In Trading, 91% lose. Become
One Of The 9% Now. This Is
How.
Hi, good day. You're with Francis Hunt, the Market Sniper. Thank you for your interest in Hunt Volatility Theory. I'm going to be sharing with you the lessons learned on a long trading journey (over 26 years in fact) that has led to my developing a personal trading strategy and, more importantly, in terms of how it affects you, how you can benefit from those lessons taken by me and quantum leap your trading performance in a fraction of the time it's taken me.
So, join me in a snapshot of my journey…… My ‘Lucky’ Window on the World …….. I'm extremely fortunate. I have a ‘lucky’ window on the world. In some senses I'm uniquely positioned. I've benefited from trading and a love of the market since 1987 when I first began my involvement. I was a technical analyst and chartist almost from inception. In the last 3 years I've been involved in a teaching and mentoring role at a trading academy here in London where the students are freshfaced students. Beginners just starting their trading journey. Simultaneously, I run a private mentoring program that I oversee personally for intermediate traders in the 35 to 55 year age group. These traders are being honed and refined on my unique Hunt Volatility Funnel strategy, which is a 6 month Trader Metamorphosis Program dedicated to a single approach. This is part of my trading metamorphosis program. Also, 3 days a week in the environment of the academy, I get to interact with a room full of equity and Bloomberg screen effect transfixed hedge fund managers. In other words, real, quality, longstanding warriors of the trading game, managing between 5 and 25 million + One of the great benefits of seeing this mix of both early starters and market ravaged warriors is that i’m reminded of all the mistakes and errors that I made when I first commenced my journey….and most importantly to you, how we can faster circumvent those errors, yet getting the influence and the stimulus of engaging with seasoned veterans at the same time, and the benefit of teaching in an environment where I seek to learn that which I'm teaching, it has further developed me as a trader. This has been incredibly beneficial. Who am I and what am I known for……. First, a little bit more about what I've done in the trading market and what I'm known for. I was part of the Cantos Charts technical analyst team largely one of the biggest names in technical analysis in the UK and we were involved in a series of programs for Cantos Charts that went out to a large audience of traders. My big calls, I was looking at some macro calls during the period of 2007, 2008, running through 2009. Some of them are detailed here amongst many, so I've been involved in the markets on all time frames, but broadly speaking the ones that tend to capture people's imagination and almost get a lot of derision when you make them, are the big time frame calls, the macro moves. During a time when everyone was anticipating a major element of deflation and for the west to go on the path of the Japanese deflation and shrinkage, I called for the gold market to actually run in excess of 35 percent. In fact, I gave a very specific trade that led to a 1:19 risk reward that I felt would take 14 months to complete and would see all time new highs for the metal by some way.
Additionally, I made an even bolder call on silver, which involved a 63 percent move running from $19 dollars to $31. This was an alltime high for silver.
EURCHF 1500 PIP CALL On the FX front during the course of November of 2009 my strategy identified an incredibly interesting macro pattern on the Euro Swiss Franc pair, and using this particular methodology I came to the conclusion that we were going to see a substantial rerating in the Euro Swiss Franc pair, and that it was going to be to the downside. In other words a major loss of value in the Euro relative to the Swiss Franc. I placed my pending orders at the key levels, so I was not in the market, and coincidentally I had a holiday booked and went away, completely neutral to the trade: the market would either hit my orders and I would enter the market, or it wouldn’t. Either way, it didn’t matter to me as I was too busy soaking up some UV’s and partaking in some of my favourite outdoor pursuits. While away all my stocks and my targets were in and by the end of a very good holiday I was substantially in profit in a move that ended up totally in excess of 1500 hundred pips. This was later to be known as the Greek crisis rolling into the larger Euro Zone crisis. How To Get The News Before The News The interesting element of that is that it illustrates how technical analysis, when you see the big moves, can often give you the news before the news. It only came out in 2010 January, February and March that there was the beginning of a problem in Greece that then later escalated and brought in a lot of the southern European states and is the crisis as we know it today.
Here's the gold weekly chart from that call. A very simple diagram with some simple lines to give a very basic illustration of what the call was. In fact we got in a whole bunch tighter on this. We got in at the 966 on a pattern within a pattern and that's why we got a 1:19 risk reward, and we had a stop loss there. This was an incredibly powerful trade and it ran exceedingly well. That was the gold weekly chart that I've just shown you. Silver weekly was almost more explosive. It took a while before it got going, but once it got going it got rowing that boat and it flew all the way up, up, up, up, up, and in a similar way we were able to get in even tighter than this green line illustrates with a tighter stop. It gave an incredible risk reward. That particular trade all done very, very briskly once it broke. Interestingly enough I put it on a monthly chart that does compress it slightly but what you'll actually see is at the point of the break there, they're already in 1 month, 2 months, 3 months, 4 months, and by the 5th month the target had been run. That was, in terms of time frames, it was far quicker than gold although a later starter with a substantial increase in value.
There's the Euro Swiss Franc, the weekly 1500 pip call. You can see this particular setup in a similar way was a downside break and this was, once again, a trade that moved with great conviction and momentum. The value of this is psychologically you get the benefit of the market moving strongly in your favour from the minute that you entered. That's an incredibly powerful thing and you can see well north of 150 levels we ran all the way down to just above the 135 levels to the 136 where we got out, giving you a better part of 1500 pips. I've drawn other levels in there that show where the SNB, the Swiss National Bank, actually intervened and I've got other slides on that later on to show you, so stay with me.
Can You Guess Where The SNB Intervened?
HVF Theory & The Ruble For a more recent largescale example of HVF Theory in practice, here’s the call we made on USDRUB Russia being a major key emerging market. This was prior to the Ukrainian conflict. We said we don’t know what’s going to be happening in the news, but the ruble is going to be losing an immense amount of value. We had a major, weekly, big timeframe setup here for the ruble to the upside against the USD, implying USD strength and massive RUB weakness. This is the chart as it broke out and made its first interim target. It’s all about interim levels in HVF Theory.
USDRUB 2nd Chance And why after interim levels are met you often get a pullback in this instance the train has reversed back to come and fetch you. You could reenter on the green line for fresh longs for upside performance with expected overperformance, looking at it on the monthly chart: USDRUB 2nd Level Interim Target That’s how it progressed after that return move to your funnel there. Strong each month, significantly forward on the next one until eventually melting up.
USDRUB Meltup I Here you’re seeing it go through 55 into a shooting star just shy of 80. We said at this juncture after we made this expansive, super expansive, liftoff you should be getting out and that it’s hyper volatile and the overperformance period will now see a temporary period of relapse. The shooting star, the pullback to 54 on a key emerging market like the ruble. USDRUB Meltup II
Be Early Brent/Oil $103 Was Our Break Then on energy if we go and look at oil you can see how back in 2011 we called the top and said this is going to be the beginning of a new trend. This is the first inverted HVF in a new trend and we were breaking the $103 level that this key move as you can see at $102.41 down there was going to have overperformance through the target to the downside. Be Early Brent/Oil Overperformance
The key big macro energy call trade theme that literally for this 2014 midperiod right the way as we are going well into the heart of 2016 being one of the predominant newsbased themes. There it is rolling over 69.82 after running the target area where you would have done a partial close and rolled a bit over for a little bit more. Brent/Oil – Understanding The Role of Volume & OBV In The Sell Signal This is the kind of analysis we do. We LOVE charts. If it looks bewildering at first, don’t worry. This is an On Balance Volume Indicator where we’ve done technical analysis. Look at the orange squares where we identified and shown this was always going to be a downside break, all these orange squares angling up on a grindline (we’ll teach you about grind lines) and then you can see the orange squares on the OBV flatlining, indicating that it was no longer going up on strong buying volume and that the selling days were actually the ones on heavy volume…… ……..pointing to that the volume precedes…….pointing to the downside move that you then see. Look at that huge dip and break there and you could have got short as you took out those levels. Look at the descending tops here while we still have a nice squeeze up top there, OBV helping you get short earlier. You could have got in at $110 on the break of that grindline on confirmation of the OBV having peaked already. Isn’t that interesting? Is it of interest to you?
Brent Oil Keep On Keeping On So you could have known that it was in the water before anybody else. Why? Technical analysis, charting and understanding HVF Theory. Look at the Brent. We said it’s going to go lower at this juncture, it’s not bottomed out. Why? HVF Theory. So many people were calling bottoms. We said lower, lower, BOOM...there it goes. Lower still. You could have even gone short at $55 even if you’d missed the major move and it’s traded below $30. This is the Macro view in a monthly chart of what’s gone on.
Gulf Sands Petroleum (Short) Drilling down deeper and keeping in line with the oil narrative, here’s Gulf Sands Petroleum (GFX) on the daily chart. We called this way back in 2013 prior to the Oil collapse and the War in Syria. This, dear readers, is the epitome of news before the news (and contrary to a number of newsletter circulars recommending it as a buy). We suggested an early sell at 100p was triggered suggesting the trade at that level, resting at 79p and giving a second chance selling opportunity at that level for those who missed it the first time around. It’s now trading at 6.75p a 93.25% capitulation from the point of entry at 100p!
My Window To The Trading World This was my lucky window in the world and it remains to this point in time. Working towards capturing this methodology in a book has got me thinking about all the benefits. I get to see the mistakes people make again and again (and again). Traders make the same mistakes. Over and over again and they wonder why they don’t become profitable, consistently. I get rereminded of them and I get rereminded of my own history and trading journey and how long it took me to overcome those mistakes and how regularly I smashed my head against the same wall before actually coming to the realization that I needed a better way. I needed a better way. I needed to stand back and go around the wall. This, combined with all the perspective that I've got from the people around me and my own personal trading as it's developed over an extended period of learn and fall, trial and error…..this is what’s going to lead to you potentially getting an excellent fly past of everything I consider critical to my personal success in trading and a number of things that I don't consider useful at all, which can help you avoid many dead ends thereby saving you a lot of time and money! An Inconvenient Truth However…. bad news, facts, inconvenient truth….You are all losers at the moment broadly speaking….in a trader’s sense, I hurry to add! But that is a hard and pretty harsh fact. Another fact is that 91 percent of Spreadbet accounts are, in the long run, net losers. Trade Station statistics have stated under the obligation of law in the US, and this often has intermediate and more advanced traders as it's quite a robust and intricate back testing tool, has hardly much better with 87 percent being net down across all active accounts. Largely you are in a position where you're most likely one of the 91 or 87 percent. Either way, you’re feeding the 9 or 13% because as you know, trading is a zero sum game: for every winner, there is a loser! I’m assuming you’re reading this because you want to move into the 9%? My bold and shocking promise to you….. So, my bold and shocking promise from me to you is this…..if you take on board that which is going to be delivered to you during the course of this ebook, YOU apply it and YOU look to make structural, genuine changes to how you have typically traded previously…. If YOU appreciate the fullest extent of what I'm going to give you here, it is quite possible that I can elevate you to the top quartile, even potentially the top 10 percent of that 9 or 13 percent that are the winners. In three years time, with consistent adherence, you can potentially even have an audited trade P&L with the discipline that could get you and qualify you for institutional management. That is an incredible statement to make. Not everybody, as you can well understand can all have the skill sets, but without having to be exceptional, if you apply in a discipline sense, that is indeed possible. Because as Einstein says, if you keep doing what you've been doing, you're going to keep getting the same results. That is the definition of insanity.
Disclaimer Alert!!!! However, changing longstanding trading habits is never going to be easy. It's hard. Containing emotional urges is also hard. Becoming consistent is tough and requires focus and discipline. The Hope and Good News The good news is, having said all of this, the most significant trading truths I know are about to be revealed to you and pulled together for you in this short ebook. Applying just a small amount of these will already move you substantially forward. In other words, if a large essence of what I'm saying still passes you by, but you grab a decent segment, you will significantly change your potential performance on your trading. The strategy will automatically help you focus on the new good habits and will go within itself a long way to containing and controlling those elements that often undo us and ruin our trading consistency. Dead ends, major headaches and where it all goes wrong At this point it's valuable to actually point out some of the dead ends, some of the points that took me down a path I need not have gone, that ended up seeing me having to turn around and come back, with frustration, loss of money, loss of equity, and loss of time. Often leading to demotivation and spells of inactivity, stalling you on your dream and journey to being a successful, high performance trader. In my view, those pitfalls are an over fascination in indicators, incomplete strategies, the consistent belief that a trailing stop loss is a suitable exit strategy, and a whole smorgasbord (yes, I did say smorgasbord) of various money management failures. That stems from position sizing, stop loss placement, absence of targeting, and no real basis for a trade therefore. In other words no structure for which to exit in the first instance with a profit. When it comes to indicator fascination, indicators invariably are lagging. There is no clairvoyance from price behaviour and you cannot ever get an answer from a computer generated line that is derived from a mathematical formula on price data. However, we can develop probabilities. And we can understand and exploit the consistency with which human nature evolves and how that plays into something technical like patterns. People have incomplete strategies. They fail to have a take profit, they fail to have a trigger, and they fail to have a level where they accept the trade is wrong. Of course the failure of a proper strategy, is like using a handbrake on a car. It's there only for absolute emergencies and very, very poor in performance relative to using the proper tools. Most instances when it comes to position sizing people are sizing too large. In other words, they're too aggressive. Stop loss placement and its determination should always be technical not mathematical. Some people work, "Oh I'll be 1 percent away or 50 pips away." As if the market cares about what percentage of equity your account is. Some of them don't even determine that and it becomes a pain based exercise. Sticking to your guns, how ‘man’ are you and other ego based nonsense. Are you macho enough? Of course those are fatal emotions that will do immense damage to you. Greed Keeps You In A Trade, Pain Takes You Out
Greed keeps you in a trade. Pain is the thing that takes you out in the absence of targets. This means targets are critical. Critical for containing emotions and critical for understanding a money management and risk reward calculations. The other element that many people simply don't grasp is the failure to truly understand the mathematics of a drawdown…...and I'll be covering that further on. The larger the drawdown, how much you have to make back to get back to where you started. I call it the recovery ladder, and it's worth reiterating. Is The Juice Worth The Squeeze? Other various money management failures continued would be the risk reward ratio. There is a complete lack of people bringing the risk reward ratio into their money management. It goes so far in helping you determine the viability of a trade. Should the trade even be selected? In other words, what's the probability of outcome and given that probability of outcome, is the juice worth the squeeze? How else can you do that if you do not have a complete risk reward ratio calculation? Of course the targets themselves. The intrinsic necessity of having them there to meet the mathematics of risk and reward. The Trend Is Your Friend. Are You Sure? Another element that regularly comes up for traders is time frame confusion. In short we see something set up on a shorter time frame but it's counter trend to a larger time frame. What are we doing? What time frame are we trading? We get misaligned. We end up taking short trades against the trend, counter trend trading without even realizing we're countertrend trading. I Made The Most Money When I Just Sat One of the biggest elements and one of the most difficult and one that stymied me for an extended period is containing the pressure of compulsion, the need to be in the market. Great quote from Jesse Livermore in the Reminiscences of a Stock Operator, "I made the most money when I just sat." Learning that patience, learning to stand by your plan, not feeling the need that trading is consistent, regular, order entry, and tampering and tinkering. Ronald Reagan said it best when he said, "Don't just do something, stand there." Particularly when you think of government, I can see the reality and value in that, but it has a great parallel in trading. Do your analysis, do your research, spend most of your time outside of the market analyzing, determining your high probability trade. Then you place it, you let it trigger, and it's for all the right reasons and you stand by it. You don't tinker. In other words it's the right not to be in the market. We have power over the brokers and the market makers. They have certain benefits, they might even have inside information and knowledge that we are not always privy to, but do we as individual traders have any power? Yes we do. A market maker has to offer a bid or a spread. The pressure is continually on him. He must offer a bid in an offer. In highly volatile times he can stretch it a bit, but at the end of the day he has to be in the game. He has to be equally prepared to buy or sell and underwrite. If you are a market maker, that is the pressure that is on you. As a trader we have the right not to be in the market and to choose the exact moments and the exact terms and conditions under which we will engage. Think of it as a fisherman. You don't want to enter into the ocean when the storm is on and it's coming in for dusk, you want to be able to choose the best conditions for catching fish and nice, safe, stable seas. Learning to be highly
is ideal criteria as we move our way along. Many of us don't understand the nature of the game. What is a truly rounded winning result? Is it just the most or the highest number in an absolute sense per annum that can be attained as percentage growth? Does the man who gets 36 percent at the end of a year beat the man who gets 11 percent? Well, it depends. There's so much more to that assessment and I'll be giving you some detail on that. Lack of charting, proper charting based homework. In other words, go and do the research, draw your lines, key levels of support and resistance….look historically where the underlying market has reacted and the depth of trade assessment. We must look at a trade before putting it on at a far greater level. Do you draw all your lines, look for all your patterns historical going forward, assess your trends across multi time frames, across markets, intramarket analysis with all other correlated markets? Are you the kind of person that does that level or degree or work each time you are preparing for a key trade? In many instances the answer is you come in light on your trading homework. When we talk more about the nature of the game it's not necessarily about the absolute maximum in any given year. Firstly you have to survive every year and stay in the game. It's a case in the footballing analogy is not letting the others score any points against you. A great defence means you get to come back and fight another day. This keeps you in the game for those special days when you are well positioned and ready to exploit the market opportunity. Drawdown and Volatility of your Equity Curve – What is the Nature of the Game? You've got to consider drawdown and volatility of your equity curve. How many traders are truly assessing their own equity analysis curve? Are you looking at the curve it's generating and how deep those drawdowns are? We will return to that when we talk about the recovery ladder on draw down. Extreme volatility of your equity curve is a weakness and is essentially a warning of a crash. As an example of equity curve, I've actually put two versions of equity curves out there. For example, let's say this one in the red finishes on 36%.
The green curve illustrates that at the end of its year, has grown 11%. If you're sitting in front of four fund to fund hedge fund managers and you produce two separate performances, investor A and investor B and you are A with a green line and somebody else is B with an outright return of 36%, which one do you think the people that have hundreds of millions to allocate to a fund are going to elect to give funds for going forward? I can tell you the answer is slightly different to many people's expectations. The 11% with the stable equity curve and the minor drawdowns and consistent incremental growth is far more attractive. This person has tight money management, is not taking excessive losses and is controlling consistently his progress up. The next person that invested may have been better part of 25% up in the first quarter and back down to nearly nothing would have lost an immense amount of investors in this fund coming through here and would have gone through a massive emotional rollercoaster in losing that amount of equity in such a short period, even though it would have been giddy with excitement on the way out. This personally is too much of a rollercoaster ride will make many investors extremely uncomfortable and would see lots of redemptions occurring. We want to prepare you in the mentality that we're almost setting you up to become macro hedge fund managers. In other words you have a responsibility to a stable equity curve, both for your own emotional state and for that for anybody else's money that you might end up managing one day. This is the mentality we have to take in outright performance. Actually, it has to be taken into context with drawdown. This is a very, very important point. Focus on One Thing….And Do It Very, Very, well “He was a jack of all trades, and a master of none”
Carrying on with the many learnings on my trading journey and the mistakes that I found people regularly make, that's almost standard to every beginner and intermediate trader….We need to do one thing very well, rather than every day a different strategy……Today I'm going to trade Bollinger bands, yesterday I was trading pivot points. I think I'll look at the moving average system and try that on Wednesday. On Friday we'll trade the news with nonfarm result. I'm afraid you are failing to build a specific competence in one particular area. At the end of day the bulk of what Microsoft did, is operating systems and Intel sticks to chips. Note that Intel doesn't try to build operating systems and Microsoft doesn't try and build chips. Do one thing. Specialise in that particular area, do it well and dominate it. Too few pending orders are being used for entering the market. If you are a person that does an analysis on your executed trades and you find every single one appears to be taken at market, you need to ask yourself…. …...can it be that in my trading world view, i’m always entering the market at the optimal time...which just so happens to be as soon as i’ve sat down to trade at my PC for 10 mins, had a coffee at 09.35hrs on a Monday morning and flicked through my charts? Can it possibly be that my first impulse to buy/sell at market price is correct? In reality, the probability of that is extremely low and I'm afraid very random. The key way we have excellent execution is we do our homework over a sustained period. Rarely is it the moment for entry. You've got to look at levels, you've got to look for an event, you've got to insist that the market creates a set of criteria and then distinctly moves in a manner that says, "Right, I'm about ready to take serious direction in the following way." That usually requires it to take a key level of significance out. It could be a support of an existing price, it could be anything. It's not necessarily likely that you happen to be there at that exact point and time and it's very rare that it happens to be the first 20 minutes after you switch your PC on and had your breakfast coffee. What’s Hansel & Gretel Got To Do With This? The more and more you are entering at market, the less you are actually allowing the market to take you in with pending orders and determines to me the extent of experience you may have. Ask yourself the question, do the analysis, how many of your entries are pending? The other element is, you've got to apply the Hansel and Gretel analogy, all the way. You may get lost, you're going to go on a journey. Some of them will be dead ends. You are continuing to learn and become a better trader. It depends on what you do with the lessons you paid for. Journalize, document and measure performance. Leave the crumbs, leave the trail. You will look back in years to come and you will see how you've developed. You will have a basis for comparison, instead of just drifting on and on and on. We know clear ideas to where the lessons are being taken or where the mistakes continue to be repeated. Trust me, I'll bash my head, as I mentioned before, many times on the same mistake. Experience is recognizing that you'd made the same mistake before, but through learning is applying that experience and setting yourself up so that you cease to do so. What Can ‘Weight Loss and Lazy Phil’ Teach Us About Our Trading?
One of the key elements of measuring and I believe this is really integral to the generalization, was a narrative that I got, funny enough out of a book, absolutely nothing to do with trading. There are many lessons or learnings to be taken from all of life, many activities. This one came out about a four hour body of workout book. There was in fact a small chapter on an individual that was both lazy and overweight and he decided that he both wanted to lose weight but he refuse to change what he ate…..he quite enjoyed the way he ate. He didn’t want to exercise. He didn’t like exercise. He stated so explicitly. He's overweight and he understands that he doesn’t like exercise. So he set himself in extremely winnable goal. In other words he didn't try to conquer the world. If you set yourself the target of becoming a millionaire by the end of this year, on the basis of your trading, you are probably setting yourself up to fail and you will take too big a risk. He set himself a very winnable goal and he also did something else, he established a range of tolerance. Obviously you're not going to walk exactly the line to that highly attainable goal. When you set this highly attainable goal over a sustained period, 18 months he took to get down to his ideal weight. This was not any crash diet. He didn't want pain or suffering of any kind. In fact, he wanted very little change to his life. "You would punish", he said, over performances. In other words if he was losing weight beyond his band of range on either side of his line that was projected into the future measurement of his weight that should be lost, he would punish over performance in a similar way as underperformance. This is actually a very interesting trading analogy, because we do the most damage to our account after we've had many wins in a row or single big win. Overconfidence kicks in, and in fact we undo all the good work we’ve done and often take a bigger hit beyond that win we have achieved. Over performance can be as dangerous to you as underperformance in trading. Be warned, it sets the seeds of future destruction and that is something I learned. Anyway, this very interesting story about the individual who wants to lose weight and doesn't want to change anything about his life, in what he does, both eating and in not doing any great exercise. How are you going to do this? It was really, really interesting. The one thing he did commit to do was this….. Thou Shalt Measure…… …….he was in the IT industry and he was quite tech illiterate. And he had an exceedingly good measurement system as he’d bought himself one of the most expensive set of scales he could get his hands on. He wanted to have really accurate measurements of his weight every single morning. What did he do? Every morning he commits to doing one single act. He would get totally naked, have a pint of water and then take a pee. Then he’d weigh himself so that he was comparing like for like, same scale, same spot, same time every single day. He did this consistently without fail, regardless of whether he’d binged and wasn’t looking forward to the weighin, or he was tired. Whatever the circumstances, it was done, captured and put through his spreadsheet with these bands of performance and off he went. In fact, if ever he over performed, he went out and specifically binged. Interestingly enough, this actually helps with weight loss because it messes up your metabolic sensitivity. Anyway, the point of this was that at the end of this 18 month period, by just psychologically hinting to his mind that he intended to lose weight and by consistently focusing on the measurement, he achieved his
he could explain it is that he possibly, without realizing it, because he had focused his subconscious mind on weight, he may have taken a few more staircases rather than lifts, without even noticing he was consciously making that decision. He may have waived a dessert, when not really feeling that hungry where he just automatically, habitually used to have ordered it. Purely now because he'd flagged to his subconscious mind that he no longer wished to do this. This is the power of focusing your mind and measuring. You are and you become that which you made to measure. This is what I will introduce to you for your trading. In other words, you shall measure and you shall do so accurately. We will measure, we will size with all money management spreadsheets and we shall do so accurately and we will plan every trade. If you implement this you will never have an oversized loss ever again, only a plan for loss, an acceptance of the loss and an emotional neutrality to that loss. If you do all these things and you focus on your equity curve measurement, you will become a better trader just by flagging to the ultimate power of your subconscious mind where we use so little of that brain and you will improve your track record performance immensely. Just by nature of the focus there. Indicators Indicators EVERYWHERE Having mentioned that, we have to also discuss everybody's indicator fascination. It is one of the most annoying elements that I find with new technical analysis programs or beginners (not the annoyance it’s not their/your fault). The first thing that happens is to be introduced to indicators. Indicators feed us emotionally, our weak emotions. In others we crave clairvoyance. We come here just wanting the answer and they offer us a computer generated line, which gives us the answer to the trade we should be taking. It even gives us the trigger, when that line crosses that line, then that is your signal to enter a trade. The indicator has spoken. We are often not that interested in doing our homework of technical analysis, we just want someone to give us the answer. What is an indicator? A mathematical formula applied to the hard data of price, invariably. Of course it lags and it is totally not clairvoyant! We want those absolutes, we want those exactitudes in terms of answers, we set up there, we have this lust for clairvoyance. Is the market going up, yes or no, if so how far, specific levels. We've got a mortgage to pay, the countless amount of times I've had people ask me for my view on the market and they want to know, is it up and how far, and what point do I buy? Why not just give me the trade, it's essentially the mask of the individual. In actual effect, we have to do our own homework. We have to get our own degree of confidence in the trade and we have to find it ourselves. We have to learn how to do that. There is no indicator which will come close to giving you a trade. Here's your stoploss, here's your entry, here's your target. In fact, the system I'll give you will do all those things and it will even give you an idea of the journey on the way to stoploss, it will be high risk reward ratio.
In other words the risk will be low for the reward that potentially you are actually getting. Unfortunately there is no indicator that does those things for you. The fallacy of indicator confirmation is almost a case of, “we actually are looking to make a trade and we are waiting for something in the computer to tell us it's okay to go ahead”.
My tendency is to say, "Stop being a wimp." If you've done your research and you like the look of the trade, don't wait for some lagging mathematical based formula to generate conformation. Take the trade. It's is not a new reason for going long or short. It is based on the price action, which you've already been looking at. The indicator is just another manifestation of the price action being represented in a lagging slow form and often there to give people that extra little bit of confidence to push themselves into the trade. Why Fools rush In….Why People Buy At Market And Why They Lose Money. Again and Again. Don't be a fool, it's not a new reason, it's the same reason being represented in another way and coming late. Why rely on it? Many people look at the actual price section and say, "The indicator says X, Y and Z." In truth it says nothing, we project our interpretation or our view upon it. If you feel the trade is good from the price action, you don't need a lagging indicator. We don't trade the markets, we trade our beliefs about the markets. Like our beliefs, we like to feel that we get a nudge in the back that tells us it's okay to go ahead once we have an inkling that a market may do a certain move in a certain timeframe. We trade our beliefs about the markets, not the markets themselves. We have to learn how to become aware of those beliefs and have a template for managing that. Here's an example on indicator, this is an ongoing, up moving, underlaying. The sell only signals on an RSI and RSI is the most popular of utilized technical analysis indicators. Every time you break down through the black line, this is meant to represent your trigger for a sell, that would in a sell at that point, that would be in sell at that point, that would be in a sell at that point, that point, that point, that point, and that point. In short, you would have sold the whole
automatically setup to indicate overbought and oversold conditions. If something is moving strongly up it immediately moves into the top quartile as it does here, representing that that particular in the market is overbought. But let me tell you, a market can stay overbought for an extremely long time. Overbought relative to what? It could have been oversold before and could be attempting a move back to previous highs. That would have been shown as oversold all the way down and overbought all the way back up again. Be careful, be wary, trading indicators and indicators as a standalone system. I question the true value to you as a trader. Eliminate 95% of your reliance on that and we will take you forward and show you how you don't need them. We'll fill that gap with my holistic system that will look after everything that you do need for trading, but do more research on the actual price chart indicators, have you taking your eyes away from the actual price chart and looking on this computer generated line below. There are few notable exceptions do make for indicators so I don't knock everything. Naturally, I’ll show you what they are and how to use them to identify high probability trade opportunities. Why Volume Is So Important To Your Trading Success Volume is exceedingly useful. Although it’s nondirectional, it does add immense amplitude to any move that does occur. Volume based indicators such as OBV, (that's on balance volume) and Mclellan volume and some other volume based indicators are useful. There's also breadth based indicators that show you to what extent an indicator might be moving up. Is it the larger market that is moving up with it or was it just a few shares that are hyper advancing in a specific sector? That's an advance decline line. That's clearly, obviously useful as well in terms of markets and anything that indicates volatility. I'll be discussing more about volatilities as we go further on, such as the average true range of your candles, which if they're expanding, are obviously getting heightened levels of volatility. Bollinger bands highlight the pinch and are a good learning tool for beginners when trying to identify Hunt Volatility Funnels which provide the high probability outcome trades. The Calm Before The Storm As far as I’m concerned, Bollinger Bands are the most useful indicator. VIX, which is volatility index related and many more volume based indicators which are becoming far more popular as an instrument and will highlight to extent the activity of the market. It is the tendency of how calm the particular market you are looking at is, just prior to sudden, violent swing in either direction. A much more important message is how well you manage your losses rather than your profits. Learn to manage your losses and your profits. If you learn to take a quick loss, the minute it is clear that your view is wrong, even if it means it may eventually be right, but you're a little bit early with your timing and you get back and try again a little later, you will manage your losses far better. If you manage your losses, the profits have a habit of looking after themselves. The Man That Broke The Bank of England
George Soros says, "I get it wrong just as often as the other guy, I just realise when I’m wrong quicker" In other words, he's claiming to not be a particularly better picker of a particular trade or direction than anyone else. The difference he is saying in terms of his success relative to anybody else's is he realizes quicker when he is wrong. Just by stemming the losses and taking them quickly and letting the really good trades run is clearly a very powerful strategy and the difference between being (or becoming) a billionaire and all those that fail. How To Get Out With Cash In Your Pocket Or Not As The Case May Be. Which One Would You Prefer? I have an issue with traditional technical analysis and trailing stop orders as your planned exit strategy. I'm giving you an example here of the DAX: I actually got an entry here, I plan to get an entry on this green line. However, there was a gap open and I ended up getting filled at the high of that line. As it turned out, I did well with the trade, although I didn't get the entry I wanted. The reason I did well is I had a target not a ‘stoploss and exit strategy’. If you’d had a stoploss, one of your stoplosses could have been placed here as this market traded up, grinding its way marginally up, I would have been filled and out over there with the loss, that red line over there. if I waited awhile and then chose a stoploss and you saw it then move quite strongly at 7:00 in the morning the next day and it was advancing, I would have said, "Okay, that low could be my loss, I would have been up, up, up and away and doing just groovy and great." I would then have been taken out on the pullback.
Only marginally profitable if you take brokerage fees out if it. It's hardly a good use of my time and barely profitable in the end. In fact I got out on target someway away up there with a far better result. In other words, every time you exit on the trailing stop you are getting out at the low part of the price range, usually on a substantial degree of pullback from the recent highs. For example, on that move there and that is clearly giving you back almost all of the move in this case. Had you got out at this level, 90% of your profits would be taken away. Markets have substantial counter trends. Trailing stop as planned exit is a big fail for me. It takes a long time for many to realize that. Size Does Matter (But You Knew That Anyway, Right) The next important point is position sizing. Get it wrong and this is an absolute killer. Money management is quite often the biggest mistake (perhaps it’s yours?). In brief, it’s about being far too aggressive with the size of your position. What's actually happening here is I've drawn up a ladder (below), a drawdown and recovery ladder. What I'm showing you here is if you go down on your account buy a single percent, the growth required to return to where you were before is 1% and a small fraction of further hundreds of a percent. That is far from critical. Drawdown % Growth required to recovery % 1.00% 1.01% 5.00% 5.26% 7.50% 8.11% 10.00% 11.11% 12.50% 14.29% 15.00% 17.65% 17.50% 21.21% 20.00% 25.00% 22.50% 29.03% 25.00% 33.33% 30.00% 42.86% 35.00% 53.85% 40.00% 66.67%
45.00% 81.82% 50.00% 100.00% 60.00% 150.00% 75.00% 300.00% 90.00% 900.00% 95.00% 1900.00% If you drop by 5%, you need five, just over five and a quarter. If you drop by 10%, you need 11.11%. If you drop 20% and you allow your equity drawdown to go down by 20%, to return to where you were before, you now need a quarter, a full 25%. If you lose a third of your account 35%, you're in north of 42% plus degree of return, just to return your account to breakeven. That is absolutely critical. And most people don't fully quantify and understand the utter destructiveness of drawdown. What do you think happens to your psychology if you allow a 35% hit to occur on your account and you suddenly need 42% just to get back where you were? To earn 42%, people up their sizing and take even bigger risk. What happens when you up your sizing, you're already oversized? If you are losing 35%, you now up your sizing to be more aggressive to just get back to breakeven, this is the psychology, these are your emotions and this is incredibly destructive. Try one 42% and you will lose the rest of your account, the other 65% that was left from the 35%, very, very quickly. The orange and red zones denote likelihood of recovery very, very low. I put your recovery likelihood at my estimation, in other words the odds of getting back to your starting point (breakeven) at 15%, the minute you allow your account to drawdown 35%. I put at 20% if you drawdown a quarter. You simply should never allow drawdown to get out of hand. The ideal drawdown maximums would be in this light green area, between 1% and 5%. The minute you draw from even 7.5% and 10%, you're letting too much go on. Possibly being slightly aggressive saying you've earn your half of recovering 10%, but if you’ve got to that you don't up your risk. Recovery, Recovery, Where Art Thou Recovery?
Drawdown Growth required to recovery Recovery likelihood
1.00% 1.01% 95.00%
5.00% 5.26% 70.00%
10.00% 11.11% 50.00% 12.50% 14.29% 45.00% 15.00% 17.65% 40.00% 17.50% 21.21% 35.00% 20.00% 25.00% 30.00% 22.50% 29.03% 25.00% 25.00% 33.33% 20.00% 30.00% 42.86% 15.00% 35.00% 53.85% 12.50% 40.00% 66.67% 10.00% 45.00% 81.82% 8.00% 50.00% 100.00% 5.00% 60.00% 150.00% 3.00% 75.00% 300.00% 0.005% 90.00% 900.00% 0.001% 95.00% 1900.00% 0.000% Here is from when you recover. If you have anything larger than 20%, I start to think that is highly unlikely and I selected that and above. Bear this in mind, the drawdown and recovery ladder, make sure your losses are taken small on individual trades, you could have a number in a row that all go against you. The other law that I tend to apply very, very strongly, which favours continuation is the fact that trends largely persist. Don't try buying the low and selling the high. Typically people are overly compelled by this old saying, essentially buy the high and sell even higher or sell the low and sell even lower. It’s a fantasy. It will prove exceptionally difficult to repeat with any regularity, picking bottoms and selling tops. Forget about it. Go about intelligent strategy. Accept that the market may continue to move up once you're up, providing you've got a very good risk reward out of the trade, you can take pride in it and sell into strength. Accept that the market may continue going down when you've closed the short trade. You will, by law of averages, occasionally get the bottom or the top, but don't actively set out to do so. Trade the continuation not the counter trend. This is the major problem with indicators….
the tendencies and compulsions that lots of indicators prompt in you. If something is overbought, they try get you to sell it short. It may be overbought for a sustained period. Guess what, I used to find, feel, exceptionally unlucky when trading counter trend in trying to pick the tops and trading with indicators, trying to sell these overbought equities. It just seemed that the market didn't like me and that I was always getting small little moves in my favour and then bang! Back against me. The minute I got more prone to trading continuation, I suddenly felt my luck was changing slightly. You can decide if you want to swim upstream or downstream, I'll leave it to you. In the end I'll certainly find it far more profitable to swim downstream with the river. The second law and I've highlighted the “PRE” in PREparation, is that the work gets done before the trade. It's imperative that the work gets done before the trade. The better and more detailed the plan, the better the trader. That is why I capitalized it. I want you to understand, you must do all your thinking before while mentally neutral, not while in trade and having to make decisions on the hop. This is when a reasonable effort can be made at neutrality. After entry, any decisions you make at that point, you lack the impartiality and you are loaded with emotions, especially if you have the PNL and trade sizing and money lost and made flashing in front of you, green numbers, red numbers, all sorts of emotions of fear and greed begin to take over. In other words, beforehand you should have done multi timeframe analysis. I talk about the law of three, which is three timeframes joined together, that's why the three. You look at the macro trend assessment, which is the general flow of this river, up or down? Get with the macro trend. Wait for your base timeframe and the setup that you're looking for. What is your setup, what are your reasons for the time on your primary timeframe? Move with the macro trend, choose a setup that will be triggering in it, an event in the direction of your macro trend. Both are green lights for longs. Then go down to your micro timeframe for timing and ensure that the short timeframe is also giving you a green light, if you're looking to go long or all three are red if you're looking to go short. Get the alignment of all the timeframes together. We talk about the relationship between these extensively on my program and course, so the law of three. (Details HERE) People suffer from timeframe analysis confusion, they don't understand which direction the market is….are you dropping different timeframes to have a look at it? How do you control and correlate? Do you have an organized structure for managing the larger trend, the base timeframe and the micro timeframe? Yes, you should have and your success will improve substantially by applying this alone. The other element is key levels of significance, support, resistance, Fibonacci levels, round numbers and all the key levels. Some of which go through the price action and the price action pivots around. This is the big unspoken key aspect that is unique to Hunt Volatility Theory, hence the phrase “key levels of significance (KLOS)”. It goes beyond just support and resistance, the traditionally wellknown element of horizontal levels in technical analysis. I'll show you how you can spot these other slightly more difficult to see levels for which the price action is reacting to, both above and below. This is a major, major revolution for your trading and will take you forward immensely just
preparation in advance of placing any orders is obviously you're directional assessment, that's the key. Where are we going? Is it long or short? That's what we will do in your macro timeframe and then ensure that your base setup is tying that in. We want that trigger entry level. It wants to be a pending order. You are waiting for the key event, for the market to tell you when you should be trading, not just activating an order, because you happen to want to be in the game. We let the market take us in. Let the market confirm that what you're doing is right. That is a very key element. Before we even allow that order, that pending order to be placed, we have to though, have decided where the market has changed its mind…..are new forces entering the supply and demand equation that overwhelm the original reason for the trade that took you in? At what point is that force deemed so strong that it has nullified your trade settings? In other words, we have to ascertain our loss stop levels. Also geometrically we use methodologies for attaching and attaining a set target level. You have to have a point where you say, "I'm happy with this level of return." Greed keeps you in the market, pain will take you out. In other words, if you don't have an agreed contract in your mind as to what point you say this is a great return and a good result and the market might stall for some period after this and I am seeking to engage and I'm going to get mentally neutral again and plan my next trade. Mentally neutral is the most powerful point you can be in as a trader. In other words the position of not having a position. Remember the market makers, they may have information on you, they may have lots more technology, but they always have to be in the market, always expressing a particular view. One of our key benefits as a trader is that we get to decide the terms under which we engage with the market, so have that plan target level and then be ready to be standing back. You get your trade sizing totally in line with your trading constitution. We actually draw up a trading constitution, this is how we behave, this is how we are and we live up to that constitution. You have to have written it down and be committed to it. Otherwise, you do what you want as your whims take you. If you've had a lot of coffee that day and you're a little bit over tired, hey you'll be aggressive and you'll do damage. Risk reward ratio is clearly, utterly relevant and by determining a target in advance, we can do a whole bunch of genuine value based assessment of the trade idea. Is the juice worth the squeeze? How much are we risking? How much will we get? That trade attractiveness also allows us to assess what is the likelihood of the trade coming off and closing for profit?. If you have a trade with a 10 to 1 risk reward, but you think it's one in four to make it, even though the odds of success are quite low, the risk reward makes the trade an absolute gimme every time. In other words, you should take it on the basis that even if you're only correct one in four times, the reward will more than compensate you for the marginality of the probability. However, if a trade is 5050 and you're only getting 0.75 for every one that you're putting on, you will slowly whittle your way down to the poor house. We have to have an understanding of trade attractiveness with respect to its probability assessment for success. If you have all these, you're suddenly now putting yourself on the other side of the equation. No longer are you allowing the lowest common denominator like the bulk of traders to be that, which determines your trading decisions. In other words, “it's been emotional” (I love Vinnie Jones). You are now having a structure and template. You will then potentially be setting yourself up for the
change in the game. Your whole nature, the whole way you enjoy your trading, your degree of emotional control, the person you all have become when you get to this point will be completely different to that, which you recognize today. It can be done in exceedingly short time. But it's not necessarily all that easy and hard change takes effort, but we'll come back to that. Here's an example, gold, macro timeframe. Now, I'm a long run gold bull, let me tell you, but I've traded gold long as you saw, right away through the 1300 level all the way down from 1000. Expecting to see it alltime highs and I've also been trading it short. This was down trend, clearly as you can see from the two orange lines and then we had a capitulation down. We had this price action coming now. You, if you are learning the mechanism by which I trade, will quickly realize that we will come to recognize these setups. Going back to that chart, this was your macro timeframe and we assess these as a bear trend. Quite understandably, so that trend is down. Then we have a look at our base timeframe. I'm introducing to you the quick example of the law of three using the three timeframes.
This is now at H4, so we were on the daily chart on the trend analysis. We're looking at the four hourly now. You can see the key pivot levels pinned. I'm modeling my primary setup, the Hunt Volatility Funnel. You'll see more about that later right here. In other words my stop is going to be sitting on the other side of this green line and my entry short will be xxxxx and there's a target right off the chart. That is the base timeframe, my key pattern. Then I drop down a chart, right down to the shorter timeframe and look at that final H3 and that L3. You'll notice there's an element of volatility. Our pattern previously was swinging quite wildly up and down really hard. Back up, down hard, grinding up, down fairly hard but not as far and then there's weak sideways action. You can sense that the volatility is shaking out. We now have to zone in and concentrate on the key trigger levels. That was the high three and the low three of that bigger pattern on the four hourly.
We're now down on the one hourly chart. In fact what I'm showing you is two things. Apart from looking at our trigger timeframe and getting a good understanding that we want to enter short here and have our stop there. We've actually realized we've got a pattern within a pattern. There is in fact a little low one, high one, low two, high two, low three, and a high three right over there and we've gone totally quiet. Look at the little candles. These are called spinning tops. This is a complete volatility iron out. We've gone totally quiet, compared to these bigger candles over here, which are in their own right, quite small compared to these massive candles here. We're comparing those to these. You can see what's actually happening in the market…..it’s almost going quite bored, it's going to sleep in around this key level. What of course does this allow us to do? This actually is a primary pattern and there's a “pigout” technique that I will teach you on my program and I'm introducing to you today in this ebook. You will put your stops on that side and you will see a seller there. In actual effect you will have a tighter funnel, this green line to that red line as oppose to the dotted red to the dotted green. This is about a fifth of that. If you get your funnel a fifth tighter, what does that allow you in terms of position sizing? Remember each trade is allowed to take the same loss. While you think about that, you should realize that in fact if you're allowed to lose a thousand pounds, you would have an £100,000 account, let's say with 1% drawdown on any one given trade idea? You could in fact be five times bigger on this trade for the same £1000 pound loss if the distance is onefifth thereof, in which case you would have been triggered short over here with us and we took this trade. This is actually traded bias. You would also have had some of your funds on the bigger trade pattern. You don't have to be all in on the primer or all in the major pattern, you can have a partial allocation of your £1000 pound loss, say £750 or £500 and £500 over here. You would have been triggered short initially there and you would have been triggered short again there. We had a small bear flagging grind along and further capitulation. This trade I will revisit for you, but this is the first introduction of primer, how we use subpatterns within patterns. Just about every major breakout that I trade has on a smaller timeframe, providing you're looking for it (the market loves you and it does actually want to give you gifts). The problem is, we don't pay attention. Everybody thinks the market hates them and wants to hurt them. We don't put in the work, it's giving you the information and talking to you. Don’t go looking for it. It's setting you up for an unbelievable risk reward trade. The primary risk reward trade was 4.1 and in fact if you got a first tighter entry you turn this into well north of 20 to 1 which you would trade and it's performed all the way to target. In this chart below, I'm just showing you the differential between the gap, the tightness of entry to stop, which allows you to trade far larger as opposed to the bigger pattern. In terms of dollars there was 94 to 65, call it $30. Over here you're at 87 to 80 roughly $7. Powerful stuff this. If you understand the mathematics of trading you will realize it. What else about this goal breakdown while we're at it?
Not only does the strategy help you with setups, pigging out with patterns within patterns, an incredible technique, but it also tells you at what point the key levels you are likely to lose a bit of progress on your downside break. Look at this beautiful chart: 1,375 all the way down to 1292. You are laughing, you have the better part of 75 plus another $8. You have the better part of $83 in the bank already. But then what happens? It bounces, bounces, you stall, days go by. This was 20th of June, in fact, and here you go. We didn't resume breaking until back here on the 25th of June. Five days, five trading days, that's enough to make people anxious and have them