Tharp's Thoughts Weekly Newsletter (View On-Line)
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Article Project Marathon: Ending the Year on a High Note by RJ Hixson
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Trading Tip Does Self-Discipline Matter? by D.R. Barton, Jr.
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Mailbag How Do I Proceed Through the Peak Home Study Course?
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Fun Check out Photos of the 2012 Super Trader Summit
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Project Marathon: Ending the Year on a High Note
by RJ Hixson
The last Project Marathon article brought in varied email responses. Some people were appreciative, others were concerned, and a third group was so generous as to offer trading systems and other types of support. What a great group of readers we have. I’m sincerely thankful for all of you.
In that article, I had talked about my trading results and how frankly unimpressive they were. Dealing with the brutal facts generated a range of emotions but something someone said last week at the Super Trader Summit resonated with me. One of the newer entrants to the program introduced himself to the group and said while he had not done well in his previous trading, he was grateful as those results had him look inside. My recent accounting of my results has had me do the same, and I am grateful for those fresh insights. I can see now that had I achieved the “cash and glory” I sought, I might very well have failed to continue my personal inquiry process.
So now what? Van teaches a process in the Peak Performance 202 Workshop where you ask three simple questions:
- What Happened?
- What’s Missing?
- What’s Next?
Here’s a summary of my answers.
What Happened
From a technical perspective, the following items (read mistakes) have most affected my trading over the last two years:
- My position sizing™ strategy did not help me meet my objectives.
- I had not assigned individual trading systems to particular market types, nor had I defined the different market types for my trading.
- I had been inconsistent about which systems I traded.
- I traded positions occasionally without a fully defined system. My worst month in losses was due to a set of related trades from this mistake.
- I set aside insufficient time for my weekly/daily preparation and review processes.
- I did not make use of Van as a trading coach, so I wasn’t accountable to anyone else for my mistakes.
What’s Missing
- Sufficient Self-work
- Objectives that fit me better
- A robust trading plan to help me reach my objectives
- Trading at a high efficiency level
- Consistent preparation and review for short-term trading
- Van’s coaching
The first item on the list is first because while all of the technical aspects of what happened merit attention, the psychology behind those shortcomings holds the root causes. The Self work helps me identify those root causes and resolve them. I know plenty about position sizing methods, market types, trading systems, etc. Technical knowledge is a requirement but insufficient for trading success. Self knowledge enables the effective application of technical knowledge for reaching objectives. Without sufficient Self knowledge, the non-logical approaches and multiple agendas of my personal psychology makes progress towards trading objectives challenging and slow.
Here are some psychological strongholds that I believe have hindered me from achieving my objectives:
- A desire to be right, which struck me as strange at first. It’s not how I have seen myself (blind spot), but I have many of the symptoms.
- Lusting for great results—control issues
- Fear of inability (as well as failure and success)
- Avoidance of asking for help
On one level, I’ve gained insights into some of the reasons behind these factors, but on another level, they are illusory in their limiting powers. It’s a question of the level at which I choose to operate. This gets a little into Van’s philosophy about Self-awareness and trading in the now, which he covered in last week’s workshop. The workshop last week in particular helped me understand some of the reasons behind my psychology at the identity and spiritual levels. Changes in those levels of beliefs have the potential to change the rest of my belief structures in big and rapid ways, and I have a strong sense of those changes this week.
What’s Next
Van wrote his prescription for me in his What’s Next article before he left for India. In it, he listed 3 actions:
- Develop at least three systems and have them approved by Van before you begin trading again.
- Make sure you have at least one system that will perform well in bear and strong bear markets.
- Do everything you can to work on being able to get into the “trading in the now” state. This includes developing an ongoing self-work program.
I responded to Van with my short plan:
- Define a plan to add Self work to my daily/weekly schedule.
- Think through and write out a set of multi-year objectives that flow out of my purpose and are aligned with my dream-life statement.
- Write a robust trading plan.
- Trading systems by market type
- Criteria for when I will start and stop trading a particular system
- Descriptions/rules for each proposed trading system
- Develop my commitment to my objectives.
My intention is to have these done by year end and be ready for a great 2012. Next year, I plan to graduate from the Super Trader program. I have only "completed" the psychological curriculum, the first part of the program. For that, Van asks the Super Traders to document transformations of five major issues. Van assumes that once they have addressed five major issues, they can then address any more that come up during their trading. This assumes that they are aware enough of what they are doing to address this.
The second part of the program requires the development of a personal business plan, which includes three non-correlated trading systems. After Van approves this, the Super Traders have to trade these systems at 95% efficiency or better (less than one mistake in twenty trades) after which point they can graduate from the program. I have not come close to finishing this second section.
Actually, Van is going to split the program into two formal parts next year, and I’ll be in what will be called Super Trader II. I’m writing up several trading systems right now and, after approval, I will start trading again shortly, and I will let you know how that goes at some point down the road.
As we enter the holidays here, I’d like to thank our readers and our clients for their business and wish you all Happy Holidays.
Take care and trade well.
About the Author: RJ Hixson is a devoted husband and active father. At the Van Tharp Institute, he researches and develops new products and services that will help traders trade better. He eagerly awaits the winter solstice on December 22 because then the days start lengthening as the sun heads back (figuratively speaking) towards the Tropic of Cancer. He can be contacted at “rj” at “vantharp.com”.
Trading Education
Trading Tip
Does Self-Discipline Matter?
by D.R. Barton, Jr.
“Self-disciplined begins with the mastery of your thoughts. If you don't control what you think, you can't control what you do. Simply, self-discipline enables you to think first and act afterward.”
-- Napoleon Hill
The Detroit Lions have a team of highly talented players in the National Football League this year. So talented that they were one of the popular preseason picks to go all the way to the Super Bowl.
As NFL teams entered the middle part of the season, all was going according to plan for the Lions. At 5-0, they were one of only two undefeated teams left in the entire league (Van’s beloved Packers were the other 5-0 team at that point).
Then little things started to go wrong for the Lions. Penalties and other mental errors large and small started to creep in gradually at first and then grew to epidemic proportions. By the time Detroit lost a prime-time showdown with the New Orleans Saints, the mental mistakes had become routine and losing became the norm. After their blazing start to the season, the Lions have lost five of their last seven games.
I watched that Lions play the Saints in that prime-time game, and I told my football-crazed wife that the Lions had completely lost their self-discipline. They committed three personal foul violations—after plays were over—where players just simply lost their cool. And all three of those penalties hurt the team in big ways. Apparently, I wasn’t the only one noticing the Lions fall from grace as their penalty spree was a major topic in articles and sports talk shows on Monday.
There are parallels, of course, between talented teams who stop winning due to mental errors and unprofitable traders/investors. Like the talented but undisciplined Lions, a trader can have the best strategies and market knowledge and still get kicked around in the markets if s/he doesn’t apply those tools in a disciplined way.
How Does Your Self-Discipline Hold Up Under Pressure?
After watching how much a football team’s lack of discipline can cost in terms of field position, points and eventually, wins, my thoughts quickly turned to the concept of self-discipline in trading. Of the thousands of traders and investors that I’ve been privileged to meet, I’ve found that their struggles typically don’t come from a lack of tools, but rather from the consistent application of those tools.
In terms of the equivalent to field position, points and wins in football, I have found traders’ lack of discipline in the following three areas to be very common and very costly: your plan, your stops, your position sizing™ method.
Lacking a plan. One cannot be disciplined in following a plan if they have no plan to start with! No plan. No discipline. The first and most obvious area where traders make mental mistakes is lacking the discipline to develop a plan. It’s so easy to open a brokerage account and start clicking “buy” and “sell” buttons. It’s much tougher to step back and do the research, develop a trading strategy, and commit that all to paper. The psychological blocks that keep people from putting a plan down in writing are legion: I don’t want to be tied down. It blocks my creativity in trading. I just don’t know where to start. The bottom line is that until a trader has the discipline to write their trading plan down, none of the other disciplines can be measured or kept consistently. Before you ask yourself “Am I disciplined?” honestly answer the question “Have I written my plan down yet?”
Setting stops, keeping stops. In the heat of battle, no other painful issue comes up more often or crushes more accounts than failing to use or failing to honor stops. Having a plan for setting stops is the first discipline every trader needs prior to opening a position. Unswervingly setting the stop is the very next discipline. (I have heard too many times to count a comment like this: The price was so far away from my stop, I meant to set it later. Then the stop never got set.) There are also many traders who will move their stops for any variety of reasons (e.g., “just to give the trade a little more room to breathe”). Having the discipline to set and honor your stops is a foundational skill of trading. Without discipline for setting and keeping stops, nothing else matters.
Maintaining proper position size. When I talk to people who have blown up their accounts, positions that were too big for the account size have almost always entered into the conversation. Again, people have many reasons why they put on positions that are too big: they want their accounts to grow faster, they want to make up for past losses, or they want to hit a weekly or monthly profit goal after going through a drawdown. It is actually fairly difficult to blow up an account if you use proper position sizing methods—that’s actually a main part of the idea. Implementing proper position sizing models is a discipline that, when followed, grants you the gift of time: time to make mistakes in other areas and learn from them while keeping losses small enough so that you can live long in the markets.
Keeping your wits about you in the “heat of battle” is a hallmark of champions in any endeavor. Maintaining your self-discipline in the field of trading gives you an edge over so many less disciplined market participants.
Great Trading,
D. R.
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 guest on both Report on Business TV, and WTOP News Radio in Washington, D.C., and has been a guest on Bloomberg Radio. His articles have appeared on SmartMoney.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".
Mailbag
How Do I Proceed Through the Peak Home Study Course?
Q: I am currently working through the Peak Performance Home Study Course. In the course it recommends that traders cease trading if they are experiencing some fundamental profitability issues, and only resume trading after they complete the course.
I was a full time trader about 10+ yrs ago, and suffered from some of the common pitfalls. Over the years I have done a lot of "groundwork" in becoming a better trader and have not traded much over the last 3 or so years, and I have not traded during the last year while working through the course. Can you shed some light on what is the most effective way of proceeding through the course?
As a side note, I have really enjoyed the course so far—part way through Book 3 now; however, I have found it to be a lot of work! The practice of detailed goal setting has been eye opening and a challenge at the same time.
A: Parts of the course assume you are either actively trading now or have
traded at some point in the past. Thus, answer the questions relating to
the way you have traded in the past.
—Van
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