#834 April 19, 2017
Tharp's Thoughts
Weekly Newsletter
  • Feature: Continuous Improvement and Swing System Evolution by Dr. Ken Long
  • Workshops: June & July Workshops That Qualify You To Apply for The Super Trader Program
  • Tips: Back “In a Box” — Where Will The Market Bounce? by D. R. Barton, Jr.
  • Quiz: New Intra Day Quiz, by Dr. Ken Long
  • FREE BOOK!: Trading Beyond the Matrix
Adaptive Swing
Last Day to Enroll is April 25 (Tuesday, Next Week)

Registration for Adaptive Swing closes April 25 — the same day the $700 early enrollment discount expires. We will take no more registrations for this workshop after that date.

Why can’t I register the week before like with other workshops?

  • This advanced workshop requires completion of a substantial preparatory package.
  • You digest the background information at home so that Ken can spend the workshop time on higher value conceptual framing and case study analysis.
  • Traders need a minimum of 9-10 days (evenings and weekends) to review all of the prep materials.
  • Register in the next six days (by April 25) so you have enough time to prepare and attend.

Feature Article

Continuous Improvement and Swing System Evolution
by Dr. Ken Long
Swing trading has a cycle that involves weekend work and daily work. The whole point of your weekend work is to come up with a plan for which symbols you are likely to trade in the coming week. Then the next step is to go into preparation mode creating a detailed daily trading plan for those symbols that day. Based on your trading plan, you enter swing orders daily; that’s the execution phase. The final step in the sequence is assessment. This is done at the end of every trading day as well as on the weekends for the past week.

When we think about the plan, prepare, execute, and assess process, it’s really the assessment phase that allows us to go back and ask —

  • How well did we execute?
  • How well did we prepare?
  • How well did we plan in a logical fashion?

And we can actually assess our assessment. So on the assessment itself, we can do a meta-assessment —

  • Am I doing my assessment?
  • Am I improving my standards?
  • Am I following through on my lessons learned?

There’s a lot of assessing going on here but that’s how we continuously improve. The assessments are necessary for the reflective learning approach (adult learning theory) in our trading — which really requires that you keep a trading journal. The most important trading book you will ever read is the one you write — your trading journal. Be sure to write it. Assessment and reflection gives us a systems approach to trading where we plan, prepare, and execute but then stop to assess and reflect on each step as well as on the process as a whole. As we do that, we learn and improve our trading practice.

It’s not at all easy but some parts are easier than others. Weekend planning is relatively easy because we should do that in a consistent way and we can generate an awful lot of high quality potential trades for the week. Then, if we have trained properly, if we understand our planning, if we have done our preparation, our system execution should be a matter of routine. Execution really shouldn’t take a significant cognitive effort compared to the hard work of preparing and of assessing. Preparation involves the daily work that goes into being fully ready to trade. Preparation is actually a more important factor for your success than the execution (assuming you trade good systems and can execute them with minimal mistakes). For assessment, you have to have a strong commitment to evaluate your performance because looking in the mirror and being honest about what you are doing right or wrong requires strength. Those two steps in the process — preparation and assessment — are where the hardest work of trading is.

I have used the plan, prepare, execute, assess process over the years to advance the systems I trade and we are still at it today in the chat room. The series of mechanical swing trading systems that I now call first-generation were contained in the first swing trading workshop (now an elearning course). These systems are still valid and can be traded as you see them. After developing the RLCO framework, my spider sense has told me that we can really improve the way we enter, manage, and exit swing trades compared with the mechanical rules. The initial RLCO framework patterns 1 through 7 (P1-P7) allow us to interpret the price action for improved swing entries and exits. In addition, P1-P7 can be traded in themselves on a swing basis. Over the last few years, we have evolved P1-P7 to second-generation patterns that include the Owl, Pocket, and Z3Pinch. All of these things taken together can add value to swing trading results — still using the mechanical swing system signals.

When I started trading, I used mechanical systems myself so that I could minimize my discretionary activity. I wanted to be a rules-based trader as my discretionary results were inconsistent. As I became more comfortable and competent trading mechanical rules, I slowly found ways to add incremental value through my experience and judgment — which I had developed while trading mechanically. It turned out that the continuous improvement cycle and incremental approach led to entirely new system ideas which then led further to entirely new system ideas. The progression of system ideas after the initial mechanical systems included: the ready-fire-aim trade, the regression line crossover trade, combining regression lines with Bollinger Bands into an integrated framework, the first-generation RLCO patterns P1-P7, and most recently to second-generation regression framework patterns.

Communicating and teaching these developments over time has helped me better understand what I see and how I trade. In turn, a number of students have developed their own improved versions of these ideas and their own systems. Their experience can give other traders confidence that anyone can take this material and shape it into ways that fit inside their belief systems and their execution abilities. That’s been done already by a lot of people.

For example, John Gowing applied the RLCO framework to swing trading several years ago. At the time, I had only used the RLCO framework for intraday trading but he developed an interpretation of the framework for swing timeframes — with considerable success. As a result, he retired from his consulting job, earned his RIA license and now manages money professionally full-time at his own firm using various forms of the systems he developed.

Another adaptation comes from Kim Andersson — a Super Trader graduate and a trading goddess. She internalized the RLCO framework, developed expertise in one particular pattern, and then created a great system for that pattern. She specialized in P6 and extended the knowledge about it to such a degree that we now call the pattern the “Andersson Stretch.” A lot of people have found that her system resonates with them and is very sensible.

A third adaption comes from Matt B. who took Frog trading to new levels of execution. The Frog system is really an intraday approach but learning how it works helps swing traders understand the important idea of core/turbo trading. The core position is a swing trade that will last anywhere from 1 to 5 days or so. Turbo trades can be taken on day one of the swing trade, in the middle of the swing trade, or as we get close to the end of the trade. One approach is to take turbo trades only on an intraday basis and just use the swing trade signals as guidance. You don’t have to be a day trader, however, to take advantage of the core/turbo approach. Swing traders can refine their entries or exits simply by drilling down one timeframe and using the RL framework. Using our regression line framework, usually we are able to see better opportunities to get into the swing trade or to exit it. Matt’s frog trading analysis is one of the ways we teach swing traders how to do that. The approach is so rule-based and mechanical that there’s not a lot of discretion involved — unless you want to do that.

Continuous improvement is a fundamental competency I employ in trading, in teaching, in system development and in the group processes in the chat room. The complex dynamic nature of the markets requires that everyone does some form of it to continue trading effectively over time.
Special event for Swing and Core home study users!
Swing and Core Systems Update!
May 4, 2017
The first 25 students who qualify, attend at no charge! Very Few Free Seats Remain. Act soon to secure your seat at no charge.
Ken is excited to meet his elearners in person and update you on the latest developments to the Swing and Core systems you have studied, and maybe are already trading. Ken’s extensive market knowledge and energetic, dynamic teaching style offer attendees much more than just the one-day event. Read on for more details. . .

Very Special Benefits
Attendees will also receive:

  1. A pre-workshop preparatory video lecture,
  2. A homework package,
  3. Ability to submit specific questions to Ken before the course, and
  4. A follow up webinar afterwards.
  5. This gives you numerous ways to learn the system updates and clarify any questions you have with Ken directly.

Students should walk through the VTI classroom door having studied each of the courses, and with some knowledge and experience with the systems contained within. Dr. Long will have a lot of new ground to cover during the course so he will concentrate on intermediate and advanced questions relating to the systems. To maximize everyone’s time in the classroom, Ken will focus on his latest discoveries, and as such he will be unable to re-teach content readily available in the elearning courses.

Ken will present the elearning course update, and on the following day, he will launch into teaching his new Adaptive Swing Trading Workshop. In this three-day intensive workshop, Dr. Long presents a series of advanced, adaptive swing trading systems and strategies that work well for holding periods from two days to two weeks.

Click the link below if you already own the Swing Home Study course or the Core Home Study Course to see if you qualify. If you don't have either home study we're offering a deep discount on the pair!

Plus, attendees of the one-day event also receive a $500 discount when also attending Adaptive Swing Systems Workshop.
Learn the details....
Adaptive Swing Trading
May 5-7, 2017
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.

What is an Adaptive Trading System?

An adaptive trading system has rules and rule parameters that adjust to market conditions and price conditions rather than remaining constant.

Regression Lines — An Adaptive Framework

For years, Ken has been looking at regression lines to help him understand the broader trends in the market. Recently, he started applying linear regression methods to individual indexes and to individual stock prices to see what he could find. Ken is constantly finding what works and then extending it. He knew that a regression line gave the best linear description of a data set using its slope, and its R2 figure provided very helpful information. Don't worry if you don’t understand these terms or basic statistics—just know that regression lines can be very useful when applied in an appropriate trading system. In simpler language—they work!
As have most traders, Ken has heard plenty about moving averages crossover based systems over the years. The idea has plenty of merit for finding shorter term opportunities within longer term trends. That is, when there are trends. A major problem for moving average crossover systems lies in the flat periods. Traders can get “chopped up” when the price moves up and down causing the averages to cross and then cross back again. Ken wondered if regression lines would work better. They did—but not good enough to have a great trading system yet.
After more thinking, a good amount of research, and testing various strategies, Ken found two additional inputs that added a lot of confidence for his entry and exit signals. Ken first paper traded the concept for a while and then started a prototype trading test with small positions of real money and intraday holding periods. As he traded and evolved the concepts, they gained more clarity and evolved into a framework for a kind of trading with several possible entries and several possible exits. Today, he trades several variations of regression line crossovers (RLCO) on an intraday basis with a “production level” position sizing strategy.

Top Benefits of the Regression Line Framework

Finds Critical Moments: The RL framework helps traders identify key moments when the market or a single issue has an increased probability of transitioning from one trend to another. You have a very good idea when price will start to move, continue to move, or has finished its move.
Works in Multiple Market Directions: The RL framework helps traders when price is moving up, down and sideways. You can focus on one tool to help you understand price regardless of the direction

Works in Multiple Timeframes: The RL lens applies from time frames as short as minute charts to weekly and monthly timeframes. Day traders, swing traders, and even long term traders can use the RL framework effectively.

Adaptive: The system adapts as price and volatility change whether that’s smooth or discontinuous. You can focus on one tool to help you understand price regardless of the volatility.

Applicable to Multiple Markets: The RL framework offers insights and can be traded in various capital markets: equities, currencies, and commodities so far. You won’t have to switch markets to trade RL.

Continuous Update: The RL framework combines the immediacy of assessing current snapshots of market conditions and evolves over time with the market. As prices move, your understanding and expectations adapt along the way to allow you to better manage your trades.

Captures Multiple Kinds of Trades: There are seven specific RLCO entry patterns and several additional patterns using the regression lines and other inputs to get traders into positions with good probabilities of profitable outcomes. The various patterns can be found multiple times during the week in your favorite trading universe.

Sound Analytical Foundation: The broad application of regression lines across both hard and soft sciences, in theory and practice, business and academy suggests that it will continue to be robust and useful. You can know RL works without researching its basic concepts because they have been broadly studied.

Forward Looking: Regression lines help forecasters in numerous fields assess future possibilities. They can help traders understand past prices and they allow us to take informed action in the future with confidence.You can understand how much price might move with some confidence.

Market Context: The RL framework helps traders answer an important question—How extreme is the current condition historically? The answer helps you evaluate how critical, unusual, or abnormal the current price structure is and adjust your expectations for the level of following action.You can be prepared for and win from potential big moves in the market.

Disciplined Approach: The RL framework can act as an overlay when applied to different systems and time frames. It can provide important context and keep you grounded when it comes to making decisions across systems. You can continue using your current trading systems and add RL framework methods to help.

Coaching from Ken After the Workshop

Once you are back home and studying or trading the systems you learned at the workshop, inevitably you will come up with some important questions.

After each Adaptive Swing Trading Workshop (and Day Trading Systems Workshop—coming in August), Ken provides three follow up coaching sessions to answer your latest questions.

In these online sessions, Ken interacts with the participants by sharing ideas and answering questions.

Also, Ken will host three coaching calls following the workshops, approximately one per month and if you can’t make a session, you can watch the recording when it’s convenient for you. These sessions are more than just Q&A as traders also share what’s working great for them and collaborate on ideas to make the systems even more robust.

Note: This advanced workshop requires completion of a substantial preparatory package.

Traders will need a minimum of 9-10 days to review all of the prep materials.

Register this week or early next week so you have enough time to prepare.

Due to the preparatory requirements, registration for Adaptive Swing will close on April 25.
Learn More About, or Register
Click on the 1-minute video below to find out why one of our former students highly recommends this workshop.
Adaptive Swing Video

Workshop Schedule

May 2017
June 2017
The Super Trader Program has several openings available at our current rate. However, at the end of July the rate will increase. If you are considering joining we encourage you to get your application in now to "beat the rush" of new applicants that come in as the deadline approaches.

If you have not attended a workshop that qualifies you to submit an application there are two of these coming before the July 31 deadline. Peak Performance in June and Oneness Awakening in July. Click here to read extensive information about the Super Trader Program.

Or go to www.vantharp.com/super-trader-testimonials.asp to see a short amount of info.
July 2017
August 2017

Dates Coming Soon for Sept, Oct, Nov.

Trading Tip

Back “In a Box” — Where Will The Market Bounce?
by D. R. Barton, Jr.
Lately, new warning signs have been showing up that market participants seem to be getting more and more cautious. When you look at the S&P 500 chart however, the sideways market direction that began in February clearly continues today. How should traders view these two mismatched factors?

One of the market truths I’ve found is that I can trust prices much more than I can trust pundits or public opinion. Loud voices are starting to herald changes in the market. When there’s a shift like this, a German word often pops up — “zeitgeist.” Literally, zeitgeist means “the spirt of the time” and people use it generally to mean the mood of a group or of society.

If you listen carefully now, the market narrative is very different than the mood of market voices. The narrative is the major driving force in the market. The mood or zeitgeist is the prevailing sentiment of the voices in the media. I would describe today’s market zeitgeist as uncertainty bordering on negativity.

Charts of Uncertainty

Two charts show us signs of the current zeitgeist. First, let’s look at the price chart for gold:
DR Chart 1
In a macro sense, gold has traditionally been considered an inflation hedge — which in much longer timeframes, is probably so. But from a trader’s perspective, I view short-term moves in gold as a very good uncertainty meter. In this chart, we see gold prices at the highest level since the election last November, indicating a growing sense of uncertainty among market participants.

In a similar way VIX, or the Volatility Index, is often called a “fear gauge” for the markets. Here’s the current VIX chart:
DR Chart 1
In the face of geopolitical unrest over the last two weeks, the VIX jumped — but never really pushed very high at all. Its highest price last week fell far short of the fear levels running up to the November election. The mild rise informs us that even with bombs flying in the Middle East and missile tests in North Korea, options traders never really added a significant risk premium to the circumstances.

These two indicators of uncertainty and fear are typically quite useful at market juncture points. At the moment, however, I believe they do not signal any market turn — just yet. In fact, the muted VIX run-up leads me to believe that we have a good chance for U.S. indexes to once again, bounce off the bottom of our sideways box.
DR Chart 1
So What?

Despite significant geopolitical unrest, I believe the minor response of the VIX and the unbroken support at the bottom of the box indicate this stair-step market has a higher probability of stepping up rather than stepping down when we exit the current box.

As always, I welcome your thoughts and comments — please send them to drbarton “at” vantharp.com

Great Trading,
D. R.

Trading Tip

Intra Day Quiz Series
by Dr. Ken Long

There is one trade quiz from Ken for you today.

QUIZ — This is a screen shot of a trade setting up. Your assignment is to decide how the price might move from here, where you would enter and where you would put your initial stop. How would you mark this chart up?

FRAME SOLUTION — This is a screen shot of how the trade would be framed according to Ken’s guidelines. How close did it match to yours?

If you had played along on these trades, how would your trade have worked out? Collect your notes, results, and any questions you might have for Ken and send them to longke “at” yahoo “dot” "com" with the title "trade frame clarification."
You can download a PDF of Ken's daily report by clicking here.

Below is a the chart to accompany his Daily Report. Click on the image to view larger.
daily chart
Below is the “QUIZ.” It's a case study situation where a trade is setting up and needs to be “framed.”

Click on the image for a larger view. The link to the solution is below it.
Quiz 7
Click here to access the solution and follow-thru for this Quiz.

Free Book

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The Red Pill for Traders and Investors

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Cary, NC Workshop Information
For a list of nearby hotels for our Cary, North Carolina locations, click here.

Book your flight arriving to the Raleigh-Durham International Airport (RDU).

When traveling to a three-day course, it's best to arrive the evening before.
To help determine your arrival and departure times, see:

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