The Methodology, Money and Mind for Swing Trading – (Dr. David Paul) | VectorVest

good afternoon everyone i'm david paul uh welcome to the vectorbest summit this is my part of the vectorbest summit i'm going to talk about three things i'm going to talk about method i'm going to talk about money management and i'm going to spend some time on uh giving you my ideas on the mindset required and uh before i do that i have to put up the vectorvest uk disclaimer and uh vector s uk is the only to my best knowledge the only uh technical analysis stroke fundamental analysis uh investment package that's authorized by the regulator the fca this means that although i'm qualified to give financial advice i can't do so because i haven't sat down with you and done a long and a very detailed fact find i'm allowed to talk about shares that i hold myself but i have to make it very clear that all those shares are suitable for me they may not be suitable for you so that said uh we can move on to something much more interesting and what i'm going to try and put together and i've drawn this out into a three-day course that i used to do at the institutional level why some people always make money in the stock market and why some people always lose money uh in the stock market uh come october this year it'll be 40 years since i put on my first trade and i've observed an awful lot of winners both at the retail and the institutional level and they all do some fairly similar and common things i'm going to try and get that across uh in this short presentation so what do i do well uh four things of which we're going to talk about one today for cash i trade intraday when there is opportunity mostly in the s p 500 and that's in the afternoon in the uk which is in the morning in the u. s so i rarely take a position not not sometimes i do but rarely take a position uh in the s p 500 uh future uh the e-mini on until the floor has opened at half past nine uk time uh so a half past uh two uk time uh what we're going to talk about today are swing trades that last for three to 21 days and i take those in the uk and the u. s stock market and that's today's subject i also run a longer term portfolio that i talk about in the vector s uk q a on a monday afternoon and then i have a a longer term uh pension uh portfolio which focused on yield and i'm certainly not the best person in vector s to talk about that the retirement people and jim penna are much more experienced in that area than i am so this is the animal that we face ladies and gentlemen prices rarely go up in straight lines they go up in what technicians would refer to as a series of rising bottoms and our job is to try and pick the eyes out of this uh to be able to in fact ride the high momentum bursts and be out of the market when the market pulls back and uh i have a methodology uh that i'm going to talk about today that does that and clearly the other presenters are going to talk about many other probably uh equally as good methodologies so towards the end of today you're going to have to sit down and make a decision as to which methodology such your belief system best and suits your level of focus uh best but our objective is to pull out if i can get my pen is to pull out these high momentum moves get out let the market pull back and if the situation looks good to get back in again it requires focus and sometimes uh you wait for the pullback and the pullback never happens and the thing keeps going nevertheless uh it is a very profitable way to trade and uh when the share is pulling back maybe the general market is pulling back then you're safely sitting in cash and that's quite a is quite amenable to sleeping uh so we need a method and i'm going to talk about my uh method uh later later on at least the method that i use mostly i'm going to talk a little bit about money management and then we'll talk a little bit about how to manage yourselves and how to develop the mindset required to be a consistently winning swing trader where you make money and you keep it very easy to make money and give it back so the big secret folks and the big secret uh is based on many hundreds of thousands of trades that i in fact looked at from retail investors and i did my best to try and work out why some people made a heap of money and other people it doesn't matter how hard they tried couldn't make any money i thought initially that it had to be something to do with the methodology and i find actually that's some of the big winners their methodologies were trivial and i found that some of the big losers were exceptionally experienced analysts and the thing that i found folks is that the winners think differently from the losers and i've got a picture in front of me of a loser where he gets or she gets in and the stock goes a little bit and then it kills over it's happened to us all happened to us all many times in the future well a losing trader when a position starts to move their way they tend to become very pessimistic and they snap at their winners a losing trader if the position goes against them are tempted to buy some more or at least sit in that losing position whereas a winning trader when the share moves their way they become optimistic and they hold on to it and if anything in longer term trades they add to that winning position so my advice and my advice to many many traders over the years is that when a share moves your way uh you want to become optimistic and let the darn thing run and when a share starts to move against you you want to become pessimistic very very very quickly indeed and most of us have been hardwired by the creator to get that the wrong way around and i frequently see stock portfolios where uh it's full of shares uh that are absolute dogs and there's no winners there at all if you look back at the transaction record uh what happened is that they stuck analyst had in fact many many winners but he got out of those at a small profit but he couldn't get out of his losers so five years into the game he's got 20 or 30 huge losers sitting on the books because he didn't want to get rid of them so my advice to uh from the heart is that on your next trade sit and observe your thoughts do your thoughts of a great deal of momentum uh and uh if you do your best to try and become optimistic when you've got a winner and to become very very very pessimistic uh when you become uh when you have a loser forget the thoughts are gonna come give it another day give it another day and uh clearly uh many many people over the last six months have given a heap of money back uh by giving it another day and shares that had made them a fortune on the run up after the uh pandemic low so a little bit of homespun philosophy based on a great great deal of research so mark douglas uh the late mark douglas wrote a really wonderful book uh called trading in the zone and he isolated four trading fears the fear of being wrong the fear of losing money the fear of missing out on the fear of leaving money on the table and these four fears are responsible for pretty much every trading error that you have ever made that i've ever made and i i can't recommend uh too highly a thorough reading of mark douglas's book if you want to become a consistently winning trader so the steps folks is all about process uh how to actually execute without fear or hesitation over and over and over again subset of that of course is running for cover quick uh when you're wrong and then letting winners run and if you're a position trader adding to those winners as they go their way as they go your way should i say and this comes back to the old discipline the big d word now i draw this out in the seminars and i asked people is discipline sent down by god or can it be built and of course it can be built all right uh you don't need uh if you go to the gym every day you don't need to grit your teeth to go to the gym in fact you've got to exercise discipline not to go and to build trading discipline after today folks after you've sat down you've looked at all the approaches my advice to you is to find one that suits you find an approach that you can detail fairly mechanically which details exactly the entry the exit position sizing vitally important and maybe adding to the positions should be simple and straightforward rather than something that's in fact too complicated and too curve fitted and there'll be lots of those discussed today and then the next bit is to resolve to follow those for a batch of 30 trades and i've done this with so many people folks uh and years back when i was hungrier i used to actually sit with people for days to do this exercise mostly high net with individuals and institutional clients that were desperate they were desperate to become winners they tried every course and they were still losers and they were losers for the reasons that i showed you earlier on those two charts of the winning trader and the losing trader uh snapping at winners and giving it another day the two extremes uh and personal trainers do the same thing personal trainers in the gym think think that they're in the exercise business they're not they're in the discipline business to get the guy there now if you sit and you follow your trades and you follow your process it becomes easier and my promise to you ladies and gentlemen is that your 10 to 15 trades away from the trader that you want to be it's that close and you're going to have these slides but i recommend uh focusing on mindfulness okay uh it's impossible to feel those four fears of mark douglas in the present moment and i found over the years that all winning traders are very present people they're focused on what's happening now in relation to their trading rules and uh there are many many books in your book store about mindfulness but being aware of your thoughts and getting yourself to a point where you can just focus on what's happening now now for most of us as end of day traders uh it's nothing more than what's happening today where's the closing price in relation to your trading rule if your trading rule is to stay long of a share if it's above a 21 day moving average well if the share closes above the 21 day moving average you do nothing very simple very straightforward and uh as many many friends about a friend of mine called larry pacifiers who's written a book called trade what trade uh don't believe everything you think tweet but you see so let's uh move on to risk management that's the second thing uh and there's the apple chart folks and this is after the close i think on uh what monday night this week uh when i had to have these slides done is it gonna go up or down tomorrow now you've got the chart but on after mondays well that would be last friday's close because we were on holiday on monday uh but uh we didn't have that luxury as you can see i've got my two moving averages there uh so i always ask people to seminars uh i pull a pound coin out of my uh pocket and i tell them that uh we'll toss for it if the heads comes up uh apple's going up tails comes up apples are going down i asked them would you trade like that and the whole room looks at me and they say hey we've wasted our money with this guy uh so most of us would say we wouldn't trade with a coin but i've got a special game for you folks now if you're prepared to bet a pound that you can predict heads or tails and you're wrecked correct i'll pay you two pounds and if you're incorrect clearly i'm going to take the pound away would you play that game well it is a a very good game to play and it's the basis of certainly all trading certainly all swing trading because uh if you're right and you should be right 50 of the time uh five times two when you're right you make twice as much as you lose and five times one when you're wrong so if you're betting as the slide says a dollar per spin of the coin that means every time you spin the coin you make 50 cents you have defined what the trading psychologist van k thought the late von k thorpe uh called in his book uh a positive expectancy system and the first thing that your trading system has to have in the words of george soros and the alchemy of finance it's got to make more when it's right than it loses when it's wrong but most of us folks are paranoid about the hit rate we want to be right all the time and it's not that important and the whole internet is full of high hit rate systems because they sound sexy many systems that are right nine times out of ten lose money because they've got to open up their stops so wide that when they lose they lose much more than they make and john henry who owns the boston red sox and liverpool football club his system is only right 30 to 5 35 to 40 of the time but he makes i think 15 times more when he's right than he loses when he's wrong so don't forget about risk to reward and the money that you make folks is a function of a hit rate risk to reward and commissions and spreads and clearly uh certainly in the uk those eat into swing trading because our commissions and our spreads are much much higher than you guys uh have in the us uh so uh there's an example uh slides a bit old uh if i bought apple at 218 with a stop at 201 and a target of 252 the risk is 17 the target's 34.

you've only got to be able to get that right 50 of the time to make a fortune and that is the only thing remaining is learning how to play the game over and over and over again and it's a tough game to play that's the chart okay that was the entry point good lord it was simple in those days we were spoiled enter there stop losses there and it makes its way up there you've made us twice as much as you've risked and you've got to be able to do that over and over wow do you want to see more video content like that our most recent financial freedom summit was a hit and many of you weren't able to watch it live and that's okay we're gonna give you a chance right now to take advantage of a special great offer for 195 dollars for the video set not only uh me hosting but all of the great presenters that were there you can watch these videos they're yours to have and you can watch them for a year but a great thing is 195 for all of that great content you can take your own notes and keep it again for a year folks go to www. vectorvest. com forward slash summit to get your slides or to get your videos at the great price of 195.