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

April 16, 2009 — Issue #418

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Workshops

New Two Day Advanced ETF Training

Article

The Tactical Details of the Big Picture by R.J. Hixson

Sale

Peak Performance Home Study Course

Trading Tip

Top Notch Internet Resources—Yahoo! Stock Screening Specifics by D.R. Barton, Jr.

Mailbag

Peak Performance Student Feedback

Workshops

Workshops Coming in May

NEW Two-Day ETF Add-on

 

May 11-13  How to Develop a Winning Trading System That Fits You
May 13 (Wednesday)  Dinner for Attendees with Dr. Tharp
May 15-17  Highly Effective ETF Techniques 101
May 18-19  Advanced ETF 202 Techniques (ETF 101 is a prerequisite)

Learn More...

 

Feature

The Tactical Details of the Big Picture

by
R.J. Hixson

In late February, I noticed my 2009 objectives had some pretty strong big picture assumptions built into them. One objective in particular was about protecting the value of my equity relative to other currencies. Highly implicit in that objective was that the value of the dollar could change this year. I hadn’t written that out anywhere, even though I’ve developed some strong beliefs around what might happen to the value of the dollar. Having those kinds of thoughts on paper has real business value. 

I have had a formal Big Picture chapter in my business plan, but, frankly, it wasn’t useful in large part because it was more of a fairly static 4 page “product” rather than an ongoing process. Oh, I pay attention; I read big picture analysis daily, which is why I didn’t really worry about my formal Big Picture. As it was though, my formal Big Picture wasn’t helping me reach my objectives for the year. Some productive conversations with other traders helped me realize that my Big Picture needed some rethinking, so I restructured it and converted it from a “product” into a process. 

Now, my new Big Picture has two main sections rather than a list of economic forecast bullet points. It provides me with the asset categories that I am willing to trade and those to avoid. It details the type of systems I think will work well and the timeframes for those systems. It provides me with a watch list of market conditions I’m looking for and it also helps me generate a list of systems that I need to develop in order to exploit upcoming market conditions. Finally, it has a defined timeline for regular review and updating required to keep it relevant. Honestly, these are all the things that Van teaches should be in a good Big Picture process. What follows are some details on what seems to work for me. 

The Big Picture

The Big Picture section contains what I see happening in the world and markets for about the next 20 years with its main focus on the next two years. Its primary purpose is to help me find “attractive” conditions to trade—where I think I can maximize my edges. This section also lists what I think is happening broadly in the global economy and markets. It has a dozen or so specific figures and indexes to monitor, and contains a two-year projection for the six asset classes where I could conceivably put my money. The Big Picture provides the strategic context for the next section. 

The Tactical Picture

This new section came out of some weekly conversations with a couple of traders. As an informal mastermind kind of group, we’ve been discussing business plan level topics. In sharing our big pictures, it became apparent that we wanted a bridge of sorts between the Big Picture and putting on a trade today. The Big Picture doesn’t provide any entries or exits, which are the focus of your systems and get spelled out in the trading plan. To bridge those two sections, we created a Tactical Picture section. Its timeframe is from today to 12 months out with its main focus on the next 6 months. You could argue that this could be done in the Big Picture, but to us the next six month period seems more dynamic and needs closer monitoring than the Big Picture. The Tactical Picture provides the context for the trading plan in execution today. 

The Tactical Picture details several things: 

  • Particular markets to trade this quarter and next.
  • Systems and timeframes that should work in these markets.
  • Market type classification.
  • Specific figures and indexes to track month to month.
  • Systems that should work well in upcoming market types. 

This last item creates a plan for systems to use when the market type changes. With this plan, I can plainly see what systems I don’t have ready yet to exploit upcoming market conditions. 

To keep my Big Picture and Tactical Picture relevant, I have committed to writing short assessments on a monthly, quarterly and annual basis. As with every trading and non-trading system in my business, my Big Picture process needs to be good enough to help me meet my objectives. For me right now, good enough means dedicating one hour monthly to reviewing the list of figures and indexes for my tactical picture on a monthly basis. Additionally, each month I’ll write 100 plus words on any market I’m currently trading. Quarterly, I’ll write 400 plus words summarizing the past quarter and the upcoming quarter for any market I’m trading. As part of my year end checklist, I will dedicate a half day to my Big Picture assessment for the year and write my forecast for the coming two years. 

Writing for me demonstrates several values: 

  1. I have taken enough time to think through the topic. 
  2. I’ve put in enough effort to condense thoughts into cogent words on paper.
  3. I can review objectively what I wrote with what happened and thereby learn from the process. 

Memory is a treacherous tool for the complexities of trading. 

What does your Big Picture look like? Do you have a product or a process? Is it helping you trade this year? If not, consider taking some time to shape it to your needs. 

Finally, the process of semi-structured conversations with other traders has been so valuable that I have to recommend it. I’ve been part of one mastermind group of traders for about 3 years and another for about two months. What you may have blindly assumed or what may have been totally unconscious of can become conscious when you try to explain your thoughts. You are also likely to learn a ton when the other folks are speaking as well. It’s in part because of my mastermind groups that I’ve made some major life changes and developed such a strong business plan—among other accomplishments. Thank you very much guys!

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. 

 

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 another few weeks.

Trading Tip

More Top Notch Internet Resources Part IV
Yahoo! Stock Screening Specifics

by
D.R. Barton, Jr.

Last week I mentioned that I was excited about a few features that the new Yahoo! stock screener has. After spending even more time with the screener (I have no life after midnight, actually), I found that one of the features is very great, one is good, and one is not very useful at all.

The feature that had me most excited was the cash flow screening capability. Alas, my research has moved me from hot under the collar to cold as ice.

The first and biggest problem is that the screener only uses annual cash flow data. So the numbers you are reading could be 13 or 14 months old. And you can’t specify whether you’d like to use quarterly or annual data. Also, since you can only see one static data point, you can’t see any cash flow trends. This combination of issues makes the cash flow section of only casual interest and not very useful for any type of decision making.

Another tool that shows some promise is the price/momentum moves screener. You could use this tool for checking for big movers (up or down) during or after the trading day. By itself, this tool may not be so useful. But because you can filter for market capitalization, average share volume traded and stock price, you can effectively filter out the little stocks that have big moves but are of little interest. So this tool is actually very useful—perhaps even more valuable than the price/momentum screens run by some paid services out there.

The last tool that is new to the latest major upgrade of Yahoo!’s screener is the gap screening tool. This is now one no-cost tool that folks can use to check for gapping stocks on a daily basis. And, like the price/momentum scans, since you can filter out small volume or very low share price stocks that make poor gap trade candidates, this tool’s utility goes way up! Unfortunately, there are two downsides to the screener: it does not screen in the premarket, and it uses the 15 minute delayed data from the Yahoo! website and not their nifty real time data. This means that if you do a screen anytime before 9:45 a.m. (Eastern), you get gap data for the last trading day, not today. 

If they used their own real time data, and allowed pre-market screens, this tool would move up to challenge fee-based tools in value and utility. As it stands, it’s only moderately useful for traders looking for gaps 15 minutes or more after the market opens.

So Yahoo! Finance continues to up the ante as the premier no-cost financial website. And their stock screener, though not without its shortcomings, adds another very nice tool to their kit. We hope they make some upgrades suggested here to make this a truly must have tool. For now, though, it’s just nice to use novelty with moderate utility.

Great Trading,
D. R.

About D.R. Barton, Jr.:  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”.  

Mailbag

Student Feedback

I would like to let you know how satisfied I am so far with the Peak Performance course I received  three months ago. In this series of books I am finding a wealth of information which in my opinion is very insightful, stimulating, and of tremendous use for someone who is preparing for a serious trading career, as it is my case.

As a home study course I find it well structured, well documented, and easy to follow; essential qualities for "self-teaching." I have found the exercises very useful to help me get the concepts across, I also find of great help the hypnotic induction and the relaxation exercise included in the CDs, each of which I listen to on a daily basis. Even the illustrations are helpful in the learning process (besides adding fun and fresh pauses to the reading...)

Kind Regards, M.

Feedback

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