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  • Article Why Exercise Can Help You Trade Better by R.J. Hixson
  • Trading Education Forex Workshop Added for June
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  • A Trading Journey Results on the Path To Trading Success by Kevin J. Davey
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This April, You Can....

Aerobic Trading

There’s a long-held belief that if you want to improve the health of your body, you should exercise, and if you want to help your brain, you should study or cause it to think. In the last two decades, though, a new paradigm has emerged. Scientists have realized that physical exercise is good, not just for the body, but for the brain too.

The Kids in Naperville

A few months back, a friend told me about a school district outside of Chicago that, without changing anything in the curriculum, saw a dramatic rise in test scores after it reworked its physical education program. That sounded moderately intriguing, but after reading a book that documented the story—Spark, by John Ratey, MD—I became fascinated.

John Ratey teaches clinical psychiatry at Harvard Medical School. He decided to visit schools in Naperville, Illinois after hearing about the district's unique exercise program, in which PE instructors hand out heart rate monitors and allow the kids to participate in any one of nearly two dozen activities. Choices include rock climbing, Wii games, 3-on-3 basketball and more, all with one purpose in mind: to engage students in activities that keep their heart rates in the aerobic exercise range for the duration of the class. Within the first few years of instituting this new program, Naperville’s test scores improved dramatically—and not just nationally, but internationally. Other school districts have reproduced similar benefits with similar programs. These schools are proving in the classrooms what scientists are confirming in the labs—that exercise helps the brain perform well.

Moving to Survive

Perhaps as interesting as the science behind the findings are the possible hereditary reasons why exercise helps us learn and think better. Scientists hypothesize that the role of learning in humans evolved over the last million years to help us find food. For most of our genetic history, finding scarce food involved motion–walking 8-12 miles on most days across the savanna to find or follow food sources. In the last 10,000 years or so, however, food cultivation has eliminated the need for humans to move anywhere nearly as much. Now, eating merely requires that we take a few steps to our plentifully supplied kitchen pantries and refrigerators. Our DNA advances at an evolutionary pace, much slower than the comparatively rapid pace of human technological developments. In the future, humans may not need to exercise to perform at peak levels, but in the meantime, it seems that peak performance requires some aerobic activity.

The Science

Broadly speaking, exercise helps the brain in a whole host of ways. Most notably, it helps balance the production of neurotransmitters—chemicals that help brain cells communicate and affect mental states such as calmness and attention. Ratey equates going on a run to taking a little bit of Prozac and a little bit of Ritalin—a prescription anti-depressant and a prescription stimulant that, if taken together (not advised), would produce a state of calmness and focus.

Exercise also helps in the production of a category of proteins called neurotrophins. Scientists have only come to understand these proteins in the last 20 years or so. Neurotrophins build and maintain the existing “infrastructure” of the brain—nerve cells and synapses. One of these neurotrophins, BDNF, promotes neurological functions so well that Ratey refers to it as Miracle Gro for the brain (Miracle Gro is a popular garden fertilizer in the US). Aerobic activity actually promotes the production of this protein—this “fertilizer”—for your existing brain cells.

Surprisingly, exercise even helps stimulate the growth of new brain cells. This process, known as neurogenesis, was thought impossible by many in the research community only a decade or two ago. Now, scientists have proven that neurogenesis occurs at a slow, steady rate over a lifetime and that exercise actually increases that rate.

Moving up one neurological level, aerobic exercise helps improve learning and cognitive processes. Exercise helps the brain at the process level specifically by:

  • Improving alertness, attention, and motivation
  • Preparing and encouraging nerve cells to bind together throughout the brain
  • Spurring development of new cells in the hippocampus—the part of the brain that plays a key role in memory management

What to Do?

Ratey explains that scientists aren't sure yet what the minimum or optimal amounts of exercise are. He does state, however, that you need to get your heart rate up above 65% of your peak level for 30-60 minutes pretty much every day. A workout at 65% maximum is medium intensity and probably involves some heavy breathing and sweat—but nothing that will leave the average person exhausted or gasping for breath. Ratey recommends a mix of aerobic intensities with some days at 65% and others somewhere between 75% to 85%, where you feel like you’re working out pretty hard. In addition, he recommends some weight training, although the links between anaerobic activity and brain function improvement are less highly correlated. Finally, he advocates doing complex motor skill activities such as martial arts, tai chi, yoga or dancing about twice a week. These kinds of group “exercises” help stimulate the interaction of multiple parts of the brain, coordinating challenging bodily movements and social aspects of interacting with other people.

Other Benefits

Across the board, scientists are verifying that aerobic exercise can help people of all ages in all sorts of conditions: it can reduce stress, battle depression, end addictions, reduce the effects of dementia and Alzheimer’s disease and minimize female hormonal imbalances, including those that occur after childbirth and during menopause. These are more than bold claims; scientists are confirming every one of them.

Implications for Traders

Van likes to say that trading is 100% psychological. He’d probably be okay with adding one caveat: a healthy psychology requires a healthy support system. Exercise helps you perform at peak performance levels, not only physically, but psychologically as well. We talk about this in the Blueprint workshop, and Ratey’s book adds a lot of evidence to support what Van has long said on the subject.

How might a trader take advantage of this knowledge? Well, what if there were ways to mimic the activity for which our bodies are designed in order to perform at peak levels? Several years ago, the Wall Street Journal ran a photo of a guy in a shirt and tie looking at some monitors over the front of the treadmill on which he was walking. Apparently, he spent his days managing a hedge fund while walking on the treadmill at a slow pace of about a mile per hour. I also know of a prop fund in Chicago that allows its traders the option of trading while walking on a treadmill. Not only that, it has a walking path around the facility so traditional desk traders can get up and move around (no doubt some of the firm’s principals know about the Naperville school system’s results). These ideas seem a lot less kooky to me now that I’ve read Spark and its references to numerous academic papers documenting research results.

Let's say, though, that a treadmill desk is not an option for you. Is it possible for you to work out every morning before the market opens or at lunch? I know of one trader who goes outside for a short intense walk several times a day—especially after big trades.

In several ways, exercise can make your trading better and improve your execution of trading systems. For a trading edge, figure out some way to raise your heart rate on a regular basis through aerobic exercise.

treadmillAbout the Author: RJ Hixson is a devoted husband and active father. At the Van Tharp Institute, he researches and develops new products and services that will help traders trade better. He has a treadmill in his office now and intends to build a shelf over it from wood in his garage. He can be contacted at “rj” at “”.


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Trading Tipdr

Trading Volatility: A Quick TVIX Stock Update

In the lead article last week, I wrote that there was a serious problem with a specific volatility Exchange Traded Note (ETN) and warned traders:

"…a word to the wise: be sure to NOT trade TVIX. It’s not what you think! Caveat emptor.”

The very next day, TVIX began a free fall that saw its price drop a whopping 60%! Many of you wrote to thank us for the heads up. We’re glad to be of service. A couple of big name newsletters had their subscribers trading this instrument, unaware of the magnitude of the problems with the ETN. Next week we’ll dig into what happened and I’ll give you a simple tool that not one in a hundred traders knows about.

As always, I’d love to hear your comments and feedback. Send them to drbarton “at”

Great Trading, D. R.

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A Trading JourneyK Davey

Finding My Path to Trading Success

Part 3

If you've been following my story in the last two newsletters, you'll remember that in mid-2006, I was a sometimes-successful part-time trader who yearned to trade full-time. Not knowing how best to make this leap, I turned to the teachings of Van Tharp for guidance and assistance.

As part of this process, I took Van's Investment Psychology Inventory Profile and received an average score. I was merely an average trader.

Over the next few years, I studied and implemented many of the methods in Van’s Peak Performance Course, along with those of other resources. Just as I have never risked 100% on any one trade, I have also never limited myself to one resource when looking for ways to improve my trading. Still, Van's work has usually been the most helpful.

In January 2012, I took the Psychological Profile again, and found that I made great strides in almost every facet of my trading psychology and ability.

The big question, though, is this: did my improvement, as measured by Van's test, actually translate to success in my bottom-line trading? The answer, detailed in time periods below, is an unequivocal "yes!"


After taking the test in mid-2006, I put in place a plan to improve my trading based on Van’s Peak Performance Course. At the same time, I continued to trade, and the results were pretty immediate.

In 2006, I placed first in a year-long, real money trading contest. This was the same contest that propelled Larry Williams to legendary trader status, and I beat out some of the best traders in the world with a 107% rate of return.

I followed that performance with a second-place finish in 2007, again achieving over 100% in returns during the year. Clearly, the work I was doing to strengthen my weak spots was paying off.


In mid-2008, I was able to abandon my successful career in aerospace and aviation and fulfill my dream of becoming a full-time trader. I was also able to take the summer off, which gave me time to polish up my strategies and spend time with my young children. It truly was a dream come true.

Then, during the financial crisis of 2008, the reality of full-time trading smacked me in the face. While that market turmoil did not wipe me out like it did many others, I did end the year with a net loss.

This turned out to be a great wakeup call, though. During and after the crisis, I went into full tilt mode, creating new systems, refining old ones, and working feverishly on Peak Performance weak points. After a few months, I felt more than ready for whatever surprise the market had to offer next.


In my first three years of full-time trading, trading only my own accounts, I was able to achieve an annual rate of return of around 50%, with a maximum drawdown during the 2009 Flash Crash of about 49%. There have been other drawdown periods of 10% to 30%, but, currently, I am near a new equity high.

While my day-to-day volatility is still a little too high for my tastes, and my monthly Sharpe Ratio of just below 1.0 is a little too low, I feel that I am performing at a pretty high level.

At the same time, though, I am far from resting on my success. I am continuously researching and developing new trading systems and working on my emotions and psychological issues. I converse regularly with a number of outstanding traders, and I help new traders, too. Most of the time I’m not spending with my family is spent living and breathing trading. It is what I love to do.


I hope this three-part article detailing my journey from average trader to above-average trader has been helpful.

The Investment Psychology Inventory Profile was a great “You are Here” marker, and the Peak Performance Course was a great roadmap for my journey. Both were invaluable tools that helped guide me where I wanted to go.

I do still have a ways to go before I get to my destination; I want to be the best, and the market tells me frequently I am not. But that’s okay; successful trading is a marathon, not a sprint.

About the Author: Kevin Davey has been trading futures for over 20 years, the last four years full-time. He can be reached at his website or at kdavey "at"


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March 28, 2012 - Issue 570

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