Tharp's Thoughts Weekly Newsletter (View On-Line)
Workshops Don't Wait—Workshop Space Sold Out Last Month
The Adventure, the Myth, and the Mystery: A Project Marathon Update by R.J. Hixson
Trading Tip Technical Analysis: Points vs. Zones by D.R. Barton, Jr.
Peak Performance Home Study Course and Position Sizing
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The Adventure, the Myth, and the Mystery:
A Project Marathon Update
Since the last Project Marathon update on June 16, I have traded very little—practically not at all. I didn’t expect this in mid-June but with the children out of school for their summer break, my family has had a very full schedule. In the last six weeks, we’ve had two weeks of vacation travel—(semi-vacation for me really), two weeks with family visiting us here, one full week of workshops, and one week over-packed with multiple family activities. While I like to breathe, it seems like that’s merely optional for certain periods. LOL.
Each weekend recently, I decided whether I was going to trade any swing or intraday systems in the coming week. During these last several weeks, my schedule did not support me trading well. I know guys that have full schedules and that trade well with their schedules. My experience is that I’m not there right now. I also remained fully aware of the aggressive goals I set for myself for 2010. (Progress check—about 100R to go and about 75 tradable days left in my year.)
While I was off last month from working “in the business” (trading), I was not off from working “on the business” (reading, research, systems). As I did that kind of work, it struck me how I have continued to invest time and effort in pursuit of trading well even in the absence of consistent fantastic results. “Why is that?” I wondered.
That question stayed with me for awhile and two occurrences happened that related strongly to that question. One was listening to an author, the other was a test that a friend sent me.
This last month I’ve been listening to Bill Moyers’ interview of Joseph Campbell from the documentary, The Power of Myth.
Campbell discusses at length one of the recurring metaphors from mythology—the hero’s adventure. In the pursuit of some arduous goal (the adventure), the hero must lose his self and find support from beyond himself.
Van’s Peak 202 exercise of setting a goal far beyond your comfort zone puts you on the edge and, in effect, on a hero’s adventure. Libby Adams remarked about the wisdom of this exercise recently and Joseph Campbell confirmed it with his explanation of the metaphor of the hero’s adventure.
For me to net 131R this year, I have dragons to slay and a journey to take. I have to let go of the little selves—the parts of me that say, “I can’t,” “I don’t deserve to,” and “I don’t know how.” I have an especially large one that says, “I need to prepare more.” I have to call on a higher power and on my family, friends, and colleagues for support as well. These are not actions I would have had to take with an achievable goal.
People often write in asking if they should go for the goal of becoming a full time trader or joining the Super Trader program. Van provides Campbell’s recommendation to these folks, which relates to the hero’s adventure: follow your bliss. If that’s trading, great—go for it. If trading is not blissful, however, Van recommends pursuing whatever it is that generates bliss for you.
Interested or Committed?
A friend recently attended a weight loss session where the instructor gave everyone a little test to see if they were interested in weight loss or truly committed to it. My friend then adopted the test to trading. (Thanks Jim!)
If you are “interested” in trading…
- You stick with it until something better comes along (another pursuit or something else in life).
- How you feel determines your outcome. If you don’t “feel like it,” you stop working on trading-related tasks.
- You need to see results. When trading isn’t profitable, you lose motivation.
- You blame everything else (people, markets, circumstances) for your struggles with trading.
- Whenever you face challenges in life, you give up trading and plan to start again tomorrow, next week or next month.
If you are “committed” to trading…
- Nothing stops your efforts. You stick with trading, no matter what.
- Emotions don’t control your actions. You stay on track even when you don’t feel like it.
- Your motivation isn’t linked to your equity curve. You assume that if you stay motivated and work hard, you’ll eventually see results.
- You don’t depend on other people or market conditions for your success. You know it’s up to you alone and no one or nothing else.
- Bad days or a lot of challenges don’t affect your efforts. You keep going in spite of them.
As I read through the statements, my position fell much more on the committed side of the picture.
Back to Why
So what’s the source of my commitment? Bliss is definitely part of it for me. From big picture assessment, to spreadsheet “grunt work,” to self-development, I love the entire process of trading. If I didn’t, there’s no way I could have kept pursuing trading for as long as I have. Still, there’s a reason, a part that I can’t explain fully—it’s a mystery.
Campbell talked at length about the role of mystery in our lives. After listening to him, I’m comfortable allowing that mystery and even appreciating it. I don’t have to get to the underlying reason or analyze it further. Mystery makes life more than a practical or rational activity and connects us to the Divine.
Rather than end this article with opinions, it might be more useful for you to consider your answers to the following:
- What brings you bliss?
- Have you set any goals for yourself beyond your comfort zone?
- Are you “interested” in or more “committed” to trading?
- What actions will you take based on your answers to these questions?
Until next month, trade well and take care.
Coming in September...the Next Round of Ken Long's Workshops
Including Something New!
Technical Analysis: Points vs. Zones
“It is the mark of an instructed mind to rest satisfied with the degree of precision to which the nature of the subject admits and not to seek exactness when only an approximation of the truth is possible.”
A Double Bottom, Not a Double Bottom
It was the closest thing to an “ugly” moment that I believe I’ve ever had in 10 years of teaching workshops.
Five or six years ago, I was presenting a lesson on double tops and bottoms in a swing trading workshop for the Van Tharp Institute.
As we looked at the double bottom formation in October 2002 on the following chart (yes, this exact same chart), one guy in the front row declared loudly that this was not a double bottom.
You may notice if you look very carefully, as this particular fellow did, that the culmination of the second bottom on 10/10/2002 actually traveled a bit lower than the first low back in July.
I explained my belief that technical analysis is about finding reactions at zones or areas on a chart rather than at precise points. For all intents and practical purposes, the October low met the double bottom criteria.
But he would not have it and did not let it go. A double bottom must not penetrate the original bottom, this did not count, yadda, yadda, yadda.
This went on for a little while. So to drive the point home finally, I pulled out my “ace in the hole” about this particular market double bottom. I related a conversation I had with quite a few hedge fund managers at the Long Island home of my best friend and business partner, Christopher Castroviejo. This was late in 2002, and several months after the market double bottom in the chart above. Quite a few of the managers told us their funds had gotten absolutely hammered for the first three quarters of 2002. Thanks to this one great double bottom signal in October, however, they nearly all got well for the year (they shored up their profits).
Well, even those big guns didn’t help. The broad based consensus from a group of seasoned professionals that the October low was a double bottom was simply unconvincing to this attendee. His demand for precision prevented him from seeing what many others saw plainly. He was indignant and held fast that the October low was assuredly not a double bottom. In the end, we agreed amicably to disagree. I bet he’s still searching for absolute precision in the markets…
Back to Zones
Aristotle’s quote at the beginning of the article is highly instructive for traders. To paraphrase, instructed minds don’t look for more precision than the environment can provide. It’s almost like the great Greek philosopher was thinking about the financial markets when he wrote that.
Aristotle’s concept reminds me of my favorite description of financial markets:
“They are not a problem to be solved, but psychology to be understood.”
Let’s think about how this understanding plays out in the chart pattern we've been discussing—a double top or bottom.
Could you believe that close to the second top or bottom, market players might get anxious and try to reverse the market’s direction before the price actually hits the exact tick of the previous top/bottom? Or could you imagine market players getting overly greedy or fearful causing the price or index to overshoot the original level by a few ticks? Of course.
Membranes Give a Little
To help familiarize us with the idea of zones, we can think in terms of a useful metaphor. Think of a zone as a membrane. Imagine a friend stretching out a non-inflated balloon for you. What happens if you try to a push a ball point pen through the latex? Does it poke through immediately? No. The latex will have some “give” before the point pierces the membrane.
The same can be said for support and resistance levels in the market. They can "give" some and flex a bit before they are broken or violated.
Remember to think in terms of zones rather than very precise prices or points in the markets. Doing so will reduce the stress of trading and investing. Thinking in terms of zones will also help you understand better how normal market behavior allows for a bit of “psychological” leeway rather than providing scientific precision.
Peak Performance Home Study Course and Position Sizing
Q: I have bought your two books Super Trader and Trade Your Way to Financial Freedom. I think these two books are full of trading education value when it comes to trading psychology. I am a home-based Intra-day forex trader. Since I'm still learning to trade forex, I'm trading a mini-size account.
I am truly convinced of your 60% psychology, 30% money management and 10% trading system opinions to be successful in forex trading. I want to learn from you and foster this all-time-critical skill into my trading beliefs.
I am interested in purchasing your Peak Performance Home Study Course and your book, The Definitive Guide to Position Sizing, but I want to make sure there is no redundancy in the content. How much information overlaps between these two products?
A: There is very little cross over between the Peak Home Study Course and the Definitive Guide.
The Peak Home Study Course focuses on you, the trader and the psychology of trading.
The Definitive Guide to Position Sizing focuses on position sizing strategies and related topics.
We strongly encourage everyone to start with the Peak Home Study Course because it lays a solid psychological foundation for trading success. Without understanding yourself, the psychological aspects of trading can render technical expertise powerless.
Truly, there is no better place to start the path toward trading success than with yourself!
Get them both right now and get a free bonus. Buy Peak Home Study and the Definitive Guide and get the Business Planning for Traders and Investors CD set (a $249 value) for free! Learn More...
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