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A Trader's Ode to Joy by D.R. Barton, Jr.
Have You Experienced a Level I Transformation? by Van K. Tharp, Ph.D.
Farewell from a Van Tharp Employee
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“When you wish someone joy, you wish them peace, love, prosperity and happiness… all good things.”
—Maya Angelou, American poet
Joy is one of the central emotions of this holiday season. Just ask a child what he is getting for Christmas, and you’ll see him exude joy as he describes his wish list.
Joy abounds this Christmas and Hanukkah season, regardless of the over commercialization of the nature of gift giving. There is the delight in thinking about, researching, and finding the perfect gift for someone you love. We enjoy the warm feeling of seeing family and friends that we may not otherwise see during the rest of the year. And there is the undeniable joy of holding a present in our hands—a gift to us that is full of possibility and hope.
Even the spiritual backdrop of the season is rife with feelings of joy. The story of Hanukkah is one that ends in joy: The Seleucid king Antiochus IV took Jerusalem by force, outlawed the practice of Judaism, and defiled the Jewish temple. A successful revolt followed, and the Israelites reclaimed their temple. In the rededication of the holy place, the now famous story about one day’s worth of sacred oil that miraculously burned for eight days when there was no other oil available was born.
A Jewish Historian recorded the actions of the victorious leader of the revolt, Judas Maccabeus, “Now Judas celebrated the festival of the restoration of the sacrifices of the temple for eight days, and omitted no sort of pleasures thereon; but he feasted them upon very rich and splendid sacrifices; and he honored God, and delighted them by hymns and psalms. Nay, they were so very glad at the revival of their customs, when, after a long time of intermission, they unexpectedly had regained the freedom of their worship, that they made it a law for their posterity, that they should keep a festival, on account of the restoration of their temple worship, for eight days.”
The joy was not about the miracle of the oil, but about the revival of religious customs and the rededication of the temple. Such a celebration of fine food and rejoicing, and the glad hearts that were exhibited, point to the joy that surrounded the first celebrations of this time-honored festival.
A century and a half later, a baby born to a working class family and laid in a manger elicited great exclamations of joy. The announcement of the baby’s birth was not made to kings and queens, but to lowly shepherds. As Luke wrote in his gospel account, an angel appeared to the sheep herders amid the “glory of the Lord” and said, “Fear not: for, behold, I bring you good tidings of great joy which shall be to all people. For unto you is born this day in the city of David a Savior, which is Christ the Lord.”
In a season filed with such a foundation of joy, let’s explore how being in a state a joy can benefit us as traders and investors, and how we can live in that state more often.
The Benefits of Joy
My hunch was that there would be a bunch of research on the benefits of being in a joyful state. I was not disappointed. But first I needed to understand the language that psychologists use to describe joy. In an oversimplification, they use the term “well-being”—a combination of two key components: joy and contentment. A search on the combined terms “well-being” and “cognitive function” returned millions of hits and tons of research.
The first study I read was research done on 11,234 participants where well-being was measured using a standardized test and cognitive function was tested as well. In short, those who placed in the top quintile of well-being outscored those in the lowest quintile on a battery of cognitive tests by a statistically significant margin. Simply put, the results showed that a joyful state led to higher cognitive function.
Looking over the research, there is tangible evidence that a joyful state provides, at minimum, three things:
- Improved cognitive function (more efficient and effective thinking).
- Greater physical energy.
- Optimistic expectations of performance.
These are all useful benefits for traders and investors! Who doesn’t want to think more clearly or have more energy?
In the current market environment, we are experiencing is a combination of regulatory, monetary, and technological changes that are reducing cycle times and expanding volatility. Today we’ll concentrate on the volatility issues and leave the cycle time reduction for future discussion.
Attaining a Joyful State
Van has long advocated the usefulness of controlling your mental state. Research (and common sense!) suggests that attaining a state of joy can be very useful for trading and investing. Whether you’re analyzing what’s on the monitors as a day trader, or digging into research for long-term investments, doing so in a joyful state will add efficiency and a sense of fun.
Van suggests assessing your emotional state at the beginning of every day. Drilling down into that thought, I’d suggest keeping track of how joyful you are the start of every trading or research session. Use a number scale of 1 – 10. The very act of assessing yourself will lead to positive improvements.
The second concept is to use is anchoring: recall a joyful memory. Remembering a trade that went well or a person that brings you joy are good places to start. The use of positive anchors is a time-tested method for achieving a desired state.
I’ve saved the best for last. If you get to a place where you just plain can’t get into a joyful state, drop what you’re doing and help someone. The simplest act of kindness toward another person has amazing effects on our sense of well-being. There are neighbors who could use a helping hand, and ministries and volunteer organizations right where you live that would love to have another person help lighten the load. Giving of self is the simplest path to living in a state of joy.
Too many traders and investors enter the markets fighting against trends, positions, even against self. Try consciously approaching the markets in a state of joy. I think you’ll find the experience (and the results) much more appealing.
Whether you light a menorah, decorate a Christmas tree, or enjoy some other spiritual tradition, may you experience all the joy, hope, and love this season has to offer!
I’d love to hear your thoughts and feedback—just send an email to drbarton “at” vantharp.com. Until next week…
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".
Have You Experienced a Level I Transformation?
Our mission at The Van Tharp Institute (VTI) is transformation through a financial metaphor. Earlier in the year, I wrote a series of articles on the three different levels of transformation that we take people through. I thought I’d revisit the topic today to see if I could get additional feedback from our customers about a Level I transformation that you’ve experienced.
The first level we offer is transformation of the trading game—we take you from rules that assure that big money wins to rules that give the astute trader a huge edge. These new rules consist of the Tharp Think concepts that I require all Super Traders to know and understand as the first part of their program.
We all play “games” in life. A game can be defined as any dynamic consisting of two or more players with a set of rules that generally define how the game is won or lost. I’m using the concept of the “trading game” to symbolize a big picture description of all the aspects of trading.
Level I: Transformation of the Trading Game
I believe the financial markets are part of a huge game, and at the top level, where the rules get set, made, and changed, there is big money. Because big money makes its own rules, it profits no matter what any individual trader does—they are so much bigger than that. Big money controls the US government (notice who the Secretary of the Treasury usually is) and has created a two-party system in which people argue over everything except what is really going on.
Trading is not easy; however, it is easy to become a trader—you simply open a trading account. I have long said that if trading were easy, big money would make the entry requirements so steep that it would be impossible for an average person to trade. Big money might do this through an education and exam system that would weed out most people. Even today, brokers have to take a Series 7 exam; however, being able to pass this exam does not guarantee success in the market.
Big Money’s Rules
Generally, big money believes the more people playing the trading game, the easier it is for them to make money. And, as I said before, big money has a set of rules for how it makes money, which has little to do with you making money. I’ve listed some of the rules created by big money here:
- They profit on commissions, which they take whenever you make a trade, whether or not you make a profit. In fact, the industry considers it unethical for a broker to take fees based on the profitability of his clients.
- They make markets and get the bid/ask spread on every transaction.
- They continually invent new products for you to buy, and they profit when you do so.
- They get paid a fixed fee based upon the amount of assets that they are managing without respect to their performance.
They also get you to believe that you have to adhere to the following rule set for success in the market:
- Selecting the right investment (i.e., picking the right stock) is everything.
- When you find the right investment, buy it and hold it.
- Spend a lot of time analyzing the market to find the right investment.
- Listen to experts for advice, including newsletter writers, brokers, and the investment gurus on television.
- The market will determine whether or not you make money. You are at the mercy of the market in the short term, but if you hold on, you will prevail.
- If you do lose money, it’s not your fault. Find someone to blame and a good lawyer to help you sue them.
- The market is efficient.
- Asset allocation is very important (even though most people are not sure what that means).
The New Rules
The new rules are born out of the idea that trading is as much a profession as any other. Most people spend years learning their craft, but anyone can start trading today. Can you imagine walking into a hospital and saying, “I think I’ll try some brain surgery today.”? It just won’t work. Yet you can open an on-line brokerage account, transfer in $100,000 and, suddenly, you are a trader. Trading with no preparation, however, could be as fatal to your account as performing brain surgery would be for that unlucky patient in the hospital.
It takes significant time (several years) and a deep commitment to become a successful trader. I hold a similar belief to author Malcolm Gladwell that the best people in every field usually excel because they have successfully practiced their craft for 10,000 hours. That means they know enough about their field to produce success. By working on your personal psychology (which is covered in the second level of transformation), I believe you learn how you produce your own trading results.
Here are some of the new rules that make up the first level of transformation:
- You are totally responsible for your performance as a trader; therefore, you should devote significant time working on yourself in order to be successful.
- It’s important to know your initial risk in a trade before you enter a position—this allows you to ensure that your trade has a favorable probability for a sufficient reward-to-risk ratio. In other words, it will help you cut your losses short and let your profits run.
- Calculate the R-multiples of all your trades; this allows you to think of a trading system by the distribution of R-multiples it generates.
- Thinking in terms of R-multiples also gets you thinking in terms of the reward–to-risk ratio of each trade.
- Measure the quality of a trading system by its SQN® score. The SQN score tells you how easily you can meet your objectives through position sizing™ strategies.
- Position sizing strategies help you meet your trading objectives.
- There are as many objectives as there are traders.
- You can easily develop a Holy Grail trading system for any one market type; however, it is impossible to develop a system that will perform well in all market types.
- Your trading system must fit you. In fact, trading a good SQN system that fits you is probably better than trading a great SQN system that doesn’t fit you. Trying to trade a system that doesn’t fit you will likely cause you to make a lot of mistakes and see poor results—regardless of the system’s SQN score.
- Great performance is a function of the market, your system, and you as shown in the diagram below.
- A mistake is when you don’t follow your rules. If you don’t have rules, everything you do is a mistake.
- When they do have rules, most people have trouble trading above 70% efficiency (three mistakes every ten trades), simply because they haven’t worked on themselves. Trading at 70% efficiency will destroy the results from a good trading system.
- Within one market type, the mean and standard deviation of your system’s R-multiples will give you a good idea about the future performance of that system under those same market conditions. In other words, trading is a process that can be statistically measured and described if you understand probability and sampling theory.
- Winning is a function of planning, so write a business plan to guide your performance and keep working on that document as you evolve as a person and trader.
Can you see how the first set of rules can lead to disaster while the second set of rules are a major transformation and lead to success?
My Next Book Needs Your Stories
My next book is about transformation; in it, I will talk about each of the three levels of transformation and then present the stories of five or six different traders who have accomplished a major transformation on that level. While I have a number of traders’ accounts of their Level II and Level III transformations, the book needs several more Level I transformation stories.
Do you have a Level I transformation story that might help other traders? If my books or courses have helped you with that process, we’d love to read about it. Articles selected for use in the upcoming book will earn the writer $250. If you prefer, you could remain anonymous or you can include a 1-2 paragraph bio—your choice. If you choose to be anonymous, please let us know why.
Article submissions should be 5,000 – 6,000 words in length and written using the following format.
First, describe your trading (and your thinking) before you were exposed to a Level I transformation:
- You were a buy and hold person who got slaughtered by the bear market.
- You traded newsletter recommendations.
- You thought it was all about entry.
Then, describe the various Level I transformations that you adopted and how they changed you:
- You realized there were various market types, and you designed systems for each market type.
- You had good systems, and you set up objectives and were able to use position sizing techniques to meet your objectives.
- You realized the power of a statistical approach to trading and thinking about reward-to-risk levels.
After that, please describe your trading results after your Level I transformation.
While we certainly appreciate praise for specific Van Tharp Institute workshops or products, the book will not promote any particular workshop or product so stick to the above guidelines if you want your article to be considered. The book is meant to help readers see themselves in others traders’ stories and understand how being open to transformation can benefit them.
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 at www.vantharp.com.
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Farewell Van Tharp and Friends
This Thursday marks my last day as a full-time employee of the Van Tharp Institute. My husband, Kyle, and I are relocating to Boulder, Colorado shortly after Christmas where he will begin a postdoc at NIST, and I will spend my days looking for a house and a job (or watching Soap Operas and eating bon-bons, I haven't decided yet).
I just wanted to express my gratitude to Van, Kala, Cathy, RJ, Revathi, Jillian and Frank for making VTI a great place to work. You will always have a special place in my heart, and I will miss each of you dearly.
I also want to send a huge thank you to all of our clients. I've enjoyed interacting with you for the past six years. I wish you all success in your trading and in your life.
Until we meet again!
Becky McKay, Production Assistant
Click here to see pictures from the VTI Staff Holiday Party
HO HO HO!
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