Trading Psychology Event | Pattern Recognition | Part 2

[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. are in Denmark where I grew up as a child we will sometimes be given a one of these drawing books that had numbers and then just a blank page and our job was to connect the one with the two and the two with the free and so forth until a beautiful picture emerged of a tractor on a house on 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 is 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 four choose on paper by drawing the right kind of lines but as I said the deception of charts what we call apathy Nia 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 fat 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 strategies 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 stoploss which is in relation to how much I'm on a 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 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 the tax at 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 gonna say that's it I'm gonna take my profit hell no not the way I work and my mind gonna go well maybe you should just hold on a little bit longer maybe it's gonna 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 and our 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 is there isn't that much money in nursing and in vacuum claiming 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've had an account with CMC Markets my stake size was two pounds a point in 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 Nesta 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 shot in South African shares but they deployed a strategy invented by Tom Tim mark called the tum tamaak 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 Tom to mark 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 was 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 said why would it the waiver that we traded this was that whenever the market didn't go in our favour immediately got out done while you're sitting there and 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 Dane is a famed commodity trader who were 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 a longer two hours bond more likely and 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 p. m.