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[Music] practice makes perfect, except that it doesn't. And I believe this is the reason why people continue to lose, ladies and gentlemen. Because you can practice and practice and practice. You can do everything right. You can read all the books, take all the weekend courses, and still get nowhere in trading. Why? Because practice makes permanent.
And there are literally thousands of trading books and millions of hours of web seminars that are supposed to help you trade well, but they don't. And all you are achieving by training the same way is merely cementing your bad behavior.
Okay, now I want to tell you a story that truly changed me as a person. Do you remember the story of Northern Rock? When I tell this story, and then what people don't know Northern Rock, but I'm adding, you guys know Northern Rock. What I found disturbing about Northern Rock was that when I worked at City Index, no one cared about Northern Rock. It had a base around 600 for a long time. And then in late 2005, it was as if it went on fire and it rallied 50 percent from 700 to 1300. That's not even 50 percent, that won't do it, 80, 90 percent. But do you think that any of the City Index clients weren't on board this? No, they weren't.
But it gets interesting because Northern Rock Pete did a double top and then then fell back. And then the curious things happened. No one had been interested in Northern Rock, but now they became interested in it. All of a sudden, people began to buy Northern Rock. Now, a broker doesn't ask a client why do you buy a Northern Rock, but they did. Now, my thinking is that they thought that Northern Rock had become cheap. I call it the supermarket mentality. And the supermarket mentality is a mentality that you see in investors, traders, scalpers, and anything in between. And it doesn't matter whether you're based here in the UK or you're perhaps based in Ukraine, where I gave this talk in Kiev. Now, I may not speak Russian, but I sure as hell know 11 percent off or 14 percent off. That's universal. And it could be in Holland, where I also gave a talk, and I might not be the best at Dutch, but I can see 35 percent off or half the price, which is half price. Yeah, it's universal. It appeals to us. You love a good bargain. You go down to the car dealer and he says, you know what, it's your lucky day. I'll wipe, I'll give you an extra thousand for that thing that you call a car. They are on the phone call, 'cause it's you, and I feel generous. Yes, sure. And you feel like, yeah, I'm getting another thousand pounds for that. Was that a sign for me to stop? It is universal. We all suffer from it. And I'm okay with it. When I'm down in the supermarket, quite alright, by all means, buy two chickens for the price of one chicken, or load up on bottle ahead of Christmas. Please, if it's, it's an offer. I'm, I'm the worst. I go down there and I'm thinking to myself, here I am, Saturday morning, you know, and oh my god, toilet paper is on offer. How many times have I come home with 16 rolls of toilet paper? You look at my cupboard, there's toilet paper for a fourth World War. I can supply you all with toilet paper because I love a good bargain. And I laugh at myself. I literally walk around in the supermarket giggling at my behavior because here I am, a hard-nosed trader that would never buy something which is cheap. And there I am, like the worst of them. Hand soap is on offer. Oh, you know, you know that trick when you have the trolley and you take your arm in behind the shelf and you sort of scoop the whole thing out into the basket trolley? That's how I shop when it's on offer.
Sadly, the financial market is a very different proposition. And what really affected me was a phone call that I received after that long thing there. It was Saturday morning and someone called me and said, "Hey, you gave a talk up here up north, and I just wonder if I could have your opinion. My brother and I want to invest in Northern Rock because we think that it's a fantastic stock and it's probably a rare opportunity that is so cheap. What do you think about that?" And I said, "Well, I'm not so sure it's a good idea. And there's two reasons for that. One, supermarket aside, that mentality doesn't work in the financial market. And secondly, let's say you do buy it here and it miraculously does turn around, you now forged a pathway in your mind that says, 'Hey, next time a really good stock comes along and it's fallen 66 percent from its peak, now might be a good time to buy as well.' And you might get away with the first time, you might get away with the second time, but overall, you are playing Russian roulette. And sooner or later, you're going to get your head handed on a silver platter. Thank you very much." And I don't know, he probably went ahead and bought it anyway.
But this is the story of Northern Rock. And it happened 200 meters from where we are today, approximately 12 years ago. People queuing up. And that picture is a fascinating picture, ladies and gentlemen. Why? Because the night before, the government had announced that no account depositor of Northern Rock would lose as much as a penny. Yet, even though the government, of all entities, had guaranteed people's deposits, people still queued up. Well, if you don't trust the government to honor your an IOU, who will you trust? It was pointless to queue up. It was a futile exercise. The money was guaranteed. But such is the power of fear. And it made an impression on me.
And it leads me on to a story that I'm not particularly proud of telling. Because I think that the MeToo generation has done an incredible amount of of work to shine light on behavior by men that shouldn't be there. Nevertheless, in a much less, in an earlier time, the father of modern economics likens speculation to a beauty contest. He said, "You will be presented by in front of you 30 beautiful ladies, and your job is not to say who's the prettiest. No, your job is to say who do everyone else think is the prettiest, and the second prettiest, and the third prettiest." That was his premise for the financial markets. Our job is not necessarily to think about the markets in the context of what we think will happen, but to think about, "What do you think you think? What do I think you think? And you think, and you think." He called this once removed thinking. The idea of, "Don't attack the market from the point of view of where do I think it's going to go. Think, where do everyone else thinks it's going to go." He likened it to a beauty contest where the job wasn't to select who you thought was the prettiest, but who you thought everyone else would think was the prettiest, otherwise you wouldn't win the competition. Where in the newspaper, where this was presented.
Okay, so now we come to thinking in scenarios. And this is what I want to cover in the web seminar that we will be holding later on. Will probably be next week by now. I want to start off with a piece of analysis that I did a while ago. This is the statistics of the Dow Jones index over the last seven and a half thousand trading days, or 30 years. What I find incredibly interesting is that this is the distribution of the losing days and the winning days. Now, when we started trading the Dow 30 years ago, the Dow was trading at 1,700. Today, it's trading at 29,000. So, all however you think about it, we have been through an amazing bull market over the last 30 years. Yet, the distribution of winning days and losing days in the Dow Jones is exactly 50/50 over those seven and a half thousand trading days. Half of them were winning days, and half of them were losing days. So, for all this talk of technical analysis, when I come to work in the morning, I realize, well, are we on a raging bull market or a devastating bear market? The odds of a winning day or losing day is 50/50. And it's a, it's a sobering thought because you go to work and you're thinking, "Oh, anything can happen. Absolutely anything can happen."
So, what I would like to show you over the next 15, 20 minutes is to perhaps touch on the things that you had hoped that would touch on an hour and a half ago, and instead, I got well, traveled down the road of psychology. What you'll see is statistics for the last 256 trading days. And these are some of the questions that I have asked myself and answered. If Thursday is higher than Friday, then what does the following Monday look like? If I only traded extended bars on a scalp basis, how would I perform? Would I make money? Is there evidence to support that? What Monday starts Wednesday will continue? How often is the high or the low of the Dow Jones made in the first 30 minutes of trading? How often do gaps occur and how often are they filled? How often does a trend day occur? And if you don't know what a trend day is, you will. Are there any common denominations between strong trend days? Is there support for the comment that if you have a strong Friday, you'll have a strong Monday? If Tuesday is lower than Monday, then what does Wednesday look like? These are some of the questions that I have asked myself. And the reason why I asked myself those questions is because it gives me a roadmap of what I can expect. It doesn't necessarily means it will happen exactly as I hoped, but it's an incredible guide into what I can expect. And it has been invaluable for my trading.
Let's take an example. How often is Monday the high or the low of the week? Not a particularly interesting question because, frankly, I'll only know one till until Friday night whether Monday was the high that week or the low of the week. But it actually happens that 60% of all trading weeks, Monday is the high of the week. Now, this information by itself is not particularly helpful. However, say you prepare for trading on a Thursday, and you see that Monday, so far, is the highest day of the week. Could that piece of information help you when you are trading the Dow? And by the way, why am I so focused on the Dow? The fact of the matter, if the spread betting companies and the CFD companies were reporting what products were traded, you will find that the Dow Jones is one of the most traded products. I happen to know a CEO of a spread betting company here in the UK who has stated for me that 90% of all their trades by volume and by stakes are executed in the Dow Jones index. Yes. Wow. That's what I thought too.
So, let's take a look at the result. I'll show you there. Manually tested. It means that I have printed out about seven and a half thousand charts that I go through. Many, yes, it's, it's quite the library I have at home. Maybe not everyone's idea of a library. I have asked myself this question: If Monday's so far is the highest traded point for the last three days, i.e., Monday, Tuesday, Wednesday, then how often is Thursday going to trade below the low of Wednesday? I found that there was a total of 25 times when I was faced with this possibility. And out of those 25 times, Dow traded below the Wednesday low 21 out of those 25 times. To me, that's a significant piece of information. Let me show you some examples. Over here is Monday, then Tuesday, and then Wednesday, and then finally Thursday. Another example. Monday is the high. And by the time we get to Thursday, big move down, even though it was a gap up. Another good example. And I will show you bad examples too. This is not a one-way street. We're just trying to present the facts in a in a biased way. Go, I'll present it as is. Monday, Tuesday, Wednesday, Thursday. I call this scenario analysis. And I have never, ever come across anyone dissecting the markets that they are trading in this manner.
Let's carry on. If Thursday is higher than Friday, then what does Monday look like? Over the last two weeks, there were 21 instances where the price action on Friday was unable to trade above the highest point of the previous day, which was Thursday. I then looked at what happened on the following Monday. And if there was a holiday on the Monday, I would use the previous, the price action on the Tuesday. Considering the random nature of the markets, remember the random nature of the markets. Over the last 30 years, we've had seven and a half thousand trading days, and out of those seven and a half thousand trading days, half of them were winning days and half of them were losing days. That's random. Yet, out of those 21 instances, what you're seeing here is Thursday and Friday, and then the subsequent Monday. And you'll see that's a rather sizable gap. One more example. Thursday, Friday, and on the following chart, Monday. A very recent example from two weeks ago. Thursday, Friday, and then a big gap down on the Monday. Do you think I go home short on a Friday night? Of course I do. Have I sometimes got my head handed to me on a Monday morning when the market opens? Of course I have. But the stats are outrageously compelling. 20 out of 21 times, based on the last 252 trading days, based on the last 21 observations, the market has traded low on the Monday. As my friend put it, he was rather, "Minyan-like." What? Yes.
Gaps. How often do gaps? I'm investigating every single gap since 2008. And I found that the odds of a gap being filled on the day is 58 percent. And here I'm talking about gaps more than 10 points. And we're not, we're not caring about a gap of a five-point, but any gap more than than 10 points. There's a 58% chance that the gap will get filled on the day. So that you will have to admit with me, that's kind of random. That's the kind of statistics that you're thinking, "I can't really use that." But, but that's okay.
Oh my god, ladies and gentlemen, I once investigated the tide in the Hudson River and correlated with the S&P 500 futures. It was an immensely interesting project. Taking the tide table from the Hudson River, drawing it on a chart, and then correlating it with the S&P 500. Do you know what I found? There's absolutely no correlation between the tide in the Hudson River and the S&P 500 futures. But it was interesting. And I thought I was on to something there. And every now and then, I thought, well, this is looking promising. But when I viewed the whole thing dispassionately, dispassionately, I came to the conclusion that there's absolutely zero correlation between the tides in the Hudson River. You may ask, how did he get onto such a crazy idea of with the correlation of the tide to the S&P 500? But you heard the idea that the full moon will will influence the water. And you know, you've probably heard that, you know, lunatic, you know, it comes from Luna, full moon. And so the idea was thinking, well, hang on, if the moon can affect the waters to such an extent in the Hudson River, surely it must be able to affect us. No, it doesn't. I don't care. There has been, I actually studied this because I was quite curious. And this has got nothing to do with trading, but the evidence, the scientific evidence on the effect of the full moon on us, it is just rubbish. There's zero understanding. But that's the danger of of half knowledge, half wisdoms. Oh, well, you know, a nurse comes out and I was a crazy night in this hospital. Oh my god, it's full moon. This is what we call an observational bias. So the next time when I was a crazy night, but you're forgetting all the other nights that was absolutely quiet when it was full moon. Anyway, 58% doesn't really make a trend, does it? It's slightly biased to one side, but it's still pretty random.
However, if I look at all the times when the gap is not filled on the day, I'm beginning to get something which is a little harder hitting evidence. I found that 78% of all gaps get filled at least within three days. So if you have an unfilled gap on day two, and you're coming to gap to day three, even thinking, well, there's four chances out of five that we're gonna fill this gap today. It doesn't mean that necessarily take a position, but it's good knowledge to have in your background. See, this is what I call awareness. Just like the mayonnaise example, I'm aware that it is there.
Oh, the high of the day and the low of the day. No, I don't know if this is of any interest to you. But when I trade, where I make my my biggest killings isn't when the market is having what we call a trend day. A trend day is defined by that the high of the day or the low of the day, not that I know it at that time, the high of the day or the low of the day occurs very early in the trading day. And by the time the market closes, the market has moved to the exact opposite. It closes near the high of the day or the low of the day. So you're virtually just having one straight line all day or one straight line. And I always play for that. That means it's very important for me to know what the odds are of the high of the day or the low of the day being made early in the trading day. And would you believe it? Out of a hundred trading days in the Dow Jones, 20 of those hundred trading days, the very first bar that you see at 2:30 in the afternoon when the Dow Jones opens, it's going to be the high of the day or the low of the day. I think that's quite interesting. I can see you share my absolute passion for that. That's quite alright. I know it's getting late in the evening. But by 30 minutes into the trading session, or what I call bar seven, by eight, there's now a 50% chance that we have already seen the high of the day or the low of the day. And by the time we are getting to an hour and a half, there's now a 70% chance that we have already seen the high of the day or the low of the day. And by the time that we hit the 18th bar, now there's 12 bars in an hour. So this would by definition be an hour and a half into the trading session. There's a 90% chance that we at that point have already seen the high of the day or the low of the day.
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