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ken$700 Discount Expires Today

on Ken Long's Swing Trading Workshop

Most Swing students have also enrolled in the evening turbo training, which will offer valuable insights from Ken on how to trade the swing signals intraday. 

We recently discovered a short video clip of Ken Long discussing how great opportunities can come from the intersection of different time frames.  He explains how signals from his swing systems create strong intraday trade candidates which can “turbocharge” his swing results. Watch the Video.

Plus, we are offering live trading following the workshop, which will provide a hands on trading experience that will further ingrain the knowledge of how to trade these methods.

We only have 2 seats available so it may be best to call to register—just in case they sell out. 919-466-0043. However, you can register on line as long as there is a seat, click here.


Articlefrank

An Interview with Frank Eaves:

Hit in the Head with a Marble Bag

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Last week, one of Van’s research assistants, Frank Eaves, sent an interesting email to Van and a few of the staff here.  In his note, Frank quoted this selection from Volume 5 of the Peak Performance Home Study Course:

"Most people cannot, and do not, trade with Bill's simple strategy because it is not an efficient decision making strategy. It neither generates options nor effectively evaluates them. But, because your trading system should make decisions for you, it is an excellent action strategy."

In a subsequent conversation, Frank related how he had realized a number of insights from those few sentences.  He explained his insights in plain terms and his ideas seemed to hold a lot of potential value for our clients.  I asked Frank if he’d be willing to be interviewed for an article.  He agreed and here’s how it went:

First, that passage mentions Bill’s strategy.  Who is Bill and what is his strategy?

Van was talking about two traders.  One, named Jack, looked at a chart, considered which directions price might go and considered what could go wrong with each scenario.  The other trader, Bill, used a simple mental strategy to make a trade.  He would see the pattern, recognize it, feel good about it, and place the order. 

Why isn't Bill’s strategy an effective decision making strategy? 

He’s not thinking about all of the options, what could happen, or what the best choice is at this point.  His process is more automatic.  

So that’s why it’s an excellent action strategy?

Yes, exactly.  Bill’s not there to consider all of the options — he’s there to follow his system’s rules. 

Your email made it sound like some idea in that quote really hit you.  What was so remarkable?

Bill’s process makes the key connection between a mental strategy and a trading system. Your trading system has a set of rules for you to follow that generate an R-multiple distribution.  It’s the system’s job to make decisions, not the trader’s. This is a very big piece of the puzzle to being a successful trader and it really brings me back to the foundation of successful trading — myself. 

What do you mean by that?

It’s all psychology.  If you don’t follow Bill’s strategy, you can't execute a system to get a valid R multiple distribution for it.  Without a valid R multiple distribution, you don’t have a meaningful marble bag to craft position sizing strategies to meet your objectives. Without being able to craft effective position sizing strategies, you can’t meet your objectives.  This leads to a cycle of fail, trigger, operate, test, exit, fail, then start over, which probably means looking for a new system.  It can become an endless loop and it’s a rat race — you are looking externally for what’s wrong when really it’s all inside — your psychology.

What do you mean by a “meaningful marble bag”? 

Van uses a bag of marbles at his workshops to represent a trading system.  The marbles in the bag have different colors which represent different R multiple trade results.  Pulling out multiple marbles from the bag is just like executing trades — it gets you a set of R multiple results.  The bag makes a great metaphor for understanding how to look at a system.  Viewing your system as a marble bag simplifies trading so you can use Bill’s mental strategy and forget about being “right” or worry about losing on any given trade.  The marble bag brings a trading system into the domain of statistics and probability and mathematics.  Once you get to that domain, making trades has a lot less emotional charge.  2+2=4 does not have a lot of charge, it just is, and that’s how you should look at your system.

You think traders don’t view their system this way?

A lot of people seem to believe that the trading system is the most important factor in trading success. That’s where the Holy Grail analogy comes from, but that really shows a lack of awareness that the system is just a set of beliefs.  It’s a way to help you generate a set of results consistent with a particular set of rules.  How often though do traders bend the rules when they trade a system?  You may get “good” results from bending the rules but those results are not the results of the system, they are something else. Actually, that’s a different marble bag than the system’s marble bag. 

Why do you think following a system’s rules can be so hard to do?

There are probably lots of reasons but let me just talk about following the rules for a new system.  When you trade a system that’s new for you, you have to adopt the beliefs behind the system and they may not match yours.  It’s kind of like clothes.  You are comfortable in your clothes.  If you come to a technical workshop to learn a system, though, you have to take your clothes off and try on the clothes of the trader who teaches the system.  Those clothes may or may not “fit” you — figuratively speaking.  If, however, you keep your clothes on and try to put the instructor’s clothes over yours for whatever reason, you are definitely going to be uncomfortable.  Which items will you remove first in that case? Not your clothes, you’ve been wearing them a long time and they are comfortable.  So when trading that new system, you’ll do what feels comfortable which probably means doing something other than “wearing uncomfortable clothes”  or following uncomfortable rules.

Systems are just beliefs; they aren’t magic.  Sometimes at our technical workshops, though, I have heard people ask, “Am I allowed do ‘this’ instead of ‘that’?” as if “this” would ruin the magic.  Again, there is no magic.  Adjusting the rules on a positive expectancy system to match your beliefs is going to happen.  Those adjustments may keep it profitable or turn it into a negative expectancy system.  Once you know that, however, you can identify specific beliefs, choose to let go of them and adopt new ones. 

I have seen some traders whose beliefs match closely with the instructor’s and they are able to trade a system well with very few modifications.  Nearly everyone, however, needs to make some modifications to the system’s rules based on their own beliefs.  Sometimes these modifications work but other times, they generate a negative expectancy.  Sometimes people believe that the poor performance comes from a faulty system, but really, it can come down to a new set of clothes that didn’t fit.  A system is 100% beliefs so if someone else’s beliefs don’t work for you, figure out ways to use your beliefs to develop a system.  Again — all psychology. 

Then what advice do you give people about systems?

I encourage people to find any positive expectancy system with a decent SQN score, use the position sizing game to enter a trading system’s R multiple distribution, and trade that — a lot.  Once you have your marble bag, you can see how position sizing strategies are what truly help you meet your objectives — not the trading system.  Try risking 1% of equity, try more, try less, try the other strategies discussed in The Definitive Guide to Position Sizing Strategies, like market's money.  Get a feel for how the position sizing strategy works together with the system results and what one will work best for you.  That said, the limitations of multiple open positions and portfolio heat still matter.  I think you could use multiple bags to overcome this limitation of a single marble bag simulation, but regardless, the gains from understanding the idea far outweigh the limitations. 

After someone understands the marble bag idea and how position sizing strategies really work, following Bill’s strategy comes a lot easier.  And by the way, Bill’s automatic strategy also applies to positions sizing strategies.

How so?

Your position sizing strategy is the engine that will take you where you want to go and helps you avoid where you don’t want to go.  Once you set it though, executing it needs to be a matter of following its rules. Say you created a position sizing strategy for a system that helps you meet your objectives.  The strategy requires you to take the profit from your last trade and risk it on your next trade.  If you are unable to follow Bill’s model with the risk amount, however, then you aren’t executing your position sizing strategy.  The system rules, the marble bag results, your objectives, the position sizing strategy — they all work together, but here, none of that matters.  So where are you going?  What are you doing? 

How about you, what are you doing?

I’m trying to increase my awareness of my mental processes through the Peak Performance Home Study, Van’s workshops and a lot of self-study.  I want to be able to follow Bill’s model and trade really well.  In that process, I keep seeing different ways that trading always comes back to psychology. 

Great.  Thank you very much and good luck.

 

About Frank: Frank Eaves is one of the research assistants for the Van Tharp Institute and has been with the company for about two years. He is a key contributor to software development initiatives and has a current focus on our newest trading simulator. He prides himself in keeping the rest of the office on its toes with his frank and sarcastic sense of humor.

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Trading Education

All Three Peak Performance Workshops Back-to-Back in January!

If you want to make one trip to take all three be sure to catch this set. The next time we have all three together may be Winter 2014 (though this is tentative).

November 8-10

Swing Trading Systems Workshop
with Ken Long

8:00am-4:30pm

November 8-10

NEW! Turbo Charge these Swing Systems
with Ken Long

6:00pm-9:00pm
Stay late and Ken will show you how to use swing trading systems to catch intra-day moves.

November 11-12

NEW! Live Trading for Turbo Systems
with Ken Long

2 days of live trading alongside Ken Long

November 16-17

 Oneness Awakening Weekend
with Van Tharp and Janie Guill

Only a few seats left

 

Early 2014 Workshop Schedule Confirmed!

January
January 16-18

Peak Performance 101

with Van Tharp, RJ Hixson and Janie Guill

January 20-23

Peak Performance 202

with Van Tharp and Libby Adams

January 25-27

Peak Performance 203

with Van Tharp RJ Hixson and Janie Guill

February
February 7-9

Day Trading Systems

with Ken Long

February 10-11

Live Day Trading

with Ken Long

March: Sydney, Australia
March 7-9

Peak Performance 101

with Van Tharp and RJ Hixson

March 11-13

Blueprint for Trading Success

with Van Tharp and RJ Hixson

March 15-17

How to Develop a Winning Trading System That Fits You

with Van Tharp and RJ Hixson

March: Cary, North Carolina
March 28-30

Forex Trading

with Gabriel Grammatidis

March 31-April 1

New! Live Forex Trading

with Gabriel Grammatidis

 

If you are in South Africa and would like have Van host a workshop there, please contact us at van@vantharp.com. There is a possibility he will be visiting South Africa in early to mid 2014.

Click here to see the full workshop schedule or to register.

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Trading TipDR

Where Does the Fed’s Stimulus Money Go?

Part V – A Bigger Picture

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My high school chemistry class was actually a lot of fun.  Half of the students in the class were my good friends and I liked chemistry very much (hence the subsequent chemical engineering degree). I vividly remember one class when the teacher and one of the sharpest guys in school were debating a point — okay, arguing really — about a completely inconsequential topic and the whole class was becoming annoyed.

The teacher, Ms. Duncan, was seriously smart. The student arguing with her was even smarter (he’s now the radiology Chair at Boston Children’s Hospital and a Professor at some Medical School up there that goes by the name of Harvard).  They only were arguing to top the other, hold their ground and prove a point.  Meanwhile, the rest of us were bored stiff.  So I stepped in and offered a baseball analogy — the rest of the class had just made a clean base hit straight up the middle, and those two were arguing over where the foul lines were drawn.  Ms. Duncan said, “That has nothing to do with the base hit!”  I said, “Exactly.”

I love the saying “can’t see the forest for the trees” because it applies so often in real life.  People just naturally seem to get caught up in the minutiae, the immediate problem at hand or their own little problems and fail to recognize the big picture.  See where I’m going with this?

Welcome to the world of Washington politics and the high holy keepers of the worst examples of “can’t see the forest for the trees”.

Kicking the Can Down the Road (Again)

The biggest news of the last week was the refunding of the federal government’s day-to-day operations.  Non-essential government employees returned to work and the politicians got to  delay really debating the debt ceiling again until early 2014.  Hear that can a-rattlin’ down the pavement? 

If we all  step back calmly and look at what just happened without any political party prejudices, we quickly see that we don’t have a budget problem, we have a governance problem.  We have lost the ability to efficiently and effectively legislate.  And I’m pretty sure I’ll never see a national political body make a difficult decision again in my lifetime.  All decisions are vetted through the lenses of entitlement groups — whether they receive a government handout directly (those on the left can yell nasty things about me) or whether they receive special treatment by the government like the financial institutions and the industrial-military complex (those on the right can now say ugly things about my lineage).

The Big Picture in One Cool Graphic

Now, let’s all hold hands and solemnly repeat, “The problem is not about raising the debt ceiling, the problem IS the debt ceiling”.  We are in the midst of the largest financial engineering experiment in the history of economics as we know it.  The unwinding of this will be ugly, barring some technology / productivity quantum leap that allows the global economy to rapidly expand and grow our way out of part of the problem.

In one graphic we see a startling depiction of the big picture (it’s from the Ricochet blog — a conservative gig, but I did vet the numbers which seem reasonably accurate):

chart1

First of all, it’s pretty clear that the debt problem (or more appropriately, the rate of debt growth relative to revenue growth) exists on both sides of the aisle — it is a national problem that doesn’t belong to one political party more than the other.

I now firmly believe that a government that can’t make tough decisions on how to slow spending or increase revenues will have tough decisions thrust upon them by another financial crisis.  Whether that crisis is bad, like 2008 or really bad like 1929+, it’s tough to see us getting a resolution that looks or sounds anything like a “soft landing”.

In weeks to come, we’ll look at some things that traders can reasonably do between now and then (like continue to enjoy the stock market climb until price tells you otherwise).

Until then, your thoughts and comments are welcome — please 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".

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October 30, 2013 #653

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