WELCOME

Welcome to InterTrader.coms guide to profitable trading in which professional

trader Tom Hougaard reveals some of the secrets of his trading success.
Tom outlines a series of practical methods and tips that can help you to become a
better trader, with clear rules to follow and real-life examples.
Learn how to create a daily trading routine, how to respond effectively to breaking
news, and how to balance fundamental and technical analysis. Tom also discusses
specific strategies for trading oil, indices and forex.
The guide provides a fascinating insight into the life of a professional trader along
with a wealth of practical and profitable advice, direct from the trading floor.

ABOUT TOM HOUGAARD

Tom spent eight years in the City, where he has become an extremely familiar and
popular guest on Bloomberg, CNBC, CNN and BBC. Since 2009 he has traded
solely for himself while running a live trading room where people interested in
learning to trade in a live environment can hear exactly which markets Tom is
buying and shorting in real-time.

ABOUT INTERTRADER.COM
InterTrader.com provides a suite of products and tools to help you back your
judgement in the financial markets. InterTrader.coms aims are simple: to make the
markets accessible to all, to make trading affordable and to provide a service that
you can trust.
We offer both spread betting and CFD trading, providing fast and efficient
execution on a huge range of global markets. With InterTrader.com you can take
your own position on anything from stock indices and forex to commodities, oil and
metals to UK, US and international equities.
InterTrader.com is also committed to providing free news, research and charting
software to all our clients, along with training for all levels of expertise. Quite simply
InterTrader.com aims to make available the best-value trading package around.
Copyright InterTrader.com, 2011
All rights reserved

The views and comments in this guide are not the views of InterTrader.com. The
provision of this information should not be construed in any circumstances as a
recommendation or solicitation to buy or sell any security or financial instrument.
Spread betting and CFD trading carry a high level of risk to your capital and can
result in losses that exceed your initial deposit. They may not be suitable for
everyone, so please ensure that you fully understand the risks involved.
InterTrader.com is a trading name of London Capital Group Ltd (LCG) which
is registered in England and Wales under registered number 3218125. LCG is
authorised and regulated by the Financial Conduct Authority. Registered address:
2nd Floor, 6 Devonshire Square, London, EC2M 4AB.
Trading at the top: trading tips and strategies from a professional trader

TOM HOUGAARD
CONSULTING ANALYST, INTERTRADER.COM

Part 1. Tips for better trading

1.

FOLLOW THESE TWO TRADING RULES TO WIN

2.

TRADE BETTER BY REVIEWING YOUR RESULTS

3.

GET TRADING EDUCATION ON A SHOESTRING

4.

TRADING THE NEWS IN JUST FOUR STEPS

5.

TRADING TIPS FROM THE FRONT OFFICE

Part 2. Trading Strategies

1.

WHY ENGLAND VS GERMANY IS A WINNER

2.

TRADE TRENDS IF MOMENTUM TAKES A LOSS

3.

HOW TO KEEP YOUR TRADES IN HARMONY

4.

UNLEASH THE MATRIX TO GET ACTION

5.

MECHANICAL TRADES KEEP EMOTION OUT

6.

SIMPLICITY IS SOMETIMES A TRADERS ALLY

7.

MY CHECKLIST THAT GETS ME SET TO TRADE

Part 1.
Tips for better trading

1. FOLLOW THESE TWO TRADING RULES TO WIN

Lets begin with a recommendation. Phantom of the Pits is probably the greatest
trading book ever, and its available for free online. Authored by Art Simpson,
it is an interview with The Phantom, an anonymous super-trader from the pits
of Chicago. He is rumoured to be George Lane, the inventor of the Stochastic
Oscillator indicator, but this has to my knowledge never been verified.

The Phantom operated from two basic rules:

RULE 1:
In a losing game such as trading, assume you are wrong until the market proves
you are right. Positions established must be reduced and removed until or unless
the market proves the position correct.
Why is rule one so hard to implement? The answer is that 98 per cent of all traders
trade to be right. The rest trade the markets to make money. The fear of being
wrong is more often than not a greater motivator than the fear of losing money. Be
conscious of it when you are trading.

RULE 2:
Press your winners without exception. By incorporating rule two in your game
plan from the start, you will be eliminating the desire to be proud when the market
moves in your direction, and to take profits to show you are right. Traders love to
be right. This is your enemy to love to be right. Your motivation must be to love to
do the right thing.
When you think you are right in the market, this is just the beginning of your trade
not the time to take your profits to say to the world, See, I was right! Who really
cares if you were right? You will become the best trader you can be by being wrong
small, not right small! Get that in your mind now. You are going to have to press
your winners if you really consider yourself to have the ability to make a living or
extra income from trading. Otherwise, face the truth that you are only playing to
break even. The money will follow the correct action.

2. TRADE BETTER BY REVIEWING YOUR RESULTS

Here is an exercise that Steve Ward taught me. I may be paraphrasing, but to the
best of my recollection these are his exact words:
Tom, you will never make the progress you want, if you dont go back and review
your old trades. On your losing trades, you have to ask yourself if you could have
done things differently. Was the entry well defined? Was the stop in the proper
place? On winning trades, you have to ask yourself if you got out too early, too
late or timely. Could you have added to the winning position, rather than just sitting
back and watching the trade?

REVIEWING A RECENT TRADE

I traded euro-sterling, and I bought it at 0.8793 with a stop at 0.8775. The entry
was perfect, for about a minute, then the market sank lower. It spiked lower to
0.87743, then reversed hard up, and is now trading at 0.8820. So I got stopped
out on a spike by half a pip and it is now sitting exactly where I would have liked it
to be.
In my diary, I noted calmly that, since I was trading with the daily and the four-hour
time frame, I probably needed to have a slightly wider stop than I did. Otherwise
everything was fine. It was just one of those trades that didnt work out. I also took
a snapshot of the before/after chart, for reference.
I have learnt more from reviewing my old trades than from any book or from any
course I ever took.

3. GET TRADING EDUCATION ON A SHOESTRING

I received a phone call from a guy who wanted help with his trading. He had
spent nearly 15,000 on trading education with a well-known educational trading
establishment. Yet he was nowhere closer to making trading his chosen career
than he was before, despite his sizeable investment in trading education.
I related the story to a few of my trading friends and together we came up with a
book budget which we felt would amply cover the syllabus the unfortunate man
had been through, and at a fraction of the cost. In fact, we calculated that it would
probably have saved him more than 99 per cent.

BOOK NO. 1
Technical Analysis of Stock Trends by Robert Edwards and John Magee. This will
cover 95 per cent of your trading education. It covers everything you would want to
know and it will cost you 23. Although concerned with stocks it is fully applicable
to trading FX, futures and any other asset class.

BOOK NO. 2
High Performance Trading by Steve Ward. This is a complete psychological
infrastructure of trading, dealing with everything you need in order to trade for a
living. It will cost you 19.
And that is all you need to purchase for now. The rest you can find on the internet
for free. In Google you will need to search for pattern recognition so you know
what patterns to look for. You need to search for candle chart patterns so

you understand price action. Finally, you can consider joining a bulletin board
where experienced traders post their trades. You can learn a lot from that alone.
InterTrader.com also frequently runs webcasts where experienced traders talk
about specialist topics.

Once you have studied the material, you are ready to trade with a minute amount.
Open an account with InterTrader.com, either a demo or a real one and get tucked
in. There is no better practice than doing. Reading about it is fine, but you will learn
far more from actually trading and keeping a trade log.

4. TRADING THE NEWS IN JUST FOUR STEPS

Formal education doesnt help you become a good trader. My own mentor told me
that you only see what you have trained your eyes to see. This short run-through
is an insight into how I have trained my eyes to trade news-driven markets.

STEP 1:
Your first duty every morning is to check the calendar for economic news. Stick it
on your screen so you dont forget.

STEP 2:
I dont anticipate what the news will be. I am too stupid. Instead I put my chart on
one-minute mode. Whichever way the market breaks after the news is released is
the direction I want to trade.

STEP 3:
Once news is out and the direction has been set, I do my very best to get into
the market on any kind of retracement against the news spike. It helps to have
watched the market 10 hours a day for a few years. You get to understand price
action.

STEP 4:
I dont look for a big move. If I can pick up 10-15 pips I will take it. My studies have
shown conclusively that although there is no guarantee that the direction of the
news spike will last for long, the market in question will almost 80 per cent of the
time do a retest of the low it made on the news spike.

TWO EXAMPLES
23 February: The MPC minutes are released. Cable spikes violently higher. After
one minute I see a 20 point retracement. I buy it. I wait almost 10 minutes. Nothing
happens. I get out for a small (but annoying) 10 pip loss. The market continues
lower for the next hour.
25 February: The GDP numbers are released. I dont even register the number.
Price is my God. Sterling-dollar spikes lower. I wait for a 20 pip retracement against
the spike. I enter, with a 20 point stop. I take a handful of deep breaths. I am out,
30 pips richer.
The principle is always the same: wait for direction, enter on a retracement, and
dont be (too) greedy.

5. TRADING TIPS FROM THE FRONT OFFICE

Did you ever see the trading pit scene from the film Trading Places? Well in real
life it is every bit as crazy and then some. In 2007 I visited the oil pit in New York. I
got some rather unusual trading advice from a 20-year veteran of the pits. The floor
traders seem to have a unique take on the market, probably because they are so
close to the forces of demand and supply unleashed in the pit.

Here is what the trader told me:

1. FIRST CUT IS THE CHEAPEST

The first cut is usually the cheapest. I see so many of the new traders who are
unable to take a loss. They hold on to their position for too long. They dont
understand that I too am wrong more times that I am right, but I cut the trade the
moment I am in doubt. That first cut has kept me alive in the pit for 20 years.

2. THE MARKET IS EFFICIENT

He also told me about the nature of the market: The market is efficient. It wants
to go where the orders are. These orders can be stop (loss) orders or limit (buy
or sell) orders. I asked him to elaborate and he said: often the market will go to a
certain price just to make sure as many people are filled as possible, and then it
reverses. We say in the pit that they push them up to take them down.

3. TREND DAYS ARE THE BEST

I asked him about intraday trends. He told me he had the advantage of being able
to see the orders from the brokers. His best days were trend days, where the

market continues in one direction all day. This point was aired by others I met in
the pit. If a good trend was developing intraday, these guys would press it for all it
was worth, irrespective of who was on the other side of the trade. They were never
concerned about whether the market technicals were overbought or oversold. The
only thing they had in mind was to press it as high or as low as they could before
the bell rang.

Part 2.
Trading Strategies

6. WHY ENGLAND VS GERMANY IS A WINNER

I admit it. Its an attention-seeking title, playing on the emotions of every football
fan in England since 1966. England vs. Germany is also a trading strategy which
seeks to play two stock indices against each other. It is perfect for financial spread
betting, because you dont have to factor in currency risk.
The FTSE 100 consists of 100 companies, of which 10 make up about 45 per cent
of the index value. The German DAX consists of 30 stocks, representing the crme
de la crme of German commerce and industry. Together, they are considered the
two leading stock indices in Europe.

Clem Chambers, the brilliant head of ADVFN and even more brilliant technical
analyst, taught me the interplay between the two stock indices and how stocks are
executed in block trades using volume-weighted average price (VWAP). I realised
that there is a statistical correlation between the two stock indices significant
enough to bet on.
I began to explore how to trade the two against each other in a straight arbitrage
strategy, and came up with the idea that if the two diverged by more than 40 points
from the previous nights close, I should short the one that was strong, and buy the
one that was weak.
Take 9 March 2011 as a good example. The DAX closed the night before at 7164.
The FTSE closed at 5974. Both indices were down about three to four points on
the day. During trading on 9 March the DAX and the FTSE diverged by more than
49 index points: the DAX was up 53 points while at the same time the FTSE was
up only four points on the day.
So I shorted the DAX and bought the FTSE in equal amounts. The DAX closed at
7131. The FTSE closed at 5937. The spread between the two indices had gone
from 1243 points during the day to 1194 points at the close. Although I did not
capture all the 49 points on the table, it serves to illustrate the strategy well.
Now, lets deal with what can go wrong? In one sentence: where is your stoploss? The answer is: you cant have a normal stop-loss. You have to use a
monetary stop-loss, and you have to be there to watch the screen. In that sense, it
is more suited to the short-term traders of the City and beyond.

7. TRADE TRENDS IF MOMENTUM TAKES A LOSS

A dear child has many names. The strategy below is called lost momentum in my
vocabulary, but it no doubt has other names too. It is in essence a form of trendfollowing strategy.

INGREDIENT NO. 1: DEFINE THE TREND

I recommend using a simple or exponential moving average (MA) of more than 50
bars. Some have reported good results with the 62 period MA. I dont want you to
get too bogged down with rigid definitions. You are looking for a trending market,
which trades above your chosen MA, and the MA is pointing up (for long positions
reverse the instructions below for short positions).

INGREDIENT NO. 2: DEFINE YOUR TIME FRAME

You can use this technique on any time frame. I find it lends itself very well to day
trading on the 15-minute chart, and swing trading on the four-hour chart.

SET-UP FOR BUY SIGNAL

Your chosen market is trading above your MA indicator and the MA is pointing up. If
you observe that the market is taking out a previous low (that previous low must be
at least 8 bars prior to the current bar), you now wait until the market closes back
above the price point of the previous low. That is your buy signal.

EXAMPLE:
On 15 March 2011 euro-dollar made a low at midnight at $1.3920. However the
trend was up on my 30-minute chart. At 8.30am the euro dipped below $1.3920 by
about 10 points. It closed below $1.3920 too but, on the very next 30-minute bar,
the euro closed back above $1.3920. That is my signal to buy euro-dollar, with a
stop-loss below $1.3920.
The technique stems from the observation that even in a trending market you will
often find that price dips below a previous low, only to immediately resume its trend

higher. All I attempt to do is to trade in the direction of the trend defined by the
moving average. I reverse the instruction above for selling short.

8. HOW TO KEEP YOUR TRADES IN HARMONY

The definition of harmony is a pleasing combination of elements in a whole. My
mentor Bryce Gilmore taught me harmony in the markets. There was no course
book, and no papers to read. It was night after night going over the days charts,
pointing out the harmony in the days price action. Let me give you a concrete
example.
The DAX pushes up 50 points after the news announcement on the war against
Libya. It retraces briefly, only by about 18 points, before surging higher. I make
a note of the number of points it has retraced. The next time it retraces from a
momentum move higher, I am ready to buy it, once the retracement has reached
18 points. Why? No other reason than I have seen it happen thousands and
thousands of times on the practice charts.
For a good example of how practice makes perfect take 23 March 2011. The eurosterling cross rate was retracing from a surge higher. The daily trend, the four-hour
trend, the hourly trend and even the 15-minute trend were pointing up. The first
retracement lasted about two hours, and was 40 points in extent. After a rally for 30
minutes, it began to trade lower again.
I made a note that the high of the brief rally was 0.8744. I plotted that, should the
cross come to 0.8704, which was 40 points from the high, I would be a buyer. The
trend was, after all, still up. All good things come to those who wait. Eventually,
0.8704 printed and I bought, with the smallest of stops of no more than 15 pips.
What made 0.8704 so powerful was that it was also a 61.8 per cent retracement
of the last swing. I may be getting ahead of myself here, but when two or more
tools come together at the same price level, it is called confluence. We will
discuss that in a later chapter.

Once I am in a trade, I have one primary objective: get my stop to breakeven as

soon as I can. In this example I had the pleasure of being able to buy euro-sterling
twice at 0.8704, both times making 10-15 points.

9. UNLEASH THE MATRIX TO GET ACTION

You remember I mentioned the film Trading Places before? The key scene takes
place in the commodities trading pit for orange juice in the World Trade Centre.
Two traders observe that Randolph and Mortimer, the two old-timers running the
show, are buying every orange juice contract in site. Then those two observers
rush into the pit to be part of the action.
I didnt understand the significance of this action the volume and activity in a
trade until my friend and trading partner Dr David Paul taught me the Relative
Strength Matrix. He explained that because many traders trade just one thing at
a time you could be losing out on action in other asset classes, something that
short-term traders favour.
For example, if you only trade euro-dollar, you may well miss out on better
opportunities in other currency pairs. David taught me to go through each currency
pair and cross pair within the four majors and ascertain where the strengths and
the weakness were.
The explanation below is not a strategy, but an analytical framework to ascertain
where the best move of the day is likely to be.
Put a four-hour chart on the screen with a 60 period moving average. Go through
each of the 10 pairs euro-dollar, sterling-dollar, dollar-Swiss franc, dollar-yen
and their six cross pairs and make a note of which currency is the strongest and
which one is the weakest. After looking at all 10 pairs, you now have a Relative
Strength Matrix of the 10 currency pairs.
Heres an example. On the morning of 1 April 2011 the euro was stronger than all

the four main currencies, while the yen was the weakest against them. So naturally
I was looking for opportunities to buy euro-yen all day. The non-farm payroll
numbers made it a difficult trading day, but nevertheless in my live trading room I
raked in 30-40 points in euro-yen alone. It is a simple analytical framework and it
only takes 15 minutes to do in the morning.

10. MECHANICAL TRADES KEEP EMOTION OUT

My own trading coach, Steve Ward, once told me that there is no point in having a
mechanical trading system if you are not going to follow it. He certainly has a valid
point.
I fondly remember the trading exercise that I put myself through in order to build
trading discipline: pick a strategy and execute it religiously for 30 trades. You
should find that by trade 15 or so you will have taken an enormous step towards
trading discipline and consistency.

PRACTISING MECHANICAL TRADING

I have a good suggestion for a mechanical entry. I like to trade it in euro-yen, which
is quite a volatile currency pair. The ingredients for this straightforward technique
contain the following well-known principles: Fibonacci, overnight high and overnight
low.
In the morning, around 8am, I look at what the high over the overnight range is.
I then look at what the low of the overnight range is. I then wait for the market to
take out either the high or the low of the range. If, and only if, the market then
trades back into the range, after having taking out the high or the low of the range,
I prepare an order to enter the market at the 62 per cent retracement over the
range. This order comes complete with a stop and a target too. It doesnt trigger
every day though.

EXAMPLE:
The overnight high was 117.40 and the low was 116.80. Around 8.30am, the
market traded below 116.80, down to 116.60. It then began to rally. The entry
price is 116.60 + 62 per cent of 117.40 minus 116.60 = 117.10.
The stop is below the old low and the target is double of what the stop is, in
this case 100 points. If the target has not been reached by 4pm, I will close the
position, unless I am in profit, in which case I will move the stop-loss to breakeven,
and potentially close some of the position, depending on how much I am up. I use
a bit of discretion when it comes to the end of the day.

11. SIMPLICITY IS SOMETIMES A TRADERS ALLY

For some, trading is an academic endeavour. For others, it is a daily battle they
relish and look forward to. When I started out I thought it was the best job in the
world. Today I have to admit I am sometimes sick of trading. I dont know what else
I would do, but when I find myself feeling sick of it, I have to leave it alone for a
couple of days. That is usually enough to get my hunger back.
Not everyone in the industry trades. You learn that when you go on the lecture
circuit. I have the advantage (and sometimes disadvantage) that I trade publicly,
and my results are visible to everyone. However, I know of two world famous
trading authors who dont trade at all. I wonder why they dont. To write about
trading, you need to have felt the pains of being wrong and the joy of riding a
winner.

A SIMPLE SUCCESS STORY

As this set of trading tips draws to a close, I want to tell you about a world famous
trader named W. D. Gann. He wrote many courses on trading, some of which were
exceptionally esoteric in content. Gann was supposedly a very clever man, so it

came as no surprise to me that the man who made his millions selling forecasts to
people actually made his money from a remarkably simple trading method.
My friend and trading partner David Paul once spent a whole summer at the British
Library, researching past wheat and beans prices, and tracking Ganns trades to
get to the nitty gritty of his actual trading strategy. His conclusion was startling. He
told me that Gann simply traded double tops and lows in the direction of the daily
trend, nothing more, nothing less. After eight weeks in the archives of the library
he was adamant that what Gann wrote in his courses and what he traded were two
very different things. Maybe the lesson for all of us is to keep things as simple as
possible.

12. MY CHECKLIST THAT GETS ME SET TO TRADE

Before I sign out, I want to go through with you the checklist that I use daily. It has
become an essential part of my proprietary trading, especially because I trade both
currencies and indices, and both intraday and over several days.

CHECKPOINT 1:
What is Asia doing? Every morning I go to Yahoo Finance and see what the Asian
indices are doing. If they are all up, I expect a bullish Europe.

CHECKPOINT 2:
I go through the major currencies (dollar, sterling, yen and Swiss franc) and their
crosses on the weekly, daily, four-hour and 60-minute chart. I look for patterns,
double tops, trendline breaks, and anything else that I can use to gauge for
direction for the day. I also look for Fibonacci ratios and expansion of range bars.
In total, it amounts to 40 charts, and it takes me about 30 minutes. I make notes

next to each pair where I see something of interest. It means I am ready for the
trading day.

CHECKPOINT 3:
I trade indices off a tick chart, but I still need to know what the daily and weekly
trend is in indices.

POST-MORTEM:
Once the trading day is over, the hard bit starts. Trading in itself is fairly
mechanical, although controlling the emotions is something I have to be vigilant
about every day. I easily get over-confident and trade way too big. After the day is
over, it is time to ask the three Ws:

Why did I do that?

What could I have done instead?

What did I miss today?

As I said before, there is no better practice than doing, either with a live trading
account or a demo. Keep a log of your individual trades, and make a level-headed
review of each days trading, and you will learn more than any course or book can
ever tell you.

YOUR NEXT STEP

Through the course of this guide Tom has shown us how every successful trader
needs to:

Stay abreast of breaking news

Use charts to define trends

Develop trading discipline

Press winning trades, and

Learn through practice

If you want to know more youll find training tools and live webinars at our website
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PRACTICE TRADING WITH A FREE DEMO ACCOUNT

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The views and comments in this guide are not the views of InterTrader.com. The
provision of this information should not be construed in any circumstances as a
recommendation or solicitation to buy or sell any security or financial instrument.
Spread betting and CFD trading carry a high level of risk to your capital and can
result in losses that exceed your initial deposit. They may not be suitable for
everyone, so please ensure that you fully understand the risks involved.
InterTrader.com is a trading name of London Capital Group Ltd (LCG) which
is registered in England and Wales under registered number 3218125. LCG is
authorised and regulated by the Financial Conduct Authority. Registered address:
2nd Floor, 6 Devonshire Square, London, EC2M 4AB.