A day trader with a vast library of free content, but also with a free day-trading and swing trading channels, Tom Hougaard is certainly a trading source that deserves attention and study.
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Tom Hougaard was born in 1969 in Denmark. He gained his Bachelor of Science in economics and Master of Science degree in money, banking, and finance from the University of Wales and Birmingham in the UK, where he moved in 1992 at 23.
After finishing his education, he started his career by working for the American bank J.P. Morgan, and after he left the company “Financial Spreads” in 2022, he went to work for “City Index” until 2009. This year was the year that he started his trading career.
Tom Hougaard uses theeSignal platformto analyze the markets, checksForexFactory.comfor economic events (checking only the high-impact red events), and owns an account with theOvalXbroker (former ETX). This information has been derived from the video “A Day in the Life of a High Stake Day Trader (UK Subtitles)” on his YouTube channel.
“There is a saying in the financial markets.. don’t confuse talent with luck.”
— Tom Hougaard
The “Best Loser Wins” Book
Already from the first pages of his book, Tom mentions that he is what brokers call a “high-stake trader”. Retail trades risk about £10 per point, whereas he risks between £100 to £3'500 per point, hence the term “high-stake trader”.
Tom analyzes two trades in his book, Larry Williams and Larry Pesavento. Larry Williams is an American stock and commodity trader born in 1942, and he is the author of Long-Term Secrets to Short-Term Trading”, “Trade Stocks and Commodities with the Insiders”, and “How I Made $1,000,000 Trading Commodities Last Year”, among others. Larry Pesavento was born in 1941, and he is an American trader famous for his books “Trade What You See”, and “Fibonacci Ratios with Pattern Recognition” among others, and his pattern recognition techniques.
Although both traders mentioned above use “market geometry” and “Fibonacci sequences”, and although these are controversial techniques, Tom mentions “they should not work all the time to make money in the markets”. Tom also likes the teachings of Al Brooks and his Japanese candlestick charting.
The image has been taken fromhttps://www.amazon.com/
Although Tom Hougaard dismisses the effectiveness of Japanese candlestick patterns, financial astrology, and other popular technical analysis techniques and indicators popularised by famous trading authors, by providing scientific studies that conclude that the “mean returns of most patterns are not statistically different from zero”, he mentions that in order for a trader to start from a sound psychological basis, he or she needs to believe and act upon. It’s a psychology game and if one starts to question everything, he or she will lose control psychologically and, of course, trading-wise.
„It’s not what you don’t know that kills you but what you know that isn’t so.“
— Tom DeMarco
The image has been taken fromhttps://www.amazon.com/
“… the problem with technical analysis. It’s very easy to learn but it should be not taught as the path to untold riches in the financial markets.”
— Tom Hougaard
Key Lessons General
- He day-trades the German DAX30 index, the NASDAQ index, the FTSE index, the DOW index, and some American stocks, and swing-trades some forex pairs like USD/YEN, GBP/USD, and EUR/AUD. Commodities are also a vehicle of choice for Tom.
- There is no “cheap” nor “expensive”. It's just what the market gives you, as “the market is always right”. As W.D. Gann has mentioned,“there is no price too high to buy and there is no price too low to sell”.
- Tom, since he is based in Europe can trade CFDs and for that matter to own a margin account. Has also stated in his book that he would also tradeoptionscontracts.
- As he is a day trader, he cashes a part of the day’s gains at the end of each day.
- Tom also mentions that “value” doesn’t exist, and thus one should not use the words “cheap” and “expensive” in this context.
- Tom buys something that has already risen and sells something that has already fallen. He calls this “joining the momentum”.
- A good trader adds to his or her winning positions gradually.
- Trader Tom often shorts a rising market and goes long on a falling market. The better one knows a market, the better can he or she “predicts” its next move. Studying its past behavior and measuring its moves.
“People are hopeful when losing money, and they are fearful when winning money”
— Tom Hougaard
Technical Analysis
- A “chart expert” is not equal to a “trading expert”. Less is more when it comes to charts. Tom doesn’t use any indicators, since he argues, “everything is been created by using time and price”.
- Price will fluctuate. Not every single fluctuation is a reveal and the beginning of a counter-trend.
- Us humans are very good to see and identify patterns, even if there is no pattern there. This explains the images we see forming with the clouds in the sky, conspiracy theories, and even the images of the “Rorschach test” in psychology. When we see a pattern in the chart, even if we change the indicators, the pattern we initially saw will stay there.
- A volume spike can indicate a change in a trend.
- The price of any asset moves from ranging to an up-trend or down-trend to a range.
- A lower high and a lower low indicate the possible end of an up-trend. The opposite is also true.
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- Tom frequently uses the A-B-C-D pattern, since, as he says, appears very frequently in the financial markets.
Risk Management
- Always use a stop-loss.
- When markets are more volatile, one should limit his or her sizing, and put stop-loss orders further away.
- Brokers nowadays offer “negative account protection” by law, so none can lose more than his or her account.
Books Mentioned in his Book
- Reminiscences of a Stock Operator by Edwin Lefevre
- Liar’s Poker by Michael Lewis
- Technical Analysis of Stock Trends by Robert Edwards and John Magee
Psychology
- Since none can predict the future there is no need for target levels. When a trade reaches something that would be called a “target level” it would be better to risk losing some of the gains, than missing out on potential losses.
- Psychology is the biggest obstacle a trader must overcome. Each trading day must start as tabula rasa and not hold the successes and failures of the past. One should just need to separate his or her emotions from the outcome.
- The main tendency of the brain is to close a winning position to secure the gains and to let a losing position run for the possibility to turn it into a winning position. “If every time I go into a trade let my mind dictate my thought pattern and let me remind myself of all the times I have lost money, then I would never trade. I would be paralyzed with fear”, he has said. This mentality explains why most traders fail, according to Tom. They let their losses run and they cut their profits short.
- Hope drives the markets up, and fear throws them down. Fear, of course, is stronger than hope, and that’s why there is a common saying in finance that “markets take the stairs up and the elevator down”. Tom focuses on the short side because as he has mentioned he makes his profits quicker than on the long side.
- One should not compare himself or herself with others. There is no point in that.
- “Trading is an inner game”.
- If the feeling of revenge trading is rising inside a trader, he or she needs to take a step back, and a bit of time off the markets, for this feeling to fade away.
- Tom mentions that “trading goes against human nature”. He emphasizes how eye and mind coordination doesn’t always work, and that the mind often sees things that are not there. In addition, technical analysis is flawed. When one buys a double bottom, he or she trades against the trend, for example, when the main notion is that “the trend is your friend”.
- We have two brains. The subconscious brain just wants to avoid pain. If one follows this then he or she will close a winning trade short and will keep a losing trade open.
“My degree course did little to prepare me for the real world. I thought that taking a master’s degree would change that, and while it was a little more industry relevant, I still felt that the market was a big mystery to me. The idea that you can test variables within an economic system by holding other components constant didn’t sit well with me.”
— Tom Hougaard
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