Tharp's Thoughts Weekly Newsletter (View On-Line)
Opportunities in the Current Market Environment by Van K. Tharp, Ph.D.
Just Announced! 2015 Workshop Schedule
Is Monday Your Worst Trading Day? by D. R. Barton, Jr.
2015 Workshop Schedule, Just Announced!
In the first half of next year, we will be presenting a variety of workshops to fit every type of trader at any level of experience. Whether you are working on your psychology, interested in developing your own system, or a Day Trader looking to learn and modify several already proven systems, we have something for you. In addition, Dr. Tharp will be traveling to Sydney, Australia again in 2015 to present some of his most popular workshops as well as one brand new workshop!
Check out our website for the full schedule and detailed descriptions of each workshop. If you're not sure which workshop is right for you, this page on our website may be helpful, or you are always welcome to contact our office and one of our staff members will be happy to help you decide.
Opportunities in the Current Market Environment
The Current Debt Situation
I have been writing about the horrible US debt situation for years. How can the accumulated government debt (which is greater than $100 trillion) ever be paid back? In what time horizon and by whom? The level of debt is awful and unsustainable. And it’s not just the US. Japan, Canada, Australia, the UK and other EU member states have helped support their economies by doing the same thing — government borrowing in an attempt to create liquidity and pull their economies out of recession. Even China’s credit expansion is significant on a global scale though many people seem largely unaware of what their banking system has been doing.
Compare debt levels from pre-crisis 2007 to 2014. Globally, debt levels have risen 40% – from $70 trillion to around $100 trillion (according to a recent BIS study). This $30 trillion increase accounts for around double the GDP of the United States1.
Did adding this debt help economies and equity markets? Yes. Will this continue forever? Definitely not. Despite a six-year recovery in the equity markets driven by low interest rates and an abundance in liquidity, global fundamentals look horrible. While the first efforts of QE (Quantitative Easing) have helped the economy and the performance of the S&P 500 quite a bit, consecutive QE programs generated only diminishing returns (see below the S&P performance in relation to the QE1 to QE3 program).
Now with the October 29 announcement that QE3 will be “tapering to zero”, liquidity surpluses from the US will no longer support the markets. In addition, the recent volatility in major stock markets has shifted the market picture and we could slip into a “Volatile Bear” market type much more easily and quickly now.
The recent volatility spike revealed the market’s vulnerability. A lot of people got hurt in the mid-October dive and many more were uneasy about it. Since the May 2010 flash crash, many investors and traders have felt uncomfortable holding equity positions. This is a prime reason why retail market participation is at such low levels. On the other hand, the retail investors who have remained in the market have piled on margin. Look at the historical level of margin below (dollar volume of NYSE securities purchased on margin) which have reached all-time highs, surpassing even the overextended levels of 2001 and 2008.
Opportunities and Alternatives
So with debt at unsustainable levels, what are the possible alternatives and opportunities? Either —
- The economy will continue to be held up by another round of QE (in the US and anywhere else) supporting the system to go on for potentially many more years with central banks hoping to heal the debt situation through inflation.
- Measures will have to be taken to reduce debt levels. There are some examples of various levels of austerity measures and financial “repression” (i.e. taking peoples’ money away) which seems to have worked well so far - with obvious amounts of pain. Countries such as Ireland, Portugal and Spain made progress and are showing some signs of economic recovery.
Either way, both scenarios involve some level of crisis. But for those who are prepared, crisis means opportunity! Where can you find the opportunities in an environment of high daily volatility and a potential bear market type?
Consider trading equities short on a short-term basis only. Remember, bear market related volatility makes holding positions overnight (long or short) very difficult.
If we stay in the sideways mode that we’ve had in the S&P 500 for much of 2014, you will probably have a challenging time trading this market type as well. The range change percent has been less than 5% for extended periods in the last year.
Thus, consider trading currencies. Central banks have laid the groundwork for long term volatility and extended currency trends with their policies. This factor alone makes Forex an attractive market to trade for years to come but currency trading has numerous advantages. You can pick your preferred holding period - intraday, swing, or long term and you can utilize a variety of instruments - FX spot, currency ETFs, options, and futures.
Forex trading capitalizes on smooth, clean and consistent trends while mitigating risks. Currency price charts have many advantages in areas where you find drawbacks with stocks. FX has…
- virtually no price gaps (only minor ones over the weekend),
- virtually no slippage in price for small and large market orders,
- no partials fills,
- low transaction costs and efficient order management,
- the ability to go long or short anytime (no structural bias),
- as well as the ability to use position sizing™ strategies with different sized accounts.
All of these factors help reduce risks trading Forex compared with trading volatile equity markets. These factors also help traders reduce the number of mistakes they make. And for me a mistake is not following your rules – in a fast moving volatile market, mistakes are easier to make.
Apart from these advantages, FX markets are — in some sense, unique:
- The price development, reflecting the relative strength of two economies, is typically steady & smooth. Therefore, you can always find a good trend.
- With the 24h-market market, you can choose a trading style, a timeframe and a time of the day that fits you best.
- Tharp Think principles can be applied very easily.
- It is the ideal asset class to start learning to trade — even with a small account.
As Gabriel outlined in a recent article (Rich Man’s Panic), the market environment for currencies is very favorable now. He demonstrated this in person trading his systems publicly at the last “Forex Live Trading” workshop. In 18 trades over the two day workshop, he was able to make more than +20R and had a win rate of 89%.
If you are interested in learning more about trading Forex or investing in currencies, read Gabriel’s article Top Ten Reasons to Trade Forex. You can also find a good list of resources and watch his videos at http://www.vantharp.com/workshops/forex.asp .
All the best,
Van K. Tharp and Gabriel Grammatidis
Combo Discounts available for all back-to-back workshops!
See our workshop page for details.
Is Monday Your Worst Trading Day?
Science May Have an Answer
Mondays are notoriously tough days. From Jim Davis’ Garfield comic strip to every sitcom on the planet, the woes of starting the work week have been well documented. And the same is true for many traders — many find that Monday is their worst day.
Well, science may have an answer.
For people who find that they are tired and listless on Monday morning, there’s a good chance that the condition is self-inflicted — and that’s actually good news. Why? Because it means that it is fixable!
Those who have a tough time getting going on Mondays may be suffering from a phenomenon that sleep scientist have recently identified as “social jet lag”. The term was coined by researchers at Ludwig-Maximilians University in Munich, Germany in 2006 to define a mental and psychological let-down that occurs when your weekend sleep pattern differs from that of your work week.
Articles from the National Institute of Health, The Smithsonian, The New York Times, and numerous information websites have chronicled the increasing acceptance of this new insight as the cause for the Monday blahs.
Let’s spend just a moment to understand this phenomenon and then look at some things anyone can do to overcome social jet lag.
Like Changing Time Zones
Social jet lag is simply a change in sleep patterns that typically occur when our weekend sleep schedule differs from that of our work week.
Say you usually sleep from 10 pm to 6 am on weekdays but on weekends you stay up to 1 am and sleep in until 11 am. That shift is basically like traveling to someplace three time zones away for two days and then coming back. Your body feels a similar effect to taking such a trip, hence the link to the “jet lag” name.
Sleep researchers have discovered that the times that you sleep can be as important as how much you sleep. So even those getting the recommended seven to eight hours a night still might find that they feel bad if they’re getting that sleep at different times throughout the week.
Researchers are also finding that social jet lag may be responsible for more than just feeling sleepy on Monday mornings. In a study published in Current Biology in 2012, a research team found that weekend to weekday social jetlag was correlated to increased body mass index (BMI). Interrupting our circadian clock also throws off our energy homeostasis — and this disruption may contribute to weight-related pathologies. In plain English — throwing off our bodies sleep patterns can lead to less efficient energy burning and subsequent weight gain.
While this is an epidemiological study (study of patterns leading to cause and effect in a specific population rather than a clinical study), clinical sleep studies in animals are starting to bring additional supporting evidence.
What to Do to Combat the Monday “Blahs”
To get your Monday trading and investing chops up to full strength, a well-referenced article on vox.com had an excellent summary on how to defeat social jet lag:
1) Get more sleep during the week. If you're under-sleeping during the week, you're probably trying to catch up on weekends. But catching up by sleeping in on weekends just sets you up for feeling terrible on Monday mornings.
2) Wake up earlier on the weekends. It sounds painful, but try it out for one weekend and then see how you feel on Monday.
(You can think of #1 and #2 combined as essentially shifting your sleep hours from one part of your week to another. You shift your precious time rather than “losing” any of it.)
3) Be smart about naps. If you find you need a nap on Saturday or Sunday, do it between noon and 4 pm for 30 minutes or less, which will be less likely to interfere with your sleep at night. That's according to Bernie Miller, supervisor at the Sleep Disorders Center at the Mayo Clinic in Arizona, via Popular Science.
4) Get sunlight on Monday. If you are tired on Monday morning, get outside and get some sunlight. Remember, your circadian rhythm is set by your eyes' exposure to light, which sends signals directly to your brain to wake up. Even a cloudy day outdoors can be several times brighter than the average office space (which is often on the darker side to accommodate computer screens).
5) If all else fails, get some blue light. If you absolutely can't get outside or you have been plagued with a work schedule that requires you to get up before the sun rises, then crank up those light bulbs indoors. Because the circadian rhythm is specifically responsive to blue light, you also might consider getting a lamp or light bulb that shines blue-ish light. Several companies sell special lighting apparatus for just these kinds of purposes.
Both Van and I have written about various practices you can use to stay mentally sharp for your trading and investing activities. A supportive sleep pattern all week long for your trading endeavors may be one good trading edge but it can also serve as an important piece of your overall health and well-being puzzle.
Great trading and God bless you,
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