Trading Psychology - Dr David Paul

Summary

In this engaging presentation, Dr. David Paul shares his extensive experience in the financial markets, emphasizing the importance of a disciplined approach to trading. With a background in engineering, mathematics, and a former officer in the Royal Marines, Paul outlines a strategy that combines fundamental and technical analysis to identify undervalued stocks with strong growth potential. He stresses the significance of money management, advocating for risking no more than 1-2% of one's capital on any single trade to survive market volatility. Paul also addresses common trading fears and the psychological aspects of trading, such as the impact of winning trades on decision-making. He encourages the development of a robust trading system, adhering to it religiously for at least 20-30 trades to build the necessary discipline. His approach is about finding a consistent edge in the market, focusing on execution, and allowing the profits to follow. The talk is peppered with practical advice, including the recommendation of William O'Neil's book for further insights into stock trading strategies.

Takeaways

• 🎓 Dr. David Paul emphasizes the importance of a solid educational background in various fields, but also acknowledges that success in financial markets often requires practical experience and a unique approach beyond formal education.
• 💼 He suggests that creating a reliable income from the markets is similar to securing a regular salary, which requires a consistent and methodical approach to trading.
• 📈 Paul's trading philosophy involves combining fundamental analysis, which seeks to determine the true value of a share, with technical analysis, which studies trends and turning points.
• 🤔 He highlights the significance of having a mental framework for trading, which includes discipline, confidence, and a systematic approach to entering and exiting trades.
• 🧐 Paul shares his personal background, including his experience as an officer in the Royal Marines, which he credits for instilling in him the necessary confidence and discipline for trading.
• 📚 He recommends a three-day seminar to instill the necessary knowledge and skills for successful trading, condensed into a 40-minute presentation for the audience.
• 🤝 He discusses his long-standing business relationship with the founder of a company, indicating the value of experience and continuity in business partnerships.
• 🚫 Paul advises against taking margin calls, which can lead to forced liquidation of positions due to insufficient funds, highlighting the importance of financial management in trading.
• 🎰 He uses the analogy of a coin-toss game to explain the concept of 'edge' in trading, which involves having a positive expectancy system where winnings outweigh losses over time.
• ⚖️ He stresses the importance of risk-to-reward ratio and position sizing, encouraging traders to risk no more than 1-2% of their capital on any single trade to survive market volatility.
• 🏋️‍♂️ Paul draws a parallel between building physical discipline through regular exercise and developing the mental discipline required for consistent and successful trading.
• 🔄 He challenges the audience to create a simple, mechanical trading plan and to follow it for a set number of trades to build a habit and neural pathway that supports disciplined trading behavior.

Q & A

What is the main objective that Dr. David Paul wants to achieve for his audience?

Dr. David Paul aims to provide a mental framework that allows individuals to consistently take money out of markets and rely on that income in the same way as a regular salary.

What is Dr. Paul's educational background?

Dr. Paul has a degree in engineering, an MSC, and a PhD in mathematics.

How does Dr. Paul define fundamental analysis in the context of the stock market?

Dr. Paul defines fundamental analysis as the search for the true value of a share.

What does Dr. Paul consider his 'edge' in trading?

Dr. Paul's edge is combining fundamentals with technicals to find undervalued shares that are growing their earnings aggressively and are in a strong trend.

What is the significance of the coin-tossing game that Dr. Paul introduces?

The coin-tossing game illustrates the concept of positive expectancy in trading. It shows that with a proper risk-reward ratio, even with a 50% success rate, one can achieve consistent profits.

What are the three key components of a trading system according to Dr. Paul?

The three key components are the hit rate (percentage of successful trades), the risk-to-reward ratio, and the commissions.

Why is it advised not to take a margin call?

Taking a margin call can lead to additional financial strain and potential loss. It's better to ignore it and stick to the trading plan that manages risk effectively.

What is the recommended maximum percentage of one's trading capital to risk on any single trade?

Dr. Paul recommends not risking more than 1-2% of one's trading capital on any single trade to ensure financial safety.

How does Dr. Paul suggest traders build discipline in following their trading plan?

Dr. Paul suggests sticking to a simple, mechanical plan and following it without deviation for a batch of 20-30 trades, which helps in building a habit and neural pathway for discipline.

What is the importance of the general market trend when selecting a stock to trade?

The general market trend is important because it's preferable to buy a stock when the overall market is rising, as this can increase the likelihood of a successful trade.

What is the one piece of advice Dr. Paul gives for managing risk in trading?

The key advice is to never risk more than 1-2% of one's trading capital on any single trade to ensure survival through clusters of bad trades and to allow for long-term success.

Outlines

00:00

🎓 Introduction and Background

Dr. David Paul, an experienced professional with a diverse academic background in engineering, MSC, and a PhD in mathematics, introduces himself. He has been in London for a few years and aims to convey a consistent method for making money from the markets. His association with the company began when it was just starting, and he shares a personal anecdote about their early interactions. He emphasizes his military background in the Royal Marines as a source of confidence and discipline, which has been beneficial in his career. His only regret is not being a professional rugby player if he were 35 years younger, which reflects his passion for the sport.

05:02

📈 Market Analysis and Strategy

Dr. Paul discusses his approach to market analysis, combining fundamental and technical analysis to find undervalued stocks with strong growth potential. He defines fundamental analysis as determining the true value of a share and technical analysis as studying trends and turning points. He emphasizes the importance of having a method and managing money effectively. He also highlights the significance of the risk-to-reward ratio and the impact of commissions on trading profitability. The concept of 'edge' in trading is introduced, which is a combination of hit rate, risk-to-reward, and commissions.

10:02

🎲 The Coin Game and Trading Mindset

A thought experiment is presented where participants can bet on a coin toss, with a favorable payoff for correct predictions. This game illustrates the concept of a positive expectancy system in trading. Dr. Paul challenges the audience to consider their approach to risk and reward, and how they might apply this to trading. He also touches on common trading fears and the psychological aspects of trading, such as the fear of being wrong or losing money.

15:04

💰 Position Sizing and Risk Management

The importance of position sizing and risk management in trading is emphasized. Dr. Paul advises ignoring margin calls and not risking more than 1-2% of one's trading capital on any single trade. He uses a hypothetical scenario involving coins to illustrate the impact of bet size on the outcome of trades. The concept of 'clusters' of good or bad trades is introduced, and the need to survive these clusters is stressed. The discussion also covers the impact of emotions on trading decisions and the importance of discipline.

20:05

🧠 Euphoria and Emotional Trading

Dr. Paul talks about the emotional aspect of trading, particularly the euphoria that can follow a series of successful trades. He explains that this can lead to traders taking on larger risks, which can be detrimental. He advises traders to be aware of the emotional states that can influence their trading decisions and to maintain discipline in position sizing and risk management.

25:11

📊 Developing a Trading System

The process of developing a trading system is discussed, with an emphasis on finding a pattern that works consistently. Dr. Paul suggests that a simple system with good money management and discipline can lead to success. He challenges the audience to follow a mechanical plan for a set number of trades to build the necessary discipline. The importance of focusing on the process rather than the outcome is highlighted, as is the value of consistency in trading.

30:12

📉 Market Conditions and Entry Points

Dr. Paul discusses the importance of considering market conditions when entering trades. He prefers to buy stocks when the general market is positive and above a certain moving average. He also emphasizes the value of technical patterns, such as ascending triangles, for finding good entry points. The concept of a 'probability matrix' is introduced to help traders understand the likelihood of sequences of good or bad trades and the importance of incorporating both fundamental and technical analysis to improve the hit rate and manage emotional challenges.

35:19

🚀 Execution and Success in Trading

The final paragraph focuses on the importance of perfect execution of a trading plan. Dr. Paul advises traders to focus on the process of trading rather than the profit, suggesting that if the process is followed correctly, the financial rewards will follow. He encourages traders to stick with a system through thick and thin and to get past the initial challenges of the first few trades to build a 'neural pathway' that supports disciplined trading behavior. The talk concludes with well wishes for the audience's success in trading.

40:22

🎵 Conclusion and Applause

The script concludes with the end of Dr. Paul's talk, followed by applause and music.

Keywords

💡Mental Framework

The mental framework refers to the psychological approach and mindset one must develop to consistently take money out of markets. In the video, Dr. David Paul emphasizes the importance of having a mental framework that allows an individual to rely on market income in the same way as a regular salary, which is crucial for achieving financial success through trading.

💡Fundamental Analysis

Fundamental analysis is the process of evaluating a company's financial health and performance to determine the true value of its shares. Dr. Paul defines it as the search for the true value of a share. It plays a key role in his trading strategy, where he combines fundamentals with technicals to identify undervalued stocks with growing earnings.

💡Technical Analysis

Technical analysis involves the study of historical price movements and trends to predict future market behavior. Dr. Paul describes it as the study of trends and turning points. It's a part of his trading methodology, used to find stocks that are in the midst of a strong trend, which he then considers for investment.

💡Money Management

Money management is the process of allocating and controlling the money one has for investment with the goal of minimizing risk and maximizing returns. Dr. Paul stresses the importance of managing money well in trading, which includes setting limits on how much one is willing to lose on each trade to ensure financial stability and longevity in the market.

💡Risk to Reward Ratio

The risk to reward ratio is a fundamental concept in trading that compares the potential loss on an investment to the potential gain. Dr. Paul discusses the significance of this ratio, stating that it's not just the hit rate that matters, but also the amount made relative to the risk taken. A proper risk to reward ratio is essential for consistent profitability.

💡Position Sizing

Position sizing is the technique of determining how much capital to allocate to a single trade. Dr. Paul advises not to risk more than one to two percent of one's trading capital on any single trade, which helps in managing risk and ensuring survival through market volatility.

💡Discipline

Discipline in the context of the video refers to the consistent application of a trading strategy without deviation. Dr. Paul talks about the necessity of building discipline to follow a trading plan and the psychological challenge of sticking to the rules, especially after a series of winning or losing trades.

💡Euphoria

Euphoria, as mentioned by Dr. Paul, is a state of excitement or elation often experienced by traders after a series of successful trades. However, it can lead to overconfidence and poor decision-making, such as increasing trade sizes, which can be detrimental to one's trading success.

💡MACD (Moving Average Convergence Divergence)

MACD is a popular technical indicator used in trading to identify trends and potential changes in momentum. Dr. Paul mentions MACD and attributes its creation to Gerald Appel, highlighting that it was designed to be complex to appeal to investors looking for sophisticated tools.

💡Hit Rate

The hit rate in trading is the percentage of successful trades out of the total number of trades made. Dr. Paul discusses the misconceptions around hit rate, explaining that even a high hit rate can be unprofitable if losses on the wrong trades outweigh the gains on the right ones.

💡Forex Market

The Forex (foreign exchange) market is where currencies are traded. Dr. Paul uses the Forex market as an example to illustrate his points about trading strategies, emphasizing the importance of having a system that works with the market trends and managing risk effectively.

Highlights

David Paul, with a background in engineering, MSC, and a PhD in mathematics, emphasizes the importance of a mental framework for consistent market success.

Paul's objective is to create a reliable income stream from the markets, similar to a salary.

He combines fundamental and technical analysis to find undervalued stocks with strong growth potential and safe trends.

Paul shares his experience as an officer in the Royal Marines, highlighting the benefits of discipline and confidence in trading.

The concept of 'edge' in trading is introduced, which includes hit rate, risk to reward ratio, and commissions.

A simple game illustrates the principle of positive expectancy in trading systems.

Managing fear in trading is crucial, with common fears including being wrong, losing money, missing opportunities, and leaving money on the table.

Paul advises against taking margin calls, suggesting to ignore them to maintain trading discipline.

He emphasizes the importance of position sizing, recommending not to risk more than 1-2% of one's capital on any single trade.

The impact of emotional states on trading decisions is discussed, particularly the effects of euphoria after a series of winning trades.

Paul suggests using a mechanical trading plan and focusing on perfect execution for the first 20-30 trades to build discipline.

The importance of not deviating from the trading plan is stressed, as consistency is key to building a neural pathway for discipline.

He recommends incorporating both fundamental and technical analysis to increase the hit rate and manage emotional clusters in trading.

Paul highlights the value of using simple technical patterns like triangles and wedges to refine entry points in trading.

The significance of the general market trend is discussed, with a preference for trading when the market is rising.

A reference to William O'Neil's book 'How to Make Money in Stocks' is made, suggesting it as a useful resource for new traders.

The final advice is to focus on the process of trading, with the assurance that profitability will follow from consistent and disciplined execution.

Transcripts

I'd like to introduce someone who's been

in the game for a very long time

and international guest professional dr.

David Paul it's a great great pleasure

to be here guests like playing a home

game I've been in London now for the

last couple of years

my background is checkered I've got a

degree in engineering I've got an MSC

and metallicky I've got a PhD in

mathematics all of which I assure you is

largely useless integrity money avid

markets regularly and consistent what I

want to try and get across in a few

minutes it's hard to go about putting

together the mental framework to be able

to take money out of markets

consistently and get this up to a point

where you can rely on that income in the

same way as you can rely on your salary

or the income that you draw from your

business that's the objective now when I

do the seminar at the banks and I've

done for all the local banks here and

I've done it for most of the banks in

London it takes three days and I'm going

to try and do it in the next 40 minutes

okay I've got a lot of slides and I

probably won't get through all of the

slides but I'm sure that the guys that

fun port will send you the presentation

if you wish okay so my association with

the company is that the founder will see

other than where he is but the founder

of Mercy and I have been doing business

together

since he was 30 minutes old

it doesn't seem that long since he was

shouting at me when I was actually going

to my office in Livonia I used to shout

at me and said KitKat because he wanted

me to bring a KitKat Oh naughty evening

so any of the fun for people listening

if you want to bribe the boss just

behind my cat the thing that stood me in

best standard markets is that then my

gift I was an officer in the Royal

Marines and that's giving me a level of

confidence and discipline that I've

drawn upon for a very long time I'm 42

years later I can still fit into the

uniform there's anybody who feels like

having a go

I've only got one regret in life and

that one regret is that I was

thirty-five years younger I'd be a

professional rugby player today because

I came to South Africa to play rugby

that's why I came here in the first

place got an injury from it but I think

if I was 35 years younger I'd be a

professional rugby player so I'm not

that good with contraption so I'll do my

best to make the slides work yes

so already talked about an edge I'm

gonna try and talk about an edge my edge

is very similar to what these gentlemen

have just presented I like to put the

fundamentals on the technicals together

in the stock market

my definition of fundamental analysis is

the search with true value of a share my

definition of technical analysis is the

study of trends and turning points

ladies and gentlemen I want to try and

find a share that's undervalued the

share this growing its earnings

aggressively reasonably safe flight

that's rising that's in the throes of a

strong trend and ladies and gentlemen I

want to buy that when the general market

is rising okay and that's what I've been

doing for a very long time I do my best

to stick to that those of you a little

bit training for a while will know that

sticking to simple sentence training

rules is enough a little easier to talk

about them to do am I correct

yeah okay I'm just if there's local

Devils and you're sure

they're shouting at you to do the wrong

thing so to make some money and markets

folks we need some form of a method yes

we need to manage your money really well

only to manage yourselves really well

the three animals so I'm going to talk

I've got a methodology so I'm going to

ask you a question did they put that

chart in there we go there's the Aussie

forty I think I asked them to put in and

my question to you that's a MACD I know

the the guy who put the MACD together a

good friend about a guy called Gerry

Appel and he said that when he designed

the MACD an axiom of investment

education is the more complicated it

sounds the more you can sell it for and

he thought that MACD was suitably

complicated that's why it's called the

moving average converging-diverging

Gerry upheld those two sons have got

more money under management than a nest

egg just the three of them a little room

in a place called Derry Maine Stephen

King rates and Rex's books just across

the room is the JC Coonan whopper died

on Monday my question to you what do you

think done young man says done any other

Bradley what do you think you're the

expert up well folks in my pocket I have

the secret but you find them - I have

the secret it's a five round coin now

one side there's a pretty little animal

you see that and they were certain good

a coat of arms

clearly the coat of arms is going up and

the pretty little animal is going down

see if I can get this right

you were right my head it's going up

okay

would you trade like that no okay but I

assure you most of you are trading like

that already there's a great deal of

site where I assure you but I wouldn't

like to trade like I'd either so my next

question to you let's play and think

about a special game so here's the game

if you can successfully predict heads or

tails and you're correct

if you bet five runs and you're correct

I'll give you ten back clearly if you're

really correct in your prognosis I'm

going to take the five now you've

already said that you wouldn't trade

with the coin but would you play that

game ladies and gentlemen that's my

question to you would you play that game

yes or no well folks I have no one to

play this out

it's a creaky game to play and it's the

basis of how you can become consistent

and take money from somebody else

because that's what you're doing because

and ten Chuck's of the coin would you

agree that you should be right 50% of

the time yeah no when you're right I'm

going to pay you twice as much as when

you're wrong so in ten throws of the

coin when you're right I'm gonna pay you

5 times 2 which is 10 yes

and when you're wrong I'm gonna remove 5

times 1 which is 5 less you make 10 you

make 5 profit if you bet around on every

time you chuck the coin in the air on

average you're gonna make 50 cents you

have no

signed a positive expectancy system so

if you can find somebody to underwrite

that then bury that your edge okay and

that is the objective folks now with the

Finn port guys with GT you should be

able to get your hit rate above 50% but

if you can be right 50 percent of the

time and you can make twice as much when

you're right as you lose when you're

wrong then you've got a method of making

money for the rest of your days and that

is the challenge to learn how to play

the game over and over and over again

without fear or hesitation okay so it's

a cracking game to play would you play

the game now in trading the number of

times that you write is called the hit

rate and Lord only knows we're all

paranoid about the hit rate we want to

be right at all costs there are four

trading fears one is being wrong twos

losing money three is missing art and

forest leaving money on the table those

of you that are under fifty are probably

in a safe place because I know for a

fact that most man over 50 are more

scared of being wrong and losing money

than they are of death

okay am I correct

we've got the death thing I saw the

doctor well it must be handled okay but

to be wrong or lose money it's an issue

so that other thing that's important in

trading is the risk to reward ratio so

the money that you make is a function of

both the hip break and the risk to

reward and most of us just think about

the hit rate so three things know if you

do a search on the internet and that's a

margin call don't take it okay don't

take it just ignore it completely the

margin goes what happens folks when you

run out of loot from GTR gonna phone you

here and say more money or we close the

whole bloody lot okay so if you get a

call just don't take it so if you do a

search in the internet you're gonna find

lots and lots of systems where the

vendor says that he you're right

92% of the time and they all sound

wonderful

but the problem in those systems is if

they've got open up their stock losses

so wide in relation to their targets

that they don't make any money and this

was brought home to me a few weeks ago

and this is a chap in London who was

advertising a Forex system somebody

spoke about Forex and he said he's right

90% of the time so I was wonderful

business but when he was writing his own

literature he said this when it was

right he makes 10 ticks

and when he's wrong in losses 90 what's

the expectancy of that system 9 times 10

when he's right minus 1 times 91 is

wrong and that means the system actually

loses money signs wonderful 90% of the

time but he loses money so folks just

remember that that edge that edge is a

mixture of three things

it's a mixture of one the hit rate it's

a mixture of the risk to reward and the

Commission's and there's no doubt that

if you're trying to scalp a 1-minute

chart you need to be really really good

because those Commission's mind up every

time you press the read button those

three or four texts to be paid soap and

that's hit write rest reward and

commissions so that suddenly

mentioned the forex market if you by the

pound against the dog with a 50 point

stop and the targets a hundred points if

you can get that right fifty percent of

the time you've got it made and the only

thing remaining is to learn how to play

the game and it is a game that we play

with ourselves and playing the game is a

tough bet no I want you to use your

wonderful imagination because in this

vessel we have 101 round coins yeah see

them right now on every decision on

every trade those two decisions one it's

the damn thing going to go upwards the

darn thing gonna go down I've already

alluded to the concept of going short

which might be new to some of you but

you can take a bet that the markets

gonna fall and if it does fall you're

gonna make some money so

what's the first decision so the man in

the green heads or tails tails markets

gonna fall the bear and the green we've

got a hundred coins the second decision

ladies and gentlemen is how much do you

wanna bet you can bet one coin you can

bet five coins or in the parlance of the

commodity futures market you can bet the

farm the whole bloody lot farmers love

betting the farm okay so the man in the

green says the mom it's going to fall

tails

how many would you like to bet madam one

five twenty 75 20 okay so let's trade

what we're doing this is we're

simulating a trading system that's right

fifty percent of the time that makes us

twice as much when it's right as it

loses when it's wrong I assure you that

if you are a day trader in the forex

market you would sell your granny for

that system okay your granny

because most intraday systems will risk

30 to make 50 and if the vendor is

honest does not write that much more

than 50 percent of the time

so come on the green are you feeling

lucky like okay don't take it to

persuader

that's not a great throw

pong coined is much easier sorry mate

it's going up

you lost sorry

the only bhakti to Debbie that was going

good I'm so 20 gone and we've good 80

left the man in the red heads or tails

you sir

never wear that red pull of hurt again

your tails pardon heads

we've got 80 coins left the man with a

cold head with a capital one remember

John Wayne's last movie he says a guy

coming any set as your head cold we'll

get 80 coins left how many would you

like to bet pardon would 40 says okay

this trade is totally independent of any

other trade that you're ever going to

take in your life this is the first of

the 10,000 trades that you're gonna take

between nine and death you said head

Taemin let's see if I can get this right

after awful through pond is much easier

that's better

heads is correct

we get 18 18 and 80 s 160 we're ahead of

the game

hi folks the man in the red was lucky

unfortunate what's the probability of a

bad one aha

No what's the probability of two bad

ones in a row a quarter 1/2 times 1/2

which is 1/4 now in a 50% system

unfortunately you get two bad ones every

four trends ladies and gentlemen if you

were to bet 50 percent of your coins on

any one trade you go bankrupt every four

do you understand that gets worse what's

the probability of three bad losses in a

row and a 50% gain 1/2 times 1/2 times

1/2 would you want to rate that means

through a few cones when you get home

that means that 1/8 throws of the coin

or 8 trades and a 50% system you have a

cluster of 3 bad ones in a row that

means ladies and gentlemen that if you

were to bet 1/3 of your coins on any one

trade you go bankrupt every eight okay

and most people go bankrupt because they

bet far too much on any one single trade

not the bet size is the difference

between your entry point and your stop

loss right so if you buy a share a

10-round and you've got a stop loss at

850 if it falls from 10 to 850 that's

the bet sighs okay

am I correct duty gentlemen I think I'm

so

unfortunately there's massive paradox

here because you do the fundamental

analysis you do the technical analysis

and you're sure the damn thing is going

to go up yet that's why you're putting

the trailer in the first place so if

you're sure it's going to go up why not

have a big bet let's accelerate the

process of wealth accumulation so you

decide to trade far far too baby and

then all of a sudden you're gonna run of

these bad ones now if you don't believe

me

here's what I want you to do tonight go

to Monte Cassino who goes to Monte

kissing up anybody all right you get to

the casino tonight glance you go to the

roulette wheel it's a 50% game equal

number of blacks and reds and there's a

little white ball which is gt's cut

that's the whole thing okay and you look

at the scoreboard down at the end and

you're gonna see long runs of red and

long runs of black those custer's are

real and it's this clustering effect

that makes playing the game so difficult

because you get long runs of good trades

where you think you're God and wrong

runs unfortunately a bad ones where you

feel like something that's under your

shoe okay now the first objective ladies

and gentlemen is to live through the

clusters arithmetic that you don't go

broke in them okay because you can quite

easily have a Custer of five bad trades

am I correct sure

five by trades happen on

50 percent system every 32 all right so

have you ready bet 20 percent with your

looked on any one particular trade you

go bankrupt every five and there is a

big problem here so there's a chap

called Ralph Vince and he's written a

long series of books called effective

portfolio manager for traders thick

thick thick thick books they've got them

in and they stick they've got them at

Absa but not bedtime reading I assure

you the gist of all of this is that you

should not risk any more than one to two

percent of your kitty on any one trade

so if you've got a hundred thousand rand

in your account and you're you to us you

should not bet you should not risk any

more than one to two percent of our in

any one trade so the maximum loss ladies

and gentlemen that you ever have on any

one trade should never be more than

2,000 grams and that will keep you alive

okay

that will keep your life but there's a

big problem because we have runs of good

ones and runs of bad ones

not between your ears there's a thing

called the pituitary gland and that

patoot you can pumps out muti when I'm

in England I have to fill them with

multi means that pumps out all sorts of

hormones into your bloodstream and there

those hormones are actually responsible

for every emotional state that you have

so when you fail in love without young

lady of yours those hormones were just

pumping around your system all right

when I leave the gym Fox I'm no longer

63 I'm 17 again and back in the raw

bearings and as I say can be quite

strong when I leave the gym okay

now similarly when you have one good

trade

- good trades 30 good trades that

pituitary gland is hard at work okay and

it's pumping this muti into your

bloodstream and you change completely

I know people but after one good trade

they're a different person okay

certainly after turning after 3 willing

trades there in the bar flying drinks

and the souls of narrow boat rowing to

their life what happens is that after a

series of winning trades we become

euphoric and if you look in the oxford

dictionary the definition of euphoria is

invincible

so what happens is that you say so

little at position sizing let's have a

big bet and risk managers in the City of

London are actually taught these days by

the FCA - in fact that's the equivalent

of the FSB here to actually look at the

traders under control and assess their

susceptibility to euphoria now you're

going to find

that once you get the one or two percent

into your head it's in fact not the runs

of bad trades that cause you to go broke

it's a run of good trends because in a

run of good trends you actually trade

far far too big so just be careful about

you for it

none our job is to find an edge in

markets burries analysis of all he

leaves one pattern that's all you just

need one pattern to be successful they

haven't shoulders pattern could be your

pattern he couldn't chart up of lots and

lots and lots of patterns I love my

wages falling wages and rising wages

those of you who are trading Forex

there's a textbook falling wedge in the

Europe one daily chart the moment I also

I'm very fond of my third levels and

harmonic patterns which are my own

personal edge in both the stock market

and the forex market but you need one

level pattern you need to practice

really really good money management and

that just means not losing any more than

1% of your looked or at the very most 2

percent of your look and anyone trade

and then the third thing is to build the

discipline to just do it over and over

and over again many of you will see

those ghastly adverts of Alan gray put

up you know slow and boring adverts Alan

gray are great they've got a process

that Alan gray was taught by oak

Templeton a lifetime ago and they do the

same thing over and over and over and

over again I went to one of their

lectures the other night in London where

it's all of us across there where they

actually put on the case very simple

similar to your case where they

justified fundamentally based on value

that Honda was a much better buy than

Tesla okay wonderful presently but

they've got a process and they stick to

that over and over and over and over

again and your process doesn't your

trailing edge does not have to be

complicated at all

finding a share that's undervalued

that's growing growing earnings

aggressively and safely that's in the

throes of a good trend I like always for

a share to be above an 80 90 day moving

average really nine works for me and

then you need some little pattern to

finesse the end there could be a

triangle

it could be an ascending triangle

there's a heap of and that simple book

of charting will get you most of the way

and then don't lose any more than 1 or 2

percent of any one trade and then you

need to build the discipline that ladies

and gentlemen can discipline the belt or

is it god-given course you can why does

it little man like me in the gym this

morning at half past six

why twice a day okay

did it take any discipline to get me to

the gym this morning none none

whatsoever

the paradox isn't when you've got it you

don't need it okay alright that's the

paradox so to build discipline folks

you're going to have to grit your teeth

and stick to the process so the first

step would be to sit down with one of

these guys sit down or put

together your training plan a simple

mechanical plan the more mechanical the

better and then my challenge to you

folks is to follow that plan without

deviation for a batch of somewhere

between 20 and 30 trades that's going to

take quite a bit of doing it is a rite

of passage no I'm not a psychologist

I've had psychologists in my classes and

they still don't know why this happens

but to build a habit okay any habit

you've got to grit your teeth and do it

and then all of a sudden you actually

build this neural pathway between your

years by doing it you will find that

sticking to the rules for the first few

threads is difficult but I've done this

with many many people over the years

when I used to do one another one-on-one

mentoring I don't do it anymore

somewhere between 5 and 13 trades you

build the pathway and you'll find that

the discipline to stick to the rules

it's no longer required because that's

what you do so my challenge to you is

all of this get busy making nuisance of

yourself get yourself to a point where

you've got a written plan that suit suit

you did not be more than one page think

about position sizing there's a good

book on it by a guy called van thought

it's called trade your way to financial

freedom on position sizing and then the

real exercise is to focus on perfect

execution of that plan for somewhere

between 5 and 20 trades now I personally

build a habit very easily and many of

you will say that's great but it also

means that you can call the bad habit

very easily so the one thing that I can

say what were just possible that

everybody in this room is 8 to 13 trades

away from the trainer you want to be

that's all but very few people get there

because they don't adhere to the one

system until that neural pathway is

built so that's the process and you want

to be successful folks sit down put

together a fairly simple system adhere

to one to two percent position sizing

and then the real work starts

being able to follow that system through

thick and thin and you're only about 8

to 13 trades away from being able to do

that that's all thank you very much any

questions in that process of my home

after time I still have 15 okay any

questions on that process yeah you

certainly can have more than one running

I would suggest in the stop comment that

we don't have any more than two from the

one sector of the market okay I'm trying

to spread yourself across the market a

little bit I think that another thing

which is quite useful is this

probability matrix because this these

are the runs of bad trades that I talked

about there's a 50/50 system now if

you're a pure trend follower with no

fundamentals at all just a pure trend

follower you're going to be right about

50 percent of the time that's all in

fact probably less and there is the run

of for bad trades in a row every 16 now

by incorporating the fundamentals folks

and pushing your head rate up so that

your right two times

I have a three but trust you'll have to

handle for every 81 trades and if you

can get to a point where you're right

80% of the time you've only going to

handle a cluster of for every 625 trades

so my advice to you is that when you're

formulating your system is that you do

your best not to be training all the

time but to be waiting to get three or

four good trades in a month so that you

eliminate the clusters and you can do

that with these gentlemen safe by

putting together the fundamentals and

the technicals I think that training

technically alone is very difficult

indeed not because you can't make

another lot of money but because these

clusters are really difficult to handle

emotionally okay after you've been wrong

five times in a row how good do you

think you're going to be putting your

trading systems into practice without

fear or hesitation it's going to be

difficult so by adding the technicals

and the fundamentals together you can

certainly push your hit right up to this

area where the clusters go away and

largely that's going to mean that you

trade less and for me as I say I want to

share to be undervalued I want to share

to be growing earnings and going running

strongly and safely just rising and I

don't like to buy into share that's in

fact under an 89 day moving average okay

when I'm looking for a little pattern

triangles are great ascending triangles

and great falling wages are great to

finesse a good entry and I look to be

buying in when the general market is

positive that normally means that I like

the general market to be above a 21 day

moving average okay

but it's rising that's a very simple

little edge that I've been using for a

very very very very long time that gets

my hips right up to around this area I

think that there's a book out there that

you could be interested as a dealer new

it's a book by no friend of mine called

William O'Neal William James O'Neill

it's called how to make money in stocks

the book is 20 20 25 years old when your

needle is gonna has to be very similar

to here in that he started in

the stock market as a junior and New

York stock market and he then started

his own brokerage company and he's not

gonna some newspaper called investors

business daily you can buy at any

newsstand in the US so I think that you

would find that book very useful for

formulating your range in markets it's

cool how to make money and stocks by

William James O'Neill will lead you on a

meal right closer

he's about 90 no don't don't complicate

it

really good fundamentals and a trend

lots and lots of people in my do the

Alan gray methodology of deep value is

wonderful if you're Alan gray and you're

buying a massive amount of shares you've

got no choice but to be buying in when

the old football stadium full of small

people running away that generates the

quiddity for you to get in but for most

of us we can get in just by pressing the

button okay

so great fundamentals but the share must

be going away and then a simple one

technical pattern such as some of the

ones that Barry presented in that slide

to try and get you in and

place so the pockets going to go your

way fairly quickly and I also want the

general market to be positive indeed

certainly for the last month it's now

time to divide stocks when the general

market is falling unless you want to

short stocks it's not a time to be

buying stocks when the general market is

born so try and get those good

fundamentals a trend little pattern to

finish your entry and then you want the

general market to be going or where the

most important thing folks is don't rest

don't lose any more than 2% of your

kitty on any one trade that will keep

you alive long enough to get good at

this focus on perfect execution of the

system if you focus on the process of

trading that cash will take care of

itself

you know I think you know that rich

dentist that lives at the corner of your

suburb he's got a nest 500 and the

wife's got a Porsche Cayenne right he's

successful because he focuses on perfect

execution of each and every red canal

each procedure if he focuses on perfect

execution of each procedure his waiting

room will be full and the cash will take

care of itself

and similarly your job folks is to have

a plan and focus on the process of

executing that plan over and over and

over again and if you focus on the

process the look will take care of

itself the big biggest hurdle that you

have is to get over the first eight

trades if you can grit your teeth and

stick to the process for eight trades

something mystical happens between your

ears I don't understand it but you build

that neural pathway and all of a sudden

one that you required is no longer

required because that's just what you do

the same as I assure you that when I get

back to Long Hill this afternoon the

first thing I'm going to do is to dust

off the suit and go back to the gym I

have no idea why I hope that you enjoyed

the talk folks it's as close I want

everybody to be successful I wish

Fairport all the very best of luck

[Applause]

[Music]