Bringing Science to the Markets with Arnout Ter Schure

0:01John Lee Dumas:Light that spark fire nation. JLD here and welcome to Entrepreneurs on Fire brought to you by High Level, the all-in-one sales and marketing platform. Today we'll be breaking down how to bring science to the markets. And to drop these vibe bombs, I brought Arnout Ter Schure and EO Fire Studios. Arnout is an environmental scientist turned financial market analyst. He uses data-driven weight of the evidence scientific approach to forecast when and where the financial markets top and bottom. And today we talk about the Elliott Wave, technical analysis 101, better together, markets are probabilistic, and oh, so much more.

0:34John Lee Dumas:And a big thank you for sponsoring today's episode goes to Arnout and our sponsors. If you are building a real business, you need real infrastructure. High Level gives you website hosting, funnels, email marketing, automation, calendar booking, payments, and course hosting all on one platform, plus award-winning 24-7 support. Get a 30-day free trial and my full bonus stack that includes a 50-minute private call with me and much more at highlevelfire.com. Highlevelfire.com. Fire Nation, 50 days will fly right on by. The only question is, will you have something to show for it? I created a free YouTube series called 50 Days to Something, a step-by-step path to build a real product, service, or offer in just 50 focused days.

1:17John Lee Dumas:Start today for free at eofire.com slash YouTube. Arnout, say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with. Hey, John, thanks for having me. And honestly, it's really simple. It's consistency beats intensity, I think, by a lot. Most people, I think, believe success is something like adding stuff, you know, more effort, more ideas, more hustle, more money. But I think what most people resist when I talk to them or when I email folks about, Hey, what do you do for your business? And sometimes they just outright disagree with is that indeed consistency beats intensity.

2:01You know, people think of big moves, you know, the grind, the all-nighters and all that stuff. But honestly, it's just sometimes really boring. You just got to show up. You got to do your daily stuff. You got to write your emails you got to write your newsletters you got to be face to face with your clients and repeat what works always repeat what works and i think you should kind of resist that urgency to have that 15 minutes of fame and that constantly trying to reinvent yourself stay true to yourself and that's really not exciting honestly so i think that's why people undervalue it but it's that kind of that compounding you know kind of the word that gets us into our next topic compounding works if you don't interrupt it.

2:44It's like a savings account, right? Just put it in there and the interest will take care of itself. It's the seventh world wonder. So yeah, consistency beats intensity.

2:52John Lee Dumas:Well, being a guy that's done a daily podcast for 14 years for 5 ,627 days in a row, I like hearing that consistency beats intensity. I mean, personally, I try to bring a little bit of both every day. I try to bring intensity and passion to the show, but of course it really comes down to consistency. That's what I've been hanging my entire career on right here. So today we're talking about bringing science to the markets, Fire Nation. And I want to talk about the Elliott wave. I mean, for those in Fire Nation aren't out, who are new to this, what exactly is the Elliott wave and why does it matter in the markets?

3:32Great questions. So if you allow me to explain a little it's not a easy to understand concept but the basic is quite simple so once you really go down into nitty-gritty and the weeds of it like anything else it becomes quite complicated but this is a principle that was devised I think in the 1930s by a gentleman called Ralph Nelson Elliott and what he found he studied the Dow Jones back then that investor sentiment comes and goes in steps and he called them waves. And he found that you actually can quantify and qualify these steps. They're just based on simple fear and greed. You know, the sentiment that goes on in the market.

4:16People are fearful when the market crashes and they're greedy when the market goes up. And it comes and goes in five steps, just five simple steps. So those steps he called waves. I don't know why, but that's fine. So it became the Elliott wave based on his last name. So it's a three steps forward, two steps back process. So three steps forward means you have step one or wave one, which in this case goes up. Then you have wave two, which goes down, which is a correction in the markets. Then you have a large third wave, they call it, that goes back up. It takes a long time. It grinds and it grinds.

4:50And eventually you get another correction, which is the wave four. And then you get a final rally, which is the wave five. And after that, you can get a bigger correction. and after a bigger correction you can get another five waves up and that already makes the the market what we call a fractal in nature that first wave consists also of five waves you know and so on and so forth um and then the second waves and the fourth waves are always made up of three steps nothing more nothing less those three steps can be quite complicated but that's really the essence of it um so then we have a few simple rules when he looked at the dow jones data and he didn't have that much data because i think that dow jones uh started in the 1870s or something so he only had 60 years of data but everything he pretty much put out is still valid today regardless of ai regardless of all the uh high frequency trading it's still valid because human sentiments right the fear and the greed is still the same and that's what drives markets and so he devised a few uh came up with a few rules that um wave three for example is never the shortest of the wave one the three and the five, it can never be the shortest.

6:00He found that the wave two can never go below the start of wave one. So let's say the S &P 500 in this case starts at, I don't know, 6 ,000. It rallies 500 points and then it corrects to 6 ,200. 6 ,200 is still above 6 ,000 where it started. So that can be a wave two. And then it starts rallying again for the wave three. Then the last rule he came up with is that that fourth wave I just told you, right? the fourth step cannot go below the top of the first step so we said the first step or wave went to 6500 so if we then see that second correction and it stays above 6500 we can expect the final wave now if it breaks below 6500 we know we don't get five waves and that we see further and lower prices probably all the way back below 6000 and with that you can of course devise very simple effective trading and investing systems because this works on all timeframes from the minute timeframe to years and decades out.

7:03And it's worked since the 1930s. But, you know, that's the simple essence to it. It's not easy to follow it on a day to day basis. There are many variations, but that's the basic. And once you apply it, it's really fun because you can really start to foretell what the market is going to do. And it's a fantastic puzzle and not to crack. Absolutely.

7:22John Lee Dumas:Well, let's use this new knowledge and talk about technical analysis 101. I mean, break it down simply for us. What is technical analysis at its base form? And how should investors think about using it? Oh boy, technical analysis. That's, yeah, it's a method I think of analyzing and forecasting, you know, the price movements in stocks and indexes, gold, silver, Bitcoin, you use technical analysis. So what you do is, you know, you study the historical market data or price data, right? That's what you look at because price is pretty much the aggregate opinion of all market participants. And what you do is identify patterns, you identify trends.

8:09And with that, you're going to start charting future price movements. and this is in contrast to what we call fundamental analysis where people, for example, look at a company's financial health, right? How much profit are they making? How much revenue are they making? And also with that, they can make forecasts if the stock market of the stock should go up or down. It's equally valid. This is just a different way of trying to forecast what the price of a stock or index should do. And if you allow me, I can maybe give you an example. So let's say the S &P 500, we were talking about it before, is making higher highs, higher lows.

8:48It's in that third wave. Higher highs, higher lows, higher highs, higher lows. Those are all those small little waves that are fractal and it keeps on just moving higher. And you can actually draw sometimes just straight lines from the high points and the low points. And then you get pretty much two parallel lines. So you call it kind of like a trend channel. And anybody can look at it if you zoom out. And sometimes the market just surfs, as we call it, straight into the trend channel. That's technical analysis. What you then say, hey, as long as it stays in a channel, right, it's an upward channel, it's up.

9:19That's, you know, very simple technical analysis. If it breaks below that channel, most likely we're going to go lower. Then you can use the added wave and other technical analysis to determine how low it will go. But, you know, let's not go into that detail. And other things you can look at is market breadth, right? So the S &P 500 is made up of 500 different companies. that are weighted. And then, for example, the market is rallying, but only 10 stocks are participating in this rally, right? The Apples, the Microsofts, those are really big companies that can drive an index. Then you know, hey, that's not a broad-based rally.

9:56So maybe this rally is suspect. Maybe I should be on the lookout for a pullback because it's not a rising tide lifts all boats. This is a very concentrated rally. So that's already, you know, some caution is advised. and use what we call technical indicators. They are computed to track, is the market rally strong, right? This is a strong upward momentum or is it kind of like sizzling out a little bit? And it can help you identify where trends are going to change when, for example, the price is still going higher, but the momentum and the strength of the trend is weakening. We call that negative divergence.

10:36And that's also a sign like, hey, start paying attention. things might change. And again, this can happen on any timeframe from the minutes to the years. And then you have to start paying attention. And it's very helpful if you then also apply the Elliott Wave. And that's what really investors should think about when using it. Like, hey, you know what? We get all these signals, which increases the likelihood that things are going to change, be it up or down, whatever you're looking for. And that can greatly, I think, help the soundness and the accuracy and the profitability of investing and trading in the stock market.

11:11It's a fantastic tool. You got to use it.

11:14John Lee Dumas:I mean, this is exciting stuff, Fire Nation. If you're willing to just sit back and understand what Arnout is talking about, and of course, how you can utilize it in your life. Because if you work hard to make money, why not work hard to have your money make money? We're going to be talking about that and more when we get back from thanking our sponsors. Fire Nation, if you've ever thought, I know I'm capable of more, but you're not sure where to start, I've created something for you. It's called 50 Days to Something. Not 50 Days to Perfection, not 50 Days to Overnight Millions, just 50 focused days to build something that matters.

11:50John Lee Dumas:Maybe a product, a service, a course, a coaching offer, something real, and something that will generate real revenue. 50 Days to Something is my passion project. Each video is short, it's tactical, and it's designed for you to take one meaningful step forward each day. Picture this, in just 50 days, you will have built an asset. And the best part, it's completely free and it's on my YouTube channel right now. If you are ready to create something that matters, visit eofire.com slash YouTube. That's eofire.com slash YouTube and start your 50-day journey today. 50 days will pass in the blink of an eye.

12:27John Lee Dumas:The question is, will you have something to show for it? Fire Nation, if you are building a real business, you need real infrastructure. That is why High Level is Entrepreneur on Fire's featured partner. High Level gives you a website builder and hosting, funnels and landing pages, email marketing, appointment scheduling, payment processing, course and membership hosting, and so much more. Everything you need to succeed, all under one roof. No duct tape, no juggling five platforms, just one clean system for your business. And their award-winning 24-7 support has your back when you need it most.

12:59John Lee Dumas:When you sign up at highlevelfire.com, you also get my exclusive bonus stack, a 30-day free trial, a private 15-minute call with me, JLD, access to my weekly live office hours, a digital copy of my book, The Common Path to Uncommon Success, my 50 Days to Something Execution Roadmap, and more. Visit highlevelfire.com and start building your something today. Arnelt, we're back, And I want to talk about how markets are probabilistic. I mean, you say financial markets are probabilistic. So what does that mean? And how should that shape the way that we make decisions as investors? Yeah, that's a good question.

13:39It's a little tricky, I think, to try to explain, but I'll do my best. You know, it's based on what I would call like uncertainties and that outcomes of the market are a little bit uncertain. and they're just ruled by that deterministic outcomes. You get no signal, no analysis or setup really guarantees a specific outcome, right? Just life in itself is uncertain. John, I'm going to say that just because you went to bed yesterday and woke up today doesn't mean tomorrow the same thing will happen. God forbid you won't wake up, but there's no guarantee you will wake up tomorrow, right? There's a slim chance.

14:21And of course not, But I mean, it's very black and white what I'm currently saying. But that's just as we drive to work every single day, there's no guarantee we'll make it to work. We might get into an accident. Something might happen. Even though the chances are slim, it can happen. And it happens to a lot of people all the time. So the chances are there that things go bad or things just don't happen the way we think they will happen. And again, this is very black and white, but it really tried to bring home this message of probability. It's like flipping a coin. honestly, it's not 50-50, you know, between heads and tails.

14:57There's actually a chance that the coin will land on its side. It's like one in a million. So you have to flip a coin a million times to actually land on the middle. It happens, right? So that's the probabilistic nature of the market. So, you know, you have odds. And with those odds, you have to play with. But then if you use the Elliott Wave, you use your technical analysis, you can get the odds on your side. so you have a strong technical setup right so we have those divergences we just talked about we have our first wave setup we just talked about we can have even fundamental analysis where we say you know the the pe ratio of the financial markets is quite low so we have to start rallying maybe not today maybe not tomorrow but in a week or a month depends a little bit on your time frame so then you start to really get your uh your your your eggs in in in one basket and and the probabilities is on your side, but sometimes it fails.

15:51And that could be because of, you know, shifted sentiment, something came out, the news, you know, the White House tweeted something that the market didn't like, right? It happens, right? So that can be, you know, one of those small little things where the coin just landed on its edge and you go, ah, darn it, it just didn't work. but you know you use historical patterns and then you say you know what this setup historically gave us a 60 chance of uh being a winning trade you have to take it if you go to las vegas your chances of winning i think are less than 50 that's why we have all the big hotels because they make money right and the only way for them to make money is make sure that they statistically uh win more often than they lose from the people that are making their bets but unfortunately people still like to go to Las Vegas well statistically yeah you have a large chance of losing your money and most people do so you know when you then realize that you know stock prices are this aggregate opinion of everybody's that's participating in it you always have to deal with incomplete information right you deal with emotions and people have different time horizons so that already makes things uncertain and you know that's why you then say hey you know what if this happens then that happens and that's simply your uh your probability that the market is going to go higher or lower same as if long as long as we stay above this price level we go lower but i have no guarantee that that price level will hold right that that's the thing and then you just track it and that's again goes back to your first question you have to be there every day just grind it track it and then you say okay hey you know what we held that level we're going to go higher then we have the good odds on our side again.

17:41But if it breaks below it, yeah, all right, we'll have to revise our point of view. And that's simply how it works.

17:48John Lee Dumas:Fire Nation, we don't need to overcomplicate things, especially when we have some great things that we can look to. And could that be history? Because I want to talk next, Arnaud, about history and how it repeats, kind of. I mean, there's a saying that 60 % of the time, it works every time. So with that note, how relevant is history when it comes to predicting market behavior? Yeah, that's a good one, John. I mean, that's my favorite quote. It's from, I believe, from Anchorman. Oh, yeah. Yeah, movie with Will Ferrell and playing Ron Burgundy. Yeah. I love that quote. And it's true. I say it to my clients and my subscribers, 60 % of the time, it works every time.

18:33It goes back to the probabilistic part of the market as well. things keep tracking along really well. And all of a sudden the market starts to do something else. And, you know, since we have those reasonably predictable patterns using the other wave and they repeat themselves, you know, like fractals through time we have now, what is it for a Dow Jones? What did I say? It started 1874 or something, 1896. I don't know. I wasn't around back then, but by 120 plus years of data. So what you do, right. You take for every day the market is traded, you make an average, right? You have 125 Mondays, January the 1st.

19:13You have 125 Tuesdays, January the 2nd, right? Whenever the market traded. And you make an average of that. And then you kind of get an average pattern out of it on how the market is supposed to on average behave throughout the year. And now we have so much data, we can tease out specific years. For example, this year is a midterm election year, right? yeah it is and then you can just look at midterm election years you just take out all the years that were only midterm election years and you go like oh wait during midterm election years the market on average bottoms around the end of march and then rallies uh into middle or end of april you know all plus or minus of course you got to have a little bit of a uh wiggle room and then you look at what the market actually did and in this case it did it exactly it bottomed i believe on March 30th and currently it's rallying.

20:09So that works really, really well. But now we have to constantly monitor it too to say, hey, is this rally going to continue? Yes or no? Or is it going to top out earlier? Because it's just an average, right? So you just can't walk away from it. Like I said in the beginning, you got to do this stuff daily or on a weekly basis. Depends a little bit on your timeframe. Because in the end, I always say it's anticipate, you monitor and adjust. But it shows you that, yeah, 60 % of the time, it works every time. Sometimes the alert wave is wrong because I misinterpreted data. Sometimes the divergences I talked earlier about don't work.

20:47The market decides to do something else based on, again, like maybe somebody tweeted something from the White House, and then all of that stuff gets reset and you have to start all over again. And that's why 60 % of the time, it works every time. But that's enough. It's enough to have an edge, right? If Las Vegas is less than 50 % and I can give you 60 to 70%, I know which bet I will take, but I'll let your listeners decide which one they want to take.

21:14John Lee Dumas:Arnaud, this has been great. We talked about the Elliott Wave, technical analysis, markets being a probabilistic, how history repeats kind of. So much to learn, but so little time. So if Fire Nation wants to connect with you, if they want to learn more about what you have going on. What is your call to action for our listeners today? They can find me on my website, www.intelligentinvesting.market. I'm also on X at Intel underscore invest. And, you know, really with so much information out there, I think you should really just not be too bothered about the daily news, but have an expert on your side.

21:56So I'm an expert in what I'm doing. It doesn't mean i'm right all the time right nobody has a crystal ball nobody gets it right 100 of the time why because as we just talked about we're dealing with a probabilistic market so sometimes you're wrong and most of the time we're right so i would say about 70 of the time so if you have an expert on your side it's like um you know when you go to the doctor the doctor is an expert on your health you have a medical issue you go to the doctor you pay the doctor to get a medical expert help Same for if you have legal issues, you go to your lawyer, you pay your lawyer, and he will give you expert legal advice.

22:34Even plumber, right? So you have plumbing issues. If you can't fix it yourself, you go to the plumber. You know, I always say, you know, it pays to pay for information. So it's much better to be informed than not informed, or God forbid you're actually misinformed. So if you follow the news and try to, you know, kind of cue off what the market is going to do on that, It's often very difficult because the news tries to explain why the market is up, but it doesn't really tell you where it's going to go next, where it's going to go bottom. And most of the time, the news is kind of out late. It won't tell you, oh, the market is topping or the market is bottoming.

23:11It's most of the time it's too late. So that's not very helpful. You need an expert on your side to make sound investment decisions for the timeframe that you're interested in. And don't try to manage a long-term NASDAQ like a 401k with daily news and daily noise. Just zoom out and I provide those long-term views as well. And you get just an objective, accurate and reliable point of view on what the financial markets are most likely going to do next. And yeah, sometimes I miss it. I'm honest about it that sometimes we miss it. Sometimes we have to adjust, but that's fine. We adjust, but you have to edge on your side with an expert.

23:47It's the same as a lawyer in court. Most of the time he wouldn't win the case for you. If not, you should hire a different lawyer.

23:54John Lee Dumas:Fire Nation, you are the average of the five people you spend the most time with. You've been hanging out with ATS and JLD today, so keep up that heat. And for links to everything we talked about, visit eofire.com, type Arnout, A-R-N-O-U-T, in the search bar, the show notes page will pop right up. And Arnout, thank you for sharing your truth, your knowledge, your value with Fire Nation today. For that, we salute you and we will catch you on the flip side. Thank you, John. I really appreciate to talk about my business and what I can do for people. It was great. Hey, Fire Nation, a huge thank you to our sponsors and Arnelt for sponsoring today's episode.

24:31John Lee Dumas:And Fire Nation, are you an entrepreneur on fire who's looking to share your amazing message with the world? If yes, we are now accepting applications for EO Fire. So to learn more about becoming a guest, visit eofire.com slash guest and I'll catch you there or on the flip side. If you are building a real business, you need real infrastructure. High Level gives you website hosting, funnels, email marketing, automation, calendar booking, payments, and course hosting all on one platform, plus award-winning 24-7 support. Get a 30-day free trial and my full bonus stack that includes a 50-minute private call with me and much more at highlevelfire.com, highlevelfire.com.

25:09John Lee Dumas:Fire Nation, 50 days will fly right on by. The only question is, will you have something to show for it? I created a free YouTube series called 50 Days to Something, a step-by-step path to build a real product, service, or offer in just 50 focused days. Start today for free at eofire.com slash YouTube.