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Doing a Spring Cleaning on Yourself As a Trader

• Doing a Psychological Assessment of Yourself; Ten Important Questions to Ask, By Van K. Tharp, Ph.D. 

• Twenty Four Things You Can Do Now to Move Toward Peak Performance Health, 

• Developing a Business Plan, By Van K. Tharp, Ph.D.,

• The Importance of Vision and Goals to Your Business Plan

• On Attaining Happiness: A Psychological Exercise That Could Improve Your Trading Experience  

One of the best things you can do for yourself as a trader is a Spring cleaning. This should take on three forms. I have an article in this issue of Market Mastery on each of the ways you can do spring cleaning.

The first way, and the most important way, is to work on the core of your trading—you. This means your beliefs, attitudes, mental states, and habitual patterns—working on anything that holds you back from being your best as a trader.

Now this first area is really a lifetime worth of work, but most people do very little in terms of self-work in their lifetime. This Spring you could possibly do more work than most people do in a lifetime. This is covered in the article, Doing A Psychological Assessment of Yourself; Ten Important Questions to Ask." It includes ten questions that you can ask yourself and numerous steps that you can take to do the work.

The second key area that you can work on is your health. I’ve been working with my good friend Bruce DuVe for about three years on this critical area. I did everything he said for about nine months and then found myself falling back. However, as a result of my experiences working with Bruce, I’m more than convinced that good health is the core basis for good psychology and for furthering your spiritual development. As a result, I’m reprinting the a segment from the interview I did with him in which he recommends 25 steps that you can do now to improve your health.

The third key area that you can work on in your Spring cleanup is your discipline. As a result, I’ve included an article that recaps the steps you need to develop rock-solid discipline during the next 9-12 months.

I said nine months first, because I recommend that you repeat everything at the beginning of next year. That’s because your discipline is not something you do once and then forget about. It’s something you need to do every year to form a solid foundation and then you need to use that foundation to do daily steps. We’ll cover both the yearly tasks and the daily steps in the article on discipline.

Lastly, the fourth area that you can work on in your Spring cleanup is your trading business plan. A trading business plan is the core of your success in trading and you need to spend the time to do one if you haven’t done so already. Your plan should include your discipline plan, your trading beliefs, your assessment of the big picture, at least three strategies that fit the big picture, a detailed trading plan for each strategy, and a worst case contingency plan. We’ll cover all of these areas in a fourth article in this special issue of Market Mastery.

Understanding Expectancy and The Golden Rule of Trading

• Understanding Expectancy and The Golden Rule of Trading, By Van K. Tharp, Ph.D.

• Risk (R) and R-Multiples, By Van K. Tharp, Ph.D.

• Evaluating How Good Your Trading System Really Is, By Van K. Tharp, Ph.D

This edition features Van latest work. Van is currently updating and revising his work on position sizing in a new publication, the Definitive Guide to Position Sizing and Expectancy. This issue features the first 3 of 17 chapters.

Introduction to Expectancy: One of the key fundamentals that every trader/investor must know is "how do you evaluate the effectiveness of your trading methodology." Part One of this book does just that with a thorough evaluation of the topic of expectancy.

In Chapter 1, we explore the Golden Rules of Trading – some core trading fundamentals that you must follow if you are to survive and prosper in today’s market. Then, in Chapter 2, we move on to understanding risk and how to properly think about all of your trades in terms of risk-to-reward ratios (or R-multiples as we call them). Both these chapters are critical to understand if you want to survive long-term trading the markets.

In Chapter 3, we get into core ways to monitor how good your system is. It not just expectancy or the average risk-reward ratio in your trading. It’s not expectancy times opportunity, although that gets you a little closer. You also have to consider the variability of your system, because if you have a low-variability system, especially when it comes to losses, you can typically make much better returns out of the same expectancy.

Are You Doomed to Failure?

• Are You Doomed to Failure? Yes, but Only if You Avoid Working on Yourself! By Van K. Tharp, Ph.D.

• Books I Really Like, By Van K. Tharp, Ph.D. 

• A Reminder: Two Systems are Required to Trade, By Van K. Tharp, Ph.D.

Judgmental Shortcuts

Why Judgmental Shortcuts Are Important: French Economist George Anderla found that the rate of information flow that human beings must cope with doubled in the 1500 years between the time of Jesus and Leonardo DaVinci. By the year 1750 (i.e., in about 250 years), it doubled again. The next doubling only took about 150 years to around 1900. The onset of the computer age, in the 1960s, reduced the doubling time to about 5 years. And, with today’s computers offering electronic bulletin boards, DVD ROMs, fiber optics, the Internet, etc., the amount of information to which we are exposed currently doubles in less than a year.

Researchers now estimate that humans, with what we currently use of our brain potential, can only take in 12% of the visual information available. And for traders and investors, the situation is at an extreme. A trader or investor, looking at every market in the world simultaneously, could easily have about a million bits of information coming at him or her every second. And since there are usually some markets open around the world at all times, the information flow does not stop. Some poor traders actually stay glued to their trading screens, trying to process as much information as possible for as long as their brain will permit.

How Academia Leads Wall Street Astray

• How Academia Leads Wall Street Astray: An Interview with Scott Brown, Ph.D. By Van K. Tharp, Ph.D.

• Know When to Hold ‘Em, Know When to Fold ‘Em By Van K. Tharp, Ph.D.

My purpose in writing this article is to suggest the following:

• The super rich create a money game and a trading game. Through academic research, they justify the great Wall Street Machine, which feeds off commissions and asset management fees. They use this same research to mislead you into doing all of the wrong things.

• Over the years, while modeling top traders, I’ve developed some principles that are the basis for success. However, the great Wall Street Machine doesn’t want you to know these principles. In fact, they want you to believe totally otherwise, so that you’ll add your savings to their pockets.

If you’ve read my interview with a fund manager in two prior issues of Market Mastery, then you can understand how people inside the Wall Street Machine think in terms of relative performance and are trained to act when they are forced to maintain a 95% minimum allocation in stocks. Thus, they are never out of the markets when they should be.

My purpose in writing this article is to show you 1) how academia endeavors to shape your thinking and 2) how they could never support the principles that work. And to that end, I’ve elected to interview Scott Brown, a good friend of mine who just got his Ph.D. in finance and has become a finance professor.