Tharp's Thoughts Weekly Newsletter
: Bear Markets Here and There an interview with Mark McDowell
: Day and Live Trading and Trading in a Bear Market This November!
: iPhone Domination in Three Charts by D.R. Barton, Jr.
Back-to-Back Systems Workshops in November
Day and Live Day Trading and Trading in a Bear Market
Day Trading and Live Day Trading with instructor Ken Long
Dr. Ken Long begins this workshop by teaching you two day trading systems, which he calls the Frog and RLCO. Through his lectures you will gain an understanding of each system's interpretations of the market's movements, rules, and variations.
Ken has been a long-time active trader and observer of the markets. He's noticed the consistent habit of prices for particular issues to move a certain amount. Much like a frog jumps when it hears a loud noise, prices tend to move a certain amount before they pause or move again. Different frogs are able to jump different distances, but each one tends to jump about the same distance as it did last time. Would it be possible to know about how far a stock’s price would move on any given day?
Learn how to trade these two great day trading systems, with Dr. Ken Long's expert guidance. After three action-packed days of instruction, you can opt to stay an additional two days and trade these simple-yet-profitable systems live! Students will see in real-time how these systems work in the markets, with an experienced and successful coach in the room.
Trading in a Bear Market with instructor Mark McDowell
How or when will you know the market has turned truly bearish? If we were to find ourselves in a bear market, are you prepared for the powerful psychology? Do you have systems ready to trade the unique market conditions? Super Trader graduate, Mark McDowell will help you understand bear markets and how to profit from them in the upcoming Trading in a Bear Market Workshop.
||Study in depth the concept of a bear market.
||Learn what a bear market truly is and learn several ways to define and measure the bear market type.
||Know when a bear market type might be starting and how to know when it might end.
||Learn 5 trading strategies suited for bear market conditions.
||Learn how options can be especially useful for bear market types.
To register or to see the full workshop schedule, click here.
Bear Markets Here and There
an interview with Mark McDowell
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Mark McDowell developed the Trading in a Bear Market workshop and is scheduled to teach it again in Raleigh November 12-14, 2015. With the US stock market moving into Van’s bear market type recently, we asked him questions about bears.
Q: Bear markets don't occur very often. Why do you focus on them?
A: When people hear the words “bear market”, they tend to think of major bear markets in the US stocks. Yes, those occur infrequently and the last big bear for the US stock market was about 7 years ago in 2007-2008.
The opportunities in those infrequent events, however, are substantial and well worth the effort to prepare for them. One aspect of bear markets is the speed at which the market moves. Traders who are ready for that are able to take advantage of it. If you wait for the big bear market to start before you consider your trading plans, however, you are probably going to be too late to benefit from it.
Secondly, understand that bear markets don’t just happen every X number of years in the stock market, they are here and there and everywhere. You can find them even when the stock market is moving along in bull mode.
Commodities have been in a bear market for some time now. DBA and DBC (two ETFs representing a basket of commodities) have been in bear mode for over a year. USO (ETF for oil) and GLD (ETF for gold) have been in bear mode for most of the past year.
The same is true for certain geographic regions. For example, Latin America (ILF) has been in a bear market since last September. China (FXI) moved into a bear market in early July. And market type thinking can be applied to individual stocks. For example, Wal-Mart (WMT) has been in a bear market since February, dropping from about $85 to $65 recently.
Daily price charts for US oil ETF (USO) on left and Latin America ETF (ILF) on right.
For a larger image CLICK HERE.
Q: Are stocks in a bear market now?
A: From a conventional technical analysis standpoint, we aren’t in a bear market — yet. No broad market index has dropped by 20% from its peak a few months back. Van's market type (defined much differently than the traditional percentage drop), however, shows that SPY (ETF for S&P500) moved to bear mode around August 20.
Classifying a market as "bear" depends on your time frame and what market you're trading. If your time frame is intraday, then your market type may have moved to bear earlier than August 20.
Q: Then what is a bear market?
A: First, you need to recognize that there are different ways to define a bear market. Knowing how to define a bear market is the key to knowing when to use systems that work in a bear market. That's one part of the "secret sauce". Different definitions appeal to different people and so a bear market type among several traders may show up at a similar time, but each may contain different nuances. Whichever definition or measurement used, each trader would apply that definition consistently to a particular time frame to determine which trading systems to then use. You really want to use trading systems that match your time frame and are designed to work best in a market type.
Q: So you have trading systems for bear markets?
A: Yes I do and I teach a number of systems and strategies designed for bear markets. Trading systems are defined with a full rule set and some form of documented performance. Trading strategies provide an overall structure that can be adapted to each trader's unique circumstances. Both require some level of work (systems less, strategies more) to develop into systems that truly fit you. We align each system and each strategy within the three stages of a bear market.
Q: What do you mean by “three stages of a bear market”?
A: A “bear market” isn’t a static category of market type that switches on at some point and then switches off later. Bear markets tend to evolve over time and I have found that they typically have three phases in them. For lack of catchier titles — beginning, middle and end. Rather than say there are bear market systems and strategies, I teach how each system or strategy best fits one of the three stages.
For example, we have a strategy for the beginning of a bear market using put options to hold a long position with the expectation the puts profit from the decline in prices during a bear market. For the middle of the bear market, we have two strategies that short stocks and another system that goes long volatility using ETF's that track volatility. As the bear market ends, we present two strategies designed to take advantage of the market's transition from bear to bull and the shift to lower volatility.
Q: Do you trade the volatility of a bear market?
A: One of the characteristics of bear markets is higher volatility. Some of largest daily percentage moves up in US stock market occurred during bear markets; the "pullbacks" from the lows can be very volatile.
Many traders find it difficult to trade during bear markets in large part because of the higher volatility. While trading during periods of higher volatility is a challenge, it's also an opportunity. We review trading systems designed to work in bear markets when volatility is high — but you only want to attempt this if you are prepared ahead of time.
Q: How important is that preparation?
A: It is absolutely critical. It's difficult or impossible to prepare for a bear market when it's underway given the effects of the volatility and the market wide emotions that bear markets tend to generate. We view a bear market as an opportunity instead of viewing it as a time of panic and fear, which is what the media talks about and what most people experience. We discuss the characteristics of bear markets. We review how to use market type as a tool to recognize when to stop trading systems designed for a bull market and switch to trading systems designed for a bear market. And we discuss ways to be prepared psychologically. As Van says, trading is 100% psychology, so it's important to have the right psychological tools to trade effectively when others may be panicking. Preparation is the key to trading a bear market effectively.
Q: You have taught the bear workshop twice before now, what kind of feedback have you had?
A: The best feedback comes from people who tell me that they no longer fear a bear market and believe they have the understanding, systems, strategies and techniques to take advantage of it. That's my main objective — I want people to go home and know they have the tools to trade with confidence during a bear market.
Q: Anything else to say about bear markets?
A: Yes. First, it's useful to recognize the difference between corrections and a bear market. Corrections are pullbacks in the longer term trend. Historically, we see an average of one correction per year where the market declines from -10% to -20% from the peak, and there will be several smaller corrections each year. These pullbacks in the longer term trend are great opportunities to get long, in other words, buy the dips. Buying the dips works — until eventually it doesn't. But it may work 10 or more times before a correction turns into a bear market, which means it may still be an effective strategy.
Second — create a way to classify the market type so you can determine when the bear market ends and the next bull market begins. It wasn't until I spent time researching bear markets, corrections, and bull markets that I realized how important it is to arrive at the end of the bear market positioned to trade the next bull market. You do not want to be looking in the rear view mirror fearful of the return of the bear, but instead, have the confidence to handle what comes next. Being completely prepared — mentally, psychologically and financially (with cash to invest) — for the bull market after a bear market is very important.
Q: Why is that so important?
A: It's important to anyone who treats their trading as a business like I do. If you run a business, you need to survive the recession and be prepared to invest as the economy starts to grow again so you can be successful during the good times. I believe it's a similar situation with traders and markets — we need to be prepared for both the bear market (like a recession in the economy) as well as the next bull market (a growing economy). After a bear market, the herd hesitates to go long again in a meaningful way until the next bull market has gotten well underway. Well-prepared traders, however, are likely to have gone long much earlier and benefited from the trading opportunities every market type brings.
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. For the better part of a year, Mark extensively researched bear markets and bear market trading strategies. He shares the results of his research in a three-day workshop, Trading in a Bear Market in which he explains strategies and systems for successfully trading each of the three stages of a bear market. The next Trading in a Bear Market workshop will be held in May at the Van Tharp Institute in Cary, North Carolina.
Combo Discounts available for all back-to-back workshops!
See our workshop page for details.
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iPhone Domination in Three Charts
by D. R. Barton, Jr.
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Another year, another iPhone announcement.
You gotta’ hand it to the folks in Cupertino, they have created a winning formula. How do you describe the phenomenon? It’s so far beyond planned obsolescence… Gadget envy is a much more profitable model, and Apple proves it year in and year out.
By most guesses and leaks, this year’s iPhone, which will be announced today, will be an incremental step from the iPhone 6 which was a huge upgrade. Finally iOS users will have a screen the size that Android-based phones had been offering for years. And despite the fact that the upgrade this year is most likely modest, we’ll still see pictures and videos of people wrapping around the block outside Apple Stores when the new phone (iPhone 6s?) hits the retail outlets.
Let’s look at three reasons why Apple’s “gotta’ have that shiny object” strategy has made them the most envied company in the world.
Yeah, the iPhone Announcement Is a Big Deal, Here’s Why
Let’s start with how important the iPhone is to Apple. The world’s largest market cap company currently gets about 2/3 of its total revenue from the iPhone:
This chart from Statista breaks out the iPhone revenue by quarter. Considering that the iPhone launched in June of 2007, this rise has been meteoric. Within 18 months the iPhone accounted for 25% of Apple’s revenue and after the monstrously successful model 6 launch, the device accounted for almost 70% of revenues. But we’re just getting started.
Our next chart compares iPhone revenue only (not Apple's revenue) to the total revenue of other top tech companies. Basically, it’s an iPhone vs. the world chart:
Quite frankly this is stunning. One product line is whipping every other tech company out there!
I can hear some people grousing already, “Revenues are nice, but what about profits?” Well, we’ve saved the best chart for last and it’s one of the most amazing set of stats I’ve seen all year (probably in many years!).
According to Gartner’s latest numbers, iPhone sales in the second quarter of 2015 accounted for 14.6% of all cell-phone units sold (Android phones were 82.2%). With that 14.6% figure in mind, take a look at the following chart from a recent Wall Street Journal article which reported on data from cell phone research leader Canaccord Genuity —
So iPhones made up just 15% of cell phone units sold worldwide but Apple took home 92% of the industry’s profits. Let the significance of those numbers sink in for a minute. That leaves Samsung, Huawei, Xiaomi, LG, HTC, and Lenovo/Motorola to fight over the 8% scraps that Apple doesn’t get. One word — WOW.
Please let me know your thoughts and opinions on the article. Send your comments to drbarton “at” vantharp.com — I always enjoy hearing from you!
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".
NEW! Swing Trading Systems E-Learning Course
We are excited to announce that our new Swing Trading Systems home study course is now available! Learn with Dr. Ken Long as he teaches his Swing Trading Systems Workshop via streaming video!
This new e-learning course includes Ken Long's Swing Trading Workshop, 5 swing trading systems and a bonus workshop featuring Van Tharp on Tharp Think principles. The course also includes extensive downloadable files to support your learning.
You can complete this course at your own pace, from the comfort of your own home or office, and access the materials as many times as you wish during your 1 year subscription period.
Take a look at this video from Ken to learn more about this course.
We have extensive information about the Swing Trading System e-learning course, including how to purchase...click the link below!
Swing Video Update
In this fourteen minute video, Ken runs through a “day in the life” of the chatroom. He selects specific trades and lessons to debrief from the chatroom log on Thursday, September 3. This gives you a flavor for the kind of exchange you get in real-time during his Live Trading workshop next presented in November.
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September 9, 2015 #750
Van's Top-Twelve Favorite Trading Books
Van's Favorite Non-Trading Books
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