Dear Markets
A poetic dedication to the financial markets, expressing a lifetime love affair with trading despite its emotional challenges and lessons learned.
- Hougaard’s relationship with markets began in childhood at age 10 through a newspaper competition, evolving into a decades-long passionate pursuit despite early setbacks
- Born a few decades too early to participate in modern trading accessibility
- Markets were there during major crashes like 1987 while he was finishing school
- “You gave me so much joy. I gave you my all. You were there when I woke up, and you were there when I went to sleep”
- The author pursued markets through extensive technical analysis study, from Fibonacci ratios to obscure indicators, searching for a systematic edge that ultimately proved elusive
- Studied Fibonacci ratios, Keltner Channels, Bollinger Bands, Trident strategies
- Developed models based on Hudson River tide swells to find market correlations
- Printed thousands of charts applying lines and circles for pattern recognition
- “I developed models of the tide swell in the Hudson River to see if you responded to that”
- The breakthrough came when markets taught him to stop trying to understand market mechanics and instead focus on understanding himself as a trader
- Markets told him: “You told me to stop trying to understand you. You told me to understand myself”
- Had to stop trading temporarily to work on self-understanding
- Markets welcomed him back with “Welcome back, I see you get it now. Did you bring the band-aids?”
- “Best loser wins” became his core philosophy
Preface
Introduction establishing Hougaard’s credentials as a 52-year-old trader with 30 years of experience, highlighting his recent performance of not having a losing day in 39 sessions while making £325,000 in one month.
- Hougaard left Denmark 30 years ago with economics degrees (BSc and MSc in Money, Banking and Finance) to become a London trader, initially believing academic credentials would ensure success
- Obtained BSc in Economics and MSc in Money, Banking and Finance
- Had good work ethic and passion for markets
- “On paper, I was qualified to navigate the financial markets. In reality, educational qualifications mean little in the dog-eat-dog world of trading”
- As of writing, Hougaard demonstrates exceptional recent performance with 39 consecutive profitable trading days and £325,000 profit in one month, documented in real-time for followers
- No losing day in 39 trading days at time of writing
- Made £325,000 in one month with real-time documentation
- Trades documented with real-time entries, money management, position sizing, and exits
- “All done before their eyes – time stamped” in Telegram trading channel
- The book focuses on dispelling myths about home trading by revealing that success comes from internal analysis rather than external market analysis or strategies
- Dispels myths about what it takes to be a home trader
- Initial pursuit followed conventional path of indicators, patterns, and ratios
- Real answer was “right inside of me all along”
- “It truly was the last place I ever thought of looking”
Introduction
Details Hougaard’s career progression from JPMorgan Chase to becoming a private trader, including early experiences as a financial analyst and his controversial market predictions.
- After university, Hougaard started at JPMorgan Chase in a non-trading role but close to markets, followed by 18 months as a home trader before running out of money in 2000-2001
- Started at JPMorgan Chase after completing degrees
- Became home trader for year and a half starting in 2000
- Ran out of money after 18 months, forcing career change
- Broker staff hired him as financial analyst after befriending them
- At Royal Ascot in summer 2001, Hougaard’s blunt analysis of Marconi stock as “garbage” to wealthy clients contradicted their positions and conventional wisdom about buying declining stocks
- Told clients at Royal Ascot that Marconi was “garbage” when it had fallen from 1,200p to 450p
- Argued “The stock market is not like a supermarket, where it makes sense to buy toilet paper when there is a sale on”
- Clients were long Marconi and eventually lost fortunes
- Later predicted on CNBC that Marconi would go to zero when it was at 32p
- Hougaard evolved from unemployed broker in 2009 to high-stake trader risking £100-£3,500 per point, trading over £250 million notional value on volatile days with extreme win/loss examples
- Made redundant from City Index in 2009, been private trader since
- Average retail trader risks £10 per point, Hougaard risks £100-£3,500 per point
- Made £17,000 in under seven seconds on one trade
- Lost £29,000 in eight seconds on another trade
- Traded over £250 million notional value on volatile days
Liar’s Poker
Describes how Michael Lewis’s book ‘Liar’s Poker’ inspired Hougaard’s trading career and his first major windfall from Black Wednesday currency crisis, plus early trading experiences and economic education.
- Michael Lewis’s ‘Liar’s Poker’ transformed Hougaard from a skateboard-loving football fanatic into a focused individual with a clear trading vocation, despite the book being intended as a warning
- Found the book while home sick, brought by his father from library
- Lewis wrote it as warning about finance industry gluttony
- “I think it had the opposite effect. I suspect thousands of young men and women like me read the book and thought to themselves that Wall Street was the place to be”
- Changed from skateboard-loving to focused and driven individual
- On Black Wednesday (September 16, 1992), Hougaard accidentally profited from the pound’s crash when exchanging Danish kroner for university funds, gaining an extra £4,000 from George Soros’s billion-dollar speculation
- UK forced to withdraw pound from European Exchange Rate Mechanism
- Exchange rate moved from 12 Danish kroner per pound to 9 kroner per pound
- Made extra £4,000 when annual budget was only £2,500
- George Soros made $1 billion the same day
- “‘Uncle George’ made my university education debt free”
- The story of an English printer who identified French franc overvaluation through hotdog prices in Paris, turning £5,000 into £8 million profit before losing it all, illustrates both opportunity and the psychology of winning
- East London printer noticed extremely expensive hotdog prices in Paris
- Compared French supermarket prices to London prices, concluded franc was overvalued
- Turned £5,000 into £8 million through relentless short franc positions
- Later lost all the money “and then some”
- “99% of people do not realise is that when you win, there are things happening in your brain chemistry, which – if left unnoticed and unchecked – will have a detrimental effect on your decision making”
- University economics education taught theory and market structure but failed to prepare Hougaard for real-world trading, where momentum, psychology, and sentiment dominate over rational models
- Learned economic theory and how financial markets were structured
- Didn’t teach how to trade or understand momentum, psychology, and sentiment
- Studying economic history more valuable than economic models
- “The idea that you can test variables within an economic system by holding other components constant didn’t sit well with me”
- Markets driven by humans who “are not rational or logical when exposed to stress”
The Trading Floor
Chronicles Hougaard’s experiences working on trading floors at Financial Spreads and City Index, observing client behavior patterns and the intense emotional atmosphere of professional trading environments.
- Walking onto a trading floor creates a unique, intense atmosphere where massive amounts of money change hands casually, with traders becoming immune to the scale over time
- Russian client had $10 million margin call at 6am, wired funds by 7am
- Would take author 133 years on current salary to make $10 million
- “It is all just numbers on a screen” after months of exposure
- Witnessed colleague kick PC repeatedly until IT had to replace it
- Trading floors display raw human emotions in quick succession - fear, greed, despair, excitement - contradicting the image of markets as finely-tuned economic mechanisms
- “Impulse buying, panic selling, holding on to losses, refusing to admit defeat, greed, stupidity, stubbornness, despair, tears, abject depression, exhilaration and excitement are all on display”
- Atmosphere resembles “local market stall on busy Saturday morning”
- Difficult to reconcile raw emotions with “finely tuned global economic environment”
- Emotions appear “all in quick succession of each other”
- Despite witnessing millions of trades by thousands of clients at City Index (25,000 clients, 3,000 active daily), very few traders stood out positively, with horror stories vastly outnumbering success stories
- City Index had 25,000 clients with 3,000 active most days
- Witnessed “tens of millions of trades” executed by thousands of people
- “Very few, if any, of them stood out, and if they stood out it was for all the wrong reasons”
- “For every success story, I can tell you ten horror stories”
- A CEO with 30 years of trading floor experience could recall very few genuinely successful traders, with most making money temporarily but failing to keep it
- CEO had “seen many people make a lot of money, but very few managed to keep the money”
- Well-known City personalities traded “atrociously” with personal money despite professional success
- “Almost all clients have more winning trades than losing trades” but lose more on losing trades
- Ratio: for every pound won, clients lose about £1.66
Everyone Is a Chart Expert
Argues that chart reading skills and technical analysis knowledge, while easy to acquire, do not translate into trading profits, as evidenced by industry failure rates and client behavioral patterns.
- Technical analysis basics can be learned over a weekend, but chart expertise does not equate to trading expertise, as evidenced by many knowledgeable traders who cannot make consistent profits
- “You can learn the basics of technical analysis over a weekend”
- Many trading friends built impressive indicator libraries without making more money
- “When it comes to charts, less can be more”
- Author’s charts contain no indicators - uses only price action
- If technical analysis was like dentistry with 80% failure rates, the profession would be terminated, yet 80-90% of retail traders consistently lose money using the same analytical tools
- Around 80% of broker clients lose money according to European disclosure requirements
- “You don’t have a 80% failure rate amongst dentists”
- “No school or university could function if 90% of its students failed their exams”
- All technical indicators “work some of the time, but none of them work all of the time”
- Retail traders consistently exhibit three major behavioral flaws: trying to find market lows during downtrends, trying to find highs during uptrends, and mistaking small counter-moves for trend changes
- During September 15, 2008 Lehman bankruptcy, clients repeatedly bought every small rally
- “More fortunes have been lost trying to catch the lows in a falling market than in all wars put together”
- People better at jumping on rising markets than falling ones
- “Every single little counter reaction against the trend is the beginning of a new trend”
- A study of 43 million trades by 25,000 FX traders over 15 months revealed they won 62% of trades but lost 78 pips average versus 43 pips average gains, illustrating the hope/fear psychology problem
- David Rodriguez analyzed 43 million trades over 15-month period
- 25,000 daily FX traders with 62% win rate
- Average win: 43 pips, Average loss: 78 pips
- “When they won, they made about 43 pips. When they lost, they lost about 78 pips”
The Curse of Patterns
Explores how pattern recognition in charts can be both helpful and harmful, discussing the psychological tendency to see patterns that aren’t there and the limitations of traditional technical analysis approaches.
- Charts are scalable across timeframes - a five-minute chart looks identical to an hourly chart without time labels, allowing traders to perfect techniques on their preferred timeframe
- “If you strip away the time and price axis of a chart, you will likely be unable to differentiate between a five-minute chart and an hourly chart”
- Traders with long attention spans can use one-minute or five-minute charts
- Time-constrained traders can use hourly or four-hour charts
- Same tools work regardless of timeframe
- Apophenia (patternicity) causes traders to see meaningful patterns in unrelated market events, with minds seeking information that confirms existing biases rather than objective reality
- “Apophenia is a Latin word that, translated into English, means patternicity”
- “The tendency to perceive meaningful patterns and connections amongst unrelated events”
- Bryce Gilmore: “You only see in the markets and on charts what you have trained your eyes to see”
- Anaïs Nin: “We don’t see things as they are, we see them as we are”
- Trend line analysis demonstrates selection bias, where brains focus on successful setups while ignoring failures to avoid pain, creating distorted impressions of strategy effectiveness
- Brain’s prime objective is to avoid pain, so losing trades get ignored
- “The brain sends a signal to the eyes to ignore the setups that do not work”
- After-the-fact analysis shows only winning trend line trades
- “Every single trade results in meaningful profits. Such is the power of our subconscious”
- Fibonacci ratios, despite widespread belief in their market significance, show no statistical advantage over random retracements when analyzed objectively across major market moves
- Larry Williams showed S&P 500 data with “virtually every single conceivable percentage retracement” over a decade
- Fibonacci ratios 38.2% and 61.8% were present but “surrounded by masses of other percentages”
- S&P 500 summer 2021 rally showed three major retracements at 43% and 74%, not Fibonacci levels
- “Such is the power of our belief system” that we see patterns that aren’t there
Fighting My Humanness
Examines how normal human behavioral patterns that work in everyday life become detrimental in trading, requiring traders to consciously fight against natural instincts and psychological tendencies.
- Normal human behavior patterns that serve us well in daily life become destructive in trading, where 90% of traders are normal people who fail because their natural responses are counterproductive
- 90% of traders are “normal, well-adjusted human beings” who lose money
- “Normal behaviour is to engage in a never-ending cycle of education, looking for the next new edge”
- “If normal is the familiar pattern, and if normal is opening an account with a CFD broker and proceeding to lose the money… then normal is simply a representative of everyone else”
- Major broker failure rates: IG Markets 75%, Markets.com 89%, CMC Markets 75%
- Despite dramatically improved trading conditions over 20 years - smaller spreads, better tools, more data - trader failure rates remain unchanged, proving the problem is psychological not technological
- DAX spread fell from 6-8 points to 0.9 points over 20 years
- Dow spread fell from 8-16 points to 1 point while index rose from 10,000 to 35,000
- Traders now have “hundreds of technical studies”, “instant news flow”, “Level 2 data”
- “Every broker in the world has spared no expense” providing tools, “but it matters nothing”
- Trading success requires abandoning the supermarket mentality where falling prices indicate value, as financial markets operate on momentum rather than traditional value concepts
- In supermarkets, 50% discounts on toilet paper make sense
- “A 50% discount in a supermarket is not the same thing as a 50% discount in the financial markets”
- IG Client Sentiment Report showed 71.39% short positions in Dow on day it made all-time highs
- “We don’t see the market for what it is. We see it as we are”
- Traders are fearful when they should be hopeful (in winning positions) and hopeful when they should be fearful (in losing positions), creating a destructive emotional cycle
- “People are fearful when they should be hopeful, and they are hopeful when they should be fearful”
- Profitable positions create fear that profits will disappear
- Losing positions create hope that markets will turn around
- “You are not thinking about how many points this position may end up making you. Your focus is on fear rather than opportunity”
Disgust
Reveals how disgust with poor performance becomes a powerful motivator for behavioral change, drawing parallels between trading discipline and other areas requiring dramatic lifestyle changes.
- Disgust serves as a more powerful motivator than positive reinforcement, with the author using poverty-based motivation from childhood to drive his financial success
- Moved from wealthy area to one-bedroom flat after parents’ divorce
- Couldn’t afford brand clothes like Levi’s and Lacoste that school friends wore
- Started after-school jobs to earn money for brand clothes and savings
- “I moved away from poverty” rather than toward wealth as primary motivation
- Ed Seykota’s principle that “everybody gets what they want from the markets” initially frustrated the author until he realized his repetitive boom-bust trading cycle revealed subconscious desires
- Ed Seykota: “Everybody gets what they want from the markets”
- Author’s pattern: “Trade like a wizard. Become over-confident. Blow up the account”
- Became “so sick of it” and “disgusted with the amount of money I lost”
- “It was embarrassing” - disgust became catalyst for change
- The author’s alcohol addiction recovery through Alcoholics Anonymous provided a template for trading transformation, emphasizing brutal self-honesty and systematic behavioral change
- Developed drinking problem after painful breakup
- “My name is Tom Hougaard. I am an alcoholic” - public vulnerability experience
- Standing at AA meeting “like being stripped naked for the whole world to see”
- “There is power in being honest” and accepting “This is who I am, and I don’t like it”
- Haven’t touched alcohol for six years, credits Jason Vale’s book
- Systematic self-analysis through plotting trades on charts after trading sessions revealed destructive patterns like overtrading from boredom, revenge trading, and trend fighting
- Plotted trades on charts when trading day was over with entry and exit markers
- “It was like incriminating yourself over and over. I was disgusted with my recklessness”
- Identified patterns: overtrading from boredom, overtrading from anger, impatient trading
- Also: “Trading against the trend”, “cutting my winners short out of fear”, “adding to losing trades”
The Drifter Mind
Discusses the tendency of minds to drift from purpose and the necessity of daily mental preparation and focus to maintain trading discipline and life direction.
- The author’s core life philosophy centers on mental control as the foundation for achieving desired outcomes, requiring constant vigilance against mental drift
- Life mantra: “Control your mind – control your future”
- “You have to want to do what you do. You can live a life that is authentic to your soul”
- “You must be the master of your own kingdom”
- “You can’t just walk through your life with your eyes half open”
- Minds naturally drift toward distractions and superficial content, requiring daily practices like meditation or mantras to maintain focus on true purpose and goals
- “Our minds tend to drift. There are so many distractions in life”
- “The brain would rather look at Facebook and YouTube than sit in quiet contemplation”
- “There needs to be a regular time in your day where you remind yourself of your purpose”
- Daily reaffirmation needed because “atrophy is not just something that happens to bodies. It also affects our minds”
- Professional trading demands 100% mental preparation because it’s “a mind game like nothing else,” requiring systematic visualization and preparation for both winning and losing scenarios
- “I am a professional trader. I cannot afford to go into the trading ring without being 100% mentally prepared”
- “Trading is a mind game like nothing else”
- Uses PowerPoint file with old trades, mistakes, triumphs as daily preparation
- Posts trades publicly “because it keeps me accountable. It keeps me focused”
- Daily visualization exercises involve imagining losing significant amounts (like car costs or tuition fees) to build emotional tolerance, while minimizing joy from equivalent gains to maintain balance
- Visualizes losing £78,000 (car cost or son’s college tuition)
- Makes loss “as emotionally vivid as I can”
- Then imagines winning same amount but finds “emotional response system will not allow me to feel a reciprocal sense of joy”
- Goal: “I don’t want that” emotional roller coaster - “I win. Move on. I lose. Move on.”
Trading Through a Slump
Examines the psychological challenges of trading slumps through personal anecdotes and industry examples, emphasizing the importance of persistence and proper mental approach during difficult periods.
- Trading slumps are inevitable and can affect even the most successful traders, as illustrated by the author’s experience losing over 50% of monthly gains during a May downturn despite feeling mentally prepared
- Started May up £200,000, then lost £33,000, followed by £9,000, then £38,000
- Lost more than 50% of month’s gains within a week
- “I felt completely lost. I had no idea why I was losing”
- “I wasn’t tired. I was sleeping well. I had no emotional issues that occupied my focus”
- The author’s friendship with another successful trader creates competitive motivation, with honest communication about jealousy and performance differences serving as fuel for improvement
- Friend described as “probably the best private trader the world has never heard of”
- Author admits: “I am jealous of you. I feel bad that I am jealous of you”
- Girlfriend’s insight: “You should be happy. So you lost. But what have you gained?”
- Comparison to Mozart versus Salieri competitive dynamic
- High-performance individuals like Rafa Nadal continue intense training regardless of existing success levels, illustrating the necessity of persistent effort in competitive fields
- Witnessed Rafa Nadal training intensely in blazing heat at his academy
- “He trained like his life depended on it”
- Matthew McConaughey’s Oscar speech: “Three things I need each day: one, I need something to look up to; two, I need something to look forward to; three, I need something to chase”
- Process-oriented approach: “The markets determine the outcome. I have little control over that”
- Success requires confronting fear of failure repeatedly, as demonstrated by Kobe Bryant who “missed more shots than any other player in history” while becoming legendary
- Kobe Bryant stayed up all night shooting hoops after crucial errors cost his team a playoff game
- “Bryant was willing to encounter failure in every game he played”
- Author’s May trading: 137 trades with 66 losses, 53 wins, 18 breakevens but still made 1,513 points profit
- “If I were afraid to lose, I would never have had a profitable month”
Embracing Failure
Argues that successful trading requires embracing failure as a learning tool and becoming comfortable with being wrong, contrasting successful traders’ growth mindset with losing traders’ resistance to change.
- Ed Seykota’s insight that losing traders resist transformation while winning traders actively seek it explains why most people struggle to improve their trading performance
- “A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself”
- “That’s the kind of thing winning traders do”
- Journey from low-stakes to high-stakes trading “was not the result of evolution”
- “Practice does not make perfect. It merely makes it permanent” without dedicated improvement focus
- Becoming a high-stakes trader requires becoming a different person through gradual exposure to discomfort and fear, similar to how elite soldiers or free climbers build tolerance
- “Being anxious and fearful is a reflection of an unknown situation. Through exposure – over and over – our minds come to accept the new reality”
- Free solo climbers “acclimatise their minds through years of practice”
- Elite soldiers train with repetitive combat simulations until “fear is trained out of him”
- “You have to grow into the trader you dream of becoming”
- An example of friend asking for trading help but never following through illustrates how many traders claim to want improvement while avoiding the actual work required
- Friend emotionally described trading frustration, knocked over water glass
- Author offered to review trading statements to provide meaningful help
- Friend promised to send statements but never did after four to five days
- “How badly do you think he wants this? How desperate do you think he is?”
- Trading demands choosing the “path of most resistance” to separate from the 99% who fail, requiring extraordinary effort and different thinking patterns than normal approaches
- “I will choose the path of most resistance, because I know I need to stay clear of the opinion of the 99%”
- “You truly can be a master trader” but “you need to think like the 1%”
- “In fact, you don’t even need to think like the 1%. You just need to not think like the 99%”
- Diet book comparison: shortcuts appeal but don’t work - “lose 5kg in two weeks” versus “5kg in a year”
Best Loser Wins
Presents the core thesis that trading success comes from being exceptional at losing rather than being exceptional at winning, requiring traders to flip conventional thinking and embrace discomfort.
- The author’s trading success stems not from superior analysis or systems, but from being “exceptionally good at losing,” making him profitable in a field where the best loser wins
- “I am exceptionally good at losing. When speculating in financial markets, the best loser wins”
- “I have no secrets. I have no special abilities, with the possible exception of one”
- Not because of superior charting abilities, superior system, or insider information
- “Your relationship with fear and adversity will to a very high degree define your life”
- Trading attracts people who shouldn’t be traders through misleading advertisements showing calm, confident actors, creating illusions about the ease and nature of successful trading
- Broker advertisements show “calm, confident actor knowingly pressing buttons” with “confident smirk”
- “Trading industry, we are led to believe it is all about the tools”
- “Do you think I can play tennis like Roger Federer just because I have a Wilson Pro tennis racket?”
- 90% failure rate proves “there is absolutely nothing easy about trading”
- The paradox of trading success requires doing what 90% cannot do by flipping fundamental assumptions about being right and wrong in market positions
- Four core principles: “I assume I am wrong – until proven otherwise”, “I expect to be uncomfortable”, “I add when I am right”, “I never add when I am wrong”
- “Most traders enter into a position they assume they are right” - flip this switch
- “I will assume I am wrong until the market proves me right”
- “By doing what the 90% cannot do, you will become successful”
- The ideal trading mindset operates without fear while still acting in best interests, achieving flexibility and balance that perceives market information without feeling threatened
- “The ideal trading mindset has no fear” but “is still acting in your best interest”
- “The ideal mindset might be fearless, but it is not reckless”
- “Able to perceive information from the markets without feeling threatened or fearful”
- “Your emotional state will stay in balance” regardless of winning or losing trades
The Ideal Mindset
Describes the characteristics and development of the optimal trading psychology, including belief systems, trust, patience, and practical methods for achieving consistent mental performance.
- The ideal trading mindset treats each market moment as unique while maintaining emotional equilibrium, avoiding the trap of connecting current situations with past experiences
- “Each moment is unique, and anything can happen”
- Trading is “equivalent of a coin-flip game” with near 50/50 win ratios
- “There is randomness in the outcome of one, but there is order in the outcome of 100”
- Don’t judge system “on the merit of one trade. You judge it over many trades”
- Information itself has no inherent power over traders - it’s the belief system and energy given to information that determines emotional response and decision quality
- Email saying “You are a dead man” versus “Du er en død mand” (Danish) produces different reactions
- “Information on its own has no power over us. It is our belief system and the energy we give to the information that decide its potency”
- Goal: perceive market information “purely from an opportunistic point of view” without threats
- “What we focus on is what we attract”
- Successful trading requires systematic belief change through creating a “Book of Truths” - detailed analysis of personal trading performance patterns to identify strengths and weaknesses
- Downloaded trading results into Excel and categorized all trades
- Found patterns: 85% win rate periods but average loss exceeded average win
- Traded well mornings/early week, poorly afternoons/Fridays
- “This process stood out as the single most beneficial practical exercise in enhancing my performance”
- Mental preparation involves daily rituals including visualization of extreme scenarios, breathing exercises, and “Ask for Help” sessions to align conscious and subconscious beliefs
- Daily PowerPoint review of past trades for visual reinforcement
- Breathing exercises: “breathe in for seven seconds, and I breathe out for 11”
- Visualization of dangerous situations (alligators, rock climbing) while staying calm
- “Ask for Help”: writing down subconscious answers to trading psychology questions