Tharp's Thoughts Weekly Newsletter

The Van Tharp Institute   -  www.vantharp.com

May 16, 2007 — Issue #321

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In this Issue...

Workshops

NEW! London Workshops: Blueprint for Trading Success and System Development

Article

System Development – What are You Really Thinking? by Melita Hunt

Trading Education Peak Performance Home Study Course on Sale!
Trading Tip

Online No-Cost Charting, by D.R. Barton, Jr.

New Project Beta Testers Needed for New Van Tharp Trader Test
Melita's Corner

Those Hustle Bustle Days, by Melita Hunt

 

Workshops

London Workshops

You save $700 by booking now.

July
2-4
Blueprint for Trading Success

Learn More

July
6-8
How to Develop a Winning Trading System that Fits You

Learn More

There are a limited number of seats available in this location so be sure to book early to secure your place. 

 

Feature

System Development – What are You Really Thinking?

By Melita Hunt

Over the years there has been a consistent flow of phone calls and emails to our office about the same thing, namely: "I want to build my own trading system – where do I start?" Of course, we always give the same answer, which is: It is imperative to start with yourself. Who are you? What are your objectives and what are you wanting to achieve?

Occasionally this answer is followed by groans of frustration, because although people are asking where to start, they invariably already have pre-conceived notions about what they want to hear and what developing a trading system means to them, especially the people who are looking for specific answers such as the ideal entry signal, the most effective set-up, the ultimate position size or some of the “secrets” that Dr. Tharp knows.

And we find that it is often these preconceived notions that stop people from seeing and hearing what they actually need to know to create a consistent and profitable trading system that fits them.

Van’s books (especially Trade Your Way to Financial Freedom) give traders the tools and details that they are craving; however, usually, when this question pops up, it’s because people want to know what to do next, and we find that they always seem to go for the systems development and position sizing products first, and completely disregard the “Who are you?” questions and their importance.

Therefore the following is a brief interview with Van so that I can touch on biases and hopefully show you that your current “thinking” will invariably affect the development of the system that you are creating anyway. So wouldn’t it just seem logical to gain an understanding of what your biases and subconscious thinking patterns are before you build a system? Then you can find out whether they will have (or are having) a positive or negative influence on your system development.

We find that many people completely throw out systems that they have spent years on when they finally take the time to do the psychological work, simply because they start to think completely differently about their trading; and ultimately they become more successful (and less stressed).

So let’s look at what Van espouses on this: 

Q: Many people trade stocks, options, futures and forex with technically savvy and ingenious systems, yet they still fail to make consistent profits. So what is the main cause of this “underachievement?” Is it really about the system?

A: In my opinion, most people have many psychological biases against doing well, and those biases block them from success. These biases function in system development, system execution and in the psychology of trading and investing. I’ve discovered that many people who cannot pull the trigger really don’t have a system. If you talked to them you might think that they have a very sophisticated system, but they don’t.

Most people put all of their emphasis on indicators and entry, which have very little to do with making money in trading.

Q: Where do these biases come from?

A: We all have a limited capacity for processing information (about 7 chunks), yet we are faced with tremendous amounts of information coming at us every day (i.e., terabytes). As a result, we’ve developed many shortcuts to make the information processing in our brains simpler, but these shortcuts also tend to bias us to do most of the wrong things.

Q: What are some examples of trading biases that can affect someone who is developing a system? 

A: Although there are many, two of the biggies are the need for control and the need to be right. Obviously, there appears to be a survival function to both of these, and both of these “needs” produce biases that have traders looking in the wrong direction.

For example, because people have spent many years in a school system where they need to get “right answers” so as to not fail, these same intelligent people go into trading looking to get an “A,” which is the equivalent to them wanting to create a trading system that will give them a high probability of being right, which doesn’t necessarily equate to making money. Let’s say you are right 80% of the time and win $1 each time you win, but each loss costs you $10 the other 20% of the time. You will lose a lot of money that way! However, the reverse is true for creating a great system! You can lose $1 80% of the time (e.g. lose $80) but you win $10 20% of the time ($200).

We also want to be in control of the process. People think that they are in control of the financial markets based on when they get in it. They may say, "I’m not getting in until the market does X,Y and Z." However, that has nothing to do with making money. (Note from Melita: notice what you’re thinking when you’re reading this…)

Making money has to do with cutting your losses short and letting your profits run – and that’s all about exits 

Q: So Van, what’s your conclusion? 

A:The effect of combining these two biases is really a disaster for the average investor and for many long term players in the industry. It is extremely difficult, if not impossible, to systematize your trading properly to take advantage of high win/low loss exits when you habitually (and often subconsciously) practice these biases and get preoccupied with entries (control) and making money 80% of the time (being right).

There you have it.  So for anyone out there who is trading a system, building a system, thinking of building a system or maybe already has a system that isn’t quite working up to par, maybe it’s time to take a look at your thinking and some of the biases that could be affecting your trading. 

Without a doubt the most effective way to do this is to work through Van’s Peak Performance Home Study program before you even start your system development. But for those of you who just won’t stop or can’t stop or are adamant that you must be building and working on your system, then I strongly encourage you to work through the Peak home study program simultaneously. I guarantee that it will make an enormous difference in your life if you are willing to learn from it (and I’m even making it easier for you to purchase it this month – see below)

And if any of you are having the following thoughts:

"This doesn't relate to me..."

"I don’t believe in this psychology stuff…"

"This isn’t relevant to computerized trading…"

"They’re just trying to sell more products…"

"I don’t have time to do this…"

Then perhaps you may want to consider looking back at paragraph three of this article  about pre-conceived notions, seeing what you want to see and hearing what you want to hear because these could be the thoughts (and many more hidden ones…) that could ultimately make you or break you as a trader.

We have only touched on two biases in this article that can affect your trading and rest assured, there are many more. This is just the tip of the iceberg.

 

About Melita Hunt: Melita’s energy and enthusiasm are the cornerstones of her writing and speaking success. She has a special interest in inspiring and guiding people to be the best they can be and does this by sharing her own experiences and through her ability to simplify complex subjects. Melita has had a diverse career including working in the accounting field, marketing, sales, real estate investing, and ultimately speaking, coaching and writing; which are her passions. She loves to travel the world and has worked throughout Australia, London and is currently working in the USA as CEO of the Van Tharp Institute. You can contact Melita at mel@iitm.com.

Trading Education

Van Tharp's 
Peak Performance Home Study Course

ON SALE

Offer ends May 31

 

Peak Home Study -- $600

BUY NOW, Save $195

Peak Home Study and How to Develop A Winning Trading System 
Combo $1,200 

BUY NOW, Save $590

Learn more About Peak Performance        

Learn More About System Development

 

Trading Tip 

Top Notch Internet Resources

Part VI

Online No-Cost Charting

By D.R. Barton, Jr.

Last week, we started our discussion in the fertile area of on-line charting.  To recap our overview:

The good news: there are loads of excellent online charting sites available.

The bad news: there is no one site that is the best for everything.

The basic problem with online charting is that there is no site that does futures and stocks comprehensively.  Last week, we talked about the reigning champ for no-cost online futures charting – www.futuresource.com.  The lack of suitable competition made that an easy choice.

That’s not the case in the area of stock charting.  The bottom line is this:  There are lots of really good sites out there for no-cost online charting.  But sadly, there is no one site that really stands head and shoulders above the others.  What site or sites you use will be dictated by your personal needs and preferences.  As your guide, I’ll try to help out by giving an overview of some of the best sites.  Due to our space considerations for articles and the relatively large number of sites I’d like to cover, I’ll have to do this over several different articles.  So let’s get started!

Since I go there for news, fundamental info, and long- term data, I’m often at http://finance.yahoo.com.  For a quick chart, their new charting package has some features that make it near the top of the heap.  The good:  The most impressive feature is the amount of data available, heading back to 1993 for most stocks I checked.  It is java based (and therefore interactive) so that you can get info on every bar (open, high, low, close and volume) just by hovering your cursor over the bar of interest.  There are about a dozen technical indicators that you can add to the chart, and a good explanation of each is available in the dropdown menu.  You can also change the input parameters for each technical indicator to adjust them to your preferences.  In addition, you can find stocks from exchanges outside the U.S. and chart them using all of the features available for the U.S.  If you look at many foreign stocks – this may move Yahoo! to the top of your list.

On the downside, the number of technical indicators is pretty sparse, though the most used ones are certainly represented.  Also, you can’t resize the chart and there are no annotations tools available.  But these last issues are minor ones to overcome.

The bottom line for Yahoo! charting:  a very strong package with scads of data, good readability, and useful, even if limited, technical analysis tools.

Next week we will keep working on the no-cost online charting tools.  Keep sending in your favorite sites to drbarton@iitm.com.  This week, I’d be particularly interested in any sites you use for online charting including stocks, futures and forex.  And let me know if you’ve found this discussion useful! Until next week…

Great Trading!

D. R.

About D. R. Barton: 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.

 

New Project

BETA TESTERS NEEDED

Dr. Tharp will soon launch an exciting new test. Traders will be able to test themselves and learn what type of trader they are based on fifteen different trader profiles uncovered by Dr. Tharp.

The test takes about three minutes to complete. Beta testers will then be asked to answer about 20 simple questions.

If you'd like to be included on our list of beta testers, submit your email here.

(We will begin testing in one to two weeks)

Melita’s Inspirational Corner

 

Those Hustle Bustle Days

by Melita Hunt

Sunday was spectacular and after laying in bed, having a nice breakfast and reading for a while, I really had to get into the swing of things. 

I had a load of chores and a pile of paperwork to do both at home and at the office because I hadn’t made a dent in anything in the previous working week and I was doing my best to will myself to get started. Even though it was Sunday, I knew that I had to get through some of these things because there would be so much more waiting for me on Monday. I was even gazing at the sky hoping for rain so that I wouldn’t feel the temptation to go outside; but all of the willpower in the world couldn’t keep this Aussie indoors and thankfully it was the right decision. 

Right now (while writing this article) I am sitting down by the lake behind my house on a glorious Spring day surrounded by luscious green trees; listening to the leaves rustling in the breeze as two geese glide over my head gaggling noisily, in deep conversation. A school of tiny fish and a water snake pass by, and at least 15 turtles of all shapes and sizes are floating or sunning themselves on the rocks in front of me enjoying the cool of the water and the heat of the sun on this perfect 70 degree day. I engage in polite nods and “hello’s” as people who are also enjoying the day are walking past or jogging by and it seems so “Pollyanna” to me to write about the sun on my face, birds singing, and the other calls of nature, but the truth is, I am experiencing it right now and I’m enjoying every second of it. I feel great. 

Reality sets in for a brief moment as a plastic bottle floats by (that I’m unable to reach) and a kid loses his ball in the water (Why did he throw it in? Probably because he’s four). Then a wasp decides that it wants my attention and encourages me to change locations, but after these brief interruptions I’m back to my solitude and joy. Now wouldn’t it be great if this was the norm instead of the exception? 

Wouldn’t it be great to feel this good for the majority of our lifetime? To say goodbye to the hustle and bustle of life?  Wow, it sure would, but it took the time off from the routine hustle and bustle to even remember that.

And now it’s going on my dream/goal list.

I am going to have many more days like this and when I reach the tipping point it will mean that I’ve whittled the busy days down to being the occasional interruption rather than them being the norm. So, wish me luck folks because I don’t know how long the transition will take. Perhaps it can be done at any moment (which I’m sure it can), or maybe it is one of those profound lifelong lessons. 

Did you ever stop to think that we work “oh so hard” to finally create and experience joyful, relaxed days of peace and contentment. Ha ha, isn’t that an oxymoron! “Work hard to eventually relax.” Maybe I’m onto something here... 

But I’ll have to think about it later because right now I have a beautiful day to enjoy and when the sun finally goes down I’ll be relaxed and content enough to breeze through the paperwork and housework tonight, without it even bothering me.

-end-

On a different topic: If you'd like to also read "Let's Get Cynical" in response to last week's article about connecting in New York, Click Here.

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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Copyright 2007 the International Institute of Trading Mastery, Inc.

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Quote:

"Never apologize for showing feeling. When you do so, you apologize for the truth." ~Benjamin Disraeli

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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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