Post on 16-Apr-2017
Kiev21st May 2016
Tom Hougaard
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The Key To Success
What will you learn in this presentation?
1. Why does trading look easy? Why do most lose? The answer is brain washing.
2. What can you learn from 43 million trades?
3. How I trade the Dow – my secrets: Statistics
4. Some thoughts about DAX
5. Some compelling reasons for trading a slower index
6. Technical Analysis and Technical Analysis for Day Traders is NOT the same thing
7. Some Trading Entry techniques
8. The best advice about trading I EVER got
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Why Trading is difficult: Brain Washing
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Different Language – Same Problem
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Quiz Time – which share would you buy?
What share would you buy?
Share A? – It’s a new social media company – everyone knows it – the stock
has rallied 300% in one year – many think it has become very expensive
Share B? – it’s an “old general” – it has gone down for 1 year, losing 20% but
now it is moving back up again. All analysts are very positive the stock.
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Share A
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Share B
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Share A – 1 year later
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Share B - 1 year later
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Anchoring is used in commercial – but we bring it into investing
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Relying too much on the “past” price can make it impossible for you to stay focused on what matters right now: the current price. This anchoring effect means you might be “drowning”, but you are justifying it by saying you saved money.
Bear Stearns went out of business – but the warnings were there!!!
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Amazon recommendations from Analysts
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British Bank in 2004 to 2006 – rallies 50%
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Then it falls back
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Falls 66% from the top – now everyone is interested in the share
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Thousands of people lost money on this share
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Time to ask you a question
What can you learn from 43 million FX trades?
How many winners in %? _ _ _ _ _
How many pips won? _ _ _ _ _
How many pips lost? _ _ _ _ _
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Time to ask you a question
What can you learn from 43 million FX trades?
In Euro Dollar - How many winners in %? 62%
How many pips won? +48 pips
How many pips lost? (83 pips)
48 * 62 = 2976
83 * 38 = (3154)
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FEAR & HOPE
People become: FEARFUL WHEN THEY SHOULD BE HOPEFUL
People become: HOPEFUL WHEN THEY SHOULD BE FEARFUL
98% of traders do the wrong thing when they are under pressure. It doesn’t
matter that they are nice intelligent hard working rational logical helpful
beautiful people from all walks of life.
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Share indices
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Dow Jones Index (US 30/Wall Street 30)
1. Dow Jones Index > The most popular index to day-trade.
It has 1 point spread mellem BUY – SELL PriceIt always moves at least 70 points up or down during the trading day – often a lot more.
2. It is my prefered instrument and I would like to share with you some secrets I have discovered and used with great success.
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Distribution af 30 years closing prices in %
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Share indices
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Dow Secrets
1. A top or bottom is formed in the beginning of the trading day as follows:
The first 5 minutes > 20% of trading days
The first 35 minutes > 50% of trading days
The first 120 minutes > 90 % of trading days
2. 50% of all trading days will close at the top or the low of the day (or very close to the top or low for the day)
3. Most days the first move of the day is wrong (and opposite of the true trend about to be manifested for the day)
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Dow Jones Index
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Share Indices
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Dax Index (Germany 30)
1. Dax Index > Very popular amongst European traders
Very volatile – very hormonal
2. The stats in the Dow is roughly the same in the Dax, but I prefer to trade the Dow as the trends are cleaner with less noise.
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Share Indices
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FTSE Index (UK 100)
1. FTSE 100 Index > used to be the most popular index
The spread is often less than 1 point. It moves much more conservatively, and it is an ideal instrument to learn trade in.
It’s a strange index in that the weighting composition is not proportional, and is in fact very much out of proportion.
Banks/pharmaceuticals/miners make up 60% of the index distributed over 12 shares
FTSE index is much more defensive in nature. It will never rise as much as DAX, nor will it fall as much as the DAX.
Technical Analysis for Day Traders
Technical Analysis for Day Traders
The Problem with Technical Analysis: 50/50
Why indicators rarely work!!!!
Technical Analysis for Day Traders
Problemet med Teknisk Analyse
1. MACD – RSI – Stochastics – works fine in non-trending markets.
2. Moving Average – why are you having extra lines on your chart? Is it because you can’t see the trend unless you are looking at an extra line?
3. The problem is we are looking for a “recipe” that never fails. We avoid failure because it makes us appear weak, and it means we have to accept we are wrong.
4. Many have looked for it, but none have found the holy grail of trading. The Holy Grail is the tool/technique/indicator that works all the time and it never fails.
Example: Stochastics in a Trend
Example: Stochastics in non-trend
Currency Speculation
Trading currencies
1. I don’t consider currency trading harder or easier than index trading, but I do believe that it requires a different tool box to trade currencies well.
2. There are certain things I will also look out for when taking a trade in currencies
3. First: I will never take a trade in a currency for a few pips. I want to look to build a good position.
4. Second: I want to look at signals on longer time frames.
Currency Speculation
Entry Techniques in FX
1. Aggressive Bars (after news for example)
Raw chart of Euro Yen 240min chart
Raw chart of Euro Yen 240min chart
Very good trade in Dollar Yen
Currency Speculation
Entry Techniques in FX
1. Aggressive Bars (after news for example)
2. Failed Bars (failure to follow through)
Raw chart of Euro Yen 240min chart
Euro Dollar
Currency Speculation
Entry Techniques in FX
1. Aggressive Bars (after news for example)
2. Failed Bars (failure to follow through)
3. Correlations with Equity Market – If I see a big move in the currency market like the Dollar Yen, I can easily be persuaded to take a position in the Stock indices such as the Dow Jones
Dow Jones correlation with Dollar Yen
Currency Speculation
Entry Techniques in FX
1. Aggressive Bars (after news for example)
2. Failed Bars (failure to follow through)
3. Correlations with Equity Market – If I see a big move in the currency market like the Dollar Yen, I can easily be persuaded to take a position in the Stock indices such as the Dow Jones
4. I like Mechanical signals. They are easy to use.
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Mechanical Signals
What is a mechanical signal
1. It is a signal that does not require an opinion
2. It should be transportable between time frames
3. Ideally you can use it in all time-frames
4. It has to be easy to use
5. It has to be easy to teach and explain
6. 4-Bar Fractal is all of those things
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4 – Bar Fractal
Tom Hougaard Pro Trading Course 2014
4-Bar Fractal Mechanical Entry
50Tom Hougaard Pro Trading Course 2014
1. The 4-Bar Fractal Reversal is an attempt to QUANTIFY a reversal.
2. It is a measure of WHEN the market has reversed.
3. The 4-Bar Fractal Reversal is essentially a bar-chart pattern. It consists of 4 bars or candles. It works well on all time frames, even down to a tick chart. It has its advantages and it has its disadvantages.
4. Before we discuss its strengths and weaknesses, let’s focus on the definition.
Idea Behind 4-Bar Fractal
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Example
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The 4-Bar Fractal Reversal consists of the following components:
1. 4 consecutive price bars
2. Price Bar 1 is the current price bar
3. Price Bar 2 is the previous price bar
4. If Price Bar 1 closes ABOVE the high of Price Bar 2, and if Price Bar 1 closes above the HIGH of Price Bar 4 = BUY SIGNAL
5. If Price Bar 1 closes BELOW the low of Price Bar 2, and if Price Bar 1 closes below the LOW of Price Bar 4 = SELL SIGNAL
Rules for 4-Bar Fractal
53Tom Hougaard Pro Trading Course 2014
On the chart below I have highlighted a 4-bar fractal. Can you spot any others?
Can you spot them?
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With Reverse Divergence
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1. Are there short-comings to mechanical techniques?
2. YES. For example the 4-bar fractal technique can become messy if the market is not trending.
3. It can be slow to detect the change.
Best Advice I ever got
ANY KIND OF SPECULATION
1. I keep an eye on the market
2. I use a name to remind myself of what kind trader I am
ATHBO
Aktier
AllTimeHigh
BreakOut
Never scared to buy the high of the day
Never scared to buy the high of the day
Education
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• tom@tomhougaard.dk