Tharp's Thoughts Weekly Newsletter
: Volatility Contraction Continues — With Sector Rotation to Boot, by by D. R. Barton, Jr.
: Oneness Awakening in September is last Oneness workshop till 2017
: 5 Qualities of Top Traders, by Van K. Tharp, Ph.D.
$700 Early Enrollment Discount Expires Next Week on the Forex Trading System Workshop
Over the coming years, Van Tharp foresees excellent trading opportunities in the currency market because of several big-picture forces. Primarily, central banks will continue their attempts to influence the relative value of their currencies against other currencies. Combine that with the imbalances caused by trade and debt levels and we have a currency market that promises to remain lively for some time to come.
Add to this attractive volatility one important, very practical and positive point for individuals: Forex has evolved into a market in which individual traders can operate efficiently. That wasn't always the case. It used to make little sense for individual traders to trade currencies because you had to have a significant amount of capital to open a Forex trading account, which were only available at big money-center banks. The expansion of the Forex market over the last decade, however, has made the Forex market very accessible with low transaction costs and easy to navigate for individuals. This large group of retail traders has complemented the ever-existent institutional trading to create an even larger and more liquid market for currency exchange. Think about complementing your stock, ETF or options trading/investing with Forex - an asset class of its own.
Trader Feedback on This Workshop:
"The best aspect of the course was the knowledgeable, accessible instructor."—Harold.G, Las Vegas, NV
"I am a Forex trader, and I thought Gabriel did an excellent job introducing everyone to Forex."—Anonymous, Melbourne, Australia
“Very quality documentation and presentation technology… I didn’t expect I would learn as much as I did.”—Robert Allen, Fountain Hills, AZ
"The best takeaway was the workbook, which will allow me to review and trade the system."—Rick F., Tampa, FL
“I loved the class and would recommend.”—Terry Hudgins, Farmville, VA
"The course dispelled my erroneous beliefs about the Forex market, and there is a definite nugget by integrating simulation into the course."—John G.,Melbourne, FL
“These are thoroughly tested and proven systems, with quantified, proven results.”—Jim Cook, Waterville, ME
"Before the workshop, I thought Forex was too risky for trading, but now I can see myself trading Forex. I would like to attend a longer workshop with Gabriel."—Peter W, New York, NY
"I think the structure is great for learning—basic information, system description, examples, and then live-trading the simulator. Do more of these."—Jan S., Madrid, Spain
Plus, past students talk about their experience in this video (click here to view).
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Volatility Contraction Continues — With Sector Rotation to Boot
by D. R. Barton, Jr.
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Last week, I wrote that stocks have been stuck in neutral. Not much has changed since then. The box around the price action has expanded a wee bit as we have made new highs by 0.1% but pretty much, it’s “the same song, different verse.”
Here’s the chart updated for this week with one new twist:
As I was capturing this chart, I noticed how tight (close together) the Bollinger Bands are. That’s not unusual really; we expect the Bollinger Bands to “squeeze” during volatility contractions — but they are really tight. Really, REALLY tight. So I did some digging. There has been only one time in the last 26 years (August of 1995, if you’re curious — 21 years ago) that the Bollinger Band width (for the standard 20 day length) was this tight. Stockcharts.com data only goes back that to 1980.
The bottom line is that, yes these markets are in a volatility contraction unlike any we’ve seen in for decades.
That tight-range box got me thinking about those narrow Bollinger Bands — they seem tighter than anything I remember in 30 years of trading. But seeming tight and being tight are two different things. So, just how tight is this? I dug deep into my database to find out.
Number Geeks of the World, Unite
Armed with open-high-low-close data going back to the start of 1962 for the S&P 500 cash index I wanted to find the last time we had 30 trading days as tight our current range.
The answer is... NEVER. Let that sink in a bit.
If today’s (Wednesday, August 24) S&P 500 cash high doesn’t go above 2,193.81 or below 2,147.58, we will have had 30 days with a range of 2.11%.
My number geek friends out there can check my math — I checked every rolling 30 day period since January of 1962. The methodology was pretty straight-forward:
Calculate the highest high and the lowest low for the last 30 trading days
- Take the difference between the two numbers and divide by the high to get a number we could call 30-day range as a percent of highest price of that range.
- For the day earlier in the series, make the same calculation for 30 trading days of data inclusive.
- Keep going backward until you run out of data.
And voilà — 13,727 days of data evaluated. (If you’re doing the math along with me, there are 13,756 trading days since January 2, 1962. But the last 29 days in the series don’t have enough data to be included — I have just close only data before January 2, 1962, so it was not included.)
Here’s an interesting statement: In terms of price range, we are currently experiencing the tightest volatility contraction since JFK was president. There have been multiple GENERATIONS of traders who have never seen volatility this tight.
OK, let’s leave the number-crunching geekdom and return to the real world. What could this historic low in volatility mean? The $64,000 question we really need to ask is, “Which way do we go from here?”
To helps us answer this question, let’s look at a recent and interesting turn of events.
A Bullish Sector Rotation
A few weeks ago in this space, I showed the returns of individual sectors for the year. Here’s the chart from that article showing the relative performance of the S&P sectors for 2016 (through early July):
We saw that utilities and consumer staples were leading the pack, while technology and consumer discretionary (called cyclicals by stockcharts.com) were trailing. I noted that this was classic risk-off behavior and was a sign of a broad, defensive positioning in the market.
What a difference a complacent consolidation makes.
Let’s take a look at a similar chart for the last six weeks (the same time duration of our consolidation box in the S&P chart above):
While most of the sectors are stuck (like the markets overall) in a tight range of -1% to +1%, three have moved more than the market — and we see that the sectors have rotated completely!
Utilities and consumer staples have underperformed and technology has outperformed. This behavior now indicates a classic risk-on signal. Have market participants finally started to like this slow, grinding bull market?
Here’s a fairly safe prediction — if we break this range to the upside, it will be a small push up, accompanied by more choppy sideway action (a bull that continues to grind up).
But if we break down, it could fail rather quickly — and be short-lived.
Please send your thoughts and comments to drbarton “at” vantharp.com — I always appreciate 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".
Oneness Awakening Workshop in September
Participating in the Oneness Awakening Course
is an extraordinary opportunity to benefit from some
of the important journeys Dr. Tharp has taken
to transform his life.
This course has become a fundamental tool in
VTI's mission to help his clients succeed.
Attend to learn how you can become more aware,
positive, calm, centered, and successful.
Many years ago, after using a number of various psychological and coaching techniques, I decided that I was only going to use those that made a significant impact and had lasting changes. My experience was that only psychological techniques that included some sort of spiritual resource seemed to make this level of change possible. The concept of “spiritual resource” was independent of any particular faith. All that was important to me was that the technique allowed you to join with some spiritual resources. Once I discovered the Oneness Awakening material I knew this was the significant breakthrough material I wanted to share with others.
At the Oneness Awakening Workshops two things have caught my attention. First, the visible and incredible transformations of some of the attendees inspire me deeply. Second, it really allows me to see how willing people are to stretch themselves out of their self-defined box and really examine the conscious and subconscious beliefs that run their lives. For this reason I use this workshop, in addition to the Peak Performance 101 workshop, to assess people who are interested in joining the Super Trader program. The first part of the Super Trader program is psychology work and the highest level of psychological work is that of spiritual awakening.
So while this is not a trading workshop, it has a great impact on trading because it opens a path for traders to become "one" with the market and accurately sense what the market is doing in the present moment. This allows traders to trade with more clarity and assurance.
I hope you will join me in September for this event. Priced at $495 it is a true value.
—Van K. Tharp
Combo Discounts available for all back-to-back workshops!
See our workshop page for details.
5 Qualities of Top Traders
by Van K. Tharp, Ph.D.
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People often ask me questions like, "What qualities do top traders have?" One person even hired me on a consulting basis for a half day to get my answers to this question. However, paying a sizable fee for that information is unnecessary. Here are the five most important characteristics that I have found researching top traders.
1. A belief that you create your results in life.
Most people don't understand this concept. They repeat the same mistakes over and over again because they blame their mistakes on external factors. For example, if you blame your bankruptcy in one of my marble games on the person who pulled the 5R marble against you, you are not taking responsibility for your position sizing error of risking 20% (or more!) of your equity on a single trade. Consequently, you'll repeat this mistake over and over again and there will always be someone to blame for pulling the 5R marble against you.
Conversely, top traders are constantly determining how they produced their results and working to correct their mistakes. They create their reality.
2. The interest and desire to really understand yourself.
You cannot understand how you create your own results if you don't know yourself intimately. I believe that most people live their lives like the automatons in the movie, The Matrix. They just do their thing, not realizing how much they have been programmed by their culture, and their family and friends rather than understanding that they always have a choice in everything.
The great traders I know continually study and challenge themselves, their thinking, their actions, and their reactions.
3. Discipline to continually work to improve yourself.
Top traders often have a passion to work on themselves. A good trader will probably complete the Peak Performance Course once or twice and internalize many aspects of it. A top trader, or a potential top trader, will go through the course many times and develop a discipline that involves spending 1-4 hours each day working on improving himself or herself.
Several years ago we held a private workshop for one of the best traders in the world. I expected to go out to dinner with him after the workshop and get to know him better; that did not happen. Instead, his entire day was so meticulously planned (i.e., so he could fit in all of his daily disciplines) that he had exactly the amount of time to attend the workshop but—literally—not three minutes more.
Discipline of that nature creates excellence.
4. The ability to strategize well.
Good traders tend to excel at high skill games (e.g., poker, backgammon, chess, blackjack) because they can create good strategies and stick with them.
Top traders execute their strategies based on robust business plans that they have created to guide their trading. They have taken the time and effort to form meaningful objectives. They have also developed effective strategies to reach those objectives by understanding the multiple scenarios that are possible and how they will respond.
5. The ability to get in the zone.
Top traders can become one with the market and accurately sense what it is doing. They have the ability to live in the present moment without being influenced by the past or the future. It's a very intuitive state and often gives them a total sense of how successful their moves will be in the market even before they make them.
Now, take a look at yourself and consider honestly if you have what it takes to be a top trader.
About the Author: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling books and his 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 www.vantharp.com.
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The Red Pill for Traders and Investors
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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.
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