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Article Project Marathon—Objectives by R.J. Hixson
Trading Tip Market Strength—Further to Go or Topping? by D.R. Barton Jr.
Mail Bag How do I identify my initial risk per trade in order to calculate R-multiple afterwards?
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As mentioned in the first Project Marathon article on January 27 (view article), this year I'm going for 131R in my trading in about 10 hours a week—without knowing in large part how I’m going to do that. Well so far, it’s been a journey of discovery, or maybe, more properly re-discovery. One of the first areas I rediscovered was the importance of having written goals. I’m not sure I had those as I set out in 2009. If I did write them down, they weren't well-developed, and they were invisible in my daily routine. I started this year differently with my goals well thought out, written down, and visible at my home desk and at my work desk. My goals include ones for the other areas of my life beyond trading. Van is pretty clear to balance your goals among the areas of your life. For the purposes of this article series, though, we'll focus on the trading side.
Importance of Objectives
Van emphasizes the importance of clear and well thought out objectives, even going as far as to say that 50% of your planning work should be spent by working on and clarifying your objectives. In my experience, when I have had well thought through objectives, I have to spend relatively little time coming up with effective strategies. In fact, spending a lot of energy and effort on strategies has become a clue to me that I need to invest more time and energy into the objectives. That seems to make sense, too, doesn’t it? Once you know exactly what you are trying to achieve, then your mind is free to focus on the strategies to get there.
So back to the 131R goal. I have now reworded that objective as follows: "I allow myself to net more than 131R.” There are a couple points to this wording worth mentioning. First, I'm not shooting for 131R, I'm shooting for more than 131R. Were it worded as “Make 131R,” then that 131R could become a sub-conscious psychological limit if I get there or even if I got close. 131R is my minimum and the top end remains open.
The second aspect of that rewording is that initial phrase "I allow myself . . . ". I now start all my objectives with that after learning about the phrasing in The Sedona Method. Allowing something to happen means I’m willing to give up on how it will happen. I release controlling the way or knowing how I will accomplish it. Allowing originates from a standpoint of courageousness or acceptance rather than doubt or fear. There’s a lot more about this broad subject area in the Sedona Method course; suffice it to say here that I welcome unimagined ways in achieving the goal.
(Side note: Another valuable lesson from Sedona is to eliminate the word “want” from any goal. Any goal with the word “want” in it means that you achieve the goal in your sub-conscious. Kind of quirky, but that’s how the subconscious can seem.)
Results vs. Process
The 131R goal is an example of a results goal—it’s a destination. There’s another kind of goal that Van says traders should focus on: process goals. By focusing on doing the little, necessary things, the big things tend to happen. DR Barton, too, is big on process goals and even teaches that for new traders, all first year goals should be process goals.
Unlike the endpoint or finality of a results goal, a process goal relates to recurring activities to accomplish. Say I want to run a 5K race in under 20 minutes. To help accomplish that, my process goal could be to follow a daily training routine for 6 months before the race. If I execute on the daily training, then I boost the chances dramatically for achieving the result goal.
My trading process objective to is to do the Top Tasks of Trading every trading day this year. I worded it “I allow myself to execute daily the top tasks of trading.”
In prepping for this article, I read on-line that some sports coaches give only process goals and not results goals for their athletes—even for competition! The coaches set process goals to perfect execution at each stage of competition rather than any score or performance relative to competitors.
After thinking about it, though, this shouldn’t have been surprising. After all, aren’t Van’s Top Tasks of Trading a series of process goals to be executed daily? Like those coaches whose athletes only pursue process goals, the top tasks accomplish the same—perfect execution before, during, and after each trading day.
Non-Profit Trading Objectives
In trading, it’s all too obvious that you can set a profit related goal for the year, but there is a whole range of trading areas to consider when setting goals. Examples of some other non-profit related trading goals might sound like this:
- Work on the weakest area of my trading (knowledge, technology, psychology).
- Read more than ____ books on trading, traders, strategies, and markets.
- Improve my position sizing strategies (to mitigate drawdowns, use market’s money, etc.).
- Develop more than ___ new systems this year.
- Improve current systems’ performance by more than _____%.
- Retake the Peak Performance Home Study Course.
- Find some other traders and exchange ideas and experiences with them regularly.
- Learn what would be needed to trade a market or instrument that I don’t currently trade.
For this year, my secondary goals include trading a non-equities based market by the end of year, setting up an Access database for my trade data, and preserving my retirement account value in terms of a basket of currencies.
It has been a great experience for me to think through and really flesh out a strong set of goals for 2010. I also expect the process so far will have a great effect this year on what I achieve. There are daily, weekly, and monthly actions for me to take in pursuit of my goals. How do these come together into a business and trading plan for the year? Well, that has involved more rediscovery and is for the next article. Until then, trade well and take care.
What about your goal process? Do you have a few simple, challenging, and clear goals to pursue in 2010? Are they balanced across the areas of your life? Are they written down? Have you worked on a plan to help you achieve them?
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Market Strength—Further to Go or Topping?
Back on February 2nd we looked at the broad market indexes and saw that during a short advance over the first few days February the more speculative Russell 2000 and more notably the Nasdaq 100 were lagging the large caps.
That led to the conclusion that we would get another down leg—we did, though it was a short-lived panic low just a few days later.
Fast forward from early February to today—the opposite is happening. Since the low closes of the indexes on February 8, the Nasdaq 100 and, more spectacularly, the Russell 2000 have outperformed their large cap brethren. We can see this clearly in the performance chart from Stockcharts.com. This chart compares the percentage price movements of the different indices.
This rally shows true optimism—buyers are opting for the higher returns of the more speculative indexes despite the possibility of higher risks there. Also, some combination of the major indexes has closed up for 9 straight days. The S&P 500 has been up 8 of the last 9 days. There was only a miniscule down day on Monday, March 8; however, both the Nasdaq 100 and the Russell 2000 were up. Historically, this type of persistence has been the harbinger of a rally extending, not topping out.
In the short term, however, the market is getting overbought by many measures including some standard momentum oscillators like stochastics. Some indicators are not showing overbought like RSI, which is still in high neutral territory.
Some sort of near-term correction is fairly inevitable. The depth of the rebalancing pullback will likely foretell the intermediate direction of the market. Let’s look at a chart for key levels.
The 1086 zone in the S&P 500 cash index represents a swing low and a 0.618 Fibonacci retracement from the 2/5 low to the 3/9 high. A break below that would certainly signal a high probability for a test of the February 5th lows and beyond. The more likely scenario, though, is that we get a smaller rebalancing pullback that does not even test the 1086 zone. Were this to happen, it would signal continued intermediate strength that could last through tax season.
The bottom line for the market is that we’re certainly due for at least a moderate pullback to relieve the short-term overbought conditions. The nature of the upcoming pullback will help us gauge the strength of the current intermediate-term move. If the pullback is relatively weak, we will most likely see the markets heading even higher.
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How do I identify my initial risk per trade in order to calculate R-multiple afterwards?
Q: I have a system metric question. I do use SQNTM-based evaluation of my trading systems. I'm a sort of a QUANT trader. For my mean-reversion systems I don't use typical stops, however I do use time-based stops in order to exit a trade. So my question to you is, "How do I identify (set) my initial risk per trade in order to be able to calculate R-multiple afterwards?"
A: Thank you for your business and your question. Van is in New Zealand right now so let me see if I might help you. In similar cases, I have seen Van recommend that you simply take all of your time-based stop trade results and find an average dollar or percentage amount for them. You could make this then your 1R. Might this work for you.—R.J.
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