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Tharp's Thoughts Weekly Newsletter (View On-Line)

September 16 2009 - Issue #441

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Article

Do You Take Your Trading Seriously? Take this Quiz to Find Out by Van K. Tharp

Request from Van

Do you have a database of commodity prices?

Trading Tip

What’s Fueling the Stock Market Rally? by D.R. Barton, Jr.

Mail Bag

A Follow-up Question on Currencies

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Feature

Do You Take Your Trading Seriously? 
Take this Quiz to Find Out.

by
Van K. Tharp, Ph.D.

We’ve had a lot of interest lately in our two year Super Trader program. More people are taking their investment education seriously and preparing themselves just like they would in any other profession. They don’t want to be average investors or traders who constantly lose or fail to outperform the market. Instead, they want to be Super Traders. Is this you? 

In my new book, Super Trader: Make Consistent Profits in Good and Bad Markets, there is a short quiz that I reprinted here.

1. Do I treat my trading/investing like a business? Have I prepared for it like a business?

2. Do I have a business plan—a working document to guide my trading business?

3. Do I identify and address my mistakes regularly (a mistake means not following my rules)?

4. Am I following a regular procedure to prevent mistakes?

5. Do I have a tested system? Do I know its System Quality Number™?

6. Do I know how that system will perform in different kinds of markets? 

7. Do I know what kind of market we are in now? Do I know what to expect from my system in such a market?

8. When it’s not expected to do well because of the market type, do I stop trading it? 

9. Do I have exit points preplanned for every position I currently have in the market?

10. Have I developed specific objectives for my trading?

11. Do I understand that I achieve my objectives through a position sizing (TM) algorithm? Have I developed a specific position sizing algorithm to meet my objectives?

12. Do I understand the importance of the above points?

13. Do I understand that I create my own investment results through my thinking and beliefs? Do I accept responsibility for that creation?

14. Do I regularly work on myself to make sure that I follow the above points?

Circle all of the responses that are true for you. If you have not circled at least ten of the fourteen, then you are NOT taking your trading seriously. Your financial health is in danger. It just shows you how much work you need to do. And if you are a beginner, then I strongly recommend that you read the Super Trader book as a starting point. 

If you are past that point and are really serious about becoming a Super Trader soon or down the road, then I recommend that you enroll in our upcoming Super Trader teleconference. The teleconference will start on Monday September 28th at 8 PM with the all-important topic of “Working on Yourself.” But this teleconference is not just one day—it’s in a series format spread over five days. Each day will include an hour of packed information related to becoming a Super Trader plus time for your questions.

Here are the five topics:

1) Working on Yourself (developing a solid core)

2) Developing a Business Plan to Guide Your Trading/Investing

3) Understanding Market Type and Developing Core Systems to Fit Each Market Type

4) Knowing Your Objectives and Using Position Sizing to Meet Your Objectives

5) Learning How Efficient You Are and Using the 12 Tasks of Trading to Eliminate Mistakes

I’ll spend the full hour plus with you on each session, so you’ll be getting at least six hours of my time in these teleconferences. My hourly rate for private consulting is $1,000 per hour.

RJ Hixson, our Vice President of Research and Development, will also be a part of this teleconference. RJ understands these topics thoroughly because he’s been through them and has completed the Super Trader program. I consider him to be a mentor to our current Super Traders, and he’ll be a mentor to you on this teleconference. You’ll be getting at least six hours of RJ’s time in these teleconferences, as well.

In addition, I expect that about ten of our current Super Trader candidates will also be listening into this teleconference. They can give you their feedback about what it’s like to be going through these steps right now.

So just based upon what I’ve told you, what do you think this teleconference might be worth? Just based on my consulting time with a small group, we might price it at $6,000. And when you add the expertise of everyone on the call, it might be worth something like $10,000. But the teleconference is not $10,000. We’re charging only $399 for it—that’s less than $80 per hour.

Also, we have a special deal running right now: you can attend the teleconference for only about $180. That’s less than half price. And you can do your friends a big favor in the process. All we ask is that you buy 10 copies of the Super Trader book. Keep one and give the rest to your friends or work colleagues. Your friends and colleagues will appreciate you even more, and you’ll help nine or ten of them gain insight about becoming successful with their accounts. Click here for details of this offer. 

About Van Tharp: 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.iitm.com. 

 

Request from Van

Commodities Data Request

I was planning on doing a market type analysis of the commodity market using the DBC ETF (exchange traded fund) as my data set. However, I have less than 1,000 days of data for DBC and that’s not enough for a good market-type sample. If you have a database of about 5,000 (or more) days of commodity prices (OHLC), we’d appreciate a copy. The CRB/CCI index would be fine. Interestingly, the DBC data looks very different from all of the other markets  I’ve looked at, so I’m looking forward to this project. Email me at van (at) iitm.com (or use the feedback form below).

Thanks, Van

Trading Tip

What’s Fueling the Stock Market Rally?

 by 

D.R. Barton, Jr.

“A billion here, a billion there and pretty soon you’re talking real money.”—unknown, though often ascribed to Sen. Everett Dirksen

At first glance, the title of today’s piece is pretty silly. We all know what’s fueling this rally—lots and lots and lots of free money. The amount of money sloshing around has gotten so absurd that it makes Senator Dirksen (or whoever coined the phrase from our opening quote) look like a piker. 

CNN has a nifty little ongoing web page called the “bailout tracker.” A note of warning: The site is not for those who suffer from weak stomachs, heart conditions, or free market tendencies.

As of September 9, the current number of taxpayer dollars actually spent was up to $2.8 trillion. Scarier still is the fact that $11 trillion has been committed, but not yet spent.

Even though I suspect we have all grown numb to huge monetary figures, those are truly staggering sums. Consider that only five countries in the world (i.e., the US, Japan, China, Germany and France) have a nominal Gross Domestic Product (GDP) higher than $2.8 Trillion. And only the US, at around $14 trillion, has a GDP higher than the committed funds level.

Again, back to the $2.8 trillion figure—that’s a staggering amount. That’s enough money to buy a Porsche Boxster for every man, woman and child in California and Texas (our two most populous states) and also one for everybody in Wyoming, Washington D.C., Vermont, North Dakota, Alaska, South Dakota, Delaware (yeah!), Montana, Rhode Island, Hawaii, New Hampshire, Maine, Idaho, Nebraska, West Virginia AND New Mexico.

Enough said. It’s a whole lot of money.

With that kind of money flowing through the system, it makes sense that a good bit of it would go to the stock market and all that buying would help raise stock prices.

But is this just anecdotal thinking, broad based macroeconomic drivel, or is it a truly viable explanation for the market’s strength over the last 6 months? To test the theory, I conducted a wee bit of research…

Relative Sector Strength: Show Me the Money

Let me cut right to the chase: If bailout bucks really are driving the stock market’s recovery, then we should see the biggest percentage gains in the sector that’s received virtually all of the cash—the financial sector. If not, then the financials will look more like the broader market. Let’s go to the charts.

This chart is one of the handy “Performance Charts” from the folks over at StockCharts.com. It shows the percentage returns across a broad spectrum of sectors from the March 9th lows until now.

It should come as no surprise that the dark red line on top represents the financial sector, which has enjoyed a whopping 138% return since March versus the 56% return for the broader market (S&P 500) over the same time frame.

A more telling chart is shown below; there you’ll see the same broad sector list graphed according to return, relative to the S&P 500 over the time period. (In other words, a sector that was identical to the S&P 500 would vary by 0%; a weaker sector would be negative, and a sector that’s stronger than the S&P 500 would be positive). 

Here we see that the technology sector is even with the S&P. Four sectors are grouped in a significantly underperforming clump (i.e., energy, utilities, consumer staples and health care). Three sectors outperformed the broader market by a good bit (i.e., industrials, materials and consumer discretionary). And then there’s the outlier: the good old financial sector.

The distortion in the market is clear. The best we can hope for is that the “bailout bubble” has a relatively smooth landing when it bursts. But remember that the markets can certainly stay irrational for a long time when irrational amounts of money are being printed.

Great Trading!
D. R. 

About D.R. Barton, Jr.:  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 "iitm.com".

Disclaimer 

Mail Bag

A Follow-up Question on Currencies

Q: In your weekly newsletter #439 Q&A section, answering a question from Patricia, you said, "I should point out that currencies are not even great places to put money right now."  

Why are the currencies not great places to put money right now and what is needed to make them a great place?   Best Regards, Andres

A:  Looking at the world model, currencies as a category are doing worse right now in relation to everything else. Depending on your beliefs, there are all sorts of reasons why currencies are doing so poorly. To make currencies a great place to be again, they would simply have to do better than everything else in the world model. Within currencies, I'm sure there are good trading opportunities if you specialize in that area. — Van

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