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Tharp's Thoughts Weekly Newsletter (View On-Line)

March 11, 2009 — Issue #414
  
Sale

Peak Performance Home Study Course

Article

The Act of Trading by R.J. Hixson

Workshops

Blueprint for Trading Success Workshop Coming This Spring

Trading Tip

A Key Trading Question: Who's in Trouble Here? by D.R. Barton

Etc.

Today's Financial World and Those Who Comment on It by Van Tharp, Ph.D.

 

Sale

Peak Performance Home Study

 

This Spring, Dr. Tharp will be releasing an updated edition of his masterpiece, the Peak Performance Home Study Course. But this second edition will not be available for a couple of months.

Feature

The Act of Trading

by
R.J. Hixson

Ever since I was a kid, I have enjoyed the “act” of trading—considering chart patterns, putting on positions, managing stops, etc. In one sense, trading was solely about trading. So when I grew up, was it natural for me to start a business doing something I loved? 

Michael Gerber wrote a book just about this kind of pattern that he’s found in entrepreneurs. In his book, The E-Myth Revisited1, he reports that technicians who start companies typically love the technical aspects of their trade (no pun intended) and naturally gravitate to that part of the business. He defines this role as “working in the business.” 

Gerber explains that many successful technicians who start businesses fail to grasp the shift in perspective required to run a successful business. A business owner needs to focus on areas that need or offer improvement. He calls this role “working on the business” or the business development process. This process is critically important for the vitality of the business, even if the technician running it was brilliant as a technician. 

For a trader, working in the business of trading is, of course, a required part of the business. That has been easy for me in my trading business. Recently, I have been shifting my perspective from trader to business owner and focusing more on improving the business. My business development process, so far, includes developing my objectives, doing psychological work, and updating my business plan. Truth be told, part of me still would like to trade. However, another part of me knows that if I continue to work on and develop my business, it will get better; I will enjoy trading more, and also generate more profits.

Perhaps the ultimate business development activity for traders is what Van refers to as working on you. To paraphrase him, you are the most important aspect to your trading performance. Gerber agrees, “Your business is not the first order of business on the business development process. You are.” Said another way, you do not exist to further your business; it exists to help you grow. In this vein, Van stresses the importance of tasks like understanding your nature, knowing what seems to repeatedly get in your way, being totally responsible for your results and your life, and defining your place in the universe. These are not once and done exercises, they are ongoing. They attracted me back to trading after a long hiatus. Rather than focusing on making a lot of money, I can focus on being the best I can be, mastering my Self, and running my business smartly. My trading results consequently become a direct feedback loop as to how well I’m doing working on my Self and on the business. 

One of the tasks that Van stresses is having well-defined objectives. In the past, goals or objectives were something that I knew were good but still something I often neglected. Usually, I had a general idea of what I wanted and, for the most part, made progress in that general direction. You may have heard this referred to as having “fuzzy” goals. Fortunately, I had a transformative experience after attending Van’s Advanced Peak Performance 202 Workshop. Van sends people back with a homework assignment and mine was to write a 500 word minimum description of my dream life. Working on that exercise kept me up for a few nights; I was so excited about the detail that 500 words brought to my previously general ideas. The clarity of those details provided a lot of “juice” for me then and they still do today. That same basic dream life statement starts my business plan’s top down discipline section and has driven my life since writing it.

Coincidently, my primary business development activity this last week has been to hone my objectives for this year. I had consciously put off setting my 2009 objectives for a bit into this year until a few major life conditions became clear. Those did clear up several weeks back, but I still hadn’t gotten around to clarifying my 2009 objectives. To help me get past my procrastination, I did some emotion releasing using the Sedona Method. Sedona seemed like the right tool for this job from the self development tool box that I’ve assembled. Sedona works on my Self, which concurrently is working on my business. The Sedona releasing exercises made it easy for me to spend time and effort developing my objectives for the rest of the year. 

A few years back, would I have gone through that exercise and worked intently on clarifying my annual objectives? No, I wouldn’t have. So now trading isn’t all about trading anymore; improving my life is why I created my trading business. Understanding that shift is what made the following quote so interesting: “Coming to grips with oneself, in the face of an incredibly complex world that can teach us if we’re open to learn. In this way, the business development process can be thought of as a metaphor for personal transformation, for coming to grips with real-life1.” Those are Gerber’s words, but if you’ve read much of Van’s work, the concept will seem familiar. 

What is trading for you? Are you conscious of its role in your life? Is it what you want it to be? Given the market conditions, it’s probably a great time to consider these questions carefully if you haven’t already. 

1. The E-Myth Revisited, Michael Gerber

About R.J. Hixson: R.J. Hixson is a devoted husband and active father. He started trading again recently after completing Van Tharp’s Super Trader program and made a full recovery from his previous trading habits. In his spare time, he markets a product line for a global technology company. 

 

Spring Training

Spring Training

Cary, North Carolina

 

April 24-26  Blueprint for Trading Success

This course is a complete structured program that will launch you to a more advanced skill level in your trading.  You’ll learn strategic, focused steps that will serve you throughout your entire trading career.

April 26  Dinner at Dr. Tharp's Home
April 28-30  Peak Performance 101

You’ll leave this investment "Boot Camp" knowing, for the first time in your life, why some people consistently make profits over and over again, while other investors and traders are erratic and unsuccessful.

Learn More...

 

Trading Tip

A Key Trading Question: Who's in Trouble Here?

by
D.R. Barton

I’m often asked to discuss the most important skill for trading and investing. Of course, there is no one right answer. And the answer probably differs from trader to trader.

In no particular order, here is a list of critical needs for every trader and investor:

  • Set and honor stop loss points.
  • Use proper position sizing that fits your risk tolerance and your strategy’s characteristics.
  • Identify useable strategies that have an edge in the market.
  • Follow your trading or investing plan.

These are the first few items on most anyone’s list. Of course there could be lots of others and the list could be very long. (Van’s “Top Tasks of Trading” is a perhaps the best list ever put together for this purpose). But those listed above get at the core skills one needs.

Today, I’d like to talk about a more generalized skill: how to read current market dynamics. While that may be a broad and general concept, it’s really important once you break it down into a few fundamental components. And it’s a skill that my business partner and market maven Christopher Castroviejo has developed to the highest level of anyone I know.

Finding the Trapped Money

Christopher is always asking, “Who’s in trouble here?” This key question can clarify what’s happening in the market.

It really delves into the psychological issue of who has a position established that is now uncomfortable, or worse—feeling trapped. And here’s the crux: trapped money causes big moves when it takes action to liberate itself. If we can identify who’s in trouble, we can position ourselves to be on the right side of fast moves. 

The equities markets from the past couple of weeks are a good example. The S&P 500 cash index had a breakdown below the November ‘08 lows on 2/27. Piercing that price level and the news that accompanied the move brought out massive bearish sentiment and new waves of selling and short selling. The ensuing downward pressure is seen on the chart below.

However, as the markets got more and more oversold, these new shorts sellers now found themselves sitting on five or six days worth of profits that were completely erased on Tuesday’s large up move. Certainly, short covering was a part of yesterday’s 6.4% jump to the upside. And there are probably more folks trapped on the short side who will have to abandon their positions if the market shows any strength from here.

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.  He is a regularly featured guest on both Report on Business TV, and WTOP News Radio in Washington, D.C., and has been a guest on Bloomberg Radio. His articles have appeared on SmartMoney.com and Financial Advisor magazine. You may contact D.R. at  “drbarton” at “iitm.com”.  

Etc.

Today's Financial World and 
Those Who Comment on It

by
Van K. Tharp, Ph.D.

I was thinking about writing a piece to further explain to you what was going on and what will probably happen in the near future. But I’ve been doing a lot of that, so instead of a lengthy column this week, I want to refer you to two videos that do it very well.

I discovered that politician and actor Fred Thompson actually seems to understand what’s going on and explains it all very intelligently. I think the video is meant as a humorous attack on the previous administration, but, of course, everything said in this video pertains to all politicians, not just those previously or currently in office. Again, I strongly recommended viewing this if you’d like to be enlightened. Click here to view.

Next, I’d like to comment about the pinnacle of financial advice, CNBC. Early in my career I was a guest on the Financial News Network in Los Angeles about a dozen times. Bill Griffith of CNBC fame was a major host there. Later, the Financial News Network was bought out by CNBC. Since that time I have been on CNBC Europe one time. 

CNBC asked me to comment on the market once. The average movement in the stock market had been about 2.5% in the S&P 500 for many years. But then the quiet bull market started in 2003, and we had a long period in which we were unlikely to even have one week when the movement in the S&P 500 was as much as 2.5%. However, when volatility returned to normal, CNBC wanted me to comment, as a psychologist, on how traders were coping with such high volatility. I typically avoid watching the talking heads on that channel, and I’ve been wondering how they’ve been coping with this huge bear market.

Jon Stewart has enlightened me as to what has really been going on. I strongly recommend watching this if you’d like to be enlightened. Click here to view.

About Van Tharp: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling book Trade Your Way to Financial Freedom 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. 

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Copyright 2009 the International Institute of Trading Mastery, Inc.

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Tharp Concepts Explained...

 

- Psychology of Trading

- System Development

- Risk and R-Multiples

- Position Sizing

- Expectancy

- Business Planning

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Handbook for Traders and Investors

 

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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.

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