Tharp's Thoughts Weekly Newsletter
: Modeling Trading Success by Van K. Tharp, Ph.D.
: Forex Workshop Added to September in Berlin, Germany
: FOMC Announcement + Option
Expiration Week = An Edge? by D. R. Barton, Jr.
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Modeling Trading Success
by Van K. Tharp, Ph.D.
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On August 11th through the 13th I will be presenting Modeling Great Trading Through Mental Strategies (Peak 204), the newest workshop in the Peak Performance Series. I think this is one of the most important workshops I’ve ever taught and it might currently be the only workshop given in the United States that covers modeling success — especially modeling something as big as trading success.
First, I'd like to give you a little history of Neuro-Linguistic Programming (NLP) Modeling, so you may understand why I think this new workshop has such huge impact on people.
Early NLP History
Richard Bandler was a student at Kresge College (UC Santa Cruz) and given the assignment, under the supervision of Dr. Robert Spitzer, of transcribing tapes of Fritz Perls doing therapy. After working with the tapes for a while, Bandler could duplicate almost anything he heard Perls say and pretty soon Dr. Spitzer was calling him Fritz because he sounded so much like Perls (voice, tone and tempo).
Bandler had read a book about Gestalt Therapy and the idea of hallucinating Mom and Dad in a chair and yelling at them seemed like great comedy to him, so he did it. Interestingly, he noticed that this “comedy routine” seemed to have an impact on people who did it.
Later, Bandler taught a student-directed workshop on Gestalt Therapy under the supervision of Dr. John Grinder. In these workshops, Bandler would impersonate Perls and students began to experience changes in their lives. That got John Grinder involved in analyzing the linguistic patterns involved.
Dr. Spitzer sent Bandler to Canada to record Virginia Satir which led to Bandler being able to copy Satir and adding her patterns. With Grinder helping Bandler with what they were doing with language (linguist forms), these two examples resulted in two men being able to copy a free form of therapy. So Richard Bandler became the first modeler by being able to copy the micro-strategies of two famous therapists. Much of what they did was called the meta-model. Later they also interviewed Milton Erickson and they called this the Milton Model. Both are the famous NLP models that people who take NLP practitioner courses learn.
This early NLP modeling was extremely simple. Bandler and Grinder believed that you should find one exceptional prototype, model that person’s micro-strategies and then see if you could do them yourself. And the result was they could copy certain types of therapy and micro-behaviors such as spelling strategies. I was attracted to NLP because of the modeling, but I didn’t realize it only pertained to these sorts of micro-strategies.
Missing from their initial efforts, however, was any attempt to model something “big” such as trading success or wealth creation. Bandler had an interest in the stock market and when I told him I was doing that sort of modeling, he said, “Have you applied it to yourself?” At that time (mid 1980s), I didn’t even have the models worked out so I said “No” to which he replied, “then I’m not interesting in talking with you.” His modeling was limited to micro-behaviors which could not handle something “big” and to the best of my knowledge, Bandler never got anywhere with modeling trading success or wealth creation.
Some years back, another NLP expert tried developing a trading model. I once heard Charles Faulkner (see the New Market Wizards) explain how he modeled Richard Dennis. First, he subscribed to a magazine in which Dennis wrote a monthly column. He read every column for a year looking for Dennis’ metaprograms (basic unconscious patterns of how someone works, such as, do they move toward things or away from things for their motivation). He then attended a talk Richard Dennis gave and said that within ten minutes he had his metaprograms down. Later, Faulkner talked about how he was going to start trading futures and that his primary task was to manipulate his convincer strategy (a basic micro-strategy for determining how to convince yourself of something) so that he would be convinced that he could do it. When I heard his intention to trade money based on this modeling approach, I was horrified. I’m not sure how someone could possibly think that such an overly simplified model captured all that was involved in trading success. Good luck to anyone else who might want to try that approach.
I once attended a workshop in which John Grinder and Robert Dilts presented on what each thought was the most important aspect of modeling. Dilts said the strategy was the most important (i.e., for duplicating some skill) while Grinder said it was the mental state. In those days, however, both still had a very limited view of what was important.
In a 2006 tape series I heard David Gordon talk about modeling an ability. Among all of the details, Gordon said that you first need to determine the criterion or the primary standard for evaluating that ability. You also needed to get the conditions necessary to satisfy the criterion and what the criterion means to that person, including examples of evidence of having met the criterion. This was basically all Gordon did with beliefs (which was a lot better than what prior NLP researchers had been doing). The rest of his modeling process focuses on determining the primary strategy which manifests the ability plus the secondary strategy which is what they do when the primary criterion doesn’t work.
Now with just that information, do you think you could duplicate trading success? Well, they do also ask for the mental state necessary to manifest the ability and the signals that the person uses to determine whether or not the criterion is being satisfied.
I thought to myself, well the top tasks of trading (given in the Peak Performance Home Study Course and in Peak 101) could be used as an example of what someone does to trade well. So what would happen if I modeled the tasks of trading using David Gordon’s method? The net result was that I determined that if someone asked me the primary criterion for the tasks of trading, I would say “Not to make any mistakes.” And if I said that, then the best I’d get out of the modeling is a global overview of about only 3—4 of the primary tasks of trading out of the dozen or so the top tasks model has. So in my opinion, Gordon’s model was woefully incomplete. At minimum, you needed to determine if there were multiple criteria involved in the ability that you were trying to model.
Modern Modeling Models
I was fortunate enough to have taken a modeling course from Wyatt Woodsmall. I’m not sure how many times that course was given — probably only a few times. But I got to take it and it changed everything for me.
Woodsmall said that you cannot develop an effective model by looking at just one person. If you did, then you would just model what was unique to that person. Every modeler that I’ve mentioned so far, however, focused on modeling just one person.
Second, Woodsmall said you must determine what these people did in common. So what if I asked ten good traders what they did and each one told me something about their trading system — all of which were completely different systems? Then I would know that the trading system per se is not the key to success (and I’ve been saying exactly that for a long time).
Finally Woodsmall said that for each task involved, he needed to know three things — the mental states, the mental strategies (on which the early NLP modelers were already focusing) plus the BELIEFS for each task. When I learned about each task incorporating certain beliefs, I knew I now had everything necessary to begin fully modeling the top tasks of trading. The top tasks model teaches you the common important elements of executing most trading systems plus it helps you get through the day without making mistakes. That’s what’s important for trading success.
And that has been much of my life’s work over the last 30 years. However, for a complex skill like successful trading there are a lot of things that need to be modeled. Through the years, I’ve modeled:
||The tasks of trading.
||How to develop a trading system that fits you.
||How to achieve your objectives through position sizing.
And all of these processes are important to trading success. In addition, to adopt any of these models you need to be fairly clear of non-useful beliefs and negative states that might interfere with the success of adopting the model. For example, if you are not organized or tend to procrastinate or run away and hide each time you encounter some major psychological issue that impacts your life, then you don’t have a chance at becoming a successful trader. This is why I have divided the Super Trader program in two stages. In Super Trader I you learn the models, basic Tharp Think beliefs, and you clear out everything that might prevent success. Then in Super Trader II, you apply all of that and prove that you can overcome any obstacles that might get in your way at the end of the program by live trading at a high efficiency level.
L. Michael Hall’s Neurosemantics
In the late 1990s Richard Bandler filed a lawsuit that basically killed NLP in the United States. My understanding is that the lawsuit bankrupted Bandler as well as drove most of the NLP practitioners out of business in the U.S. There are still about four organizations that give NLP training in the U.S. now but they only provide courses one or two times a year. NLP is almost dead in the U.S. There are a number of organizations, however, that provide frequent NLP oriented training in many other countries across the globe. Dr. L. Michael Hall heads one of those organizations and all of his workshops in 2015 are outside of the US. Dr. Hall’s workshops are mostly advanced level courses that require NLP certification.
Hall started out in NLP but focused his research and practice on a new area he called Neurosemantics, partially as a result of Bandler’s lawsuit. In addition, he has developed some very advanced models for modeling. He basically says there is a hierarchy to how we operate and you have to understand the entire hierarchy. Interestingly enough, Dr. Hall calls his advanced model The Matrix Model while I called my latest book Trading Beyond the Matrix.
Dr. Hall says you have to understand the impact of a number of matrices upon how a person does things. His matrix model includes three process matrices and five content matrices. Furthermore, there can be hierarchies to those matrices. You can read about these areas in his book The Matrix Model: The 7 Matrices of Neuro-Semantics. Or you can learn how they apply to trading by attending Modeling Great Trading Through Mental Strategies (Peak 204).
Overall, we believe that Dr. Hall’s models add a great deal of utility to modeling and in the long run they might shorten the process of duplicating success. For example, we’re currently looking at such issues as 1) do certain metaprograms prevent someone from trading well or from even doing the self-work necessary to trade well and 2) if so, how can we mitigate the impact of those metaprograms.
Dr. Hall believes that intention is a key process matrix behind success. And this is similar to one part of Super Trader 1 in which we make sure everyone understands their purpose in life — which then becomes the motivating factor behind trading well.
Dr. Hall believes in multiple levels of meaning and in determining the overall meaning that you give to a task. We’re currently looking at the impact this might have on our various tasks of trading success — perhaps it’s just an added dimension. What meaning do you give to trading? Perhaps that meaning applies to many areas of your life. You should already know from the Peak Performance Course that if trading is only about money, you have very little chance of success.
Anyway, right now I believe that Peak 204 is the only course currently given in the US that has a major emphasis on modeling a major skill area such as trading success. (Peak Performance 101 teaches everyone the top tasks of trading model, but that workshop is not about the modeling process). The focus of the Peak 204 workshop is “how to understand yourself better.” I personally think that’s critical to re-engineer your life and your trading for more happiness and better results.
The August dates will probably only presentation of Peak 204 in the US this year. While it’s mostly full with Super Traders, we still have some slots open if you would like to consider taking it. It is a very advanced workshop and requires Peak Performance 101 as a pre-requisite.
And, if you are interested in transforming your life, please consider reading Trading Beyond the Matrix if you haven’t done so already.
About the Author: Trading coach and author Van K. Tharp, Ph.D. is widely recognized for his best-selling books and outstanding Peak Performance Home Study Program—a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at www.vantharp.com. His new book, Trading Beyond The Matrix, is available now at matrix.vantharp.com.
Update to the Super Trader Program
Recently, Dr. Tharp announced a price increase coming soon for the Super Trader Program. And, you still have time to apply and be accepted into the program at the current rates!
There are two opportunities to attend qualifying workshops in order to be considered for the program before the price increase takes effect. One is the Oneness Awakening Workshop in just a few weeks and the other is Peak 101 in August.
Click here to read more and see the deadline for the old prices...
Combo Discounts available for all back-to-back workshops!
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FOMC Announcement + Option
Expiration Week = An Edge?
by D. R. Barton, Jr.
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The very first article I ever wrote for Van’s training empire was back in October of 2000. It was the lead article for the venerable Market Mastery newsletter. And one of the points in the article was whether traders and investors should try to “game” potential price shock events like FOMC announcements. (The conclusion was — no you shouldn’t.) It’s interesting that number crunching 15 years’ worth of data confirms this analysis now — with one interesting twist.
For those of you who haven’t been with Van for decades, here’s a very brief history of his periodic publications. At the insistence of attendees, he started a quarterly 8-page snail-mail newsletter called Course Update for folks that had attended Peak Performance (now Peak Performance 101) and just couldn’t get enough of that Van Tharp goodness.
Course Updates migrated in the mid-1990s to a monthly printed newsletter called Market Mastery. Van must have liked the article I submitted because in November of 2000 he asked me to be on the editorial board for Market Mastery where I served until it stopped publication in 2006 after an 11 year run. By then, it was clear the Internet thing was the wave of the future and that the Tharp’s Thoughts e-letter would be the primary communication vehicle. By that point, Tharp’s Thoughts had already grown a huge subscriber base as a highly respected repository for Vans cutting edge ideas and made room for a few friends and fellow market aficionados to chime in.
Yet I digress — let’s get back to the topic at hand — the Fed and Options Expiration (OpEx)! Triple witching OpEx (explained below) and a FOMC meeting have happened the same week about twice per year on average over the last 15 years. We’ll look at some interesting data concerning these concurrent events.
Don’t Overlook the Importance of OpEx
Let’s start with OpEx first. We get a triple witching “hour” every quarter on the third Friday of the last month of the quarter. This is the day that stock market index futures, stock market index options and stock options all expire on the same day. Most people just call it “triple witching” now excluding the original reference to the 3—4 p.m. time frame of heaviest volume that is a bit anachronistic.
And lest you think that this quarterly event is not a big deal, the following chart begs to differ:
Click here for larger image
I didn’t even need to mark up the chart to point out the quarterly event — you can clearly see the eight highest peaks which all happen on triple witching OpEx days. So there is lots of extra activity in the markets as people balance up accounts and roll to new expirations. The next triple witching hour comes this Friday, June 19th.
FOMC – Of Course It Moves the Market
As I described last week and in plenty of other articles, the biggest and most consistent influence in equities market today is the action taken by global central banks.
For those of you who have been under a rock, the Federal Open Market Committee or FOMC or “the Fed” is the policymaking body of the Federal Reserve System here in the U.S. The FOMC meets 8 times per year and announces a policy statement at the end of the each two-day session. The announcements now happen at 2:00 p.m. eastern time on the Wednesday at the end of the session. The current “Fed announcement” may have happened by the time you read this article.
Now, The Interesting Data.
The quants over at paststat.com have crunched some numbers on what happens to the S&P 500 during a FOMC meeting week — with and without an accompanying OpEx two days after the FOMC announcement. To save you from digging through a couple of big tables of data, I’m going to give you a summary of the key findings.
These data are from the beginning of 2000 and are for a week’s worth of trading in the SPY from Friday close before the FOMC meeting to the Friday close the week of the meeting.
So there seems to be a statistical advantage in having a second “volatility” event hit during FOMC week…
I’ve asked some traders about their thoughts on what could drive this difference. Is there some underlying force or is this just a statistical anomaly? Their take — there seems to be something to the double event. One long-time Wall Streeter put it this way: “The Fed has tended to be more dovish (accommodative or easing) over the past decade. Couple this with the probability that most options traders experience more gamma risk during OpEx week, and there is a tendency to put a bid under stock prices. (Gamma risk is the risk of big moves against their position — gamma is the acceleration of option premium price vs. the price move of the underlying or the rate of change in option delta vs. price moves.)
Could You Trade This Edge?
As of midday Tuesday (June 16th), price is within a few ticks of where it closed on Friday, so if there is any movement this week, it will likely come from the FOMC announcement or OpEx mania. Could you make money buying the S&P 500 here (midday Tuesday) and selling it Friday at the close? That’s been the case in about ¾ of the times over the last 15+ years. As with any trading strategy with an edge, this one is likely to work over time so long as it is executed with an appropriate position sizing strategy and good exit discipline. I believe this idea is less of a good standalone trade, however, and more of a useful indicator to guide your normal trading activities.
Your views and comments are always welcome - please send them to drbarton “at” vantharp.com — I always enjoy hearing from you!
Editors Note: This is not intended for readers to act on as trading advice but more so to give you ongoing ideas of edges that can be found in the markets.
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 analyst on Fox Business’ Varney & Co. TV show (catch him most Thursdays between 12:30 and 12:45), on Bloomberg Radio Taking Stock and MarketWatch’s Money Life Show. He is also a frequent guest analyst on CNBC’s Closing Bell, WTOP News Radio in Washington, D.C., and has been a guest on China Central Television — America and Canada’s Business News Network. His articles have appeared on SmartMoney.com MarketWatch.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".
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June 17, 2015 #738
Van's Top-Twelve Favorite Trading Books
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