Tharp's Thoughts Weekly Newsletter (View On-Line)
Trading Better With Your Personal Learning Style
Equities At Another Key Juncture by D. R. Barton, Jr.
Two Free Teleconferences
When Van first developed the Blueprint for Trading Success Workshop, he held a series of teleconferences which were more or less lessons from the workshop. Each teleconference audio recording lasts for more than an hour and is rich with useful information for anyone who wants to start or improve a trading business. Even if you have no interest in attending the workshop, feel free to listen to Van’s lectures. Click here to listen.
We only offer Blueprint for Trading Success and How to Develop A Winning Trading System once each year in the US. This year they happen in North Carolina in late April and present an excellent opportunity for traders to make significant improvements in their business and performance. Plus, we have developed a new technical workshop so traders can reap substantial rewards preparing for the next market downturn by attending Trading in a Bear Market. Save money by making one trip to NC and taking all three workshops.
For more information on these and other workshops, click here.
Trading Better With Your Personal Learning Style
For the past 15 years, I have been teaching in different adult learning settings and have come to appreciate the importance of understanding individual learning style preferences. These personal preferences can help both student and teacher shape the environment for optimal learning.
Below is an exchange between a fellow trader and I in which we examine how his learning preferences combine with his preferred global information processing mode to create a particular approach in developing new ideas for the market.
The learning model referenced in the conversation involves three ways to take in information: visual, auditory, and kinesthetic. Each of us has some level of preference for those three modes and understanding how we most effectively receive and process information helps us identify optimal ways of learning individually. In the following conversation, Mark refers to his learning style as VKA. This means he learns visually as his primary mode, then kinesthetically and least in auditory mode. In addition, Mark uses an altitude metaphor to touch on the aspect of global knowledge vs detail knowledge.
Every person has a different learning profile and our conversation highlights some of the strategies that might be employed to accelerating one’s personal learning.
An email, from a trader, Mark D:
I’ve been doing a lot of reflecting/journaling as I traded over these past several weeks and something came up that I wanted to get your opinion on.
I’ve always had a very specific learning style when it comes to new concepts/new information/idea experiments. The process goes something like this:
I’m presented with a new idea, new information, new concept, ect…
I’m either interested or I’m not.
If I’m interested, I immediately want to move up to a 50,000 foot “view” (as a side note, I shut down if I start getting 10,000 foot details in the beginning).
Once I start “seeing” the concept (as a VKA learner) from a higher view, then I want to push at the edges. In my journaling I described this as “my consciousness wanting to locate the boundaries and then seeing if I can break them.”
It’s hard to describe, but as I probe for the boundaries, the details (40,000, 30,000, 20,000 foot details) almost start to auto populate in my mind as I either break through to the next boundary or see that the boundary is real and cannot be broken.
Once my mind feels satisfied that it has found the hard boundaries then I am open to filling in the details that didn’t auto populate.
The speed of this process directly correlates with my level of interest in the new material (how far down the rabbit hole do I want to go?) and my access to boundary information.
With that being said, I’m working on exactly how to meld this process into my development as a trader. It seems that the limiting factor for me in this process is access to boundary information.
My question for you is, when you have a new idea/thought experiment, how do you go about the initial stages of discovery? What resources do you use to leverage your abstract ideas into quantifiable data so that you can see if you want to go further down the rabbit hole? What can I add to my toolbox so that I can locate the boundaries of my thought experiments?
Thanks for any advice you can give me on this.
Mark, what you’ve described is a classical top-down visual approach to new material. As a VKA learner, your auditory preference is the least developed and therefore is also a source for creativity. I would suspect that the act of putting these insights into words and then reading them, listening to the sound of your words in your head can lead to some profound feelings and deep creative insights.
The idea of using a top-down approach, bounding the learning domain and only then proceeding to the details is indicative of the global approach to processing new information, which I share with you. What you are describing sounds exactly normal to me from the top-down perspective — I hate to get into details until I’ve scoped the new environment that I’m working with.
In terms of applying this to your development as a trader, here are some thoughts to consider:
1. Trading production: I would think that you need to have a very clear set of visual references in order for you to feel comfortable that you understand what the trade should look like in each of the phases of its life-cycle. I’d recommend putting together flashcards that help you describe those ideal states.
2. Creativity: I think the visual imagery combined with the narrative quality you’ve already shown is one way to develop insights from what you see into narratives that you can understand as a holistic system. I would think that you need to have the trading strategy makes sense in a narrative kind of way. The act of writing that narrative will help you convert your creativity into actionable images.
3. Your kinesthetic mode is the middle preference style and my sense is that you need to feel that the image and the words are connected and practiced for it to feel right. I would think that it has to feel stable for you to be able to proceed into routine production trading with the system.
4. Boundaries: Because of your global approach, I think market classification and matching that to appropriate strategies would be an important part of your toolset. My advice would be to give careful consideration to how you define market types that are appropriate for a system as well as bounding those with specific parameters and indicators that you intend to become expert in.
That’s my take on it.
One of the most powerful ways to accelerate your own learning would be to use a network of traders in which learning partners work together in a supportive environment to explore different perspectives on the same trades that everyone works on. Sharing different perspectives in a positive way allows us to harness the power of mutual critical thinking to gain new insights. A good learning partner can help you with critical thinking by asking the right kinds of questions about the trades that you propose to take or those you have already made, such as:
1. What were the reasons for taking the trade?
2. Which words or phrases in your discussion seem ambiguous and how can we tighten up our language to improve our system specification?
3. Where are the conflicts and assumptions expressed in that trade?
4. Are your descriptions detailed and precise?
5. Are there any fallacies or inconsistencies in your reasoning?
6. How good is the evidence for your intuition? Where would you go for more?
7. What is the case for the opposite side of the trade?
8. What information did you disregard or overlook?
9. Are there other reasonable conclusions possible?
10. How does this case compare to others in this style or system so that we can look for trends?
These are exactly the kinds of penetrating questions we see at Van Tharp Institute workshops where trading teams work together to refine their practice and learn from each other. I agree with Van’s assessment that the best trading results come from a blend of seasoned self-aware traders using discretion to supplement sound practical mechanical systems. We can develop exactly these kinds of skills through a dynamic collaborative learning process.
I have found that my own trading performance improves in direct proportion to the amount of time that I spend sharing my ideas with others and working together to understand the complex market. I encourage you to explore the benefits of trading partnerships with mutually supportive team members that share your goal of achieving excellence.
Combo Discounts available for all back-to-back workshops!
See our workshop page for details.
Happy Birthday Bull!
Equities At Another Key Juncture
(Author’s note — Part 3 of the Bitcoin series will have to wait until another issue. Today’s article is time-sensitive.)
The equities bull market just passed its fifth anniversary this month. The low on March 6, 2009 seems like it was ages ago. Despite what has felt like a relentless bull run for five years, equities have actually seen five separate pullbacks of 10% since March, 2009. To be fair, however, three of those pullbacks occurred in close proximity during the second half of 2011.
When was the most recent 10% pullback? It came in the May–June drop of 2012. We’d have to go back to October of 2011 to find the last 10% close-to-close drop in the markets — which also followed two other 10% pullbacks. These came after the August 2011 U.S. debt rating downgrade and during the height of turmoil for the European credit crisis.
Why is a ten percent pullback so significant and talked about so often? That is the depth of pullback required to be considered a correction by market technicians. The purpose of this article is to give some insight into our current market situation. Let’s dig into the history of 10% pullbacks over the past 65 years and then look at some technical analysis that will give us some key areas to look for when we break out from this short-term congestion area.
A History of Ten Percent Pullbacks
Let’s start by looking at some excellent charts that give us a visual history of ten percent pullbacks. The first looks at the S&P 500 between 1950 and 1970:
This twenty-year period showed an average of about 20 months between the trough of a ten percent pullback and the peak that marked the high before the next correction. Moving forward to the 1980s and 1990s, we see some similarities but also some differences:
Here we see once again, there were only nine corrections in those two decades, but the trough-to-peak durations diverged widely in length. The 84-month period in the ‘90s and the three-plus year run leading up to the 1987 Black Monday crash skewed the average bull run duration but the median for this time period was less than a year.
As most readers remember, the volatility of the market has changed since 2000 and we have had multiple ten percent corrections. The majority of those have come in clusters; seven occurred during the 2000–2003 internet bubble collapse, followed by zero in the period from March 2003–October 2009. The real estate / credit bubble drop contained at least five corrections of ten percent, and we’ve had another five since the March 2009 bottom. So we’ve already had 17 corrections in the 13 years since 2000!
Why even look at these historical numbers? Because it’s useful to see how this bull compares to others. If you only count corrections on a closing basis, then our last ten percent close-to-close drop ended in October of 2011, making this bull push 17 months old.
So even though the bull is aging, there is certainly precedent that suggests that it could grow much older without setting any records…
Current Lines in the Sand
The chart below of the S&P 500 can tell us a lot in just one look:
As the chart shows, when we draw Fibonacci extensions based on the January five percent pullback, we see that our current double top in the S&P 500 cash index has the 127% extension as its cap or resistance zone. A decisive break above those highs should lead to a fairly quick run up the 161% extension level at 1920.
On the other hand, the 1840 level has been a key reaction zone since the end of last year. A break below that level brings 1800 into play followed by the lows set in early February at around 1740. Keep these key levels in mind when we break out of the current 1850–1880 congestion area.
Next time, we’ll continue our Bitcoin / cryptocurrency series with a look into companies that are most likely to benefit from the inevitable virtual currency growth curve, along with those likely to suffer.
I’d love to hear your thoughts and feedback — just send an email to drbarton “at” vantharp.com. Until next time…
Matrix Insight Entry
Dear Dr. Tharp,
I came upon your work through Larry Connors, particularly through the interview you did with him in 4Q2013 that he shared with members of his Chairman's Club. In that interview you talked about many subjects, including position sizing and the psychological underpinnings of trading.
So I was inspired to look deeper, ordering the new edition of your position sizing book and Trading Beyond the Matrix.
As I read your TBTM book I was drawn immediately to Chapter 10 and your spiritual journey. That very day I watched the Oneness blessing, and was almost overwhelmed by the "bigness" of it. I was astonished and grateful for your detailed chronicle of your relationship to your Guides. I have had a vibrant relationship with spirit guides for years, but I rarely speak of that important dimension of life. Thank you speaking where I have remained mostly silent.
My biggest insight is this: for so many years it seemed so real to me that my trading "work" and my spiritual "life" were antagonists competing for my attention and energy. Now I see (sometimes more clearly than other times!) that they are not separate, not disjointed, but of-a-whole. Thank you thank you for inspiring that new way of seeing!
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