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

April 22, 2009 — Issue #420

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Workshops

Spring Workshops

Article

Applying the Concept of Mission and Intent to Improve Trading by Ken Long

Sale

Peak Performance Home Study Course

Trading Tip

Top Notch Internet Resources—Stock Screening: Mediocrity And Good Stuff by D.R. Barton, Jr.

Mailbag

How Do I Apply Expectancy to Position Sizing?

Workshops

May's Workshop Line-Up

 

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   (NEW!) Advanced ETF 202 Techniques (ETF 101 is a prerequisite)

Learn More...

 

Feature

Applying the Concept of Mission and Intent to Improve Trading

by
Ken Long

The military planning process offers powerful insights that traders can apply to improve their trading practice dramatically. This article looks at the powerful idea of the Concept of the Operation. 

The Concept of the Operation immediately follows the Mission Statement and Commander's Intent, which lays out the critical tasks and purpose of any operation and serves to guide the overall plan. 

The Concept of the Operation then takes the plan to the next level of detail and lays out implementing instructions that, if followed in a disciplined yet innovative manner, will help us achieve success. These include the description of phases of the operation, important incremental objectives and coordinating instructions that guide the relationships between supporting units. 

Discipline guides units by identifying the boundaries they are expected to operate within. Inside of these boundaries, commanders are encouraged and expected to exercise as much initiative and creativity as possible. This important balance between discipline and initiative is a large part of the art of command. 

A trader could apply these ideas by having a tactical trading plan that laid out clearly how to trade different parts of the day, week, month, business cycle or in response to certain market events like earnings seasons, news events, earnings announcements, or the release of economic reports. 

A trader's discipline would be found in the asset allocation, risk management, and position sizing elements that prevent exploding your account, while creativity and initiative could be exercised in selecting the appropriate strategy for the current market conditions and situation, and in varying rulesets within controlled limits to achieve tactical advantages. 

Coordination would encompass how your various trading techniques could be used with synergy to achieve better overall results than they achieve by themselves, but could also be expanded to include how you might employ a mastermind or trading tribe to cover each other's blind spots because of the multiple perspectives available. 

Achieving balance in planning, and recognizing the importance of and relationship between discipline and initiative can give an individual trader a decisive edge in the markets.

About the Author: Ken Long, a retired Lieutenant Colonel in the U.S. Army with a Master's Degree in System Development, has developed the Tortoise Method of mutual fund switching, a trading system that takes about five minutes each week with a goal of outperforming the S&P 500 Index.  Ken is founder and Chief of Research of Tortoise Capital Management, www.tortoisecapital.com.  He is a proud husband, dad, and ju jitsu practitioner. Read more of Ken's essays at http://kansasreflections.wordpress.com.

IITM Third Party Clause

 

Sale

Peak Performance Course 

for Traders and Investors

Dr. Tharp's Second Edition of his masterpiece, the Peak Performance Home Study Course will be out in May!!

Trading Tip

More Top Notch Internet Resources Part V
Stock Screening: Mediocrity And Good Stuff

by
D.R. Barton, Jr.

Welcome back to D. R.’s maniacal search for useful stock screeners.  You can help feed my obsession by sending comments/suggestions/reviews of your favorite screeners to drbarton “at” iitm.com.

It’s 3 a.m. EDT, and I’ve just spent three and half hours digging through dozens of online stock screeners.  Apparently, every webmaster on Planet Earth decided that screeners are the “Pet Rocks” of the new millennium.  Unfortunately, most of them have about as much utility as the 1970s fad.

Indeed, some big name sites have stock screeners that are very simplistic and lack any depth or edge.  Most of them are just “copy cats” that allow one to screen for market cap, EPS, and a few criteria found on balance sheets.

Below, I’ll tell you about one screener that was particularly fun to play with because of its innovative user interface.  But I think the most help that I can give you this week is a list of lackluster screeners that you need not bother consulting.  I’ll also tell you about a few with useful features that give them a reason to exist.  Let’s start with the “ho-hum” list.

This group of screeners has very little to recommend them versus other more powerful and well-rounded contenders.  Surprisingly, the CNBC screener is quite pedestrian.  The same can be said for the screeners found at USA Today, AOL and Gainskeeper.  Regrettably, the screens at well-known financial sites like MarketWatch, and TheStreet.com can be passed over as well. And while the venerable Wall Street Journal (wsj.com) lists a healthy 70 criteria for screening, the user interface and lack of export capability make it a forgettable tool. But my compulsive evening/morning of searching did turn up a few interesting tidbits.

While none of the fundamental screens I looked at approached the standard set by MSN.com and Yahoo! Finance, there were some notable features out there.  Morningstar’s free screener allows you to filter according to their famous style boxes and more impressively by applying their A-F grading system for the categories of growth, profitability and financial health.  A decade ago, this encyclopedic listing would have been available only by subscribing to a print version of Morningstar research or by trundling down to your local library for an evening of thumbing through volume after volume.

I ran a screen looking for only those stocks rated “A” in all three categories.  And after the stock market and economic carnage of the last six+ months, only four stocks met those criteria!  I’ll list those below…

Zacks.com has a very comprehensive set of fundamental screening criteria that is on par with the lists offered at MSN and Yahoo! Finance.  And the new beta version is java based and fairly user friendly, if a bit clumsier than Yahoo!’s.  Zack’s screener includes their rating system as well, but only as a paid option ($199 per year).

Another screener that has a good compliment of screening criteria is found at Google Finance.  And as we’ve come to expect, the good folks at Google add a twist—the user interface is awesome.  It’s addictive, actually.  It is one of the simplest, fastest and most elegant uses of Web2.0 that I’ve seen.  It raises a middling tool up to a much higher level.  More on that next week.  Until then...

Great Trading,

D. R.

P.S.  Oh yeah—the Morningstar screener stocks that have “A” ratings for growth, profitability and financial health: China Pharma Holding Inc (CPHI), Gilead Sciences, Inc. (GILD), Life Partners Holdings, Inc. (LPHI) and NutriSystem, Inc. (NTRI).

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

How Do I Apply Expectancy to Position Sizing?

Question: I have the book Trade Your Way to Financial Freedom, and am trying to use the concepts as part of a trading business plan that I am putting together.

I can't figure out how to apply expectancy in the percent volatility position sizing model. Can you please clarify?

Answer: Expectancy is the average reward-to-risk ratio for a set of trades. Expectancy tells you how well those trades performed and how well you might expect similar trades to perform in the future— regardless of the position size for those trades. You want to trade only positive expectancy systems and you also want to keep track of a system's expectancy. 

Position sizing tells you how much to risk on a trade in dollars and also the likely result in dollars. You don’t need an expectancy figure to apply the percent volatility position sizing model. However, to come up with a percent volatility position size you will need the average true range (ATR) for the instrument you would like to trade.

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Tharp Concepts Explained...

 

- Psychology of Trading

- System Development

- Risk and R-Multiples

- Position Sizing

- Expectancy

- Business Planning

Learn the concepts...

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Free Downloads

Handbook for Traders and Investors

 

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Free Trading Simulation Game

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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