Tharp's Thoughts Weekly Newsletter
Editor’s Note: Because of the important market reactions to the Brexit vote, we are including three articles this week which cover Brexit preparations, reactions, and observations.
: Brexit — The Single Biggest Market Driver and Two Observations, by D.R. Barton, Jr.
: Systems Thinking and Swing Trading the Brexit Vote, by Dr. Ken Long
: Early Enrollment Discount Ends TODAY for July Workshops!
: Did Brexit Move the Pound?, by Gabriel Grammatidis
$700 EARLY ENROLLMENT DISCOUNTS EXPIRE TODAY, June 29th
on Van Tharp's Infinite Wealth and Ken Long's System Thinking for Traders and Advanced Adaptive Swing Trading!
Be sure to read Ken's experience Trading the Brexit vote below.
You can also find out a bit more about Ken's new courses by watching these VIDEOS.
Brexit — The Single Biggest Market Driver and Two Observations
D. R. Barton, Jr.
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“The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of a doubt, what is laid before him.”
“It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.”
—Derivation of Josh Billings often attributed to Mark Twain or Abraham Lincoln
On Thursday, six days ago, everyone knew that Great Britain was going to vote to remain in the EU after the Brexit vote.
The Dow Jones Industrial Average closed the day up 230 points as institutions, traders and investors looked at media sources assuring a “remain” vote to a coronation that would usher in a bull run on stocks and the British Pound. In after-hours trading, the Dow tacked on another 110 points for good measure.
Voter polls just a week before had shown the “leave” side slightly ahead, but by the day of the vote polls were widely reporting several percentage points advantage for the "remain" side. The betting odds published by the legendary British bookmakers were peaking at 80/20 in favor of remain.
But around midnight British time, the tenor started to change. The overnight futures markets started to sell off a bit as results started to trickle in. The rest of the night was much like a sporting event.
The “remain” team took an early lead and the futures market dropped precipitously. Ah, but the critical Scottish and London votes (where a strong “remain” outcome was expected) had not yet reported.
By a little past 2 a.m. British Summer Time (BST), the leave votes had gained momentum and showed a 4 percentage point lead. The markets were down huge, the Dow having given up 530 points.
But then, in rode the cavalry – Glasgow delivered the expected huge margin voting two to one in favor of “remain”. Scotland’s largest city tipped the voting scale back to the “remain” side and as other Scottish votes came in along with some London districts, the Dow drove up 340 points over the next 30 minutes. Game on!
Over the next 60 minutes, however, the excitement quickly flew to the side of the “leave” backers as results from middle and northern England began the win the day. Much like a snake constricting its next meal, the results slowly but surely slid more and more to the “leave” side until all the breath was taken from the “remains”… and the market.
By 5:30 a.m. BST (12:30 a.m. EST) the Dow had given back a whopping 900 points from its earlier peak, but the U.S. stock losses were small compared to the double-digit losses suffered on bourses throughout Europe and the British Pound which was down an amazing 11+ percent.
The Single Biggest Market Driver — Get This
One key lesson that I’ve learned time and again is that there is one thing that drives big market moves more than anything else. You’ll recognize it and most likely agree with it when you see it:
As the opening quotes indicate, when the collective intelligence of the market thinks it knows one thing, and then it gets another – the market acts in a big way.
We’ve seen it before — and we see it regularly played out every quarter in the earnings announcements cycle. When a company is expected to miss it earnings projections and instead announces an upside surprise — the stock skyrockets. The same thing happens for missed expectations.
Observation Number One
My first Brexit observation: a large part of the initial stock market move as the Brexit vote unfolded was due to the SURPRISE at the outcome. Everyone “knew” that the vote would be for Remain. The betting pools had been massively on the Remain side of the vote and so had the polls (albeit to a lesser extent).
That’s not to say that the potential long-term ramifications of the vote didn’t warrant a market move. If however, the common knowledge heading into the vote was that it was a coin toss too close to call or if the Leave crowd was favored to win, the market moves would have been much more muted.
Observation Number Two
During Friday’s market drubbing, I got a lot of questions about whether it was time to sell stocks. I answered - let’s hold on and see. By Monday afternoon, my answer was no, it’s not time to sell and in fact, I was a buyer on Monday afternoon.
The reason? Our biggest short-term danger had passed. That danger was a liquidity trap – that institutions and traders who wanted (or needed) to sell would not be able to do so because buyers disappeared and volume would dry up. That didn’t happen, and by Monday afternoon there were key signs that the danger had passed.
The biggest sign that the danger had passed was the volatility indicator VIX. Let’s look at a weekly chart for SPY and the VIX:
The contained VIX is not an “all clear” signal — but just a sign that we absorbed this body blow in the U.S. markets and are now ready to absorb some non-Brexit news (and market fundamentals) for a while. Actually, the S&P has already climbed back into the sideways box where it was trading for 12 weeks before the Brexit vote so… we might expect more sideways grinding into the dog days of summer.
I’d love to hear your thoughts and feedback (and your results of trying brownies with beer) — just send an email to drbarton “at” vantharp.com. Until next week…
About the Author: A passion for the systematic approach to the markets and a 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".
We Basically Just Reduced the Price of the Super Trader Program By 25%
Interested traders have until July 31st to take advantage of a huge reduction in the price of the Super Trader program. In the old Super Trader program, students paid for three years of Super Trader 1 upfront, and then paid for at least one more year when they started Super Trader 2. Thus, the minimum cost of the program was $66,750. Now, however, students can finish the program in three years for a total investment of only $50,250. For motivated and committed traders looking to transform themselves and their trading, that’s a huge effective discount of $16,750.
If you have been considering joining the program but have been putting off your decision, the next 30 days are your opportunity to act and save big. On August 1st, the price of the program will increase by several thousand dollars (but the ability to finish in three years will still be available.) The longer you wait, the higher the cost - in 2017, we will raise the price of the program tuition to $20,000 per year.
I recently wrote an article on the change in the structure of the program which you can read here.
If you'd like to see the most updated information on the new Super Trader structure click here to view it online, or click here to download a PDF of the new program overview.
Systems Thinking and Swing Trading the Brexit Vote
by Dr. Ken Long
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Your opinion of day trading may be conditioned by how you look at volatility — as either a problem or an opportunity or simply as a necessary condition for trading (like electricity). Your belief is part of the psychology of Self, which is part of our Self-System-Market model of trading.
If you are a swing trader instead, then how did you handle the Brexit vote last week in the UK? Did you stay with your open positions or did you make any adjustments? The Brexit vote occurred during a live trading event so our group was able to plan together for it. We developed an adaptive, scenario-based approach to swing trading Brexit by considering 2 outcomes: the UK votes to Remain or it chooses to Exit.
We reasoned that a vote to Remain would be a vote for the status quo and in that case, we might expect to see a small relief rally. With indices near all-time highs, we believed there would be little sustained follow-thru. If we were wrong about the size of a follow-thru, we would protect ourselves with a conditional order to buy on a breakout to all time new high in SPY as well as identifying likely targets to exploit if we saw a runaway move to the upside.
We then considered the possibility for an Exit vote in which case we expected considerable shock and awe. We planned for this contingency by going to cash on Wednesday in our swing trade portfolio except for a Treasury ETF position in TLT. We further prepared for a volatile market by preparing our Hybrid Frog strategy to be ready at the open on Friday morning. The actual results of that strategy were outstanding – the prepared Hybrid Frog traders netted double-digit R-multiples on Friday morning. Beyond the expected first morning action, we also prepared for the longer-term reaction to a volatility event by reviewing a set of simple rules for an all-weather volatility swing trading system which performed at 60% CAGR during the robust backtesting (without optimization).
That volatility swing system is one example of how our recent research weekend was successful at finding, developing, and refining a number of low-risk strategies in multiple times frames — including our new "Owl" pattern. My summer high-school intern, Kyle, had no previous trading experience, learned the Owl pattern in about 20 minutes and then netted +8R over the next 3 days. The Owl is well suited for trading in all time frames, including swing trading on daily or weekly charts. We will study this pattern at the upcoming Adaptive Swing Workshop.
All of the systems and strategies we trade are linked by a systems thinking approach to planning, preparing, executing and assessing trading plans. We will cover these processes and others during the new Systems Thinking workshop in Cary in July. Later that week, we will delve deeper into swing trading systems in the Adaptive Swing Trading workshop. We will include an examination of multiple swing trading systems that individually provide very respectable SQN scores in various market types but when traded together, provide a consistent stream of R-multiples with very manageable drawdowns across a wide range of market types.
As a bonus offer, the upcoming workshops in Cary will include a 3-month coaching trial and an opportunity to get a full year of coaching at a discount after the trial.
About the Author: Dr. Ken Long retired from the Army as a Lieutenant Colonel and teaches at the U.S. Army Staff College. He is a proud father of three, a husband, teacher, student, martial artist and active trader. Ken also instructs dynamic trading workshops for the Van Tharp Institute.
Ken's next workshop is just around the corner. Watch this video to hear two testimonials from students of Ken Long.
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- You’ll learn about the five-step method to becoming infinitely rich in much more detail. Moreover, you’ll develop a personalized plan for you.
- Become wealthy on the inside so that it will appear on the outside. You’ll develop a personal plan and learn how to overcome your personal roadblocks so that you can get started immediately.
- Learn several principles involved in becoming wealthy and learn how to make those principles ingrained in your body so that they become part of your behavior. That’s one of the real secrets to wealth. Not the knowledge but having the knowledge be a part of who you are.
- You don’t have any assets right now? We’ll also show you 15 steps to increase your income by 1000% within the next five years. And, you need very little to get started.
- You’ll learn "financial intelligence." You’ll learn to think like the rich instead of like the poor or the middle class. Even if you have money, it’s important to think like the rich or you could lose it all. That knowledge will include a simple strategy to get rid of all of your debt within 5 to 7 years, including your mortgage. How close to infinite wealth would you be if you didn’t have any debt?
- At the end of the course you’ll be able to access a wealth building state of mind that will help you achieve your dreams.
- We’ll help you determine your purpose in life and use that as motivation to do what is necessary to achieve Infinite Wealth.
After all of these years, you’ll finally understand the one simple decision you need to make to start moving toward the fast track and out of the rat race.
- You’ll learn to overcome years of conditioning by the school systems, by your banker and by your accountant.
- You’ll learn to rethink your finances. Some of you could be infinitely rich within a year.
- Learn the difference between working for money and money working for you. If you’re self-employed, you’re still working for money. This system is so tight that it actually explains many of the problems that most traders have— they’re self-employed and they are thinking with the mentality of the self-employed. Learn to think like a business owner.
- In the New Infinite Wealth Workshop, you learn how to develop resiliency so that when you achieve any sort of setback, you will bounce back easily and be able to continue on track toward infinite wealth.
- In addition, we will be emphasizing the psychological tools to make sure you can follow the steps we are going to give you.
SYSTEMS THINKING FOR TRADERS: How to Use Systems Thinking to Improve Your Trade Craft — July 12-14
How will you benefit from attending this Systems Thinking Workshop?
- Learn to plan your trading business and plan your trades more effectively for achieving the results you are trying to generate.
- Improve the probabilities for your success in trading
- Find out what key questions to ask in order to challenge your established market beliefs, logic, and mental structures for trading.
- Create a series of useful tactical checklists for daily and weekly use so you don’t miss common crucial items and keep your trading efficiency very high.
Gain invaluable lessons from practicing systems thinking.
- Identify the few critical states in price action and how to plan how to take advantage of those when you find them.
- Develop your situational awareness skills by simply paying attention to what’s happening in order to evolve your strategy as well as exploit new opportunities.
- Understand how to construct trade scenarios in order to anticipate possible outcomes and reduce the chances for a “surprise.”
- Clarify your objectives and understand how your long term plans, your big picture process, and expecting the unexpected, all support you getting to those objectives.
- Feel more confident in your trading regardless of what the markets are doing.
- Improve your decision making processes for faster execution with results more aligned with your goals.
- Ultimately – feel better about your trading and improve your returns.
These are all things that are the natural outcomes of a systems thinking orientation as applied to trading. These are the things that the members of the tortoise community of practice and the chatroom have been doing to improve their trading on explicit systems developed by Ken and through the community collaboration.
This new three-day workshop will not only have extensive pre-work that will give you a head start on the material, but Ken will have dozens of practical exercise for the class which he has already field tested within his trading group. All of the exercises and three days of presentations will focus on helping you realize how important this mindset is for your own trading and developing your systems thinking orientation and how to capitalize on this important factor.
ADVANCED ADAPTIVE SWING TRADING — July 15-17
In this new three-day workshop, Dr. Ken Long will present a series of advanced, adaptive trading systems that work well in the swing period holding time-frame – from two days to two weeks.
Adaptive trading systems have rules and rule parameters that adjust to market conditions and price conditions rather than remaining constant.
They both mechanical systems and adaptive systems work well, they just work differently. Mechanical rules are more easily understood, are easier to program, and they are easier to execute. Mechanical rule-based systems typically do not adjust to changing market conditions and therefore are out of the market at times when the condition criteria are unmet. These are the kind of systems detailed in the Swing Trading Elearning Course.
Adaptive rules require a better understanding by the trader of price action, of self and of the market. These systems can also take more time to monitor and to execute.
Click Here To Learn More
Combo Discounts available for all back-to-back workshops!
See our workshop page for details.
Did Brexit Move the Pound?
by Gabriel Grammatidis
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The Brexit vote last Thursday, June 23rd, had quite an impact on capital markets around the world. There were big headlines about the German Equity Index DAX dropping by 10% and the Dow Jones dropping by more than 800 points (around -4%). The media reported with great excitement that the GBP made a 30-year low against the US-dollar. Reading the news, you might have had the impression that the UK is now falling apart politically, that the country is economically finished and not going to recover again.
One of my fundamental beliefs, however, is that all market information is already included in the price of the chart and, therefore, no other sources of information are required. Actually, I do read the news but not for my trading but because I enjoy reading and observing reactions.
Simple as Reading the Chart
Looking at a monthly GBPUSD chart below, you can quickly see that the GBP has been in a bear market for about 2 years already. Since July 2014, long before the Brexit vote, the GBP has lost about 20% of its’ value (drop from 1.7190 to 1.3835). Without a doubt, Brexit added down-pressure (another -10%) but it only continued the long established trend. The June red bar is large but it is not extremely large and it is not the biggest red bar on the chart. Clearly, simply looking at the monthly chart does not reflect the shock that the media has been communicating these last few days.
“Foreseeing" the Move
Not only could this continuation of the downtrend have been foreseen, but it has been developing as it actually should. About a year ago, I wrote about the GBPUSD downtrend (Hedging Your Unconscious All-In Currency Trade). The 2008 Global Financial Crisis had helped start a Busted Pattern on the monthly chart and my system triggered a short entry on the 4th of September 2014 once the pair crossed the red horizontal line at 1.6374. The initial stop was placed at 1.7240.
This short was supposed to be held for many months if not years as it made its way to the target of 1.2000 (respectively 1.0000 / par level). So far, the trade has made more than +3.5R and has earned a 20% gain. Not bad for a trade that is only just half way through to its final target.
Profit by Hunting for Other Peoples’ Stops!
As it is supposed to do, the GBPUSD Busted pattern has continued running stops and accelerating the downtrend. The pattern (traded with my System 1 in the upcoming workshop) works well and works consistently because its edge is based on pure psychology (pain) of market participants. Traders get “double trapped” in this pattern: the longs are trapped in while the shorts are trapped out again and again in the trend — which helps produce predictable short-term moves as well as fuels the long-term trend. This edge for my Busted System (System 1 from the Forex workshop) works as effectively with monthly bars as it does for intraday bars
As you can see in the chart above, the stop levels (orange lines) have been fished successively in the downtrend as indicated by the 3 orange circles — which have added fuel to the downtrend each time. The last stop run, also the low of the whole pattern, just happened with the Brexit move down.
Even disregarding the Brexit vote, however, the price chart is following the pattern as expected! It is nothing special and nothing to be excited about. Had the UK voted the other way last week, the stops would have been taken out at some point for some other reason or just as a result of time passing. The GBPUSD chart looks like a rather normal Busted pattern where prices keep testing higher levels and then push lower.
Back to the initial question: Did Brexit move the Pound? No, it did not — the Busted Pattern did — or more accurately, the psychology behind the Busted Pattern moved the Pound!
When you understand what, when and why things happen in the markets, then there is no need to get excited about news or market moves. There is also no need for your positions to ever get caught on the wrong foot. Markets follow a certain logic and the Busted Pattern you actually tells you how to read the price charts.
It is not only fun but also very profitable!
About the Author: Gabriel Grammatidis is a successful full-time trader and graduate of the Super Trader program. He has extensive experience trading Forex and shares his knowledge at his Forex and Live Forex Trading workshops, held regularly at VTI.
Read about the system — System 1: Busted Breakout.
Learn more about the flexibility that Forex offers you by watching a video segment from the workshop (What is the reality of Forex trading?).
You can see some practical example videos of the system trades on Gabriel’s website, IntuFX.com.
For more information on the Busted Breakout psychological dynamics see my article in the Traders´ magazine.
Gabriel can be reached at gabriel "at" vantharp.com.
TRADING BEYOND THE MATRIX
The Red Pill for Traders and Investors
We pay for the book, you pay for shipping.
ALL YOU HAVE TO DO IS CLICK HERE!
Eleven traders tell their stories about transforming their trading results and lives, in this 400 plus page book.
Below is a brief video on how powerful this book is to traders.
Swing Trading Systems E-Learning Course
Ken Long's systematic approach to swing trading with 5 distinct trading systems. This course has over 10 hours of instruction with significant follow-along documents included for students to download.
Review the videos as many times, and as often as you like, for one full year. Plus, you receive a bonus workshop at no extra charge—Dr. Van Tharp's Tharp Think Essentials!
If you are interested in both this video home study program (featuring mechanical, rule-based systems) and our new Advanced Adaptive Swing workshop (adaptive trading systems have rules and rule parameters that adjust to market conditions and price conditions rather than remaining constant) you benefit by buying both at the same time.
When you register for the workshop you can get a 22% discount on this home study.
The home study is not required to attend the workshop, however, an understanding of the systems in the the video home study may help a less experienced trader better understand the more advanced trading style which will be presented in the workshop. The systems, however, are totally different and the Advanced Adaptive Systems Workshop does not build upon the systems in the home study.
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!
Learn More About The Swing E-Learning Course...
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