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More opportunities to achieve Peak Performance this January.
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Tharp's Thoughts
Inbox Mentoring
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Feature: The Importance of Position Sizing™ Strategies,
by Van K. Tharp, PhD
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Workshops: Day Trading Systems Bonus Offer Valued at Over $1,500!
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Tips: Yield Worries Part 1,
by D.R. Barton, Jr.
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GDPR: Read Our GDPR Statement
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If you miss your deadline for early bird pricing, use a combo discount to save extra on your bookings! Seats are still open.
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London events: How to Develop Winning Trading Systems That Fit You starts October 16th and Forex Trading with Live trading sessions, begins October 20th. You still have time to both get your plans made and snag a seat at the $700 discount.
No matter what combination of workshops you choose, there are hundreds of dollars in savings! This is in addition to the already lower price you get ($700 off) if you register early.
See below for more information on all of these events.
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The Importance of Position Sizing™ Strategies
by Van K. Tharp, PhD
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Editors note: The following is an excerpt from the Definitive Guide to Position Sizing Strategies book. While some readers may be familiar with this topic a refresher is always useful. For readers who have yet to learn more about position sizing, take note. This is important information!
John was a little shell-shocked about what happened to him over the last three days of volatile market activity—he had lost 70% of his trading equity! He was quite shaken, but he remained convinced that he could make the money back. After all, he had been up almost 200% before the market withered him down to the $4,500 he had left in his account.
What would you tell John at this point if he came to you for advice? Your advice should be, “Stop trading. Get out of the market immediately. You don’t have enough money to trade speculatively, and you don’t understand risk.”
John is very much an average market participant who calls himself a trader. He and people like him try to make a killing in the market, thinking they can turn a $5,000 or $10,000 account into a million dollars in less than a year. This sort of feat is possible, yet making those kinds of returns is highly unlikely while the chance of ruin is almost certain—even if the trader is very smart. Natural intelligence does not seem to help traders with position sizing strategies, which are critical for trading success.
Book Smarts vs. Smart Position Sizing Strategies
Most people would agree that PhDs are smart people. High intelligence, however, seems to be of little or no help in trading successfully. To test this idea, Ralph Vince conducted an experiment using 40 PhDs. (He ruled out doctors with a background in statistics or trading.) They were given a computer game with $10,000 and 100 trials in which they would win 60% of the time. When they won, they won the amount of money they risked in that trial (1R). When they lost, they lost the amount of money they risked for that trial (−1R).
Think about that: you win what you risked 60% of the time and you lose what you risked 40% of the time. That's a positive expectancy system and those odds are fantastic compared with any table you might find in a Las Vegas casino.
Guess how many of the PhDs had made money at the end of 100 trials. When the results were tabulated, only two of the PhDs made money. The other 38 lost money. Imagine that! 95% of the PhDs lost money playing a game engineered to let players win. Why?
Position Sizing Strategies and the Gambler’s Fallacy
Let’s say someone started the game risking $1,000 on each trade and the first three trades all lost. Losing three in a row in a 60% winning game is a distinct probability. Now this participant is down to $7,000. He thinks, “I’ve had three losses in a row, so I’m really due to win now.” This is the gambler’s fallacy at work. He thinks that there’s a high probability of a winner after several losses. (Your chances of winning on any given trade in this game though are always 60%, regardless of the past results.) He decides to risk $3,000 on the fourth trade because he is so sure he will win. Although the probability of four consecutive losses are slim (i.e., 0.0256), it is still likely to
occur once in a 100 trial game. The fourth trade results in another loss. Now he only has $4,000 left in his account and he must make 150% just to reach break even. Beyond that, his chances of making money in the game have grown very slim. If he kept playing this way, he easily could be broke in a few more turns.
Here’s another way he could have gone broke. If he started out risking $2,500 on each turn, three losses in a row would take his account down to only one more trade of $2,500. There’s a 40% chance the next trade will lose and wipe him out. Additionally, he now must make 300% just to get back to even. At this point, do you think he is more likely to experience a profitable end to the game or bankruptcy?
Nearly all of the PhDs risked too much of their equity in the game. The excessive risk occurred for psychological reasons: greed, the failure to understand the odds, and, in some cases, even the desire to fail. From a purely mathematical perspective, however, their losses occurred because they risked too much money. Had they understood the concept of position sizing strategies, they would have done much better in the game—even if they had some psychological issues affecting their decisions.
Position Sizing Concepts
In a lecture to his students at a 1991 retreat in Hawaii, Ed Seykota said that once you know the expectancy of your system, the most important question a trader could ever ask is “How much should I invest?” Your trading system’s expectancy tells you the probabilities of winning versus losing for each trade and a bit more. Given that information, you can consider your objectives and come up with a position sizing strategy that will help you reach your objectives and answers the question “How much?”
In my opinion, position sizing strategies are the most significant, and yet least understood, part of any trading system. Most individual traders and I would say even many professionals do not understand the importance of this concept. For example, I once attended a seminar for stockbrokers that explained a particular investing method that the brokers could use to help their clients. While the seminar as a whole was terrific, the topic of a position sizing strategy for this method was never covered. In the past, people sometimes referred to position sizing strategies generally as “money management” and one speaker did mention money management briefly. I could not really tell what he meant though,
so at the end of his talk, I asked, “What do you mean by money management?” His response was, “That’s a very good question. I think it is how one makes trading decisions.” Well, that’s fine but those brokers walked away from that seminar unable to help their clients with the most important part of a good investing method—knowing how much to risk on each position.
Your position sizing strategy is the part of your trading system that tells you “how much” or “how many” for each trade. How many units of your investment should you put on at a given time? How much risk should you be willing to take? You can’t answer these questions until you understand both your trading system and your objectives. You need to understand what kind of results you can expect from your trading system. Knowing the expectancy and SQN® score of your system can help in this area. You also need clear objectives for your trading and an understanding of what you are trying to achieve—especially in the areas of return and drawdowns. With these two inputs, you can start
thinking about your position sizing strategy.
As there are millions of traders with unique objectives, there are millions of variations of position sizing strategies. Aside from your personal psychological issues, position sizing strategies are the most critical conceptual area you need to master as a trader.
Too Much Risk?
Remember our friend John from the beginning of the article? He was up 200% and then down 70% a few days later. We can probably infer that he was risking far too much on each trade. Would you guess he knew anything about appropriate position sizing strategies?
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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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The Power of Position Sizing Strategies:
SQN Secrets Revealed
with Instructor RJ Hixson
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If you've ever wanted to know more about creating effective Position Sizing Strategies, we can now give you some powerful new tools to help you master this critical area of trading. Not only do you get a course with nearly 7 hours of instruction, you also get a FREE copy of Van's Definitive Guide to Position Sizing Strategies Book and a set of spreadsheet tools to put your new knowledge to work. Read more about this exciting new course below to decide if it will help you with your trading goals.
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If you've ever wanted to know how to:
- Use a Monte Carlo simulator to understand what kind of R multiples your trading system could generate in the best case scenario, worst case scenario, and most likely range scenario,
- Use each trading system’s SQN score to help you craft a distinct position sizing strategy for each system,
- Develop position sizing strategies that help you reach your returns objectives while simultaneously avoiding your drawdown limits,
- Implement an effective Market’s Money mindset and position sizing strategy,
- Evaluate the probable effects on your equity from different position sizing strategies and variations of them.
Then you’ll want to learn the simple process and use the powerful tools found in our new Power of Position Sizing Strategies—SQN Secrets Revealed home study course.
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Watch this short 4 minute video to learn a little about what is included and hear what the impact has been on people who have gone through this course.
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Yield Worries Part 1
by D.R. Barton, Jr.
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Why Bonds Yields Are in the Headlines How They’ll Help Us Make Money
When my dad was teaching me to fish for trout in the streams around our hometown, there was actually a lot to learn.
One of the most important lessons was finding spots where the fish are. It seems simple, but in a good-sized stream there are lots of places to cast your fly or bait. Identifying the best ones makes the difference between a productive morning fishing and just throwing a hook in the water over and over again (sound a bit like trading?)
Lots of people look for places where fish can take cover — water under a low hanging tree branch or deep holes where fish can lie near the bottom unseen by predators above the surface. If you can identify those spots and pull a convincing hand-made fly or tasty bait past a fish’s nose, you have a chance for a strike.
But I quickly learned that the location to get the most bites is where fish are actively feeding. Finding swirls underneath rapids are good for this. But my favorite was finding a slightly deeper fast flowing channel in the middle of a set of rapids.
It didn’t look like much from above the water. But if you put on a snorkeling mask and look a little below the surface, you’ll activity that make it a veritable buffet line for waiting trout.
Bugs, grubs and larvae and even careless minnows and crawdads get caught up swept downstream in the fast-flowing channel. When this little channel empties into the slower moving water, turbulent mixing happens that’s not readily apparent from the creek bank.
And all those tasty morsels (tasty to a trout, anyway) get tumbled about, making them easy pickins’ for the agile fish lying in wait.
And yes, I did put on a mask and check out what was happening in those crystal-clear creeks when I was growing up. And while I wasn’t half the fisherman that my dad or younger brother were, I still got my fair share of wily trout by knowing what was happening under the surface.
Knowing what’s happening under the surface is key to understanding all the turmoil happening in the bond market as well. Let’s see why…
One Simple and One More Detailed Reason Bonds Are Affecting Stocks
When I teach third graders about economics, understanding the driving forces in simple terms is key.
One of those deep but simple truths is that money goes where it is treated best. We see that in the currency world, where over the long term, currencies with the higher yields rise in value vs. those with lower yields because of an inflow of capital seeking the best returns.
The same is true when we look at a comparison of stocks and bonds. When U.S. bonds and notes pay higher yields to investors they become more attractive as an asset class relative to stocks.
So with the recent surge in bond yields, stocks have gotten weaker.
But the interesting thing is that this is just what we see at the surface. If we look at what’s happening under the surface, things really get interesting.
There’s a bigger game afoot when we look at how longer-term bonds relate to shorter-term bonds.
Here’s the short version: the yield on a 10-year U.S. bond should be higher than the yield on a 2-year bond. That’s because you have more time exposure or uncertainty for a longer holding or maturity period. Issuers (in the case, Uncle Sam) have to pay higher interest rates for people and institutions to loan them money for a longer period of time.
This relationship with long-term bonds having higher interest rates than short-term bonds is called a “normal yield curve” and looks something like this:
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But a cautious trend has developed as the Fed has raised interest rates – the longer-term bonds have stubbornly inched up while the shorter-term bond rates have advanced quickly (as least quick for bonds). This has led to a “flattened yield curve.”
Why is this a problem? When the rates for the short and long maturity bonds are nearly the same, it means that investors are concerned that economic expansion can’t be sustained and won’t be able to support higher interest rates in the future.
And that leads to a more important point for today’s market — there’s a third type of yield curve called an inverted yield curve, where short-term yields are higher than long-term yields. Economically, this means that prognosis for growth is bad. For the markets, an inverted yield curve has been a signal for “recession ahead”. It’s the prospect of the dreaded yellow curve in the chart below that has the markets on edge right now:
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And it’s this under the surface problem with yields that has the market spooked. We’ll dig more deeply into past data, recession indicators and what we can do as a result in our next article.
I always enjoy hearing your thoughts and comments! Please send those to me using drbarton “at” vantharp.com
Great trading and God bless you,
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 Networks’ Varney & Co. TV show (catch him Tuesdays at 9:30 a.m. EST), on Bloomberg Radio Taking Stock and MarketWatch's Money Life Show. He is also a regular guest analyst on CNBC World, CNBC's Closing Bell, Fox Business Network’s Cavuto Coast to Coast and Making Money with Charles Payne and the China Global Television 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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October 2018 - LONDON, ENGLAND
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Presented by Van Tharp,
with RJ Hixson
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October 12-14
Friday-Sunday
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Do any of the following sound like you?
- Are you always looking for a new trading system? Or, are you always trying to improve the one you have?
- Do you find your trade setups never quite fit all of your criteria so you have trouble entering trades?
- Do you get anxious about the market or get anxious about risking your money so that you have trouble pulling the trigger?
- Do you get excited and ignore your rules or do you get distracted and fail to follow your system's rules?
- Does a losing trade take your energy away from the next trade or conversely, does a winning trade make you confident about the next trade?
- Is your trading (or your life?) ruled by fear, anger, greed, or shame?
- Are you constantly losing money?
- Do you lack a strong plan to guide your trading or do you fail to follow the plan you created?
- Do you have a performance ceiling where you fall apart or stop doing well consistently? Does your account reach a certain size and then it plateaus or you start losing money at that point?
If you answered yes to any of these questions, then you are experiencing some form of self-sabotage. But don’t worry, these are some very common patterns for traders and you can overcome them in order to reach your potential. This workshop will help you identify and resolve the underlying conflicts causing these patterns — as well as leave you with the tools to address conflicts that come up in the future for you.
It's been Van Tharp's cornerstone workshop for over three decades. Read more to learn the benefits you will walk away with.
Peak 101 will also be taught in Cary, NC this January. See details under January's workshop schedule.
Peak Performance is also a very important workshop to put on your calendar if you want to qualify for and apply to the Super Trader Program.
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$700 Early Enrollment Discount Ends Today, October 10!
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October 16-18
Tuesday-Thursday
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The How to Develop Winning Systems Workshop teaches you what you need to know to develop your own system. The material you will learn is not market or time-frame specific. So whether you trade stocks, futures, currencies, gold, etc., or
whether you place 50 trades per day or 50 trades per year, you will learn all of the components that work in any system. With this knowledge you can both modify existing systems to fit you or the market type better, or master your own system development.
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$700 Early Enrollment Discount Ends Today, October 10!
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Presented by Gabriel Grammatidis
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October 20-22
Saturday-Monday
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Presented by Gabriel Grammatidis
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October 23-24
Tuesday-Wednesday
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The Theory: All You Need to Know About Forex
Gabriel will spend most of the workshop teaching his trend-following systems. The first half day is spent to go over the specifics of trading the Forex market and cover such topics as:
- Why trade Forex?
- What are the advantages and drawbacks of trading Forex versus other instruments?
- What are the main market characteristics, and who are the Forex market participants?
- What methods work best in the Forex market?
- All you need to know about Forex trading sessions and the currency pairs.
- How are Forex chart characteristics different than stocks or futures?
- What do you look for in a Forex broker? What do you avoid?
- Why Forex may actually be the best market for new traders to learn trading.
- What are the trading edges that work in Forex?
- The Method
Gabriel teaches three specific trading systems. All three are trend-based; you can see the price action patterns in the price charts. His systems can be traded in various timeframes and can be traded across a wide range of currency pairs. Attendees of Gabriel’s workshops enjoy swing trading the systems using primarily 5-min ,15-min, 60-min and daily candle charts. The trades tend to evolve over a timeframe of anywhere from several hours to a couple of days (or even weeks, in the case of strong trends).
Two additional days of live forex trading side-by-side with Gabriel is available as well for hands on trading experience.
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$700 Early Enrollment Discount Ends Next Week!
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October 26-28
Friday-Sunday
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In this workshop, you begin to build your plan that includes specific, actionable steps you can begin as soon as you get back home. Here are some of the benefits of attending the workshop:
- Assess your beliefs about trading and about yourself so you can leverage your useful beliefs and eliminate the ones that are holding you back.
- Learn how to steer your entire system development process through your objectives.
- Find the key ingredient that most traders and investors are missing in their objectives that will make you thrive financially.
- Create a business plan with 3 trading strategies compatible with the big picture so your trading results are consistently profitable.
- Learn the 8 critical areas of contingency planning that most traders find out about the hard way (i.e., the expensive way). Developing plans for contingencies minimizes the risks to your trading business that could otherwise wipe you out.
- Discover how to leverage the strengths of your personality type and minimize your personal challenges to improve your trading.
- Learn how to cultivate the most important attitude required for successful trading.
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Presented by Ken Long
Monday includes instruction plus live trades
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November 10-11-12
Saturday-Monday
Note schedule change.
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Day Trading Case-Study Package Added to our November 2018 class
We have added a special bonus for the November Day Trading System Course which we have not offered before and will not offer again (for no charge).
Ken Long has developed a hefty package of 60 day trading case studies which Ken recorded in video. These 60 case studies demonstrate the direct application of all the learning materials from the 3 day workshop. Collectively, these help you practice: scanning the market and individual sectors to find low risk ideas, trade framing, estimating price targets, contingency planning for routine decisions, managing trades that are working, taking profits, and applying standard concepts like the frog box and 1R for making routine decisions.
Perhaps even more valuable than the technical concepts in action are demonstrations of managing your mental and emotional state during the trading day, so that you are making decisions from a position of professional competence and not impulsively reacting to the next price event.
Tortoise Capital (Ken’s company) normally sells this case study package for $1,500, but for only this November workshop, you will receive that package at no extra charge.
We ordinarily pair a live trading session of several days with the day trading instruction, but due to a scheduling conflict, we couldn't do that this year. Instead, we are providing these recently recorded trading videos, 60+ lessons in all, at the November 2018 class.
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Exciting New Work from Van Tharp
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November
15-17
Thursday-Saturday
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What is Systems Thinking?
Systems thinking should not be considered one simple idea, but rather a combination of numerous subjects. For example, systems thinking is considered:
- An integrated body of knowledge or discipline—think the Scientific method and Sir Isaac Newton. Here, the focus is on the objective, or that which can be observed.
- An idea involving your mindset, or way of looking beyond the basic trading aspects of tactics. Here, we are starting to look at beliefs.
- A recurring and iterative process, requiring various inputs. These might include changes in oneself, the markets, your results in comparison to your objectives, and more. The outputs include informed decision making about what systems to use, what position sizing strategies to employ, if and when discretion is utilized, and more.
Advanced systems thinking also involves mental maps, and how they are useful to guide you while in the trading process. Here, the subjective becomes as important as the objective.
However, even this has limits, as most standard systems thinking is mostly linear thinking,
I believe I have found a new, more robust way of thinking about systems…
And it’s here where we can begin to reach new levels of awareness and increase the chances of achieving success through trading.
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SAVE THE DATE!
NOVEMBER 18-19 NEW WORKSHOP
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MACRO TRADING
A new 2-day workshop featuring Chuck Whitman will teach a consistently profitable and longer term trading strategy known as the REEDS Trading Methodology and developed by Mark Boucher (author of The Hedge Fund Edge).
More about the REEDS Methodology:
It is based on the relative strength of value stocks (which don't have much volatility).
It can be run on any trading platform, nothing special is needed to use this system.
You will leave the workshop with a comprehensive trading plan including:
- Psychology
- Position Sizing
- Market Selection
- Strategy Selection
- Exits and Entries
There will be interactive work during the course to make sure you are comfortable with the technique hands on before trading the system for yourself!
This workshop was originally scheduled for Chicago but the presenters would like to move the location to North Carolina. This is not a Van Tharp Institute workshop but you can still register through our site and the workshop will be held at our training facility in Cary, NC.
There are a few details to finalize before this is open for registration so save the date in case you are interested in learning more about Mark Boucher’s REEDS system.
Also, one of the details to work out is the possibility of live streaming for this event. Stay tuned!
Save the date: This workshop will open for registration this week. Save the date for November 18-19th.
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Super Trader Summit
For Super Traders Only
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Presented by Van Tharp,
with RJ Hixson
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January 18-20
Friday-Sunday
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Presented by Libby Adams
and RJ Hixson
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January 22-25
Tuesday-Friday
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VTI Facility, Cary, NC
Sold Out
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Presented by Van Tharp
and RJ Hixson
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January 27-29
Sunday-Tuesday
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FREE Book!
We pay for the book, you just pay for shipping.
When you add the free book to an item already being shipped there is generally no extra shipping charge (of course, depending on your location).
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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GDPR COMPLIANCE:
The European Union General Data Protection Regulation (GDPR) went into effect on May 25, 2018 and is designed to allow individuals to more effectively control their personal data. At The Van Tharp Institute (IITM, INC) , client information is private and confidential; we do not share, trade, or sell to anyone. We never have. You may ask us at any time to unsubscribe. We keep your information safe. If you’d like access to your information just ask. You receive this information from us because you opted into the Van Tharp newsletter either through direct registration or registration through our Tharp Trader Test.
102A Commonwealth Court | Cary | NC | 27511
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...
CONTACT US
This is a supplement to our subscription based newsletter, Tharp's Thoughts.
800-385-4486 * 919-466-0043 * Fax 919-466-0408
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