Who is Trader Tom?
TraderTom at tradertom.com is Tom Hougaard.
When searching for him on social media, make sure you spell his name correctly.
His popularity is such that many scammers are posing to be him.
Tom Hougaard is a professional trader who day-trades and swing-trades the commodity market, the currency market, and stock indexes.
Contents
- Introduction
- Day In The Life Of A High Stake Day Trader
- Why Do Traders Fail?
- His Book
- Trading Psychology
- Normal Won’t Work
- Push The Profits
- No Profit Target
- Conclusion
Introduction
He is known in the industry as a “high-stakes” trader because his position size is so large.
He can win or lose fortunes in one day.
And he is still constantly trying to increase his position size, which can be stressful.
He also considers himself an educator and considers members of his Telegram channel his students — although there is no formal teaching or course.
He is just trading his live account on Telegram for everyone to see.
Anyone can hop on and watch for free.
Why does he not charge?
It is not an alert service.
As he says, “once you start charging for a service, people will have expectations, naturally.
However, expectations and trading do not go hand in hand.”
On his site are spreadsheets of his P&L extracted from his Telegram.
Based on these, it shows that he makes more profits from day trading than from swing trading.
If you want to see him trade live without joining his Telegram channel, you can watch a session of his trading on the Al Brooks trading room on YouTube.
Day In The Life Of A High Stake Day Trader
While he has worked for various brokers in London in the past, he now (past the age of 50) trades for himself.
You can see his typical day when the Danish National Broadcasting Company published a mini-documentary video about him in 2021. For English viewers, turn on YouTube’s subtitles.
Being a day trader speculating on the direction with large sums of money on the line is tough psychologically, which is partially combated by his physical exercises.
In the video, Tom says that what drives the market up is hope, and what drives the market down is fear. Since fear is a stronger emotion than hope, that is why do markets tend to fall at a greater speed than when they rise?
He believes separating your emotions from the outcome is necessary to get what you want.
The mind likes feeling good and doesn’t like uncertainty.
In the video, we see that he ended up with 2 million kroner of profits (equivalent to about USD 190,000). Half of which was cashed in.
And half are still in open positions.
Why Do Traders Fail?
On the home page of tradertom.com, it asks the question, “Why do 95% of traders fail?”
The top answer that it gives is an “unprepared mindset.”
What does that mean?
He believes that the optimal trading mindset is one that is fearless but not reckless.
You need to be able to trade without fear.
It is fear that stops traders from making money.
Others have said similarly, pointing out that you have to trade a size so small that you no longer fear losing that amount.
But you are not reckless about that money either.
They say you cannot trade in fear.
They say you have to trade with money you don’t mind losing.
And, they say that if you are trading to make money for food or rent, that will not work.
You will be too fearful that you will lose your food money.
And so on.
His Book
In his book “Best Loser Wins: Why Normal Thinking Never Wins the Trading Game,” he writes…
“It is because of how my mind works that I am able to trade in the way that I do. My knowledge of technical analysis is average at best. My knowledge of myself is what sets me apart.”
How is the way that he thinks that sets him apart?
He writes:
“I have conditioned my mind to lose without anxiety, without loss of mental equilibrium, without emotional attachment, and without fostering feelings of resentment or desire to get even.”
Hence, the title of the book — the best loser, wins.
In the book, he recalls a conversation he had with the CEO of a financial firm with lots of experience, who told him that he could tell a profitable trader from a normal trader by these parameters:
- Account size
- Trade frequency
- The ratio of time holding winning trades versus losing trades
- Adding to winning trades
- Trading with stop loss
A smaller size account tends to have a higher probability of losing that account.
Overtrading is not a good sign.
Traders who cannot hold winners and losers for too long will not do well.
Profitable traders tend to add to their winning positions instead of their losing ones.
And they trade with a stop loss.
Trading Psychology
His book is not about trading strategies or technical analysis.
It is about trading psychology.
That is not to say that you don’t need a strategy or need to learn technical analysis.
You do, and you need to have a reason for putting on a trade.
You cannot just place trades on a whim.
But he is saying that you need more than strategy and chart reading abilities.
The best chart readers are not necessarily the best traders.
Similarly, in a talk that he gave at Opto CMC, he says that…
“I’m not going to attempt to show you how to trade. I’m going to attempt to show you how to think while you are trading.”
He simply comes out and says it:
“Fear is what stopping people from making money in the markets.”
That is where most traders have it wrong, he says.
They are slow to take losses but fast to take profits.
He himself is ruthless with trades that do not work out.
Normal Won’t Work
Brokerage firms report on (and some are required by law to report on) the percentages of members that lose money.
Tom lists some statistics (as of 2019) in his book showing the failure rates reported by prominent CFD brokers in European Union. They show 75%, 89%, 75%, 74%, 77%, etc.
Nothing less than 70%.
Why are about 80% (more or less) of traders losing money?
It is not because trading attracts reckless gamblers.
On the contrary, it attracts intelligent, hard-working, ambitious, normal people.
However, normal won’t work.
That is exactly Tom’s point.
You need to think differently from normal.
When a normal person sees milk on sale or toilet paper selling at a discount, they jump at the bargain and buy at the lowered price, thinking they got a good deal, which makes their brains happy.
This works for toilet paper because toilet paper has utility, and you are going to need it anyways.
Normal people translate that kind of thinking into trading. And that does not work — according to Tom.
The price of a stock is not like the price of toilet paper.
Unlike toilet paper, there are no “bargains” in the stock market.
He does not believe in the saying “buy low and sell high” — claiming that traders who try to pick the bottom to buy or try to pick the top to sell will not do well.
Rather he believes in “buy high and sell higher” and “sell low and cover lower.”
In other words, he buys on strength and sells on weakness.
This is akin to going with the trend because a stock in motion will tend to continue to go in that direction due to momentum.
Push The Profits
Have you ever heard the saying:
“You can’t go broke taking a profit”
Well, that is another common saying that Tom does not believe in.
He says that most normal traders take profits too early and hold onto losing trades too long — because this is normal psychological thinking.
The human brain like to ease any discomfort.
When traders have paper profits, they fear the profit will be lost.
The uncertainty and the worry that the paper profit will evaporate causes brain discomfort.
The course of action to ease that discomfort is to lock in the profit by exiting the trade.
That is what most traders do.
And that is why most traders fail — or at least part of why they fail.
The other part is that normal traders hold onto losing trades for too long.
Because exiting the trade to take the loss is painful.
In order to avoid pain, they hope that the trade will come back to profit.
Tom says that most traders got fear and hope switched around.
They are fearful when they should be hopeful.
And they are hopeful when they should be fearful.
Normal vs Profitable Traders
Normal trader: When in a profitable trade, they are fearful that the market will go against them. Trader exits trade to lock in profit.
Profitable trader: When in a profitable trade, they are hopeful that the market will continue to be on their side and adds to the position.
Normal trader: When in a losing trade, they are hopeful that the market will turn and make the trade profitable again.
Therefore, they do not exit the trade.
Profitable trader: In a losing trade, they are fearful that the trade will lose more.
A trader exits a losing trade.
Tom gives an interesting statistic in his book to prove the above point.
Most traders have more winning trades than losing trades.
However, they are not profitable because the losing trades amounts are larger than the winning amounts.
Have you heard of the trading axiom:
“Cut your losers and let your winners run.”
Okay, this is one that Tom believes in.
In fact, he goes even further than that.
He adds to his winners.
If he is in a winning trade, he will add to that trade in order to increase his position size in that trade.
He admits that this is not what most traders do — even professional traders who have been trading for years.
Most “normal” traders in a winning position would take profit on half the position and let the other half run.
In other words, they would decrease the position size if they didn’t exit it already.
No Profit Target
Quite unconventional is that he does not set a profit target because he does not believe in limiting the profit.
However, he does set a stop loss, as everyone should.
In options vocabulary, this means that his trade has defined risk but undefined max potential profit.
He does not trade options, but if he did, this guy probably would enjoy buying calls and puts (because these have defined risk and undefined profit potential).
When his students inquire about his trade as to where he would take profit, he would typically sarcastically says that his crystal ball is in the shop.
He doesn’t know because he doesn’t know how far the market will take his trade.
He will go as far as the market will take his trade (even if it means sometimes losing some of the returns he already has on paper).
Conclusion
Now you have an idea of how Trader Tom thinks.
Do you agree?
Do you think his ideas apply to options trading as well?
What do you think?
Or do you think normal?
We hope you enjoyed this article on Trader Tom.
If you have any questions, please leave a comment or send an email.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
