Trade Diary

Week 4 & 5 - 2023

23rd January to 9th February 2023
Content

• Testing – mind the charting package.

• The 1st vs. the 2nd Dax 15min bar.

• Trade Diary

• Alcohol

• Aggressively Adding vs. Patiently Waiting – With Less Position

• Flip The Switch

• Trade Diary

•
Testing – Mind the Charting Package
I looked at the DAX 15min chart on the E-signal database. I use the E-signal database for this research because I
wanted to quickly scroll through many months of trading. The advantage you have with E-signal on the DAX cash
chart is that you only have data for the “normal trading session”, i.e., the trading session from 9am Germany time
to 17:30 Germany time.
Had I used my broker charts, which shows the DAX in one long continuous stream, I would have had to scroll
through a whole lot more data, and I wanted to avoid that.
I asked myself a VERY simple question:
How often does the 15min chart in the DAX in the morning send me an early “sell signal”? Specifically, how often
does the start of the 2nd 15min bar of the DAX (the one that starts at 09:15am Germany time) break through the
lows of the 1st 15min bar, AND close below the low of the 1st 15min bar?
My question was geared towards finding out what would happen if I simply sold short the DAX index, if the 2 nd
15min chart closed below the low of the 1st 15min chart.
Before I move on, I want to emphasize what I did NOT look for:
1. I ignored the data set if a subsequent 15min bar closed below the low of the 1st 15min bar. In other words,
if the 3rd or the 4th or any subsequent 15min bar closed below the low of the 1st 15min bar, I ignored the
data. I was only interested in in the 1st and the 2nd 15min bar, and what happened thereafter.

2. I ignored the data if the 2nd 15min went below but didn’t close below the low of the 1st 15min.
Here is the problem I was faced with. Below is the dataset for the 1st 15min chart from my brokers charting
package. This is important because it is his data we are trading from. E-signal may get different data!

BROKER DATA SET vs ESIGNAL DATA SET

My Broker OPEN 15,441 HIGH 15,444 LOW 15,372 CLOSE 15,379

ESIGNAL OPEN 15,408 HIGH 15,417 LOW 15,375 CLOSE 15,379

Below is the actual screenshot of the documentation for the timeframe data you see above.

Look at the “open”! They are miles apart – because E-signal use a different set of parameters to register the open.
The broker data is the data we trade on. Now look at the “high”! What the f###.
That does turn testing your ideas in E-Signal a little unreliable. It seems the brokers and E-Signal disagree what
the “open” (the first opening price) should be, as well as the high. The low and the close are identical, or close to.
Let me take you through another example. This example is reverse engineered from a day where the setup turned
into a profitable trade. I will show you the dataset from the broker and from E-Signal.

25th January 2023

DATA OPEN HIGH LOW CLOSE

09:00 – 09:15 E-signal 15,095 15,114 15,088 15,090
Broker 15,090 15,115 15,087 15,089

09:15 – 09:30 E-signal 15,089 15,093 15,072 15,072

Broker 15,090 15,095 15,069 15,071

09:30 – 09:45 E-signal 15,072 15,091 15,070 15,087

Broker 15,071 15,093 15,068 15,089
09:45 – 10:00 E-signal 15,087 15,096 15,085 15,088
Broker 15,089 15,096 15,082 15,090

10:00 – 10:15 E-signal 15,088 15,092 15,072 15,073

Broker 15,090 15,093 15,069 15,069

It would seem that apart from the opening price, and if the “high” or “low” of the timeframe coincides with the
“open”, the dataset from the E-Signal DAX CASH CHART follows the brokers prices very accurately.
What makes the E-Signal charts so compelling to work from is that they only show the data from the open of the
stock market in Frankfurt to the close. It makes is easy to see how this particular strategy performed. The broker
charts, as you know, shows the data from the 24-hour cycle, and you have to squint your eyes to see exactly
where the market actually “opened” in Frankfurt.
I tested this “behaviour” back to May 2022. That constitutes 9 months of trading, with about 22 trading days in
each month, roughly speaking. I went through approximately 200 trading days.

Conclusions
I think you have to be careful to use the word “conclusions” when you are testing. I tested the hypothesis over
200 trading days, because I research manually. It takes time. Please bear in mind that 200 trading days may be a
good indicator for the current environment, but like any good trader, you adapt to the changing environment.
There were 54 occurrences where the 2nd bar closed below the low of the 1st bar. I am quick to add that there
were many occurrences where the 2nd bar went below but didn’t close below the low of the 1st bar, as well as
many occurrences where the 2nd bar went above and closed above the high of the 1st bar. I wasn’t testing for
that. I was just testing for the 2nd bar closing below the low of the 1st bar.
Out of the 54 occurrences, there were 5 days, where you didn’t have as much as a single point in profit. You
basically shorted the bloody low of the morning. Curiously, those days turned into spectacular trend move days,
either trending higher all day, or trending up with no retracement, and then fell with no retracement. There are
marked in RED on the charts below, all of which are 15min charts (in case that was not clear from the above).
Judge for yourself – the red circle marks your entry. Of course, there are days where you have a wait before a
profit. Of course there are days where you will have to consider a stop and reverse strategy. I will continue to
teach you this methodology, introducing stop loss parameters and stop and reverse parameters.
For now – view the charts and see what you think of these 54 occurrences – which is 25% of all trading days over
the last 200 trading days.
I would like to zoom in on some noteworthy examples.
23rd January 2023
On this Monday morning the stock indices were called significantly higher at the open. Dax had closed its regular
trading session (Frankfurt stock exchange close) at 15,033. Just before the open today it was trading up at 15,100.
The Regular Trading Hour chart (the one that ignores the 24-hour market) is shown below. There was a gap from
Thursday. Gaps do not always get filled on the day. Only 48% of gaps get filled on the day. The red circle shows
where I ended up shorting the DAX.
Here is a different perspective of the open. You see the entire swing, with the high from the previous week in
sight, with the gap clearly market, where the market opened, when it opened at 9am local time, and the 50% line
for visual guidance. So why did I short such a bullish market?
The answer is pitiful. Acknowledging that I am trading against the primary trend – which I have no issue with AT
ALL because when the trend is up/down, the counter moves are fierce, when the weak hands are caught
“following the trend – but can’t stand the heat of adversity” – I am looking around at the market.
The hourly chart is showing this pattern – chart below is an 1h chart. Basis this pattern I decided to sell short the
DAX. Trade entry ticket is shown. I am selling into resistance from the green box.
I close much too early. Later I sell short the DAX again on a School Run entry.
I close the DAX on a gap fill.
A short while later I short the DAX index again, betting on a retest of the lows. All my DAX trades for the morning
are shown below. I made 50 DAX points in total. I didn’t trade further in Telegram that day. Instead, I tested
GoToMeeting for latency. I had been told that GoToMeeting operates “with no latency”. I ran a test and 1000
people participated. It was a disappointment. Latency is present in GoToMeeting as well.
I ran two surveys about what people want from the Telegram channel.
Personally, I am thinking more and more that the way forward to me is this solution:

1/ dedicated server – using OBS software for streaming audio. I have tested it this week. The latency was down
to a second on audio. There were some audio issues, but I imagine they can be ironed out. It would mean that
people listening in will go to a website and press “play” and the audio will play.

2/ continue to post messages in Telegram with the trade entries.

3/ use YouTube for the visual experience.

Time will tell and testing continues.

School Run is not always straight forward. I posted this chart later on the 23rd. Don't for one second think that
just because you have developed a strategy that works well, you are set for life. You have to develop a zest for
striving forward. You have a challenging chart above. It is the 8th of June 2022. First you are taken short at
14,512. You have at most 9 points profit. Then you are taken long - AT THE HIGHS! And if you let it, you are
taken short again - only to see the market dance on your grave for 45 minutes. ONLY then do you get the 100
point runner.
Print this out and be grateful for every day you make money, because there will be days where the market will
be out to violate your behind!!!!
Alcohol
Our mind is our most precious commodity. I am now going on 8 years without any alcohol. If you want help, buy
this book. It helped me to understand the nature of being addicted.
Aggressively Adding vs. Patiently Waiting – With Less Position
When I trade, I trade big – comparatively to what the median stake size amongst retail traders are. I trade the
maximum my broker will allow me to trade in “one click instant execution”. For the FTSE this is £300 a point. That
is why it is so remarkable that I can trade at 0.4 in spread. No other broker lets you trade such big size with such
a tight spread.
In the example you are about to see, you will observe a trade, which turned out to be a “good” trade, but not a
“great” trade. It was good, because it was promptly executed. It was not great, because I left an enormous
number of points on the table. And, reviewing as I do, I ask myself if this would have happened, had I not trade
the size I did. Would I have been calmer if I traded smaller?
Judge for yourself.
It is the 24th of January – in the morning. I am looking over the sessions from the previous day, and I am looking
at what has happened during the night.
Here is what I saw in the FTSE chart – where you JUST see what happened in the regular trading hours, where
the stocks are trading.
I have highlighted the prior day in green.
I have also highlighted that during the overnight session that market went as high as 7800, and the open of the
24th is about 7795.
Now the market opens. The chart below shows the “open”. This is a 1min chart. The market touches 7800
again. Then the market prints a solid 1min bar lower. Please read the comments on the chart itself.
Once the 1min chart closes, and the next one begins, I am shorting. I have highlighted the time of Telegram
when the “sell ticket” is produced and when it is amened for entry and stop.
Please read the comments in the chart.
As the momentum continues to the downside, I add more and more short positions on.
In total I had three positions on – 300% short – or £900 a point risk. I close the trade at 7781. It would seem like
a good trade.
BUT is it? The FTSE showed no signs of slowing down. In fact, it didn’t stop at 7781. It went to 7745, which is a
few points below the low made two days prior. It makes me question whether I at times are trading too big?
Could I make more by holding on to trades longer, and by taking on less risk. The profit was £9,000. There was
another £30,000 on the table. I can’t deny that pains me.
Here is the DAX SRS.
I received this message on this day:

I am not stopping educating. I said, "if you want to "SEE" me trade, as in "see my charts", then it will be at the
expense of the timeliness of the messages, and you will not be able to use my abilities to make money yourself.
But I am still posting my charts on WHY I took the trades. Ask yourself this, knowing that my charts are 100%
naked - with nothing on them - ask yourself "what would I possibly gain from seeing the same charts that Tom is
seeing?"
The answer is hopefully that you stand to gain nothing from looking at my charts. I don't draw on them. I just look
at them, and I place my trades. And when I then post my explanations on the charts during the day, as well as
sum up the trades, at the end of the week, you haven't lost anything. You are getting timely messages and the
education comes after.
If you are a tennis fan, and Roger Federer miraculously decided to teach you, would you keep interrupting him,
while he was actually playing a game against a worthy opponent? Would you stop him and ask? That is what I
need to stop. I literally get people asking me seriously uninformed questions, WHILST I am short the FTSE in £900
a point. That is what I need to stop from happening. So I am not letting the "losers call the shots". This has
everything to do with "let the professional work" and "read the messages you have been sent, because they
answer all your questions."
I have posted an Excel spreadsheet with ALL my resources. I have posted 160 pages of material in the last three
weeks. If you really want to learn to trade, then the lessons are there for you. I tell people to study Al Brooks. I
suggest how you can get Al Brooks for free, if you wish. It is all there. I am offering people a realistic shot at
becoming profitable and confident day traders. But I am drowning in stupidity, fuelled by an enormous amount
of people who think that it is better to ask than to research.
Did you know that I was up 3 hours before the open of the EU session today. In those 3 hours, I spent 2.5 hours
researching the FTSE, based on how the pattern of the last 2 days, going back 4 years. I was ready. I made £9,000.
And of course, I am gutted I closed it so early, making just £9,000 rather than £32,000. And I will study that. I will
extract the lesson. How many people do you think today spent 2.5 hours before the market opened to study? I
will say ZERO. That is why I am what I am. And all I need people to respect is to let me trade when I trade. And
respect that I truly dislike people asking me questions that I have already given them the answer to in the
"welcome messages".
So, you are wrong. No one has lost. Everyone has won, if I am given the time to focus on my trading. It means
people have to STOP and THINK for a second, before sending me messages. I have someone telling me that there
is news out this morning. Do you really think that a pro of my calibre does not know there is news out today? But
I can't stop people from messaging, so I have to make sure it is not an important message, and it takes my
attention away from the market. Even my friends send me stupid messages. "The FTSE is tanking", one person
said today. Well, duh, do you think I am sat watching porno? I know it is tanking. You don't need to tell me.
I am genuinely the person who can teach people to trade, if they truly want it. I am one of the very few in the
world who is actually trading live, but I am not interested in charging 100 dollars a month, so I can make an extra
10,000 dollars, when I make that in a day. I would rather just give it away, which I am. But this business attracts
the lottery seekers, who think that they can deposit 1000 euros and make it big. You can't. It doesn't happen, just
like zero latency is a pipe dream too.
That is all I ask. Work hard. Work your ASS off, and you will make it. And that is what I want people to do. WORK
YOUR ASS OFF. Use me for good questions. But do your own research first.
So now we are at a point where I am not answering questions anymore, because people have proven to me that
they are lazy. But I will continue to educate, and I will continue to trade. I just will not entertain questions
anymore, unless they are truly worth.
Let me show you the questions that are lined up right now:
1/ Tom, you think I can make a living from starting with 1000 euros?
2/ Tom, you should use Discord. It has low latency
3/ Tom, what do you mean by 100%
4/ Tom, why is your stop loss so big in the FTSE
5/ Tom, can I have all your other techniques?
6/ Tom, is CFDs tax free?
7/ Tom, Why is DAX falling today?
That is what I need to educate people to stop asking me. But for the record, here are my answers.
1/ I think it is totally unrealistic to think that you can start with 1000 euros and make a living from it
2/ No, Discord is not any lower latency than any other service, and it is a free service. Why would they give away
low latency as a free service. The answer is they don't.
3/ In my welcome messages, I explain what my percentages are. I get upset when people want to be part of my
universe and they then don't even bother reading the welcome messages. If I was going to be trained by David
Goggins, and he sent me some welcome messages, I would bloody well swallow every word he wrote to me.
4/ Because that is where the natural resistance is.
5/ No. You have to do your own work. I think it is disrespectful to ask. Accept what I give you, but don't ask for
more. You get more than you pay for. And you pay for nothing, and when I ask for donations, I get a measly
£2000, which amounts up to about £1 per person per month who are watching my active streaming. How
shameful is that? That is why I just fund it myself, because I want to pay Lennie.
6/ No CFDs are not tax free, but it is tax deductible in certain countries. Spread betting is tax free, but only if you
live in the UK. For many European countries they are making it increasingly difficult to trade CFDs because of the
tax laws.
7/ DAX is falling because the buyers are reluctant to bid up the stocks towards new highs. The US is
underperforming Europe and we often see the DAX being hesitant until the US trades come in. Having said that,
DAX is in a bull market, and in bull markets you buy the dips.
So, there you have it... my thoughts about everything and anything....
24th January 2023 – Dow trade
Here is my Dow trade on a 15min chart. This is not a great view, so next I will post the same chart, using a 1min
chart.
School Run Data

23rd Jan 2023

24th Jan 2023
25th Jan 2023
26th Jan 2023
27th Jan 2023
25th January 2023
Every morning I write down on a piece of paper what the close of the cash market was the day before in the
major indices. I go to CNBC, and I make a note of these prices here (see example below).

Here you see that the DAX closed at 15,307.98. The FTSE closed at 7,882.45. These prices are known as the
stock exchange cash prices.
Why is it important for me to know these prices?

1. It allows me to see quickly if the market the following day is trading higher or lower than the close of the
cash market the day before. This is important to me because it allows me to establish if the market is “gap
up” or “gap down”. Why is that important? Because 48% of all gaps get filled on the day.

2. If a market has been “gap up” or “gap down”, and the gap is filled during the morning, it often means that
whatever bullish or bearish overtures that was present at the open has now evaporated. In other words, if
 the DAX has gapped up significantly, it would mean there has been a very bullish atmosphere around the
open. If that atmosphere has now dissipated, I am perhaps more inclined to look for bearish setups.

3. The “gap up” or “gap down” situation is impossible to see on most CFD broker charts, because their
charting service shows the market continuously 24 hours day. That is because CFD brokers derive their
“cash prices” – the ones we trade on – from the futures market. In the old days the DAX futures and the
DAX cash market opened and closed at the same time. Then the DAX futures began opening an hour
before the cash market. Now the DAX futures (as does the FTSE future) open at 9am Singapore time,
which is 2am European time. These two futures contracts are then open all the way until 10pm European
time. The brokers chart this price action, but for us who wants to know specifically what happens in just
the hours where the ACTUAL stock market is open, we have to do a little footwork on the charts before
the open, to mark the prices that are relevant to the closes the day before.

So why is this important? Allow me to show you an example from the 25th of January 2023, on a trade I did in the
FTSE index. If I did not explain this trade, and had I not done it in real-time with the Telegram time stamp, I
would sure be accused of making this up.
On this chart you see my long entry, and you see my exit. If you weren’t there to witness it, I do not blame you
for disbelieving me.
WHY did I buy where I bought? The answer is simple. The FTSE had gapped up that morning, and the moment it
hit the 7757 area, I bought. Why? Because this was the price that the FTSE closed at the night before when the
stock exchange closed. You can’t see that on the chart. You had to know about it in advance. That is why I go to
CNBC first this in the morning to figure out where the real stock market closed the previous day. The close was
just a double top. That was all.
Here is the same chart, but posted at the time:

After trading that morning I got into a dialogue with some of you about various charting tools. There is a guy on
YouTube who is selling courses, arguing that normal Candlecharts are for retail traders only, and only fools
trade like retail traders.
Theis individual calls candle charts “useless retail trading charts”. He argues that “real traders” use a different
kind of charts.
These videos pop up on my YouTube feed constantly. This individual claim to have worked for Barclays Capital as
a trader for years. He claims that they (Barclays Capital) never used conventional charts. He argues that
conventional charts are the tool of the amateurish retail trader. He argues that you might as well throw your
money away, if you use charts like this. If you really want to beat the market, you need to have a different set of
charts – and he goes on to show a chart set, which looks like Steidlmayer’s Market Profile charts.
I disagree with this argument. I want to be REALLY careful now. I do not want to be known in the world as a
person that attacks the person. I disagree with the argument. The fact that this gentleman is selling courses is
inconsequential to my argument. If people want to pay for education, then be my guess.
However, I want to be allowed to attack the argument (and not the person). I do not believe that we as traders
need a special way to present the market information. I feel my argument warrants attention because I have
made a significant amount of points in say the DAX index, with nothing more than a 5min candle chart like the
one below.
Two responses by members of the group stood out in the replies. I would like to show them. I should add that
not a SINGLE comment came to the defence of the argument made by the gentleman depicted on the previous
page. If there had been, I would have showed them.
26th Jan 2023
To my mind the opening minutes in America offers great opportunities for quick trades, trades that very quickly
give you a significant profit, or dumps all over you. Reviewing the trades in the days and weeks after is both
illuminating and hard work – especially if it was a losing trade. The mind does not want to seek out painful
experiences. Reviewing a trade deliberately – knowing it was a losing trade, and one where you didn’t trade well,
is not the brains ideal scenario for good fun carefree times.
If I wrote, “I made 60 points today in Nasdaq, which netted me £12,000”, then it makes about as much headlines
as “Djokovic won the match”. Reading what I just wrote makes me think that you think that I think I am a Djokovic
of trading, someone who always wins. I do not. He is a tennis champion. I am wanna-be. I tell myself that, so that
my mind does not become complacent. However, if the story is that Djokovic came from being 2 sets behind, to
win the match, it makes you pay more attention. And so, on this day, I start off by losing 50 Nasdaq and 70 Dow.
When I look over the trades, I see what I was trying to do, and I see how big a mistake I was making.
I short a double top upon the open, it is in hindsight the weakest double top in the history of double tops. I am
close to being stopped out on the first 5min rally. I am actually given an opportunity to get out of the trade for
minus 5, but I stay in. Then Nasdaq rally again, and now it goes 12,015.65, and my stop is 12,015. THEN it falls
hard.
What I regret about this trade is the weak reason for the short. I regret not getting out at minus 5 after the first
5min candle retraces all the way back. However, I wonder if I was too hard on myself? Would I have been so hard
on myself if I had not been stopped out, and the market disappeared into the abyss shortly after?
Reviewing trades gives you an opportunity to come face to face with your bad habits. I shorted the NASDAQ
again, and I added. I got out at my original entry price, and I was now back in plus for the afternoon. Then I
shorted it again. The problem with sharing this view you is that you only see the COMPLETED 5min chart. You do
not get feel and see what I saw, as the 5min chart was unfolding. I will rectify that next.
The chart below is the 1min chart. You will see there are two points – point 1 and point 2. The 1st entry is double
top failure entry. The index trades below the low of the candle that just made a new high (and stopped me out
by 0.65 of a point). That triggers my brain to say SHORT. Then I have 3 minutes of waiting. Now notice how price
action at point 2 – indicated by the blue line. Do you see how the market attempts to get above the two last bars,
and now trade below the low of them. Again, that to me is the ADD TO SHORT signal. Had I not been short there,
I would like to think I would have shorted it. I end the day in plus. My track record as always is in Excel and also
time stamped entries and exits throughout every trading day.
When you are down £12,000 after a few trades, you need to know yourself well, in order to not fall prey to the
normal human impulses. You need to know in your heart that you are NOT going to get reckless.

The phrase I use is FLIP THE SWITCH.

I flip the switch. I see the information from the “other side’s perspective”. They are wildly bullish. I am bearish. I
need to see it from their perspective – and fast.
I hope you can read the comments in the chart. It is such a hard chart to be confronted with. I was not just trading
the markets. I was trading my emotions. I was trading the fact that I was down in the numbers. I was losing.

This is how much I am down. This is me down £40,000.

Flip the Switch!
This will feel very uncomfortable, but it is a discomfort you must accept and embrace if you want to succeed in
the game of financial speculation. It is the reason why trading looks simple. But it is not easy. The paradox of
trading is this: By doing what the 95% cannot do, you will become successful.
Now you know what you must do, how do you go about doing it? Charlie D, a legendary bond trader from the
Chicago Mercantile Exchange trading pits gave a talk to his trading colleagues. I have already written about Charlie
De Francesca. Everyone knew he was the best trader and packed into a tiny auditorium they hung on every word,
hoping they could extract the key to success. They didn't leave disappointed.
He gave them three commands that dictated his trading life — Commands that I use as the backbone of my
trading philosophy — commands that you should consider using too.

1: I assume I am wrong – until proven otherwise.

2: I expect to be uncomfortable.

3: I add when you subtract, and I subtract when you add.

The commands are the difference between winning and losing, between consistency and success, between the
large group that fail and the 5% that don't. Here's how the 95% losing group behave when they trade, compared
and contrasted against the mindset and the actions of the 5%.
Remember, I've watched thousands of traders execute millions of trades, and I noticed when most traders enter
into a position, they assume they are right. In a business where 95% of people fail, your recoding process begins
by flipping the switch. Flip the switch!
It starts with this: Assume you are wrong. You should assume you are wrong – until proven right. Through years
of observation, here's how the typical member of the 95% group trades.

TRADE ENTRY: 95% BEHAVIOUR

The 95% enter a trade. The trade moves in their favour, and they're happy. But their happiness doesn't last long.
Almost immediately, after their position goes into profit, they wonder how far the market will move, and they
begin to worry where the move will stop, causing them to feel pain.
Wanting the pain to stop, they close the position, and, removing their pain, they're happy again. But, by exiting
the trade based on the need to end their pain, 95% behaviour now bifurcates into two equally destructive
pathways depending on what the market they've just exited does next.

PATHWAY ONE
The market continues moving in the same direction in what would have been in their favour, and they begin to
feel anxiety because they're no longer in the market.
With their pain increasing, they regret closing the trade, and they contemplate going back in. They are no longer
trading the market. They are trading with their emotions.
PATHWAY TWO
The market reverses, and they feel elation having got out in time. They saved their open profits by closing the
trade, telling themselves how good they are at timing the market.
They acknowledge their pain command centre. It was right, but they are now ruled by their pain threshold. Now
it's only a question of time before their emotionally driven pain threshold centre sends them a false signal, causing
them to lose. Welcome to the 95% group — a rollercoaster ride of disappointment, losing money, and pain.

TRADE ENTRY: 5% BEHAVIOUR

Instead of assuming they are right, here's the mindset of the 5% when they enter a trade. They enter a trade, and
the trade moves in their favour. They're not trading their account size or the available profit — they are trading
the market because they understand the size of their profit is irrelevant to the market.
Knowing their profit and loss has no influence on the market and recognising the fear in their mind as the move
continues, they too worry the move will stop, and just like the 95%, they feel their brain's automatic pain receptor
kick in causing an in-built safety reflex to register pain.
The 5% are subject to the same built-in automatic pain receptor as everyone else, but the difference lies in how
they handle the pain. Instead of giving in to it, instead of being ruled by their emotional responses, they have
flipped the switch, they have trained themselves to expect the pain.
Flip the switch!
They're aware of the pain. They don't ignore it, they accept it. They remind themselves that their actions, if based
on the need to end the pain, will dictate which group they will end up in, either the 95% or the 5%.
Maybe the market continues higher. Perhaps it doesn't. It doesn't matter because the 5% are not shaped by the
outcome, they are shaped by their continuous process. They understand if they focus on the process, the
outcome will take care of itself.
The big difference between the few and the many is how they deal with emotional pain.

COMMAND 2: EXPECT TO BE UNCOMFORTABLE

First, here’s how the majority of traders deal with being fearful in a trade. Some day traders and swing traders
attempt to negotiate with their mind's inability to handle discomfort and pain by using logic to trade.
It's a flawed process. Yes, of course, it makes sense to risk ten to make twenty, but the 95% never let the market
get to twenty, having closed the profitable position long before it gets there.
Others take half profits along the way, compromising, giving in to the pain, they close half their position, telling
themselves it's part of the plan. They're still in the market but have a smaller position; their pain subsides, and
they feel better.
As the market moves further in their favour, the pain builds up again, and, with the voice in their head telling
them the move is surely over, they exit the trade, closing the other half of the position.
Justifying their actions, they repeat the mantra, 'you can't go broke taking a profit' to ward off the encroachment
of pain as the market continues moving further and further in their favour — without them.
Their pain becomes ever more intense as they count the potential paper profits, they would have made — if only
they had stayed in — but they didn't. Remember the pain receptor kicks in whether the loss is real or virtual.
They didn't exit the position because of a signal from the market. They exited because of a signal from their
emotional brain. They traded on emotion, assuring their permanent membership of the 95% club.

HOW THE 5% NEGOTIATE WITH PAIN

In contrast, this is how the 5% deal with their trading emotions. The market moves in their favour, and just like
the 95%, they feel pain. The difference is the 5% expect the pain and embrace it.
What if the market takes some of the profits away? They understand the feeling of pain is a built-in instinct, part
of the mind that's there to ensure their survival.
Again, the 5% flip the switch.
They don't trade their pain; they use the pain as a guide. As the market moves in their favour, the 5% aren't
impervious to their in-built emotional safety switch, but they don't snatch their profit by exiting all, or a
percentage of their position like the 95% do.
Instead, they add to their position. If the market is going up and they're long, they buy more. If the market is
going down and they're short, they sell short more.
As the market is proving them right, they focus on the process. The pain builds up as the market moves further
and further in their favour, their protective mind telling them to take profits, but, aware of the pain and the
consequences of making decisions based on it, they flip the switch.
Instead of exiting all or part of the position, they add more. While the 95% justify their actions, telling themselves
they'd go broke by not taking a profit, the 5%, flip the switch.
Repeat after me: You can go broke taking a profit.
As you've just seen, the 5% add to their positions when the market moves in their favour, juxtaposed to the 95%
who react to their emotional safety switch and exit or reduce their position size when they are showing a profit.
What happens when a trade doesn't go your way — what happens when you're losing?
Let's talk about command number three.

COMMAND 3: I ADD WHEN YOU SUBTRACT AND SUBTRACT WHEN YOU ADD
First, here's how the 95% react when they're losing. And, remember, I'm not repeating factoids from a book, what
I'm showing you comes from years of empirical observations from my time working in the brokerage business.

HOW THE 95% REACT TO A LOSING TRADE

They buy. The market falls, and their mind tells them to buy again.
Outside of trading, in ordinary everyday life, your mind looks for bargains. Marketers know it, enticing you with
special offers. You love saving 25%. It might work in the supermarket. Thinking this way, the 95% decide to buy
more. But, the "supermarket effect" does not work in the trading business.
The market falls again, locking the 95% into a single emotionally driven thought:
Where is the low?
Flip the switch! It can go lower.
With their thoughts controlled by the fear of the pain caused by taking a loss, all they can think about is how
they'll feel if they get out now just when the market is about to make a low and turn higher.
Adding when the market goes against them, they are locked into inaction, their brains short-circuiting, as they
are unable to flip the switch to counter their in-built safety mechanism.
Focusing on the low, their capital at risk, and the need to be right, is why they lose — sometimes everything —
I've seen it happen.

Instead of this inner conflict, how do the 5% deal with losing?

HOW THE 5% REACT TO A LOSING TRADE
They buy. The market falls. Their mind tells them to buy again — but they don't.
Aware of the supermarket effect, aware of the pain receptors, aware of their endocrine system pumping
adrenaline and cortisol preparing them to fight and combat stress, they expect this reaction and have learned to
live with it.
The 5% understand the financial markets are not like a supermarket and have no memory of past prices; instead,
the 5% know supply and demand dictate the price.
Just because something has fallen in price does not make it cheap. The 5% start by assuming they are wrong
when they enter a trade.
And, if the position is losing, it has proven their initial assumption right. With conflict neutralised, they take the
loss. This is the key to successful market speculation — it's what the 5% know.
HOPE IS NOT A STRATEGY

At any given point in time, you have three options as a trader.

You can buy.
You can sell.
You can do nothing.
For nearly a decade, I observed tens of thousands of people execute millions of trades. Their behaviour falling
into three broad categories:
1: The market was falling significantly, so it appeared cheap. The clients were buying. They LOVED trying to find
the low of a move.
2: The market was rising significantly, so it appeared expensive. The clients were selling short. They couldn't
conceive the idea they should be buying.
3: The clients were entering into an existing trend, but their entry was a reaction to watching prices move without
them. Entering at any price was the only way they could end their pain.
Trading like this kill client accounts.
If you've been around long enough, you'll know the market has many aphorisms that have become axioms.
Probably the two most common are 'trade with the trend', and 'keep your losses small and let your profits run'.
If this advice is easy to follow, how can you explain why 95% of traders end up losing money.
When the loss is small, there is no urgency. There is just complacency.
As the losses rise, the sense of urgency rises with it, but still, 95% of traders don't act; instead, another emotion
kicks in.
Hope. But, hope is not a strategy.
When losing, initially, the 95% hope the loss will become a profit. They are not afraid yet and hoping they are
right, they have no fear that their loss will become much bigger.
Only when the pain of being in a losing position becomes unbearable, do they act. As a group, you can see the
footprint of their collective panic and emotionally driven action as price reverses on huge volume.
Emotions kill trading accounts. It isn't the lack of knowledge that's stopping you from winning big. It's the way
you handle yourself when you are in a trade.
I spent a decade observing traders lose money. They were intelligent people who often had great hit-ratios, but
they couldn't lose.
After reading this far, if you remember only one thing, remember this: In trading, unlike life, the best loser wins.
This is what I aim to bring to the game of trading every day. I have to undergo a metamorphosis. I have to become
someone else every morning when I start trading.
And I have to remember that my brain wants to switch over to its old neurocircuits, especially when its existence
(losing) is being threatened.

And so I wait. . patiently and just by magic this happens:

And if it hadn’t happened live, it would be hard to believe. But it did.
What was the reason I didn’t move stop loss on, on that profitable trade? Well, I received some threats to my
person and my family, and it distracted me. I am just glad that I didn’t use it as an excuse for quitting. I took the
loss, and I flipped the switch, went short again, and I turned a shit day into an acceptable today.

I have to stop for today.

Stay strong.
Tom Hougaard