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Tharp's Thoughts
Weekly Newsletter
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Feature: Beware Thursdays? Random But Memorable Event Bias, by D.R. Barton, Jr.
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Workshops: $700 Early Enrollment Discounts for September Workshops End Next Week!
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Tips: Does Failure Motivate You? by Van K. Tharp Ph.D.
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$700 EARLY ENROLLMENT DISCOUNTS ON SEPTEMBER WORKSHOPS EXPIRE NEXT WEEK, AUGUST 30TH!
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Don't miss out on an excellent deal by saving $700 each on our September workshops. Peak Performance 101 is Van's most transformative workshop and has benefited traders worldwide for more than 25 years!
You will learn how to see from multiple perspectives, why you should think in terms of probabilities all the time, and how to reach higher levels of consciousness. Using the Matrix Thinking frame will help you achieve an improved perspective of “you” and your world which will generate genuine new edges in your trading — and in every area of your life. —Van K. Tharp
If you attend both workshops you will save an additional $500
(in addition to the $700 Early Bird discounts)!
Scroll down for more information on these two workshops and to reserve your seat today.
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Beware Thursdays?
Random But Memorable Event Bias
by D.R. Barton Jr.
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The last two Thursdays (8/10 and 8/17) have been the third and fourth times that we’ve had a 1% down day in all of 2017. Since then, people keep asking me two questions over and over —
- Does this mean the market is topping?
- Should we be worried about trading on Thursdays?
I wish I were kidding about getting asked that second question… but to be honest, it reflects a common bias we see in the markets. So let’s talk a little about that “random but memorable event” bias and then dig into some analysis and consider whether we are seeing topping action or not.
Random but Memorable
When I was a wee lad no more than six years old, I distinctly remember being given bike riding privileges for my neighborhood in our quiet college town of Radford, Virginia. I was excited because that meant I could ride my bike to the neighborhood store three blocks away. It was a tiny, family-run business called “Van’s” because that was the proprietor’s last name. Van’s was the kind of place that existed long before modern convenience stores and it had items local folks might need before their next big trip to the grocery store. It also had candy, lots and lots of candy. For a young boy, the candy section was like heaven.
On my first bike trip to Van’s, I was excited to get some of that candy. Problem was — I didn’t take any money with me. With my little bike parked outside the small store, I sat on the bottom step leading up to the front door, pondering my situation. Not much time went by before an older woman came out of the store with a small bag of sundries. As she folded her money and tucked coins into a small change purse, she looked down and saw me. I must have had quite a sad look on my face because she asked me what was wrong. I told her my problem — I had ridden here on my bike but I didn’t have any money. She reached into her still-open coin purse, pulled out a nickel and said, “That should make you feel better.” I thanked her loudly and then bounded up the steps into the
store. I’m sure my smile went from ear-to-ear. Back then, five cents bought a lot of candy. I had struck pre-adolescent gold.
Later, licorice whips and Bazooka Joe bubble gum would dance in my head. A few times a week for a few weeks afterwards, I would ride to Van’s and sit on the bottom step waiting for another stranger to give me their change and satisfy my sweet tooth. I couldn’t understand why good fortune never shined on me a second time. I was caught up in both the memory and the desire for the original act of kindness to happen again. (Truly, there’s little reason for anyone to give money to an obviously well-cared for middle class boy outside of a store.) I had no clue what a bias was at the time but I fully expected a single random and somewhat unusual event to happen again.
A similar phenomenon happens to us in the markets. We remember certain events like two, consecutive big down Thursdays, especially if we have money on the line, and believe the next Thursday might be a big down day. Our brains naturally tend to notice patterns in the world which has been a good thing as this trait has helped us to survive and even thrive as a species. But sometimes we think we see “patterns” when in actuality, we just witness some random coincidences.
Given what happened in the last two Thursday sessions, would you say there’s something special now about market action on Thursdays? Combat this “random but memorable event” bias by looking for a sufficiently large sample of similar events before assigning any importance at all to a small group of events. Here are two examples of events which make clear which one warrants further investigation:
- Two consecutive down Thursdays in August? No need even to speculate about the existence of any pattern.
- Decades of data showing index’s tendency to gain points during the last few days of an old month and the first days of a new month? Hmmm, yes, now that’s worth investigating.
The bottom line: make sure you don’t let a “random but memorable event” trick your pattern-seeking mind into making an unwarranted decision.
Now, let’s move onto whether these two big down days could tell us something about a market topping process.
An Aging Bull – Do We Start to Worry About the Downside?
I think the term “grinding bull” has been an apt description of this unusual year in the markets. Markets that grind higher also tend to have the lowest volatility because investors and traders are lulled into complacency when no meaningful pullbacks have happened all year. While there are still more than 4 months left in the year, so far all we have seen is an historically low level of market movement.
As I mentioned earlier, only four days this year have seen a 1% or larger down move in the S&P 500. Need additional low volatility proof? Only three days have seen a 1% or larger up move in the S&P this year! Here’s an interesting table that shows how 2017 numbers stack up to other years dating all the way back to 1928:
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As I’ve studied volatility more and more this year, the three periods I’ve circled in the Pension Partners list above have been the historical standards for low volatility: the mid-1960s, 1972 (the calm before a storm) and 1995.
Even though such a small sample doesn’t allow us to draw solid conclusions about what happens after extended periods of low volatility, take a quick look at the charts for each of those time periods below. I used monthly bars so we can see the overall movement of price with fewer “in-between” wiggles. We can see a striking resemblance among the charts.
Mid 1960s —
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In 1963, 1964 and 1965, we see the essence of a continuous grinding bull market — though 1965 did have a midyear pullback.
1972 —
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Here we see the relentless bull of 1972 culminate in a blow-off top before the market had a two year drop of almost 50%.
1995 —
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In 1995 also, we see the essence of a grinding bull. In this case, the 1995 grinding bull was but a continuation zone for very long bull market that most analysts date back to 1982.
Why Is Volatility So Important?
Simply put, volatility informs us on what we can expect going forward. So . . . back to the biggest question: with two consecutive big down Thursdays, should be worried about a topping market?
The short answer to that question — not yet.
Trying to pick a top in a grinding bull market has been a bad idea historically. Just refer to the charts above of the early 1960s, 1972 and 1995. If you are feeling compelled to turn bearish, at least wait for price to give you some idea that a pullback has truly started. In last week’s article, I provided some useful support zones for a “true pullback” exercise. Until we reach those levels, realize that grinding bulls can grind higher and longer than normal market analysis would dictate.
Prudence dictates that we have risk management tools in place for the possibilities of major market drop. Prudence also dictates that we stay in the boat during a period of smooth sailing historically speaking.
I’d love to hear your thoughts and feedback — just send an email to drbarton “at” vantharp.com. Until next week…
Great Trading,
D. R.
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About the Author: 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 analyst on Fox Business' Varney & Co. TV show (catch him most Thursdays between 12:30 and 12:45), on Bloomberg Radio Taking Stock and MarketWatch's Money Life Show. He is also a frequent guest analyst on CNBC's Closing Bell, WTOP News Radio in Washington, D.C., and has been a guest on China Central Television - America and Canada's Business News Network. His articles have appeared on SmartMoney.com MarketWatch.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at
"vantharp.com".
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September 2017
$700 Early Enrollment Discounts End Next Week, August 30!
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Presented by Van Tharp
with co-presenter RJ Hixson
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September 15-17
Friday-Sunday
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Over the past 25 years, Van K. Tharp has modeled traders and the trading process, seeking answers to questions like, “Why do some traders make fortunes while others lose their nest egg?”
Van Tharp is a NLP modeler. To “model” effectively, you have to find out what behaviors and habits highly accomplished people have in common. Once you identify the common tasks that produce excellent results, you need to develop the beliefs, mental states and strategies that allow you to perform those tasks.
You do not trade the markets. You can only trade your beliefs about the markets.—Van K. Tharp
The Peak Performance workshop hones in on these common tasks and puts you in the driver's seat to take control of your trading success. During this three-day intensive course, you will come to understand how your mental states and beliefs play such a major role in your trading, and reality, your whole life.
Workshop Objectives:
- How great traders approach their craft and learn a daily procedure that resembles what they do.
- How you create your own experience in the market and how you are responsible for the results that you get.
- Become more aware of some of your own psychological issues that affect your performance as a trader/investor.
- Learn about expectancy, position sizing strategies and the power of big R-multiples through a simulation game. This game is also designed to help you observe your emotions in a setting in which only a small amount is at stake compared with what you will face in the market.
- Learn some of the variables that affect your emotions and how you can gain control over them.
- Learn to overcome self-sabotage through exercises done in the class.
- Students will get guidance on how to develop an ongoing program to work on themselves using the Super Trader Program as a model.
- Students will leave with a plan to make the maximum use of the workshop.
Note: This workshop is held in Cary, NC in September and again in October in London, England
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Exciting New Work from Van Tharp
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September 19-21
Tuesday-Thursday
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Systems thinking should not be considered one simple idea, but rather a combination of numerous subjects. For example, systems thinking is considered:
- An integrated body of knowledge or discipline—think the Scientific method and Sir Isaac Newton. Here, focus is on the objective, or that which can be observed.
- An idea involving your mindset, or way of looking beyond the basic trading aspects of tactics. Here, we are starting to look at beliefs.
- A recurring and iterative process, requiring various inputs. These might include changes in oneself, the markets, your results in comparison to your objectives, and more. The outputs include informed decision making about what systems to use, what position sizing strategies to employ, if and when discretion is utilized, and more.
Advanced systems thinking also involves mental maps, and how they are useful to guide you while in the trading process. Here, the subjective becomes as important as the objective.
However, even this has limits, as most standard systems thinking is mostly linear thinking,
I believe I have found a new, more robust way of thinking about systems…
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October 2017 LONDON, ENGLAND
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Presented by Van Tharp
with co-presenter RJ Hixson
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October 13-15
Friday-Sunday
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Peak Performance 101 is Dr. Tharp's core psychological workshop, and his most transformative course for over 25 years. If you want to know how great traders think, behave and act so you can achieve consistent and profitable results, without stress, then this workshop is for you.
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Presented by RJ Hixson
and Van Tharp
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October 17-19
Tuesday-Thursday
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We'll teach you one of the real secrets of success — how to use all the system building blocks to design a trading system in such a way that it fits your personality and style of trading.. In the process of learning how to do this, you'll probably come up with dozens of winning systems that will work because they'll be based on criteria that fit your situation.
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October 21-23
Saturday-Monday
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Van shares years of knowledge about wealth concepts, wealth creation modeling, being wealthy inside, and the infinite wealth processes. Attend this workshop and completely reshape your attitudes toward money, work, paychecks, income, wealth, scarcity, and abundance. Your paradigm shifts in just three days will amaze you and release you from your current beliefs about wealth that have been running in your unconscious and holding you back.
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Presented by Gabriel Grammatidis
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November 10-12
Friday-Sunday
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Presented by Gabriel Grammatidis
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November 13-14
Monday-Tuesday
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Does Failure Motivate You?
by Van K. Tharp, Ph.D.
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This topic might press your buttons. But finding your hot spots helps you discover how you sabotage yourself.
I read a wonderful little book by Jerry Stalking entitled, Laughing With God.1
In that book the following dilemma is brought up, and here I’m going to paraphrase the conversation pertinent to trading/investing.
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God: Do you want to win without losing?
Trader: Of course.
God: If you win, you must lose as well. But you lied to me. You said that you’d like to just win. If that were the case, you’d win much more often. The possibility of failure motivates you much more than the possibility of success. Your whole culture, with few exceptions, is dependent upon failure or at least the fear of failure.
If there were not the possibility of failure, you could not take any credit for success. You wouldn’t feel so good about winning. How many times would you watch a football game if you knew the outcome? It is the uncertainty of the outcome that keeps your attention.
What if you always knew what was going to happen before it does. As a matter of fact, you already have that ability, but you do not use it because everything you presently call fun in your life would be lost. You would lose the uncertainty that you thrive on, feed on, and yet attempt to diminish.
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The last statement may "get to" most of you. But what if it’s true? Ed Seykota said in Market Wizards that people get what they want out of the market—excitement, punishment, and a justification for their emotions. I’ve certainly seen plenty of evidence to suggest that his observation is true. But the conversation gets even more interesting:
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God: I am saying that you already can know the future. Remember that future and past are both illusions. The fact that you ignore this ability makes it more obvious that you do not want to know the future or that you love wanting to know the future while believing that you cannot know it.
There is no time—just present. You use the uncertainty (mock uncertainty) of the past and the uncertainty (mock uncertainty) of the future to keep yourself suspended in the illusion of time while calling the whole process life.
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Just to make this conversation more meaningful, imagine that you are 100% accurate on every trade. You know every top and every bottom on every stock. You are never wrong about a trade. Would you honestly keep trading?
Perhaps your response is, "Sure I would! I’d get all the money in the world." Well, would that be interesting? I tend to doubt it. Trading is only interesting because of the possibility of losing. You are now in a position where you can buy anything, do anything, etc., because you will never lose money on a trade. Would you still trade? Why or why not?
Everything in this tip may be made up. Nothing may be true, but I’d like you to assume (act as if) it is true. Just pretend that it’s true. When you do so, what happens to you inside? How do you feel about trading? Would you keep on trading? If so, how often? If not, why not? What does that tell you about yourself? Is it the uncertainty that keeps you in the game? Would you keep trading if you had all the money in the world? Why? What do your answers tell you about yourself?
I would encourage you to do this exercise and notice what comes up for you. How many trades would you take if you had no uncertainty in the outcome? What do your answers tell you about yourself?
This is all part of exploring what money really means to you.
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1 I don’t know whether such books come from God or not, but if they give me new ideas then I find them very exciting. If it stretches your beliefs to think it came from God, just assume that someone made it up. But at the same time imagine that it might be true. This one gave me a lot of new ideas, and if you open yourself enough to do the same you might find the ideas quite expansive.
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About the Author: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling books and his outstanding Peak Performance Home Study program - a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp www.vantharp.com.
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NEW E-learning Course!
Forex Trading Systems: The Busted Breakout System
Click on the image below to watch a brief 1 minute video that hightlights this new course.
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Gabriel developed and refined his Busted Breakout system on the concept of trend-following while he was still enrolled in the Super Trader program.
The system has a high win rate (about 65%) and it takes advantage of a price pattern that happens again and again in the charts — breakout failures. The main advantage of this is that it benefits from running for other peoples’ stops. This is a unique edge of the system making the trade break-even early on. Watching 15-minute charts for 4-6 hours a day and trading only the biggest, most liquid currency pairs, the system finds easily more than 150 trades per year. The pattern works equally well on 5min, 60min and 240min charts so the trade opportunity per year can be much higher depending how you trade. Gabriel is confident that someone with the programming skills could turn the system into a well-performing automated trading system.
The three-day workshop cost is $3,995 but the cost of the home study program is $1,295. As a special introduction price for early responders you can get this new home study for just $995.
Plus, buy the home study now and if you decide to join us at the 3-day Forex Trading workshop in November (or for any Forex workshop in the future), you can deduct $600 off of your course payment for the workshop.
This is win-win for all! If you are among the group of clients who simply cannot come to one of our workshops this home study offers you the benefit of still gaining access to a robust and premium forex trading system. Gabriel has traded it himself in several timeframes for many years now offering a persistent edge in the market.
But, if you have already been considering attending the workshop this is a great way for you to get a full-steam head-start and walk through the workshop door already understanding the system well. You will then have the opportunity to ask Gabriel anything you need. And in addition, learn two new Forex trading systems. The three systems taught in the workshop all offer unique advantages. They complement each other giving you the opportunity to reap various stages in a trend.
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FREE Book!
We pay for the book, you just pay for shipping.
Read Van’s Latest Book —
TRADING BEYOND THE MATRIX
The Red Pill for Traders and Investors
Eleven traders tell their stories about transforming
their trading results and lives, in this 400 plus page book.
Below is a brief video on how powerful this book is to traders.
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Cary, NC Workshop Information
For a list of nearby hotels for our Cary, North Carolina locations,
click here.
Book your flight arriving to the Raleigh-Durham International Airport (RDU).
When traveling to a three-day course, it's best to arrive the evening before.
To help determine your arrival and departure times, see:
Questions? Click Here to Ask Van...
CONTACT US
This is a supplement to our subscription based newsletter, Tharp's Thoughts.
800-385-4486 * 919-466-0043 * Fax 919-466-0408
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