Trading Psychology _ Why Normal Doesn’t Make Money _ Part 1

Mr Shaw Official

#forextrading #cryptotrading #stockstrading #psychologicalanalysis #fundamentalanalysis #technicalanalysis #marketanalysis #marketupdate #earnonline #onlinetrading

Transcript

00:00I'm not going to attempt to show you how to trade. I'm going to attempt to show you how

00:15to think while you're trading and this will become very clear in a second.

00:20By way of introduction, my name is Tom Hugott and I come from a very unique vantage point in relation to you.

00:33You see, I started working in the city about 20 years ago and for the first decade of my career,

00:43I sat and I watched you trade. I must have watched 100 million trades go over the tape.

00:50In the 10 years that I sat on the trading floor whilst I was managing and hedging positions,

00:56depending on which direction you saw the market go up or down. And it does provide you with a rather

01:04unique insight to watch 50,000 people trade over a decade. You get a feel for how it is people are

01:12thinking when they're sat in front of their monitors at home or wherever they are in the world.

01:18And you notice that people tend to make the same mistakes over and over and over. And actually,

01:29very few people are capable of making money consistently. So as I left in February 2009 in

01:38the throes of the bear market, I realized that actually trading had absolutely nothing to do with

01:44technical analysis, fundamental analysis. And it was difficult to begin with because no longer did

01:53you have a security blanket in the form of a monthly paycheck. Instead, you were there, mano-mano,

02:00in front of the screen. The market was your best friend or your worst enemy, depending on the day.

02:06And here I am some 10 years later. This year has been a good year. I made more than a million pounds

02:13this year. Last year, I managed to lose nearly 90,000 on Christmas day. Would you believe that? It's

02:21one of the reasons why I am so grateful that CMC market is stopping me from trading on a thin

02:28trading day. And it's actually, it's a bit of a challenge, would you believe it, to be at a

02:33Christmas lunch and dinner. This is, I think you call this boxing day. Yes, you see, we Europeans,

02:41we heathens, we celebrate Christmas on the 24th while you wait a day or so. And then you have your

02:47boxing day. And there I was on boxing day in a celebratory moment, whilst at the meantime,

02:53I was, I don't know if you recall what Dow Jones did on the boxing day last year. It had its single

03:01biggest gain ever. It had fallen 500 points on Christmas Eve, the move that I had captured

03:08absolutely every single tick off. And on boxing day, I had been long. But as the Ma, as the Dow,

03:17had risen five, 600 points, I thought, it's probably about time to begin to short this.

03:22I took my profit and I reverted short. And the Dow rallied another 600 points to make it an 1100 point

03:30move day. And me walking out of there going, that was an expensive Christmas dinner.

03:36Fear is what's stopping people from making money in the markets. Sure, people are good at making

03:49money at times. But the tendency is to make it, lose it. Make it, lose it. I believe that the only

03:58reason why I am good at what I do is because of my relationship with fear. I am what's called a

04:05high stake trader. Some would call it an extremely high stake trader at institutional size. The average

04:12bet amongst CFD traders here in the United Kingdom is seven pounds a point. My position here equates to

04:20750 pounds a point in the DAX. It means that if DAX goes 20-30 points against me, I am faced with a loss

04:29which would equate to the average annual salary of a worker here in the UK. Thus, you need to have a

04:38rather special relationship with losing. And you need to have a rather special relationship with winning

04:44trading as well. And what I hope to do over the next two hours is to change the way that you look

04:51at trading. Now, I could have come in here and I could have thrown all sorts of techniques

04:57at you. Bollinger bands, Keltner channels, moving averages, crossovers, stochastics, MACD, RSI. Oh god,

05:05I've spent countless hours studying it, as I'm sure you have as well. But I am sure that you also

05:13realize that actually, no matter how good a grasp you get on technical analysis, there are still

05:19those days where you simply refuse to take your loss. Where despite your best intentions, you simply

05:26cannot get yourself to do the right thing. So, you may quite rightly ask, do I get scared when I trade and

05:34I trade the size that I do? Of course I get scared. But the narrative here is not that I am a fearless

05:43trader. I'm not even a fearless person. I'm scared of losing loved ones. I'm scared of

05:49sending my children out in the traffic. I am in no shape or form any different than any other caring

05:56parent is. If you put me out of the balcony over here and I stare over into the ground,

06:03do I get a flutter of nerves? Sure. But with practice comes experience. Now I'm actually a firm

06:12believer that practice does not make perfect. And I would like to elaborate on that point a little

06:19bit later on in the presentation. I'm also scared of making a complete twit of myself today. I'm scared

06:27that you don't get the message. I'm scared that you think this is ridiculous. I came to hear about

06:32how he navigates the stock indices. And I promise you, I will give you my rather unique insight into

06:38how I trade stock indices. So, if you are that way inclined where you prefer to just stick to the

06:44technical analysis, I assure you, you're not going to walk out of here empty-handed either.

06:48But the truth is that my relationship with fear has come to the point where I have desensitized.

06:56No, that's not right. I tried so hard. Sometimes foreigners can struggle with these words.

07:04I have desensitized myself to certain levels of stimulus that you face when, for example, a car

07:12comes at you full speed. I'm sure that if it was somehow possible to produce a brain scan while I was

07:22trading during particularly stressful situations such as Boxing Day last year, you will find that my

07:30amygdala doesn't light up like a Christmas tree. You will probably not even be able to discern that I'm

07:38losing £90,000 because I have blocked it out. I can't block out fear in many other aspects of my

07:47life. If you put me in front of the television screen, I watch Friday the 13th or I don't really

07:53watch much TV, so I don't know what's scary these days, but you know, Freddy Krueger kind of style.

07:58I'm sure I'm going to sit with a pillow like everyone else does. Well, probably you won't sit with a

08:05pillow, but I will because I don't take the horror movies very well. But when I'm faced with horror

08:12situations while I'm trading, I seem to have developed an immunity to fear, which enables me to

08:21make the right decisions when they need to be made. Whether that's because I've trained or whether I was

08:30born with it, I don't know. But the fact of the matter is that my father was a vacuum cleaner repairman

08:36and mother was a nurse. So I don't think that I've come from a heritage of risk takers. So my argument

08:44is that if I can do this with a rather unique way of doing it, then I believe you can as well. But it boils

08:53down to that practice does not make perfect. Practice makes permanent. And if you carry on

09:01practicing the wrong way, you will merely establish a behavior pattern that doesn't serve you.

09:10So what can I accomplish in two hours? Well, look, not that I in any shape or form will put myself in

09:15the league of these four gentlemen. But it only took Steve Jobs 15 minutes to galvanize a departing

09:22class from Stanford University in 2015 to go out and connect the dots and not so much work from the

09:31point of view of the head, but work with the heart. And Martin Luther King, it took him 17 minutes

09:38to create the fortitude for a generation and a segment of the American public that was suppressed.

09:45It paved the way for him winning the Nobel Prize. And I don't think I need to introduce

09:51neither JFK nor Winston Churchill, at least not when I'm in the United Kingdom.

09:55Since the establishment of the rules by ESMA last year, or was it the year? No, it was last year,

10:02in August, September time last year, where all European Union brokers now had to curtail the amount

10:08of leverage that they gave to their clients. We used to enjoy 200 to 1, now we only have 20 to 1.

10:15And another thing that then established was that every single broker had to put up on their website

10:20how many of their clients were losing clients. That was a little bit like the cigarette companies

10:28being forced to put warnings on their cigarette packages and show draconian photographs of people

10:36in hospital beds with emphysemia and lung cancer and anything in between. Yet it didn't stop people from

10:42smoking and it certainly hasn't stopped the interest for trading either. But the fact of the matter is

10:48that ESMA has done us a favour, may not have done us a favour, about margin. Although there's many ways

10:57that we can get around that if we really want margin, you just think offshore and you'll get your 200 to 1

11:02if you want it. No, they've done us a favour because they've actually highlighted the true nature of trading.

11:10You see, if there's 100 people in here and 75 of them are losing, as it shows here on the CMC Market website,

11:18well, this is no longer a technical analysis issue. You're not a losing trader because you are deficient

11:25in MACD and you're not running your losing positions because you don't understand stochastics or moving averages.

11:33This is not a technical analysis problem. This is a human problem. And the sooner that you accept

11:40that this is a human problem, the sooner you can actually do something about it.

11:44I thought that it would be the end of the CFD industry when all the brokers had to put their

11:59this the winning stats and the losing stats up on the website. But it hasn't, because people know it,

12:05people are aware of it. But people think, well, this stat doesn't apply to me any more than the warnings

12:12on the cigarette packages apply to me. So, when we're confronted with charts, be it something,

12:21the point here where I write here. At that point, you can buy. Buy the market, so to say I buy the

12:28market here. Well, I'm buying it because we have a gap up and now we've traded sideways in what I

12:32consider to be an ABCD correction. Yeah, I know my technical analysis. The flip side is, I could also

12:38say, no, actually, I'm going to sell because if this was such a strong market, it wouldn't have

12:42taken the buyers an hour. And we also know that 48% of all gaps gets filled within the first three

12:48hours of trading and 78.6% of all gaps in the Dow Jones index gets filled within 72 hours or free

12:56trading days. But it's really not so interesting to know whether this is a winning trade or losing

13:03trade. Maybe I'm right. Maybe I am wrong. It really does depend on how many traders out there

13:08agrees with me and they back up my trade as well by being a bias when I'm buying or being sellers

13:14as I am selling. So, since I have no knowledge of the future, whenever people ask me, where do you

13:20think gold is going? Where do you think so-and-so is going? They say, do you know what? Come back to me

13:25next week. My crystal ball is out for repair. It's a facetious way of telling people to stop bugging me

13:32about where I think the market is going because I am not Nostradamus. I have absolutely no idea.

13:38And anyone who says they think they think that the market is going this way, that way is because

13:43they have a vested interest or a bias towards a direction or another. And that's quite fair.

13:51If you're a long Bitcoin, of course, you're going to say that the Bitcoin is going to go up and you

13:55think it's going to go up. You wouldn't say, I think Bitcoin is going down and then you're a long

13:59Bitcoin. So, it's not that I am not forgiving towards people when they state that they think

14:04the market is going up or down or Tesla is headed this way or that way. It's just that the opinion

14:09is biased from their own position. So, if my entries are purely random and I'm a professional trader,

14:16and you may think, oh, as a professional trader, you may have a hit rate around the 80%, the 90%.

14:22Oh no, I most certainly do not have a hit rate in the 80s or in the 90s. In fact, you could even argue

14:28that I would have a better hit rate if I simply flipped a coin and then I applied money management.

14:37So, either way, the sooner I accept that the nature of what I am doing is basically random,

14:45the sooner I can begin to trade as trading should be done.

14:48I hadn't seen that one coming. And I certainly hadn't seen that one coming either. But that's the

14:58nature of the game that we are playing. Now, do I think that charts is the Holy Grail? No, I like charts.

15:07I could devour 10, 12 hours every single day, a bit more in the weekend if you allow me to. You know,

15:13if there's no lawn to be mown or windows to be polished. You know, I am quite happy to sit in

15:18devouring endless reams of stock charts that I analyze purely to train my mind. But I'm also

15:27fully aware of the way my mind works. And my mind is not my best friend when it comes to highly

15:36profitable trading. So I don't believe for one second that charts is the Holy Grail,

15:42any more than I think fundamental analysis is the Holy Grail. See, the problem here is,

15:47ladies and gentlemen, that we have a brain which is at best chaotic and at worst just our worst enemy.

15:56And one of the little intricacies of our brains is that it has a tendency to see things that aren't

16:04there. This is a phenomenon that in Latin is called apophenia. Now, if I was going to translate

16:11apophenia into a common language, it would be something along the lines of patonicity. So when

16:17you think about the nature, for example, of indicators, take some common known indicators like

16:23Fibonacci. Let's say that we look at some of the ratios of Fibonacci. I'm going a little bit off track

16:28here a little bit without any notes. Not that I really stick to the notes anyway. When a market

16:35makes a 61% retracement, some would argue that this is the ideal time to either buy or sell short,

16:42depending on the direction. And if that fails, then there's also the 78.6% retracement. And hell,

16:48why not throw the 88.6 and 94.5% ratio. So there's always a ratio for the particular season.

16:56However, my argument is that if the market has already traded up to a 78% retracement,

17:03surely if you sell short at 78.6, you're actually betting against the prevailing trend.

17:10Some would argue against me. I'm not really so interested in what other people are thinking.

17:14I am more interested in trying to explain to you that the majority of indicators are available to

17:20the majority of people. Yet, considering that 75 to 80%, maybe 90% of all people engaged in trading are

17:28losing, maybe it's a time we have a real long, hard look at what it is that we're actually doing when

17:35we're trading. See, the purpose of trading is for us to make money. Purpose is not to be right. It's not to

17:41derive glorification through our efforts. There is one single raw purpose to trading,

17:48and it is to make as much money as possible. And the way you do that is simply to begin to think

17:56differently. And I stated earlier that if 75, 80, 90% of all people are losing traders, we also have to

18:04assume that those 70, 80, 90% are normal, perfectly well-functioning people within society who hold down

18:12jobs as well as everyone else's jobs as well as everyone else does are intelligent, well-spoken,

18:18pay their taxes, look after their children, etc., etc., but they can't trade for shoot

18:23because they simply think like everyone else does.

18:35So.

18:36So.

18:38So.

18:40So.

Category

Transcript

Be the first to comment

Recommended