The Van Tharp Institute

February 14, 2007 — Issue #309

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In this Issue:

Workshop

Exchange Traded Funds Workshop Coming in March

Feature Article

Trading Like the Pros – Not the “Joes” II, By D.R. Barton, Jr.

Workshop

Professional E-Mini Futures Tactics $500 Discount Expires Next Week

Trading Tip

Trading with a Sense of Humor, By Ken Long

Recommendation

Tax Time for Traders, Here's a Resource You Can Use

Melita's Corner

The Eleventh Task, by Melita Hunt

View this newsletter on-line, or read back issues

 

Coming Soon

Highly Effective ETF and Mutual Fund Techniques

March 16-18, 2007

Raleigh, NC 

Presented by Ken Long

Most people are doing the exact opposite of what the big funds are doing and they pay a big price for doing so. For example: you put money into a stock after hearing that a fund manager really likes it.  However, by the time you hear about it, the fund manager is getting ready to sell.

But what if you could see what the big mutual funds are doing with their money well before they complete a transaction and jump in ahead of them? 

Learn More...

 

Feature

E-Mini Futures – Trading Like the Pros – Not the "Joes" II

 by  D. R. Barton, Jr.

 

In honor of St.Valentine's Day, I’d like to offer an unabashed view of the electronic e-mini index futures markets.  Like many people’s relationships, there are certain things about e-minis that I love – and other things that I just have to put up with.  So let’s look at both sides of the coin, and see what conclusions we can draw about these ultra-popular trading tools.

Things to Love About Index E-Minis:

Liquidity.  This is what allows us to enter and exit trades with a minimum of slippage.  The S&P 500 is among the most liquid exchange traded instruments in the world. Other index e-minis are also very liquid and enjoy significant day trader participation.  These include the Dow, the Nasdaq and the Russell 2000.  More on each of these below.

Level Playing Field.  With e-minis, all trades are computer matched.  This means that a the trader at a terminal in Topeka, Kansas is not at a disadvantage to anyone trading e-minis around the world.  The high level of liquidity also helps make a level playing field, because it's almost impossible for the spreads to get bigger than one tick in the four e-minis mentioned above. (The spread is the difference between the bid and offer prices).

Leverage.  Overnight leverage on e-minis is high, at roughly 20:1 for the S&P 500 e-mini.  Day-trading leverage is screaming at most brokerages, with some brokerages allowing greater that 100:1 leverage.  It’s tougher to get a bigger bang for your trading buck than in e-minis.

Predictable Movement.  One of the reasons that so many professional traders trade the index e-minis is because they have predictable price movement intraday.  This means that when prices approach certain points, there is a pattern of reaction that can be exploited.  This tradeable edge is a critical – and much loved – aspect of e-mini trading.

An Index Personality for Everyone.  The four major indexes that are traded (S&P, Dow, Nasdaq and Russell) each have different personalities, while sharing the overall characteristics and trading styles of indexes.  The S&P is a bit slow and ponderous, with great fills and minimum slippage.  The Russell is the other end of the spectrum – moving quickly at the drop of a hat.  Both the Dow and Nasdaq fall somewhere in between.

Things About E-Minis that We Just Have to Put-Up With

The quirks and idiosyncrasies of the e-minis are there also.  Yes, they do have their downsides.  And just like our significant others, these are things about e-minis that we’d love to change but can’t – so we just learn to live with them.

Leverage – the Other Side of the Sword.  Great leverage can bring great reward.  But it also brings great risk.  If you have a $10,000 account that allows you to trade on $1000 margin, you can trade 10 Russell contracts.  A 10 point move in your favor will double your account; a 10 point move against you will wipe you out.  With leverage this high, proper risk management is absolutely critical.

The Cumbersome S&P.  There are periods of time when the S&P seems to act like a huge oil tanker.  Never moving outside of a narrowly defined range.

Trend Days vs. Range Days.  Traders in all instruments have the problem of deciding if you’re in a trend or a range.  But for many, this is a particularly beguiling problem in the indexes.  Fortunately, there are some tools that can help us here.  But without those tools, many a trader has been caught on the wrong side of the market all day, only to look back in calmer times and see the error of their way!

Differences in the indexes.  While the different personalities of the indexes give us different reasons to trade them based on conditions, set-ups, etc., they also mean that we have to learn about each instrument in order to trade them.  As with most worthwhile endeavors, there is no one size fits all.

The bottom line: Trading e-mini futures indexes is a bit like driving a fine sports car – they’re fast, they corner great, and they have a few idiosyncrasies.  But at the end of the day, they are still the best way to get the most bang for your buck.

Join me and Wall Street maven Christopher Castroviejo on March 3 - 5 for a jam-packed three day workshop where you will learn to exploit the benefits of e-mini trading while avoiding the potholes.

D. R. Barton, Jr. will be teaching our New Professional E-Mini Futures Tactics Workshop, March 3-5, Raleigh NC.  He will be joined by ace trader Christopher Castroviejo. To see what D.R. says about Christopher, click here.

A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena where he is one of the most widely read and followed traders and analysts in the world. 

He is a regularly featured guest analyst on both Report on Business TV,  and WTOP News Radio in Washington, D. C., and has been a guest analyst on Bloomberg Radio.  His articles have appeared on SmartMoney.com and Financial Advisor magazine.

 

Workshop

New Professional E-Mini Futures Tactics Workshop

March 3-5, 2007

Raleigh, NC

Presented by D.R. Barton, Jr.

Register Now for a $500 Discount... Hurry! Offer expires next week.

  • Learn how pro traders take consistent profits from the e-mini markets.
  • Don't become one of those traders who tries futures trading and loses a bundle by trading like the herd.
  • Discover the tools and tactics that top traders use to gain a huge edge in these volatile and profitable markets.

Learn More ...

Trading Tip 

Trading with a Sense of Humor

By Ken Long

I had an opportunity this week to sit around a table with General Dave Petraeus, US Army, for 2 hours and listen to his discussion of his assignment to take over the command of the MultiNational Force-Iraq. He arrives there early next week, for what is arguably one of the more difficult challenges facing any human on the planet lately. I’ve had the opportunity to work on his project to re-write the Army’s doctrine on Counter Insurgency, a newly published field manual which will guide his efforts over the next 18 months, and so have been able to observe him over the course of the last year. 

What strikes me the most about him is his sense of humor. I have come to the conclusion that the first thing I want to look for in people that are operating in stressful situations is the sense of humor. Having a visible, appropriate sense of humor reveals some important things:

A. The ability to maintain a sense of perspective for the style and appropriateness of the humor based on the situation and the audience. This reveals a sense of who and what is around you; you are not consumed by your circumstances.

B. The ability to see situations from multiple levels and points of view. If you can only see the seriousness and from your point of view, you are inside your situation and are being acted upon, instead of acting, or being able to choose not to act.

C. You have the emotional energy to be able to apply a different context to your situation and pause to see some of the minor themes that constitute the human experience in a stressful world.

D. An optimistic attitude; the possibility of successful, satisfying outcomes; A willingness to look beyond present difficulties to potential improved futures; a trust in Hope and Opportunity.

In my own experience in combat I have seen what happens to people when they are close to or over the edge and have no emotional reserves or psychological distance to be able to stand off from the environment, and have been reduced to a bundle of knee jerk responses. It’s not pretty; it’s a human tragedy. And upon reflection, it turns out for me that the presence or absence of an appropriate sense of humor, the ability to see the irony and sometimes absurdity of the human condition, is a pretty good indicator of mature and emotional stability and resources. It may very well be one of the most important qualities of leadership. The application of this insight to trading, and achieving your long term goals is direct and immediate and I’d recommend you include it in your routine self-check.

From the Mastermind Forum, Feb 03, 2007

Recommendation

It is Tax Time Again...

We often get emails and calls from our clients concerning their taxes.  As all of you know, Van is not an accountant or tax guy and we can’t really answer all of your questions. The best advice that we can give you is to refer you to one company that has specifically been in the business of helping traders with their taxes for close to ten years - Traders Accounting.  

As an active trader, if you are having problems understanding what forms to use and how to file them and if you are interested in finding someone who will get your taxes done correctly and keep you out of trouble with the IRS, then please take the time to visit them and see what they have to offer. 

www.tradersaccounting.com/2006tax  

 

Melita’s Inspirational Corner

The Eleventh Task

by Melita Hunt

When Van talks about the ten tasks of trading, there is a final task that he says is THE most important and it is all about balance and being out of the markets. Great traders know that keeping their lives in balance makes trading fun. If other important aspects of your life are being ignored, then it can lead to personal issues that will eventually show up in your trading anyway.  

So on Valentine's Day, I would like to remind you of the importance of balance with your loved ones. Some people scoff at this day and say that it’s all about commercialism, and it certainly can be if you get caught up in the expenditure of it all, but please don’t use that as an excuse. Use the day as a reminder to be loving instead, which is something that we just forget sometimes. We get so caught up in our trading, our work, our kids and our lives that we forget to just take a minute to say "I love you" to the special people in our lives.

So put down the pen, the paper, the phone and let go of the up ticks for a moment and do something spontaneous:  pick some flowers, write a love note, give a big bear hug and kiss to the love of your life and if you’re on your own then reach out to someone and put a smile on their face anyway. Is there a parent or a friend that doesn’t have a Valentine? We all have a romantic part inside us somewhere that longs to be loved, so have a little fun with it, even if it’s only for a day. It’s all part of leading a balanced fun life. Then you can get back to your trading….

You can contact Melita at mel@iitm.com

Join in the discussions on our blog and forum

www.smarttraderblog.com and MasterMind Trader Forum

 

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Happy Valentine's Day

"I don't understand why Cupid was chosen to represent Valentine's Day. When I think about romance, the last thing on my mind is a short, chubby toddler coming at me with a weapon." ~Author Unknown

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A computerized version of Van's famous "marble game." 

It is designed to teach you the important principles of proper position sizing. 

Download the 1st three levels of the game for free. Register now. 

 

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