In our latest article on trading masters – we bring you a well-known day trader with a huge following in his live trading room and on YouTube – Trader Tom Hoguaard!
Trader Tom asks the tough question – Why do 95% of traders fail?
… And gives three concise answers:
Throughout our series of articles on Trading Psychology we have emphasised the importance of mindset- and have demonstrated how it is among the things that sets apart top investors like Ray Dalio.
Hougaard – better known as Trader Tom – has made it his mission through his live trading, the Trader Tom YouTube channel and other resources to help traders work their way through these three problems and pursue a path as a professional trader.
Tom was on Danish television describing his life as a trader – this is our breakdown of his day and the big lessons we took away from it
Trader Tom became famous after his appearance on the Danish podcast show ‘The Millionaire Club”. He was introduced to the wider public when he was interviewed by the Danish National Broadcast Company.
Tom is a day trader in equities, index futures and forex markets.
Source: Danish National Broadcast Company
In this article we wanted to share and break down Tom’s trading day- and the pearls of wisdom he offers on this TV show – A Day in the Life of a High Stake Day trader – and add it to our war chest on trading psychology.
We should note that we are not writing the opinions of Tom Hoguaard- but merely how we have understood his words to further our own understanding.
“Every day, more or less is a big battle of mind over matter – the biggest exam you will ever sit.”
I always have anxiety in my belly ahead of the trading day. Butterflies in my stomach if you want. I am never over-confident. I sit down in front of the screen, wondering what will happen today, and how I will act.
– Tom Hoguaard
Trader Tom starts his day with a ritual morning run and swim in the cold English sea. It’s done on purpose to clear his head of doubt and of memories of the previous day. That helps him focus on the present moment, sharp and ready for a new day.
Taking your mind away from trading – especially with physical activity – is a way to ‘stop and reset’ for another day’s trading. And by the way, this is not some wacky idea by Tom – the benefits of physical exercise for your mental wellbeing have been proven in multiple scientific studies.
For example, in a major study of than 1.2 million US adults, subjects reported an average of almost 3.4 days of poor mental health in the past month. (The researchers asked study participants about the kinds of things traders have to battle daily – including stress, and emotional problems.) However, those who exercised struggled nearly 1.5 fewer days a month, a 43.2% decrease in mental health burden.
Trader Tom will know what he is going to do before the markets open. It is this aspect of planning and preparation that often separates the winners from the losers in trading.
For example, Tom already knows he is going to go short a stock index if he suspects the market will fall that day. Of course, his strategy may not prove correct – but knowing what he will do in advance prevents a lot of the emotional decision-making that hinders many traders.
Tom breaks down the psychology of markets into two simple emotions
Markets rise on hope and fall on fear. Because fear is a much stronger emotion than hope, the moves down tend to be much quicker than when they rise. This is the idea of markets ‘going up the stairs and down the lift’
Tom prefers to make money going short to capture those short sharp down-moves when fear takes over.
It’s not that going short the market is best for every trader – arguably it’s too risky for most traders – but Tom has learned over time what kind of trading strategy suits him and his personality.
As the day goes on, Tom will evaluate the state of markets – but also his own mindset. In this instance Tom is making a profit so he must think about how long to hold onto these winning positions.
A ‘mental trick’ Tom uses is to, as he puts it, “Ask myself constantly how I would feel if I took my profits now, only to see the market go even further in my favour. How would I react?”
This is clever because taking profits early gives traders a good feeling – one of relief and happiness at making a profit. To overcome this – Tom thinks about the feeling he would have later if by closing out the trade – he unnecessarily left profits on the table. He would be feeling annoyed with himself. Knowing that he would feel annoyed later helps prevent him opting for the immediate gratification of closing the trades early.
The mere act of taking a break from the markets is good for productivity. This is true of any work, but the impact of below-optimal trading is much clearer. Low productivity directly affects trading results and can make the difference between a winning and losing day trading.
Tom chooses to use his breaktime for exercise with a personal trainer – it’s a routine that works for him – and has the added benefit of physical exercise that we already mentioned. He says it ‘”strengthens his mental boy” as well as his physical body.
When a trade has turned from a profit to a loss, Trader Tom does not rush into a hasty decision. He asks himself “Has the story changed? Have I misread the market?”
Tom describes a situation where among five open trades, four of them are in profit but one of them is in a huge loss that puts him in a net loss. There are in effect five decisions that must be made for each open trade – but the biggest decision is what to do about the loss.
Tom describes fighting his ‘fear mind’ – the one that gives him bad advice and tells him to hold on and hope that the losing trade turns around again. He points out this goes against the first principal of trading: Cut your losses and let your profits run.
Tom plans to exit the losing trade -and move on to the next opportunity. He had clearly misjudged the mood of the market – even if the trade turns around again later, it is better to move onto a market that he can judge better today.
After his decision to take the loss, Tom does not act rashly. He had a stop loss in place as part of his risk management system. He will keep the stop loss and not move it or exit the trade early.
When Tom opened the trade, he knew there was a possibility it would at some point be losing money – he didn’t know if it would lose money first and then turn around – or make money then reverse to lose money. But whichever one happens doesn’t matter – the point is to give the trade space to work – and to have the emotional understanding that no trader can perfectly time the market. Luckily, on the show – his losing trade reversed before being stopped out back into a profit!
Tom recalls his experience in the months following the covid-19 pandemic in 2020. Tom timed the drop in stock indices perfectly but like many others didn’t expect the bottom would come in so quickly. He was then on the wrong side of the market – going short during a price rally.
His mistake was being stubborn and not admitting that he was wrong to expect the market to keep falling. The failure to admit that led him to wrong decision of adding to his short position when prices bounced.
Trader Tom holds his nerve and waits to close out his trades in a profit until the end of the trading session – presumably the close of European markets.
This is another example of ‘planning the trade and trading the plan’. Tom’s day trading strategy is close his positions at the end of the day when in profit or wait for his stop loss to get hit. By doing both of these he came away making 2 million Danish krone (approx. $300,000).
To round off the current series of articles on trading masters, we dig into the insights of a trader who is also an expert in trading psychology, having written books on the subject that well worth a read- after our next article of course!