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Tharp's Thoughts Weekly Newsletter

October 24, 2007 — Issue #344
  
Workshops Emini Workshop Discount Expires TODAY
Article

E-Mini Futures – Lessons from Legends by D.R. Barton, Jr. 

New REVISED How to Develop a Winning Trading System Home Study 20% OFF
Trading Tip

People Think It’s All About Prediction But It Is NOT! by Van K. Tharp Ph.D.

Photos Photos from the October Dinner at Dr. Tharp's
Melita's Corner

Setting Boundaries by Melita Hunt

Workshops

Early Enrollment Discount expires TODAY 
on Emini Futures Workshop


How to Develop a Winning Trading System That Fits You

with D.R. Barton and Chuck LeBeau
Nov 3-4-5

Peak Performance 101

with Van Tharp
Nov 7-8-9

Professional E-Mini Futures Trading Tactics

with D.R. Barton and Christopher Castroviejo
Nov 10-11-12

 

Feature

E-Mini Futures – Lessons from Legends

by D.R. Barton, Jr.

Great lessons in trading can come from lots of places. 

Sometimes we get insights while playing golf or watching the ocean waves. But more traditionally (and reliably), I find that I learn best from other traders – folks who have “been there” and “done that.”

So it should come as no surprise that my business partner is a Wall Street veteran who has traded and worked with top traders for many decades.

Christopher Castroviejo is one of those rare individuals who can look at an issue from many angles. He can take in competing points of view simultaneously and cull through scads of data to reach a meaningful conclusion.  While this is helpful in many areas of life, it’s easy to see how useful this skill set is in the trading world.

As I’ve said before, Christopher is a market maven in the every sense of the word.  Here’s a short re-introduction for those of you who haven’t been introduced to my good friend:

Christopher has spent 35 years in and around the markets, and his resume and track record on Wall Street became something of legend: stints with Smith Barney, J.P. Morgan, a partnership at Bear Stearns, financial consultant for The Vatican Bank, to name a few. Christopher was hot and getting hotter. Highlights including turning $10,000 into $178,000 in four weeks, 8 straight years of 43% compounded profits as a top hedge fund manager, a sleek Manhattan brownstone and a spacious summer getaway in the tony Hamptons.  Christopher even struck up a friendship with his money making idol, billionaire George Soros. 

Along with multi-million dollar wins, there were a few huge losses; in just six short weeks, $10,000 became a cool million, and quickly nothing but air. And, in one monumental transaction gone wrong, Christopher lost $15 million dollars in just a few months…$1.5 million of it his own money. But, unlike the Vegas poker player who can’t leave the table, Christopher learned from the missteps as well as the wins. “You have to reinvent your performance all the time. I used to see the business as just about orchestrating wins, but the rational way of thinking about it is really about controlling your losses.”

Today, Christopher is an active intraday and swing trader and continues to manage money for a select list of Wall Street insiders.

Christopher is a master at several aspects of intraday trading and is particularly skilled in the application of key level support / resistance and Market Profile.  We will be covering these topics in depth at the upcoming Professional E-Mini Futures Tactics workshop, so I thought I’d ask him to share some insights with you as we put the finishing touches on that workshop. Here’s an interview I did Christopher just this morning.

D. R.:  Christopher, you basically grew up on Wall Street with a grandfather who was a famous depression-era trader.  You’ve had a chance to trade, advise, manage money for and learn from some very household names.  Folks like Paul Tudor Jones, Ed Seykota, George Soros and Julian Robertson, to name just a few.  What key lessons have you taken away from your interactions with the legends?

Christopher:  You’re right in that I’ve been fortunate to deal with some amazing folks.  What has set these guys apart is their mental approach to the markets.  All were absolutely dedicated to what they were doing.  And, perhaps because of that, they all mastered adversity.  Every one of them had to live through drawdowns and fallow periods.  But persistence paid off, and we all know how they came out the other side of tough periods with massive successes.

Another key I see with these guys is that they show multiple ways to make money.  It’s clear that they all traded in very different ways, yet found significant edges in different instruments, strategies and time frames.  Each one of them found an edge that was consistent with who they are as traders.   I think this carries over to what we’re doing in the e-minis.  Even in day trading, there are different styles and time frames.  Trend following and counter-trend.  Shorter holds and longer holds.  Traders that stick around found the edges that are consistent with who they are.

D. R.:  You’re the most knowledgeable person I’ve ever met when it comes to Market Profile.  So I didn’t hesitate for a second when you suggested that we spend time one-on-one with Market Profile creator Peter Steidlmayer.  Those were two of the most intense days I’ve had in a while!  You’ve known Pete for a while – what were your main take aways from our time with him?

Christopher:  Yes, Pete is certainly a guy who’s always thinking on another level.  I thought his most interesting concept was how the market has undergone a structural change due to the high volume, short time frame trading associated with the hedge fund boom.  This has, interestingly, made Market Profile more important, not less.  And the way that these big funds leave behind signs in the Market Profile – like elephants leaving footprints, I thought that session was particularly intriguing.  I look forward to sharing these insights with others.

D. R.:  In the current market environment, what tools and strategies have struck you as particularly useful, especially in the e-mini futures?

Christopher:  You and I were just looking at some amazing double top formations that played out beautifully.  Combined with the divergence pivots that we use, those have been particularly notable.  In addition, gap plays are still working very well, but only in the right structure.  The key numbers continue to be a great guide for market behavior.  And if I had to pick one, it would be those double top patterns.

D. R.:  I’m really looking forward to teaching with you again in Raleigh for the e-mini futures course.

Christopher:  Thanks.  Same to you!

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. You may contact D.R. at drbarton@iitm.com.

 

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Trading Tip

People Think It’s All About Prediction

But It Is NOT!

by

Van K. Tharp, Ph.D.

Let’s look at some of the major methods behind investing or trading and see what they can tell us.

·        Trend following – If you buy what’s going up, it will probably continue.

·        Value Investing – Buy what’s undervalued because it will eventually become overvalued.

·        Seasonality – The market tends to show seasonal patterns that you can capitalize upon.

·        Band Trading – It’s possible to draw bands to describe the nature of an investment.  Those bands will allow you to sell when the price gets too high and buy when it gets too low.

·        Elliot Wave – The market moves in a sequence of five waves up and three waves down, and if you can understand the various levels to this, you can predict tops and bottoms.

While there are many other methods, notice how all of these particular methods are related.  What is the common element?  All of these methods tend to predict, to a certain extent, what the market will do next.  So if you are a trend follower, you are predicting that the trend will continue.  If you are a value trader you are predicting that what’s undervalued will go up eventually. 

Yet if you look at the track record of some of the major players who used these methods, you’ll find that they are often right less than fifty percent of the time.  Good trend-followers, for example, might make money in about 40% of their trades.  But when they are right, they make huge amounts of money.

Elliot wave traders look brilliant when they are correct, and the media wants to interview them about what will happen next.  But when they are wrong, they can look really stupid and people start to laugh about their predictions.

My point in mentioning all of this is to show the importance people place on prediction.  Countless books have been written about how to “pick the right stocks.”  The media tend to interview professional traders about what stocks they are picking and why.  And perhaps they’ll even show what happened to the last set of picks and ask what happened with the losers. 

I have yet to hear anyone say, “I don’t make money picking stocks – I make money by cutting my losses short and letting my profits run.  And more importantly, I meet my investment objectives through the judicious use of position sizing.”

Your trading style forms a basis for your beliefs about how to enter the market.  This is important because you really only trade your beliefs about the market.  It’s very hard to trade something that’s going up if you believe it is overvalued.  Similarly, it’s very hard to trade something that’s considered undervalued, if you believe (because it is going down) that it will continue to go down. 

But it really doesn’t matter what framework you select for picking your trades or investments.  That’s only the starting point for real success.  What’s really critical is that you understand that you make money by cutting losses short and letting profits run.  This will give you a positive expectancy system.  And if you can do it in such a way so as to develop a good system, then you can probably achieve your objectives through the appropriate use of position sizing.  And if you can continue to do this without making many mistakes, then you’ll probably be happy with the results.  These are the real keys to investment success.

About Van Tharp: Trading coach, and author Dr. Van K. Tharp, is widely recognized for his best-selling book Trade Your Way to Financial Fre-edom and his outstanding Peak Performance Home Study program - a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at www.iitm.com.

Photos

Workshop attendees often are invited to dinner at Dr. Tharp's Home

Click Here to see photos from the October dinner

 

 

Melita's Inspirational Corner

Setting Boundaries

by Melita Hunt

I had decided that when I felt well enough to return to writing this column I was adamant that I didn’t want it to be based around cancer talk all of the time and was racking my brain to write about other subjects. But I can’t ignore it, and the fact is, the big elephant is clearly standing in the middle of the room and perhaps all of this cancer stuff is the catalyst right now for the next series of writing and lessons. I do not think that there are many other subjects that bring beliefs so clearly to the surface as being faced with death (except of course a huge loss in the markets which could feel like a life/death situation) and I look forward to talking more about spiritual and identity beliefs. 

But for this week, and because it’s interesting for me, I want to touch on how other people are responding to MY life and death experience.

There are buttons being pushed all over the place and it is quite fascinating to observe. It has sometimes been more difficult to deal with other people’s emotions, than it has been to handle my own. I guess that they are dealing with whatever unresolved issues they have around death or sickness, while at the same time facing the fear that they may lose a friend. It just isn’t “right” I hear over and over again. There are all kinds of projections being thrown my way.

Everyone seems to have their opinion on how I should be acting, responding and dealing with this and they are so intent on telling me their version that sometimes I am completely ignored in the process.

One friend was so caught up in her story about how I must overcome this cancer (and she was the third person to share their version in less than 30 minutes) while I was doing my best to enjoy a wedding, that she did not even notice that I was melting away and starting to implode. I told here to wrap it up, yet she was oblivious to my condition and still had about 3000+ words that she just had to get out of her, regardless of how it was affecting me. I subsequently walked away.

Another example was a friend getting angry at me for empathizing with her when she was crying and upset on the phone. Apparently I am no longer allowed to do this; I am supposed to reserve my energy for myself and not waste it on caring for other people. 

Then earlier today my sister became very upset on the phone because I was always sounding cheerful when I spoke to her. She believed that it just wasn’t right. Yet the truth is, I don’t answer the phone or make calls when I’m hitting rock bottom and feeling down; I prefer to have those moments to myself and work through them at my own pace.

As for the males in my life, many of them are at a loss for words, so they don’t say anything. And others want to ride in on their big white horses and save me. I have even had a few people use manipulative tactics such as “I know you don’t want to hear from me…” or “I know that my opinion doesn’t mean much…” Uggh… 

Why does having cancer suddenly change all of the rules?

I know that everyone just loves and cares for me, and I truly appreciate that, but my lesson at the moment is to observe people’s behaviors and set my boundaries based on what is best for me. I can’t allow myself to get caught up in other people's hype and dramas. Nor can I be judgmental about them either. It got me thinking about how often I have done all of these things myself in the past 39 years.

Everyone is entitled to their own experience and more often than not, it is just unconscious behavior anyway.

For me, it’s like watching a movie. I have become the subject and the plot of the movie, and now I’m just sitting back and watching how it all plays out. The characters are playing their roles and none of us know how the film is actually going to end. But so far, it has been quite entertaining…

Melita Hunt is the CEO of the Van Tharp Institute. If you would like to keep up with Melita’s progress regarding her recently diagnosed lung cancer. Please feel free to read her blog at www.myleftlung.com.

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