Transcription
[Music] Ability to see things can be a thing of beauty, but it can also be a curse. And whilst it looks like a skeleton, it is just a flower, and it is just a faucet. So there are those people who argue, like Anning, in that we don't really see things as they are; we see things as we are. What I call the deception chart is that our eyes will seek out that which confirms the facts that we are seeking to establish or to prove. It gives us a bias of looking for things that we want to achieve rather than looking at things objectively.
Now, I don't know what children's games are here in the UK, but in the U.S. and in Denmark where I grew up as a child, we will sometimes be given one of these drawing books that had numbers and then just a blank page. Our job was to connect the one with the two, and the two with the three, and so forth until a beautiful picture emerged of a tractor, a house, a fairy, Christmas, etc., etc. So it's not such a long stretch for us when we get engaged with technical analysis that we begin to connect one high with a secondary high and a third high, and we extrapolate a line out in the future, and we call that a trend line. And when a trend line has been broken, we get a signal; it's called a trend line break, and it's a thing of beauty because, hey, it looks so easy when we are sitting doing our research.
And how many of us have not created fortunes on paper by drawing the right kind of lines? But, as I said, the deception of charts—what we call apatheia—is playing a trick with us, meaning that we will gladly omit this trend line break. Yet, when we are trading it in real time, all of a sudden we are seeing this trend line break, and so we are surprised when this happens because, during our research, it looked like this: there was a trend line break, and the markets stormed higher, and we were on board. And now I'm trading it, and it's not storming higher; in fact, it is trading lower and lower. In this case, you actually do get saved by the bell, unless your stop-loss was too tight. But many a good strategy has been created on paper that are completely impossible to implement in real time, mostly because if you're looking at the Dow Jones index from 2:30 in the afternoon till 9:00 o'clock at night, there are 78 5-minute bars, and you need to be pressing for every single one of them, or you might just miss that perfect trend line break that enables you to ride the market up or down.
So many things I believe of charts, but many things I don't believe, and I call this ignorance. Now, intelligent people can be ignorant until they have been informed otherwise. So there are things that I don't believe in: I don't believe in soulmates; I don't believe in horoscopes; I certainly don't believe that the earth is flat; and I most certainly categorically do not believe there is such a thing as the perfect system, the perfect indicator, the perfect chart pattern. It simply does not exist.
So I think it's time that we embrace trading for what it really is. Trading, for me, is just a series of opportunities where I don't expect much, but I know that I will place a stop-loss, which is in relation to how much I'm at risk. But the whole concept of risk versus reward is another thing that I would love to take a shotgun at and put it to death. Because when we talk about risk versus reward, how do you know what your reward is going to be? Well, you have a crystal ball. Let me give you a concrete example: I am trading the DAX, and I decide that I want to risk 20 points. Being the studious trader that I am, I'm arguing, you know what, I'm going to risk 20 points, and I'm hoping to make 40 points. And in this event, I'm actually right. Let's say I bought the DAX at 20, and it begins to rally—40, 60—and it comes to 60, and I have now, on paper, made twice as much as I had risked. What do you think happens when we get to 60? You think I'm just going to say that's it; I'm going to take my profit? Hell no, not the way I work. My mind's going to go, well, maybe you should just hold on a little bit longer; maybe it's going to go your way. So the whole idea of presenting a reward target completely negates the idea of how profitable traders truly trade; they don't set profit targets.
So my trading boils down to a very, very simple philosophy, and I believe that good traders—truly profitable traders—they have a philosophy that is very different to the 70, 80, 90 percent of traders, and that's what I want to spend some time on. But I know here I have an open position from my trading platform, and I'm about seventy thousand pounds in profit—if we move a couple of notes from that—or be seven hundred pounds in profit. I absolutely categorically know that if I can do this, you can do this. And I didn't start trading this size; I didn't arrive at the trading game with a, with a, you know, a silver spoon in my mouth and a massive inherent—there isn't that much money in nursing and in vacuum cleaner repair. I had to fight my own way, but through a very, very focused and dedicated approach to trading, I managed to build up to trading this trading size. When I started trading, I had an account with CMC Markets; my stake size was two pounds a point, then three pounds a point, then five pounds a point. And every single time that I grew my trading size, I felt that little flutter of nerves. What I would like to help you answer today is, what is your trading philosophy, and is that trading philosophy actually aligned with your own best interest? See, and let me help you try and answer this question—maybe just something for you to think about, maybe not right now—but if you want to make a lot of points in the market, you can have two approaches: you can risk a lot of points to make a lot of points, or you can risk very little, but then you need to be prepared for the possibility that you will be repeatedly wrong.
And at this point, I would love to tell you the story about a colleague of mine in the industry, a right old nester that I have a tremendous amount of respect for. He managed a fund trading South African shares on a one-minute chart. Yes, it—I didn't even know that you could run a hedge fund trading on a one-minute chart in South African shares—but they deployed a strategy invented by Tom DeMark, called the DeMark sequential indicator. You may have heard about it; please don't ask me in-depth questions about it because I am most certainly not an expert. I have a rudimentary idea of what the DeMark sequential indicator is about, but I am NOT an expert. However, what I found incredibly refreshing, ladies and gentlemen, was that my friend was telling me, you know what, we had a hit rate that was around the 20s. At times when we were on a good run, we would have a hit rate around 30, 35%. So for those of you who are not familiar with the percentages I'm talking about, it means that they generally were right 20 times out of a hundred. How would you feel about trading a system where you are wrong eighty times out of a hundred? Does that sit easy with you? Aren't you more inclined to believe those glossy adverts whenever you Google something—those adverts that will promise you a ninety percent hit rate, or a hundred percent hit rate, or with this system you'll never lose? Who in their right mind would trade a system that is only right 20% of the time? Yet my friend did it, and they were wildly successful, to the point where they said, this is it; we are not younglings anymore; we made enough money; let's just take our spoils and bugger off to sunny shores; we've done our job. I asked him, did it bother you they had a hit rate of 20%? And he said, why would it? The waiver that we traded this was that whenever the market didn't go in our favour, we got out immediately. Done. While you're sitting there in your positions day after day, hour after hour, hoping, wishing, praying that the market is going to turn around—not them. It requires patience.
So I could have come here, and I could have spent the next two hours going over one trading rule after another, but I would like to take some comfort in me doing the right thing by quoting one of the best traders ever. Richard Dennis is a famed commodity trader who was the founder of the trading group called the Turtle Traders, and he said, and I quote, "We could post our trading rules on the front page of The Wall Street Journal, and still people would not be able to make money from them." So the best thing that I could do over the next two hours, which is probably not going to be a longer two hours, more likely an hour and a half, is to hold a mirror up in front of you. And if you want to fall asleep, by all means fall asleep; it's quite all right; I can live with that. I've had people fall asleep before—no particular person intended for that comment in here. I want to hold up a mirror, ladies and gentlemen; I want to show you who you really are—not being personal, but based on the experiences of a guy who spent every single day from 7:00 a.m. until 9:00 p.m., because I didn't have anything else to do, watching you trade—maybe not you personally, but you as a whole—12 to 14 hours every single trading day for a decade, watching your mistakes, watching you sitting there hoping, praying that your position is going to turn around, moving your stop-loss further away so you don't get stopped out, cutting your profits so soon because, hey, who can go broke taking a profit? Yeah, you did; you managed to go broke over and over because you were always snapping at the profit because you didn't understand fear; you didn't understand what was going on in your minds. And I'm not belittling you; you knew. And now I am NOT talking down to you; I am genuinely trying to make you see trading from a very different perspective than you perhaps have addressed it from before. It all starts with awareness.
Every morning I go on the scale, and I notice the trend—a trend of I am getting heavier and heavier. And so I begin—I'm sure you people don't have that problem, perfect as you are—but we days, you know, we like our bacon and whatnot. And I look down on the scale and go, I'm a little heavier than I was last month and the month before. So you know, I do the typical approach, you know, like I try Atkins, I try Fibonacci, I try keto, I try Castex, I try paleo, I try Bollinger Bands, I try calorie counting, I try a weekend course. Am I getting through to you here? I don't want to load your sleep either; I love to make it entertaining, but I actually have an important message: that true profitable trading starts with an awareness of where you keep going wrong. And so it happened that I signed up to this app; it didn't cost a terrible lot of money—ten pounds for four months—and in there I log what I eat, and it's quite fun. So it happened last week that I was presented with a steak. Now, I don't eat meat very often; you know, when you hit that age of 50 and beyond, you try to cut down your meat in your diet because you want to live a long and healthy, prosperous life. But there it was, and you can't say no when someone's made it. And then with a good steak comes chips, and what comes with chips? Well, mayonnaise, of course—over here, ladies and gentlemen, in the United Kingdom, vinegar, if it was fish and chips—and vinegar till your lips were blue. But we Danes, we like our mayonnaise. And so I took a good old wallop—an abomination—a turd of the chips. But when they came to registration time—what we call the day of reckoning—I added three hundred and fifty calories for the chips, and then this harmless little looking wallop of mayonnaise, handsomely dashed on top of the chips, was another three hundred calories. And I looked at it, and I became aware that that little misstep, if you call it that, had added 750 calories to my daily intake. And considering I'm trying to keep myself to 2000 calories, I'm thinking, did I—was it really worth it? Was it worth it to eat a third of your daily intake on a couple of chips and some mayonnaise? The answer is no, but it started with an awareness. So the next time I had chips, I said, yeah, no mayonnaise for me, thank you very much. I think that's something nicer than mayonnaise. The same goes with trading. [Music]