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

• Article An Interview with Super Trader Graduate Mark McDowell
• Trading Education Back-to-Back Workshop Opportunities this Spring
• Trading Tip Matrix Insight: Gratitude by C. S.

Foundation Workshops Only Offered Once This Year, Coming in April

The Blueprint for Trading Success  and   How to Develop A Winning Trading System workshops offer an excellent opportunity for traders to make significant improvements in their trading business and trading system 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 workshop. Save money by making one trip to NC and taking all three workshops.

For more information on these and other workshops, click here.

Look for the Monthly Market Condition Update Next Wednesday.

An Interview with Super Trader Graduate, Mark McDowell

Lessons From Bear Market Research

View On-line

How did you first hear about Van Tharp?

I first heard about Van Tharp when I read “Market Wizards” by Jack Schwager.  I was intrigued by Van’s method of modeling the behaviors of successful traders.  I read “Trading Your Way...,” which led me to attend the Peak Performance 101 and Blueprint for Trading Success workshops in Raleigh.  After attending the workshops, I joined Van’s Super Trader program.

What would you say were the top three lessons you learned from studying with Van?

The first lesson is the importance of psychology, and that we trade our beliefs about the market.  The second lesson is that position sizing is the way traders meet their objectives.  The third lesson is the impact mistakes have on a trader’s profits and how important it is to eliminate mistakes in trading.

Had you been investing or trading previously?  What type and how did you do?

I had been a buy-and-hold investor beginning in the early 1980’s.  Before I learned about Van and the Super Trader program, I began looking into becoming a more active trader.  As a buy-and-hold investor through the 80’s and 90’s, I did reasonably well.  As a more active trader I experienced “beginner’s luck.”  But I soon realized I had  much to learn about trading.  The Super Trader program was ideal because it focuses on psychology, business planning, and trading systems.

What has been the biggest change in yourself and in your trading over the course of the Super Trader program?

The biggest change is in the way I look at trading systems.  I view them as systems that generate an R-multiple distribution.  I use the R-multiple distribution to assess the system’s performance and characteristics.  Using the R-multiple distribution, I look for ways to position size the trades to meet my financial objectives.  I now spend less time tweaking entries, stops and exits.  Although those parts of a system are obviously important, refining my position sizing strategy has had a bigger impact on my profitability.

What is your current approach to trading?

I trade several systems including a day trading system for stocks and futures, a swing trading system and a longer-term system.  I like to take advantage of opportunities in multiple time frames. 

How do you adjust for changes in the market type?

I monitor the market type in all the markets in which I trade.  As the market type changes, I change over to trading systems designed to work well for each market type.  We’ve been in a bull market in stocks for quite a while now, so I’ve been trading stocks from the long side.  When the market type changes to bear for US stocks, I will stop trading the bull market systems and I will switch to my systems designed to perform well in bear markets. 

Van distinguishes between discretionary, rules based discretionary, and mechanical traders.  What kind are you? 

I use two approaches.  Some of my systems are mechanical in nature and others are rule-based discretionary systems.  The mechanical systems have a clearly-defined rule set that could (theoretically) be automated or they could be executed by someone else who is trained to follow the process.  The rule-based discretionary systems have a set of rules, too.  But the rules allow me, as the trader, to exercise some discretion as to what trades to make and how to manage the trade once I’m in it.

How did you come up with the systems you trade?

I learned some of the systems I trade at Van Tharp Institute workshops, and I trade them according to the rules that were taught at the workshop.  One example is the “5 Days Down” system taught by Ken Long at his workshops.  In other cases, I have modified systems I learned at workshops or from trading books.  I adapted a concept from Larry Connors, where he uses an indicator to highlight oversold/overbought conditions.  I modified Connors’ system to develop a day-trading system.  I’ve used it successfully to go long in bull markets and short in bear markets. It has a mechanical rule set, which is easy to follow.  It can also be modified to exercise more discretion, with the goal being higher returns than the mechanical rule set. 

You have been doing a lot of research on bear market types.  What are some of the main points you have learned? 

As I researched bear markets and trading systems for bear markets, I found that there are three stages – the transition into a bear market, the bear market decline, and the transition out of the bear market and into the next bull market.  From that perspective, it became clear that the bear market trading systems worked best in one of those stages.  For example, buying put options offers a lot of opportunities for profitable trades at the beginning of a bear market, but it’s less than optimal near the end of a bear market.  

And bear markets don’t typically last as long as bull markets.  So you don’t have a lot of time to develop or adapt systems for a bear market when it arrives.  You really want to have your trading plan and systems ready to go, so you can execute your bear market systems with confidence.  The workshop I am presenting in May is designed to provide the tools one needs for the next bear market.

Have you found the statistics about bear markets interesting?

Very!  According to Ned Davis Research, from January 1928 through April 2012, there were 294 instances where the S&P 500 corrected 5% or more.  Of those 294, the market dropped 10% or more 94 times.  And the market has dropped 20% or more 25 times.  So, there has been an average of 3.5 pullbacks of 5% or more each year.  And there have been corrections of 10% or more about once per year.  That gives a sense of what to expect in terms of the normal ebb and flow of the market.  At the Trading in A Bear Market workshop, we will present more effective methods for determining when the market type has changed to bear.  I think it provides an edge to traders who use it. 

What does your big picture look like?  Are we due or overdue for a bear market?

Looking at historical data, we are in the time frame where a bear market is certainly possible.  The current bull market is five years old, which is in the range where a majority of bear markets begin.  We can than add in other “big picture” considerations, such as the Federal Reserve tapering which may cause interest rates to rise.  Rising interest rates is an example of a “big picture” factor that may be a catalyst for a bear market.

What have you done to prepare personally and professionally for the next bear market?  Are you ready?

Well, I think I’m ready!  I have two stock day-trading systems that should perform well in a bear market.  My longer-term systems are designed to move to “safe havens” in the event of a US stock bear market.  And I have mapped out plans to take advantage of an expected increase in volatility that occurs in bear markets. 

How did you decide to develop a workshop on bear markets? 

I was talking with Dr. Tharp last year about my interest in developing and conducting a workshop.    We thought it would be interesting to pull together all the information about bear markets and to identify several trading systems and a number of trading strategies that would work well in a bear market.

Trading system and trading strategy — is there a difference?

A system has a complete rule set with specific rules for entries, stops, and exits.  A system has been traded, so it has a sample of live trade results.  A trader could begin executing trades according to the rule set almost immediately.

Strategies consist of an outline for a system, which can be adapted by each individual trader to meet their own needs.  Strategies have few or no live trade samples.  Despite strategies being more general in their description than trading systems, they offer some compelling opportunities. 

For example, in the workshop we discuss various ways to hedge a portfolio.  The method and extent to which a trader chooses to hedge are specific to the trader’s portfolio and his/her objectives.  Obviously, those considerations can’t be defined in a specific rule set.  And yet, using hedging as a strategy to protect a portfolio has some valuable benefits which I think are worth knowing.  So, we discuss how to apply the strategy and then traders will be able to develop their own specific rules to meet their objectives. 

How do you intend the bear workshop will help traders?

We are all familiar with the common perception of the bear market — fear and panic.  And that's a normal reaction for an average investor, mainly because they're not really prepared for the bear when it happens.  However, imagine that instead of fearing a bear market, you can have a plan that you can methodically execute to transition into the bear market.  And you can execute this plan calmly and with confidence, knowing that you're taking steps to protect your portfolio.  In addition, you can be prepared to capture profits using trading systems designed for bear markets.  I believe the primary benefit, aside from the trading systems and strategies that we will share, is that participants will be able to use the information we are providing to plan what steps they want to take when the bear market (eventually) arrives.

What topics will you cover during the workshop?

We are going to talk about several ways to identify the market type and what a bear market looks like from a statistical perspective.  Understanding one's own psychology and how that affects what you do is important, so we will discuss that.  We have systems and strategies for each stage of the bear market — at the beginning as the market transitions from bull to bear, during the bear market downturn, and at the end as the market transitions from bear to bull.  Each stage has different characteristics and it's useful to have a complete tool set, so to speak.  And we will also do simulations of some of the trading systems, so participants can try out the systems during the workshop.   

Why are you teaching other people these trading systems when you could stay home and trade?

Before I began trading, I led large project teams.  Mentoring, coaching and training others were included in my responsibilities and I enjoyed helping others realize their potential.  When I ran my own consulting business, I focused on the people side of business — leadership development, coaching and team training.  As much as I enjoy and benefit from trading, I remember how much I enjoyed roles with elements of teaching and mentoring in my former career.  So it is a natural transition for me to teach others what I've learned about trading.  And The Van Tharp Institute is the best place to do that.

Watch Mark's short video summarizing the Trading in A Bear Market Workshop.

About the Author: Mark McDowell graduated from the Dr. Tharp’s Super Trader Program and has been profitably trading stocks, futures and options full time for several years now. Over the last six months, Mark also developed a new three-day workshop, Trading in a Bear Market. In the workshop, Mark will demonstrate systems and strategies for trading successfully at each stage of a bear market. The first Trading in a Bear Market workshop will be held May 2-4 at the Van Tharp Institute in Cary, North Carolina.

Workshops

Combo Discounts available for all back-to-back workshops!

See our workshop page for details.

Matrix Insights: Gratitude

by C. S., A Trading Beyond the Matrix Reader

I first heard of Dr. Van Tharp in Jack Schwager’s book, “Market Wizards”. Although the book had very interesting life and trading stories, it was the chapter with Dr. Van Tharp that spoke directly to me.

At that point, I had already invested over a year’s worth of time and money into becoming a successful trader. I had bought books, attended seminars, set up a brokers account, paper traded and traded for real.  Things seem to be going in the right direction as far as paper trading was concerned, but somehow I could not transfer the same good results to my real trading.

It was clear to me that the problem was in myself and my psychology because the only difference between paper trading and real trading was my mind-set, my feelings and my emotions.

Dr. Van Tharp’s chapter in “Market Wizards” was the first thing I had read that shed a light on my problem. Here was a man of science saying that trading is 100% psychology and I believed him because I was living through it.

After that, I signed up for the Van Tharp Institute’s newsletter and started getting familiar with the Van Tharp Institute’s books and courses.  I remember thinking that the courses were so interesting and that once I started making real money with trading I would take some of these courses. Since I had quit my previous occupation as a management consultant to dedicate myself completely to becoming a trader, I had not had any income for years and therefore was measuring my expenses very carefully. 

I purchased his book on Electronic Day Trading and by the beginning of 2013 I was already standing by to get “Trading Beyond the Matrix”.

The book finally came to me in June 2013 with a bunch of other books that I bought at the same time. Saving the best for last, I finally got to read “Trading beyond the Matrix” in November 2013.

The depth and honesty in which the book is written was surprising and unexpected to me. I was hoping to find a lot of content on psychology but did not expect to find the in-depth spiritual transformational journeys that it presents in such a candid manner.

I was so involved and seduced by Dr. Van Tharp’s story, along with the Super Trader’s stories that I wanted it for myself. I knew that in order to have that I needed to finish the book.

Reading it was easy, but as it happens with all of Dr. Van Tharp’s books, they are not only meant to be read, they are also meant to be done. Doing “Trading beyond the Matrix” was a much tougher job than reading it, but I knew that was where the real reward was.

One of the first lessons from the book that I put into practice was gratitude. Although I have always been a spiritual person I never learned how to meditate; and although I had always believed in a Higher Power, I never really had a close relationship with it.

So I decided to start and finish my days with a list of gratitude to my Higher Power. The effect of gratitude alone was enough to make the book worth reading. The power of gratitude is incredible. It was so liberating to focus on all the positive things and the infinite generosity of the universe instead of focusing on the negative. My lists became longer every day.

As the gratitude lists increased, the presence of my Higher Power became clearer and closer. Just as the Super Traders described in the book, I believed that my Higher Power loved me and had a wonderful life planned for me. I realized that whenever I sabotaged myself I drove myself away from my Higher Power and from that wonderful life.

With these beliefs growing stronger within me, things started to happen on the outside. I finally reached my goal weight, something that I had been working on for the past 3 years since I began my journey away from obesity.

I also got the clear realization that I should not keep trading with real money as it would be useless practice until I got proper education. Around the same time, I received a Van Tharp Institute newsletter promoting the Peak Performance 101 Course at a discounted rate.

Even at a discounted rate and adding the flight and hotel costs it was a significant expense for me, considering that I had received no income for the past 2 years. I was not sure I should make the investment but I felt my Higher Power strongly directed me there. It was surprising how easy it was to find and book convenient flights and hotels even coming from the remote place I live in. 

Having this closer relationship with my Higher Power was like having an engine propelling me forward in the right direction. If it had not been for the book and the lessons in gratitude and connection with my Higher Power, I think I would have never overcome my fear of uncertainty and would not have signed up for the course.

I also received a clear message from my Higher Power that I was to give 100% commitment to everything that would take place in the course. I should not hold anything back and give myself completely with no judgment. That was my only mandate. As it turned out, the course was pivotal in my journey of self discovery.

In one of the course’s sessions we did a sort of meditation/regression with the objective of finding out old feelings that have been with us almost all our lives and that are holding us back. Until that moment I had never been subject to such procedure of regression so I did not know what to expect. But I followed the instructions of my Higher Power and plunged into it.

I have such a vivid recollection of what happened in that regression that it feels like the memory of something that happened in the real world as opposed to inside my mind. The image might not make enough sense to be described but the important thing is that I discovered the underlying feeling that was holding me back all my life: guilt.

Following the lesson, the instructors taught us to release those feelings. It was a very emotional moment for me. I felt that something had really changed. It felt like my core, my DNA had shifted and re-arranged.

After that there were a series of things that happened in that course/trip that seemed like a domino effect of positive things. There are too many happy encounters to list them all here but it was everything from winning enough money in the trading game to cover my hotel bill, to having the airline move my reservation to a much better seat than I had before. All these little things seem irrelevant on their own, but put together they formed a chain of positivity that I had never experienced before.

The course finished with a Oneness Blessing which was another life changing event for me. The surge of energy that I felt in the moment stayed with me and seemed to multiply. That night, back at my hotel room I could not sleep and had to go for a 10k run in the middle of the night to release some of the stored energy.

Back home I was determined to keep on that journey and find other ways to develop my relationship with my Higher Power and actively participate in Oneness.

So I went back to the “Trading beyond the Matrix” to apply the learnings of the course and do chapter 12 step-by-step.

The first steps in chapter 12 tell us to identify all our parts and their beliefs and then do a belief paradigm assessment for each belief. It is a long and strenuous process. I discovered many things about myself and about the people in my life. Some things are not pleasant and stir up very negative feelings. But somehow, having released my guilt in the Peak 101 course and having applied the same process to other negative feelings made it very easy to get rid of useless beliefs.

This is a process that I repeat almost every day as I am constantly aware of my feelings and rid myself almost immediately of any negativity that shows up. It becomes increasingly easy and now it seems that negative feelings cannot stick. My guilt was like Velcro in which all the negative feelings and useless beliefs would stick and stay. Now I have removed the Velcro and nothing stays.

Again, the external effects of getting rid of negative feelings and beliefs have been too many to list, but here are the most important categories:

1. After freeing myself from guilt and negative beliefs, I realized that all the times of suffering in my life had been of my own doing. I realized that I was never supposed to have suffered like that and I did so to get atonement for my guilt which was not real to begin with. Now, it is increasingly more and more difficult for me to hurt myself. Be it with bad habits like drinking, smoking, eating poorly, being sedentary or by having a bad attitude, being around negative people and damaging situations. It feels like there is an invisible shield or force that blocks my actions and thoughts whenever they are going to harm me.

2. The less negative beliefs I have about myself, the easier it is for me to do new things and do them well. For example, recently I had to design a website, something that I had never done before. Previously I would have believed that I am not a web-designer and I would not know how to do it. But now, I started the process with no beliefs about it at all. It was just a task that needed to be done and I did it successfully.

3. All these changes have also brought on the unexpected effect of transforming me into a channel. There have already been two situations in which I managed to liaise between people who could do something specifically good for each other and who would have been unlikely to meet if not through me.

4. The use of creativity has been heightened together with the clarity on taking decisions and finding the right path to follow. This has helped me come up with ways to earn money to fund my trading education and helped me make the right decisions to keep me on the path of truth.

5. The constant awareness of my thoughts and feelings keeps me close to my Higher Power and it guides me in small and large issues and decisions thousands of times each day. My Higher Power is me and I am her. She is my ideal self. She is the one who can guide me to the wonderful life that I deserve.

There are 9 steps in chapter 12 and I am only starting on step 5. Nevertheless, these are all the changes and impacts I can already report. I am eager to move on in my journey and curious about all the potential yet to be unlocked.

The book lives on my bed-side table because I read it very often. It has served as the great catalyst of all these chain events that unfolded and it remains an invaluable guide.  I am grateful that Dr Van Tharp wrote it, I am grateful that it reached me, I am grateful that I could read it. I am grateful.

About the Author: The author has requested to remain anonymous.

Enter the Matrix Contest for a chance to win a free workshop!

We want to hear about the one most profound insight that you got from reading Van's new book, Trading Beyond the Matrix, and how it has impacted your life. If you would like to enter, send an email to [email protected].

If you haven't purchased Trading Beyond the Matrix yet, click here.

For more information about the contest, click here.

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