:00the market
21:01has moved
21:02to the
21:02exact
21:03opposite
21:03it closes
21:04near the
21:05high
21:05of the
21:05day
21:05or the
21:06low
21:06of the
21:06day
21:06so you're
21:07virtually
21:07just having
21:07a one
21:08straight line
21:09all day
21:09or one
21:10straight line
21:11and I
21:12always play
21:12for that
21:13that means
21:13it's very
21:14important for
21:15me to
21:15know
21:15what the
21:16odds are
21:17of the
21:17higher
21:18of the
21:18day
21:18or the
21:18low
21:19of the
21:19day
21:19being
21:19made
21:20early
21:20in the
21:20trading
21:21day
21:21and would
21:22you believe
21:22it
21:23out of
21:24a hundred
21:24trading
21:25days
21:25in the
21:25Dow
21:26Jones
21:2620
21:27of those
21:28hundred
21:29trading
21:30days
21:30the very
21:31first
21:32bar
21:32that you
21:33see
21:33at
21:342.30
21:34in the
21:35afternoon
21:35when the
21:36Dow
21:36Jones
21:36open
21:36is going
21:38to be
21:38the
21:38high
21:38of the
21:38day
21:39or the
21:39low
21:39of the
21:39day
21:40I
21:42think
21:42that's
21:43quite
21:43interesting
21:43I can
21:44see you
21:45share my
21:45absolute
21:46passion
21:47for that
21:47that's
21:49quite
21:49alright
21:50I know
21:50it's
21:50getting
21:50late
21:50in the
21:51evening
21:51but
21:52by
21:5430
21:55minutes
21:55into
21:55the
21:55trading
21:56session
21:56or what
21:56I
21:57call
21:57bar
21:577
21:57bar
21:588
21:58there's
21:59now
21:59a 50%
21:59chance
22:00that we
22:01have
22:01already
22:01seen
22:01the
22:02higher
22:02of the
22:02day
22:02or the
22:03low
22:03of the
22:03day
22:04and by
22:05the time
22:05we're getting
22:07to an
22:08hour and a
22:08half
22:08there's
22:09now
22:0970%
22:09chance
22:10that we
22:10have already
22:11seen the
22:12high of the
22:12day or
22:12the low
22:12of the
22:13day
22:13and by
22:17the time
22:17that we
22:18hit the
22:1918th
22:20bar
22:20now there's
22:2112 bars
22:22in an
22:22hour
22:22so this
22:23would by
22:24definition
22:24be an
22:24hour and
22:25a half
22:25into the
22:26trading
22:26session
22:26there's
22:27a 90%
22:28chance
22:28that we
22:29at that
22:30point
22:30have already
22:31seen the
22:32high of the
22:32day or
22:33the low
22:33of the
22:33day
22:34you
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