Tharp's Thoughts Weekly Newsletter (View On-Line)

• Article Freedom and Responsibility in Trading by R.J. Hixson
• Trading Education $700 Discount Expires on February Workshops
• Trading Tip Book Smarts vs. Street Smarts by D. R. Barton Jr.
• Ken's Trade of the Week Video A Continuation of Upside Movement

$700 Discounts Expire Next Week on These Two February Workshops Which Are Essential for All Traders

Most traders take one of two routes when it comes to trading systems. However, both of those approaches tend to produce inconsistent results at best, and at worst, cost you a lot of time and money. In the How to Develop A Winning Trading System Workshop you'll learn the important factors that you need to know to create a system or have the skill in place to modify an existing system to fit your own style.

In the Blueprint Workshop learn to develop your own personal roadmap with the help of an experienced guide. Some people take years to discover just a portion of what you are going to learn in a 3-day period.

Learn About the Workshops

Feature

Freedom and Responsibility in Trading

by R.J. Hixson

View On-line

Creating freedom for myself and others is part of my mission statement and for whatever reason (more awareness?), this concept has been showing up more frequently from a number of different directions.  If the following various ideas aren’t too disparate, let’s see if they can prompt some thinking about freedom as it applies to traders.

Freedom and Freedoms

For the overall idea of this article, let’s describe freedom as the ability to choose.  You will find that you seem to have more freedom—more choices— in some areas of your life where in others, you appear to have few or no choices. (I’ll leave it up to Van for now the discussion of how it’s all an illusion. He writes about that in his next book.) 

Freedom is a naturally recurring topic in trading.  Generally, the markets offer anyone with enough money to open an account, the voluntary and speculative participation in the capital process of modern economies. Trading offers the promise of prosperity to be as potentially close as a mere few trades away.  As attractive as that  sounds to some, the financial industry fails to mention the amount of proper preparation that market participants truly require so they don’t lose their shirts in the long run. 

A number of people trade so they can choose to work at a job—or not—at some future point.  The process of pursuing this goal can have an ironic effect.  Several years back, Melita Hunt, former CEO of the Van Tharp Institute, challenged this newsletter’s readers to ask themselves if they had become a slave to monetary freedom.  I wondered if I had become captive to this too but wondered more about a particular couple I recall form various Van Tharp workshops at that time.  Both people worked demanding professional jobs but spent every spare moment working on their businesses.  Their goal was to retire within ten years, but from my perspective, they seemed burned-out rather than free, especially in a psychological sense.

As it turns out, psychological freedom may be the most important form of freedom.  In one of her lectures, Marianne Williamson discussed various forms of freedom—political, religious, financial, etc. She stated clearly, however, that psychological freedom is the most valuable form of freedom.  With it, other forms of freedom are desirable but not required because psychological freedom provides one with many choices regardless of his or her external circumstances.  Psychological freedom is the ability to frame a situation within context of what it offers in possibilities, from a deeper human or spiritual level.  For an “unpleasant” situation, you could choose to mentally fight it, surrender to it, manage it constructively, or try to ignore it. All those are choices— choices for which you are responsible.  

Flip Side of Freedom

Responsibility is one of two not-so-often-mentioned, fundamentally required components, of freedom. If Van teaches one core principle for trading, it is you are fully responsible for your results. You have the responsibility to choose to trade or not, to prepare yourself by understanding a myriad of topics or not, to understand yourself or not, etc.  English vocabulary did not offer what he wanted people to understand so he developed a new term to help describe his concept.  He uses the term respond-ability as a better way to describe how you posses the complete ability to respond to life’s circumstances with your choices, and how you even generate those circumstances.

The Other Work

There’s another kind of work required for freedom.  Effort may be a better word here, as physically, you may not do anything more strenuous than perhaps turning off the TV or radio and becoming more quiet.  Freedom’s other component is awareness.  Awareness of what thoughts you are thinking and believing, of what you are creating, of your true Self, and of all the choices you genuinely have at your disposal. 

Awareness can help traders in numerous ways small and large.  Most basically, awareness of your current mental state can help you determine if you should even be trading today.  Trading in an angry or depressed state can be as dangerous to your equity as trading in an ecstatic state.  Do you evaluate your mental state prior to executing trades?  That is one of Van’s daily steps in his Top Tasks of trading.

On a whole other level of awareness, Van has one Super Trader graduate he calls his star graduate.  She had little trading experience before the program but can now trade from a very aware state and make more than 100R a month trading just an hour or two a day.  Clearly, she has developed her awareness to a very high level and applies it to the markets with breathtaking results. 

At the other end of the spectrum, a low level or lack of awareness means a lack of choices.  If that’s the case and it seems like there are no choices, how do you become more aware?  That’s a challenge for anyone, though, there are numerous ways.  It can be as simple as spending quiet time alone, or as simple as feeling your feelings or making an effort to be present in the moment. 

Van developed one method with one of the Super Traders that takes a little discipline and technology to execute, which I use.  I set up an automatic alert to pop up on my computer screen every twenty minutes during the day with a few simple questions like “What is my mental state? What thought am I thinking? What does thinking this thought get me into? What would be the opposite of this thought?”  In an Access database, I recorded all my answers for conscientiousness in the moment and also for review later.  

Although this exercise was based on awareness, it struck me that it actually helped me be more free.  Every twenty minutes, I was asked to be aware of and accountable for my thoughts and actions.  Many times, the questions “loosened up” reality a little by reminding me of possibilities for thinking other than the way I was, or to actually do something different.  The simplified process might look something like this:

Awareness -> Responsibility -> Freedom

In full disclosure, sometimes these computer screen alerts felt like a disruptive pain in the butt.  In looking over all my answers in the database, however, the process clearly generated alternatives to whatever single thought I had at the time (many times without a choice) and allowed me the ability to consciously choose to continue in one direction or make a change.

Are you up for an exercise like that?  If you want more freedom, more choices, you might start with awareness and accountability.  Here are some questions you might consider:

• Do you have a sense of your personal level of awareness and accountability? 
• Where are you free in your life and where are you not? 
• Where do you think you have no or very few choices?  Why is that? 

Awareness, responsibility, and freedom can all help your trading, sure.  They can also help you live a better life.  Eventually and ultimately, we each have the freedom offered by infinity and eternity.  But what does that have to do with markets or trading?

Indeed. 

About the Author: R.J. Hixson is a devoted husband and active father. At the Van Tharp Institute, he researches and develops new products and services that help traders trade better. No joke, he used a desktop app called Freedom to help him focus on writing this article by blocking Internet access for several hours.  He can be contacted at “rj” at “vantharp.com”.

Trading Education

The February workshops will only be held this one time in 2013 in the US. We know we've said this a lot, but we received calls and emails all throughout the year last year from people who really wanted to attend Systems or Blueprint and they were disappointed that they didn't realize they would not have more chances to attend that year. So we're really trying to get the word out this year! And, the $700 discount expires next week, so time is running out to get your best price!

To see the schedule, including dates, prices, combo discounts and location, click here.

Trading Tip

Skill and Luck in Trading, Part Three
Book Smarts vs. Street Smarts

by D.R. Barton, Jr.

View On-line

About a decade ago, I taught trading workshops with a good friend and floor trader.  At one of the workshops, I remember an engaging, bright, lady who was well-read on a number of subjects.  She was a doctor and happened to be a psychiatrist.  I remember her asking me numerous questions about trading and almost all of them were various restatements of her central concern—how she could know if she was making the right trade.  The uncertainty of trading outcomes was paralyzing her.

The irony of her trading concerns was that doctors deal in uncertainty every day.  The success rate for most medical procedures is far from a sure thing.  The American Journal of Psychiatry states the success rate for several psychiatric treatments of mental illness at about 60 - 80% but some as low as 40—60% for some common treatments of heart disease.  (Studies in other medical journals infer much lower numbers for psychiatric success.)

At the workshop, I didn’t have those figures handy but we spoke about how she handled the uncertainty of a treatment outcome.  She understood medicine as a process involving complex organisms and therefore specific treatments could not guarantee specific outcomes.  While she was able to grasp that about people, she couldn’t make the mental leap to treating the markets as a similarly complex system.  When it came to risking money, she really believed a specific cause should generate a specific effect with a high degree of certainty.

Many cognitive science researchers have tried to understand what separates traditional intelligence (book smarts) from applied, fluid, or rational intelligence (street smarts or decision making in real time).  The Emotional Intelligence book series tackles part of the issue, but newer research moves the idea of street smarts toward a set of standards for a so-called Rational Quotient.

The Rational Quotient and Trading

In this series, we’ve been discussing concepts from an interesting new book, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing by Michael J. Mauboussin.  The author led me to some interesting research by Keith Stanovich, a professor of psychology at the University of Toronto.

Stanovich, in his book What Intelligence Tests Miss: The Psychology of Rational Thought, charts the characteristics of rational thought (or Rational Quotient, RQ) as follows:

• Adaptive behavioral acts
• Judicious decision making
• Efficient behavioral regulation
• Sensible goal prioritization
• Reflectivity
• The proper calibration of evidence

Stanovich wrote these as a list within a paragraph but I broke them out in bullet form to make it easy to consider each of them.   These same psychological attributes struck me as those most needed by traders and investors!  Basically the list is a manifesto for how to make decisions consistently well, even in uncertain situations.

I believe this list is much closer to what we would call “street smarts” and less closely aligned with “book smarts”.  I’ve long maintained that a working knowledge of basic math and probabilities are necessary to play the trading game well.  Along with those skills, Stanovich’s list above goes a long way toward identifying areas that traders could focus on to improve their decision making in the “heat of the moment”.

And interestingly, Stanovich is quick to point out that a high IQ does not automatically translate into a high “RQ”.  He estimates a correlation of only 25 –35% between the two (measuring RQ based on content-related problem solving since there is no standardized test for RQ as of yet).

If RQ is very important for traders and investors, this means that being a rocket scientist (or any other form of brainiac) provides no inherent advantage in the trading game.  Rather, street smarts and decision making skills under conditions of uncertainty are more useful in the financial markets.

Next week we’ll dig more into dealing with the intrinsic role of uncertainty in trading and investing. Until then, I welcome your comments and feedback.  Send them to drbarton “at” vantharp.com

Great Trading,
D. R.

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 guest on both Report on Business TV, and WTOP News Radio in Washington, D.C., and has been a guest on Bloomberg Radio. His articles have appeared on SmartMoney.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".

Disclaimer

Ken's Trade of the Week

Ken starts this video with a short assessment of the market coming out of last week and made the case for a continuation of upside movement.  If that occurred, Ken was going to look for an inverse trade in volatility.  In another instance of preparation meets opportunity, Ken discusses two trades in the morning session on January 22 that made 14R. 

http://www.youtube.com/watch?v=ocLYIeKHrCY

Don't Buy The Book!

You may have noticed that Van has a new book coming out soon. We are so excited and think it's his best book yet. But here's some contrarian advice:

Don't buy this book! (. . . or not just yet.)

You may think we've gone mad, but we have good reasons. If you wait until the publisher’s release date to buy the book, you can earn a slew of promotional offers and free products from the Van Tharp Institute.  The publish date will most likely be February 18 so hold off on the temptation to pre-order it and you will be richly rewarded.  We'll give you more details as the time to buy draws nearer.

Ask Van...

Everything we do here at the Van Tharp Institute is focused on helping you improve as a trader and investor. Consequently, we love to get your feedback, both positive and negative!

Click here to take our quick, 6-question survey.

Also, send comments or ask Van a question by clicking here.

Back to Top

Contact Us

Email us at [email protected]

The Van Tharp Institute does not support spamming in any way, shape or form. This is a subscription based newsletter.

To change your e-mail Address, e-mail us at [email protected].

To stop your subscription, click on the "unsubscribe" link at the bottom left-hand corner of this email.

How are we doing? Give us your feedback! Click here to take our quick survey.

SQN® and the System Quality Number® are registered trademarks of the Van Tharp Institute

Back to Top