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Tharp's Thoughts
Weekly Newsletter
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Feature: The Importance of Paradigms
by Van K. Tharp, Ph.D.
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Workshops: Workshop Dates Set for London, England this October! Plus the rest of 2017!
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Tips: Most Interesting Data I’ve Seen This Week by D.R. Barton, Jr.
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These two back-to-back workshops in August will greatly change how you trade and how you handle market conditions! Attend them both and take an additional $1,000 discount (off the already reduced early enrollment price). See more below...
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The Importance of Paradigms
by Van K. Tharp
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Some readers might recall that Dr. Ken Long and I developed a Systems Thinking Workshop last summer. The initial reason for that course was that Ken Long has a master’s degree in systems thinking and a doctoral degree in decision making under uncertainty. We realized that a good understanding of systems thinking really helped people understand Ken’s systems better. I delivered the second version of the systems thinking course at the annual Super Trader Summit last year and that experience really helped me understand it and even evolve it more. Little did I know, until I’d taught the course, how much systems thinking is a part of the way I already perceive
the world. In fact, my approach might be a slight evolution beyond common ideas now adopted by systems thinking and I’ll try to explain that in this article.
So first let’s talk about paradigms or world views. There have been three major paradigms in operation since the time of Aristotle, around 300 BC. These include: the Traditional View of Knowledge, the Scientific Approach, and the Systems approach. In addition, I’ve been advocating a move beyond systems theory to what I will call for simplicity, the Matrix Approach.
Paradigm One: Aristotle and the Bible — The Traditional View of Knowledge
These include a hierarchical ontology where original Greek philosophy and the Bible were the ultimate authority. What was known must be endorsed by tradition. And for this very reason this paradigm lasted for almost 2000 years. The authority for almost anything was the accepted science before the church (and was basically what Aristotle believed), what the Bible basically said (plus the Pope, various saints, and authorities in Catholic Church would agree to), and finally what the King of any nation said was true. If you questioned such knowledge or the authority upon which it was based, you risked being called a heretic at best and being tortured and burned at the stake,
condemned to eternal hell, at the worst. And being condemned to hell was sort of assumed to be your fate once you were labelled a heretic. Thus, you might have disagreed with this world view, but you were not likely to do so publicly. And if even if you did that, you were not likely to publish and disseminate your beliefs and observations.
Let’s look at what Aristotle thought about the Universe to illustrate this approach. The earth was the center of the universe. Gravity could be explained because things fell to the center of the universe. And the orbits of the known planets could be explained by assuming that there were approximately 80 crystalline spheres to explain the various orbits of planets. The outermost sphere contained all the stars not known to be planets. And because of the way it was set up, you could not question authority, the theory lasted for about 2000 years.
Economic advancement was difficult under this model because, for one thing, the scriptures said that borrowing and lending was a sin. And if you did lend, you certainly couldn’t collect interest on your money, so who would want to lend. The king, as an authority, could basically take whatever he wanted. The church was exempt from this and it could also take what it needed in terms of tithing.
Paradigm Two: The Scientific Method and Its Emphasis on the Objective
I was indoctrinated in this paradigm as a student of psychology between 1965 and 1975, even though the new systems paradigm had already taken over — at least in physics.
- First, it assumes that the world is physical and that knowledge comes from empirical observation.
- Second, it assumes that laws are written in mathematical language and that the primary characters of science are geometric forms.
- Third, it was firmly assumed that the objective (that which could be observed and measured) ruled over the subjective domains.
- Fourth, the world (or whatever was being studied) was broken down into various parts and each part was studied by itself.
- It was thus assumed that the whole was equal to the sum of its parts.
- Causation was linear and occurred in a specific time sequence. In other words, X happens at one point in time and it causes X at some later point in time.
Sir Isaac Newton basically developed a complete scientific and mathematical framework for physical systems. He believed that time and space were fixed coordinates. That the world was governed by discrete components of matter interacting in a cause and effect manner. And the net results were the assumption of a completely predictable and deterministic world if you just had enough information to know how everything impacts everything else in a linear fashion.
The study of science, according to this paradigm, might be called reductionism. You could understand everything by just breaking it all down into component parts and understanding how those parts worked. You just needed to control all the variables (keep them constant) except for the few that you considered important. And if you manipulated certain variables, then you could predict certain things would happen. You always had to exclude changing environments so that experiments could be replicated.
Science progressed because now it was understood (and accepted) that the earth revolved around the sun. That gravity was based upon the mass of a particular object. That force was equal to mass times acceleration. And with these and a number of other observations one could begin to predict both the terrestrial and the celestial worlds.
When I went into psychology, I wanted to understand how human beings think. I wanted to know how to model things. But the outstanding paradigm of the day, while I was in school, was behaviorism. You controlled such things as the input (stimulation and reinforcement) and then you observed the response you got. And you didn’t care what went on inside the black box (i.e., the brain) because that would be getting into the subjective.
Well, I did care about what went on in the black box. I wanted to know how we thought. I wanted to know how to model certain skills. And since psychology was treating the human being as a black box, I went into biological psychology so I could study the brain. Unfortunately, the same paradigm was being used. If you stimulated this part of the brain, what happened? If you cut that part of the brain, what happened or what was missing. But it was the same model and I was not happy with it at all.
In terms of trading, however, you can get a little more specific with this paradigm. You can break down a trading system into its parts. You can look at set-ups, entry, initial risk, exits, and position sizing. And when you understand each component, well perhaps you can begin to make money.
Paradigm Three: Systems Theory and the Holistic Approach
The third paradigm shift began early in the 20th century with Einstein and relativity and the almost simultaneous development of quantum physics. A number of critical things began to change with these paradigm shifts including:
- The subjective suddenly became at least as important as the objective because knowledge was suddenly assumed to be an interaction of the subjective and the objective. You had to understand the role and the impact of the observer.
- Second, it was assumed that you must know the assumptions of the paradigm you were using because the paradigm itself could distort the process. This meant asking 1) how do I see the world; 2) how do others see the world; and most importantly, 3) how do those models shape and create the world we see?
- Suddenly, scientists could understand the world as a feedback loop. We have met the enemy and he is us.
With this new paradigm shift, suddenly the whole was the most important. What is the impact of the environment — the context. What are the interactions with other systems that might be involved? And all of this opened up the possibility of non-linear causation or multiple causation where the time element wasn’t important because feedback loops in the future could influence the outcome.
Within systems theory the idea of emergence becomes paramount. You cannot understand the whole as a sum of its parts because quite often the whole is much more than the sum of its parts. For example, if you combine hydrogen and oxygen, you get water. But the liquid properties of water (at least under a certain range of temperatures) is not something you could predict from either hydrogen or oxygen alone.
With this kind of approach, we can suddenly begin to understand that trading involves the interaction of the self, the market, and one’s trading system. And it’s the intersection of those parts that leads to success or failure in making profits in the markets. This is shown in the following diagram which you have likely seen many times at the Van Tharp Institute.
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Now suddenly with a systems approach, context become very important. We must look at the context for each system. What is the market type? What is the system type? And what is the state out of which the trader is operating. These all become important to trading results. And, as a result, we begin to understand such Tharp Think rules as 1) it possible to design a holy grail trading system for any one market type; but 2) it is insane to expect that trading system to work well in all market types.
Paradigm Four: The Matrix Approach
At present, I think there is a fourth paradigm emerging. It’s probably the most useful paradigm of all, but it is not widely accepted. And it differs from the systems approach in that it stresses the subjective as being much more important than the objective. Its fundamental assumption is that the map is not the territory. And that means that all we ever know is the subjective because the real world — if it even exists — can only be known through sensory systems that filter real world information and language that wires our brains to assume that the world is made up of subject, object and verbs. It also tends to turn processes or verbs into nouns. So reality (which is
only a process of trying to decide what is real at any given instant) becomes a noun reality and that is assumed to also be real.
Within this framework, which I call the Matrix Model, all we can know is our models of the world. But we can determine through these models how others behave and develop models whereby we can be more successful. However, we must always understand that those models are not real, just useful. And that means that there can always be something more useful than what we have right now.
With respect to trading, suddenly we get the notion that the market itself isn’t real — because it is a nominalization. Everything we use to represent the market — charts, moving averages, and various indicators are all made up. And therefore, we can only trade our beliefs about the market. We know that our beliefs are useful because useful beliefs tend to make money.
My understanding is that only about 20% of the population is able to understand systems thinking. So if you start to think to yourself; "Everything Van says is ridiculous. I’m an engineer. I can observe the market and program trading systems and make money." My response is, yes, that’s quite possible. But if you think that way, chances are you don’t understand systems thinking yet and are still stuck in the second paradigm — the old science paradigm that was gradually replaced nearly 100 years ago, but still tends to be taught because it’s just easier to think that way. Just be careful and do so at your own peril.
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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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Qualify to Apply To The Super Trader Program
by attending Oneness Awakening this July!
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Presented by Van Tharp
and Rebecca Price
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The Role of This Course and The Super Trader Program
If you are interested in applying for admittance to the Super Trader Program, this workshop is a qualifying event. The first stage of the Super Trader program is very much about working on the self, rather than working on systems or trades. Since this course focuses on your inner-growth and self-work, Dr. Tharp is willing to allow candidates to use the course in a similar manner to those that attend the Peak Performance 101 workshop, and motivated traders are able to apply to the program after attending either one. At $495, this course is also the most cost effective way to take a qualifying workshop to apply to the Super Trader Program.
The price of the Super Trader Program will increase July 31, 2017. This is the last qualifying workshop before the price increase.
Reach A Higher Level of Consciousness: A Special Event With Van Tharp
How could a higher level of consciousness help a trader? Most people have had the experience of watching someone who is really great at what they do. Whether it's a sports star in the game or a masterful craftsman, there is an element of effortlessness that comes from their ability to be "in the moment." Many people have had this experience themselves, in some aspect of their lives — for a few seconds or even a few minutes. The moments may be fleeting, but you know when you've had one. It's at these times when we can recognize these people are in a high state of awareness. Participating in the Oneness Awakening Course is an extraordinary opportunity to benefit from some of the most important journeys
Dr. Tharp has taken to transform his life, and to cultivate this awareness in your day to day life.
The Oneness Awakening Weekend course has become a fundamental tool in helping Dr. Tharp accomplish his mission of transformation and ultimately help each of his clients succeed. Students who attend this two-day intensive workshop will walk away with tools to help them cultivate awareness in their life, and they will also experience an immediate and tangible shift in perception. As a result of this experience, traders can expect to naturally become more aware, positive, calm, and centered. By extension, they will also experience a shift in how they perceive the market. When a trader sees the market as it really is, rather than what they want to see, the act of trading becomes more relaxed and they
become more confident and successful. Does this sound like the type of experience you want trading to be? While this two-day course is not a technical course about trading, we have seen amazing results in the traders who experience the benefits of being more 'awake' and aware, calmer and more centered. Why? Because the person themselves are always the primary instrument, even before the technical skills of trading are engaged. Just like the athlete with impressive skills, traders can also utilize the phenomenon of tapping into their awareness to achieve premium results. Keen awareness, in turn, opens up new possibilities. Another great thing about the concepts and experiences in this course is that they have benefits that apply throughout students' lives, not just in their trading
endeavors. Time and time again, traders tell us that their trading improved after taking this course, but also their personal lives as well!
If you would like to know more about this workshop, or talk with someone to see if this workshop is right for you, we invite you to call or email Rebecca Price. Rebecca is a certified Oneness Trainer. She has been teaching with Dr. Tharp for 3 years, and is enthusiastic about helping others to dive into their own transformation. Call 919-466-0043 or email [email protected].
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Presented by Van Tharp
and Rebecca Price
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August 5-7
Saturday-Monday
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August 8-9
Tuesday-Wednesday
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Dr. Ken Long begins his workshop by teaching you two day trading systems called the Frog and RLCO. Through his action-packed lectures students will gain an understanding of each system’s beliefs, 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?
After attending this three-day workshop you qualify to stay on and live trade these same systems for the next two days alongside Ken. Plus attendees will receive follow up assistance in Ken's ongoing Chatroom for Traders. Learn More...
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Presented by Kim Andersson
Profit When Price Goes Nowhere: How to Successfully Trade Sideways Markets In Every Time Frame
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August 11-13
Friday-Sunday
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Announcing An Exclusive New Trading Workshop:
Sideways Market Strategies
Profit When Price Goes Nowhere:
How to Successfully Trade Sideways Markets In Every Time Frame
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Kim Andersson covers a few objectives of the new Sideways Market Strategies course in this short video above.
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Did you realize that no matter what time frame you trade or what method you use to measure them, Sideways markets happen between 59% and 65% of the time!
And yet scant attention is given to this market type. When you encounter them the task of trading becomes much more challenging, stressing your systems and your psychology beyond your normal comfort zone. This new workshop is the antidote to this under appreciated, and least understood market type. Learn More...
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Presented by Van Tharp
with co-presenter RJ Hixson
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September 15-17
Friday-Sunday
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NEW! Systems Thinking for Traders
Presented by Van Tharp
with co-presenter RJ Hixson
(more information coming soon)
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September 19-21
Tuesday-Thursday
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Presented by Van Tharp
with co-presenter RJ Hixson
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October 13-15
Friday-Sunday
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Presented by RJ Hixson
and Van Tharp
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October 17-19
Tuesday-Thursday
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October 21-23
Saturday-Monday
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Presented by Gabriel Grammatidis
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November 10-12
Friday-Sunday
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Presented by Gabriel Grammatidis
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November 13-14
Monday-Tuesday
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Most Interesting Data I’ve Seen This Week
by D.R. Barton, Jr.
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From mid-February until late May, the S&P 500 spent 14 months traveling in a tight 3.5% box. Then we broke out of the top of the box — but in fairness, the markets have only been able to push up 1% in the seven days after pushing above the top of the box, as we can see in this chart:
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In last week’s article, I made the point that a cumulative advance/decline line is still supporting the upward market move. This week I’d like to share two graphics that show the type of the support U.S. stocks have been getting from global
markets.
Equities Markets Are Strong Around the Globe
I wrote last year about a cycle in global equities where the U.S. markets took off after the presidential election, but global markets, especially Europe and emerging markets, lagged. They finally started catching up in December, and this helped propel U.S. markets higher into February. And, as the U.S. markets wandered sideways for the next 14 weeks from February into May, global markets powered higher.
I know this global stock advance had been broad, but I didn’t realize just how broad until earlier this week. On Monday, Charlie Bilello published this surprising chart of just how wide-ranging the global advance in equities has been:
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Forty-three of forty-five country ETFs are higher this year. That’s a pretty amazing statistic. While this is by no means a guarantee that markets will head higher, it certainly is a bullish development.
A modestly weaker dollar has certainly added to this broad-based strength. But there has also been some real economic strength behind these numbers as well. Here's the trend of the Euro Area Services PMI (Purchasing Managers' Index) as reported by highly respected Market Economics:
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You can see that Europe has enjoyed eight straight months of manufacturing growth. So there is some fundamental support for the global market strength.
What could slow down this global stock market momentum? If the dollar were to return to a strengthening trend, this could slow growth, especially in emerging markets. Of course, an economic downturn or geopolitical disruption could also slow down this equity growth train.
Your thoughts and comments are always welcome — please send them to drbarton “at” vantharp.com
Great Trading,
D. R.
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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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FREE Book!
We pay for the book, you just pay for shipping.
Read Van’s Latest Book —
TRADING BEYOND THE MATRIX
The Red Pill for Traders and Investors
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.
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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:
Questions? Click Here to Ask Van...
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800-385-4486 * 919-466-0043 * Fax 919-466-0408
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