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

• Workshops Three Great Workshops Coming This Fall
• Article The Transformational Journey of a Super Trader, Part 1
• Trading Education Free Shipping...on Almost Everything!
• Trading Tip TThe Importance of Time Frame by D.R. Barton, Jr.
• Mail Bag The Four Star Inflation/Deflation Model

Workshop

2010 Fall Workshop Line-up

Feature Article

The Transformational Journey of a Super Trader Part 1

by Van K. Tharp and William D.

The journey for people in my Super Trader program starts with an intense year of psychological work. I’m looking for major personal changes during that year.  Typically, Super Traders attend Peak 101 (again), Peak 202 and Peak 203, which are amazing workshops and probably my favorites.  After completing Peak 202, they take Libby Adams’ Transformational 28 Day Course.  They also complete a six week follow-up exercise to Peak 203 and work through 15 Peak Performance Lessons.  Each lesson can take two weeks or more to finish.  As you can tell, this is intensive psychological preparation that I believe is required work to trade successfully. 

One of my Super Traders took two months  to explore himself deeply and blew me away with his answers to the ninth Peak Performance Lesson on self-sabotage.  As a result, I wanted to share some of his responses just to show you what is possible.  For professional reasons he wishes that his identity not be revealed, so he is using a pseudonym.

We all sabotage ourselves, whether consciously or unconsciously.  Anyone who is tired of repeating the same patterns in their trading or their lives will benefit from the following exchange.  To make the responses more readable, we modified them into a Question and Answer format.  Because of the length of this article, we have split it in two parts. This is Part 1. My comments are in bold. 

You’ve done quite a bit of work around self-sabotage.  How did you first get into this work?

I’ve always considered myself a pretty well-adjusted guy.  I come from a solid family and have great friends.  I’ve been given tremendous opportunities.  And by any standard I’ve been successful professionally and in life.  However, we all have our issues.  Mine mostly consist of the lingering belief that “I am inadequate and unworthy.”  This belief goes way back and is completely irrational given my station in life.  But try telling that to the eight-year-old kid still inside of me. 

Many people trade the markets from such feelings but are unaware of what is going on inside. This can have serious consequences for their results.  How were these feelings of inadequacy affecting you?

I too was unaware of these feelings until relatively recently.  About a year and a half ago I began therapy, which helped me make immense progress in uncovering this belief in my unworthiness and identifying how it impacted my life.  The primary domain in which it arose was my relationships.  By living with this belief, I was sabotaging myself; I was entering and staying in the wrong kinds of relationships instead of seeking out healthy ones. 

However, despite my new awareness of these feelings, the underlying sense of inadequacy and unworthiness persisted and continued to affect me in various ways.  The belief that I am inadequate is “highly charged,” meaning it is linked to deep, underlying emotions.  While it is easy to take an uncharged belief and replace it with one that is more useful, highly charged beliefs cannot simply be wished away.  This led me to look for methods to deal with and manage beliefs that have a high emotional charge.  When I began this process, I had not yet read the section of Volume 4 of your Peak Performance Home Study Course on self-sabotage. 

So what was the turning point for you?

In late May 2010, I attended a seminar taught by Erwan Davon and his wife, Alicia, who teach individuals and couples how to experience more pleasure and passion in romantic relationships.  The title of the seminar was “Uncovering Your Romantic Blueprint and Changing Your Romantic Fate.”  Erwan presented a method for dealing with emotionally-charged beliefs at the workshop that I have since seen discussed in other sources as well, including Volume 4 of the Peak Performance Course.  The way most of us react to our negative thoughts and feelings is to resist them.  Resistance, however, is actually the essence of self-sabotage and has the ironic effect of causing these beliefs and emotions to persist.  So Erwan’s method involves doing the exact opposite—that is, accepting all of your negative beliefs and their related emotions and letting yourself feel them fully.  Once you do that, you come to realize on a very fundamental level just how false they are, at which point they simply dissolve.  He calls this process “core work.”

I went home and tried it out.  I spent the better part of three days lying on the floor of my apartment and letting myself feel beliefs such as “I am inadequate” along with other core beliefs I have held onto since childhood.  Then, just as Erwan said, I reached a point where the beliefs just fizzled out and were not there anymore.  A few days later they came back again, suggesting that this method of feeling is not a one-off event; it is a practice that I need to follow on a regular basis. 

Since then I have spent literally hundreds of hours doing core work.  With the exception of a week attending Ken Long’s workshops, this was pretty much all I did for two months.  I even traveled to Bali for a workshop on mindfulness that my therapist suggested once he learned I had taken up this practice (http://integralexpeditions.com/). 

Can you describe your experience with this exercise?

At times, especially during the first few weeks, I could feel the emotions coursing through my veins with a raw intensity unlike any I’ve felt before.  This is probably because I had never actually allowed myself to feel these feelings fully in the past.  Deep feelings brought to the surface memories that I had not thought of in decades, which unleashed more feelings.  For about the first six weeks I would start my meditations with a belief such as “I am inadequate.”  I would feel the belief and the emotions associated with it until they went away.  I would do as much as I could to bring up the feeling and keep it there until, finally, no matter how hard I tried, the feeling just disappeared. 

Eventually I learned, with Erwan’s guidance, that (1) I don’t have to start with a “topic” and can instead just work on whatever emotion happens to be there in the moment, and (2) it can be more efficient to consciously drop the thought, and often the image, associated with a belief and just feel the emotion in my body.  Doing this tends to make the meditation an entirely different experience than when I get caught in cycle where thought perpetuates feeling and vice versa, or when I try to manufacture a feeling that isn’t there to begin with. 

So what has been the result?

These practices have fundamentally transformed my life.  Through them I can often reach a state I can only describe as “clarity,” or what’s left once all of my false feelings and beliefs have dissolved.  Van, I imagine this is what you mean when you talk about “Oneness.”  When I am in this state I have no “self,” probably because I am shorn of all the false conceptions that made up my sense of self in the first place.  Instead, all that remains is the world before me—or, in a word, reality. 

I can imagine many readers growing skeptical at this point.  Anyone who knows me well, however, will assure you that nobody has been more cynical about this spiritual stuff than I used to be.  It can make a world of difference in your life, but you’ve really got to experience it for yourself.  That’s what it took for me. 

Now that you have  some experience getting into that mental state, can you go there at will?

If I “try” to get into this state of clarity, I don’t get there.  The secret is simply to accept your present experience, whatever it is, and feel it fully.  I now truly understand the statement “If you want happiness, want what you have.”  For a long time while doing this work I often found myself resisting negative emotions precisely because I wanted to be in the state of clarity when I wasn’t.  Since then I have become much better at accepting my feelings and whatever happens to be there in a given moment. 

But I believe I’ve finally found a way—the way, perhaps—to manage my emotions and whatever else comes up in life.  The two central principles are (1) being present, or getting out of my head and into my experience, and (2) fully accepting my experience, i.e., feeling it fully without resistance. And if I am feeling resistance, I accept the fact that I’m feeling the resistance and try to feel that, too.

Noticing the resistance is the key!  Releasing the resistance makes it easier to release the underlying feeling.  So what have you learned from this?

The most important thing I’ve discovered is that I no longer have to be afraid of experiencing my thoughts and feelings, for they are only that—thoughts and feelings.  My old, emotion-laden beliefs certainly have not disappeared forever. But they no longer own me; I own them.  When I consciously get out of my head and just feel my experience, and when I accept whatever that experience is, I easily and instantaneously get to a point at which these feelings and thoughts stop affecting me.  I can let myself feel them in my body without identifying with them in my mind.  Doing this completely changes my interaction with the world.

Franz Kafka wrote, “You can hold yourself back from the sufferings of the world.  That is something you are free to do and it accords with your nature.  But perhaps this very holding back is the one suffering you could have avoided.”  I actually got this quotation from watching The Wire on HBO, not from reading Kafka.  But to me it rings true, especially now.

I believe a core principle is that you are not your thoughts and feelings, so they are not “your” thoughts and feelings.  Right now you just think they are and so you identify with them.   You are simply the awareness of them.  Suffering comes from identifying with them and thinking they are you and yours. 

This is exactly what I’ve come to understand through all of the work I’ve done.

Let’s turn to the various perspectives on self-sabotage.  In Volume 4 of the Peak Performance Course I present four models of self-sabotage.  Which of the models do you relate to most?

When I read this chapter, I was struck less by the differences between the various models than by their commonalities—particularly the Unwilling to Experience Feelings model (hereafter referred to as UEF), the Unwilling to Experience our Creations model (UEC), and the Oneness model.  I’ll give my own interpretation of these models for the readers.

The UEF model views self-sabotage as a product of our efforts to avoid experiencing our beliefs and feelings.  The remedy for self-sabotage, according to the UEF model, is to do the opposite of resisting—that is, to fully experience your beliefs and their associated feelings.  Once you do this, they tend to dissolve. 

In my case, I have always felt inadequate.  But whenever the feeling would arise I’d ignore it or try to push it away.  By doing that, I was preventing myself from really examining this belief for what it is.  As a result, it stayed with me.  Once I started allowing myself to truly feel it, I came to realize, not just intellectually but on a deep, emotional level, that it is entirely false.

The UEC model regards self-sabotage as the result of our unwillingness to experience not just our beliefs and feelings but all of our creations. However, while reading this section, it seemed to me that many of the types of creations that are discussed really amount to particular kinds of beliefs and/or feelings.  That said, I found it useful insofar as it specified the various and important manifestations our beliefs and feelings can take (games, identities, etc.).  The solution to self-sabotage in the UEC model, similarly to the UEF model, is to accept and fully experience your creations.

The UEF model is really a subset of the UEC model.  Creations would include a part of you that you create and then tend to disown as well as disowned feelings and beliefs.  What about the Oneness Model?

The Oneness model presumes that any thought, feeling, or action that brings about a sense of separation or takes one out of a state of peace, joy, and bliss is self-sabotage.  The solution to self-sabotage in this model is to return to an awareness of Oneness and do whatever makes you feel Oneness, peace, joy, and bliss.  Upon my first reading the Oneness model seemed quite different from the UEF and UEC models.  But then I remembered that the best—indeed, the only—way I know of to attain the state of Oneness is to open up to your experience and feel it fully, with acceptance (that is, to do exactly what is prescribed in the UEF and UEC models).  It is only then that any “false” perceptions, perceptions that comprise your awareness of a distinct “self” that is separate from everything else, dissolve, thereby bringing you into the state of Oneness.

I think there is a lot more to Oneness than that, but I’ll save my comments.  What else have you learned during this process? 

During the past few months I’ve discovered three successive stages of consciousness.  The first is resistance: you resist whatever parts of your experience you dislike.  But by resisting it, of course, you cause it to persist.  The second stage, acceptance, comes when you stop resisting, truly and fully.  In the third stage you transcend your experience.  But you can transcend it only once you have accepted it.  The UEF and UEC models you present in Volume 4 of the Peak Performance Home Study Course seem to help with the second stage, acceptance.  It is at the third level of consciousness, transcendence, that I believe the vision outlined in the Oneness model can finally manifest itself. 

A core principle of Oneness is that there is no thinker, only thinking, because you are not your thoughts and feelings.  They are just there and you are simply the awareness of them.  But you routinely identify yourself with your beliefs and think they define you.

That is one of the most important things I have learned.

You’ve been talking a lot about the need to accept your feelings instead of resisting them.  How has this shown up for you in your own work?

Up until these past few weeks, while doing my core work, I spent a lot of effort resisting any negative emotions whenever they would appear, particularly around my sense of inadequacy.  I resisted these feelings because I was attached to being in a state of clarity and oneness.  Whenever feelings of inadequacy would pop up and “ruin my clarity party,” I would judge and resist them.  This only caused them to persist, which in turn prevented me from being in the very state of clarity I was “aiming” for. 

As you would say, Van, this was all a big game I was playing that I was only half-aware of.  But in the last month I think I’ve made a major shift in this regard.  During my meditations and throughout my day I’ve been much more accepting of any and all emotions that arise.  The reason, I think, is that I’ve shifted my goal away from attaining clarity to simply experiencing my emotions fully. 

I now realize that the main purpose of all my meditation work is not to “reach clarity,” although that is often a pleasant byproduct.  The purpose, rather, is to be able to feel my emotions without letting them affect me.  Of course, since I’ve shifted my outlook in this regard I’ve spent considerably more time in that elusive state of clarity than I had at any time in the previous couple of months.

Perhaps you are now focused on simply being aware of your beliefs and feelings and understanding that they are not you.

Yes, I think that is true.  While I still feel them, I have stopped identifying with them.  That marks a major shift for me.

We will continue with the rest of the interview in next week's edition of Tharp's Thoughts. Until next week, this is Van Tharp.

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.iitm.com.  

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Trading Tip

by D.R. Barton, Jr.

Today I heard two very insightful takes on the direction of the equity markets.  Both conclusions had great merit, and I believe that both analysts had useful high probability conclusions (i.e., I believe that they both are right).

Their views on the market direction, however, were completely different.  One was completely bearish, believing that market is going down.  The other was very bullish, looking for a strong advance in the market. 

How can they both be right?

As you may have guessed, they were talking about different time frames.  The bearish analyst is looking for a strong pullback in the two-day to two-week time frame.  The bullish analyst believes that the market has lots of upside for anywhere from the next two months to the next two quarters.

Let’s take a quick look at a bit of their reasoning to see where we can find useful conclusions for ourselves.

The Bear

Let’s take a look at the short-term bearish case first. 

An acquaintance from the west coast wrote a very well-reasoned piece on the short-term outlook for the market.  He considered the number of stocks trading above their 50-day moving average, which has now reached more than 80%.  He also noted the downward trend of the VIX and that it has reached the lowest levels since it peaked in mid-May.  The VIX, or volatility index, acts as a market fear indicator and shows that right now, there is a very low level of fear in the market.  He concludes that stocks are due for a correction.

As I look at a current chart, I also can see that we are forming a triple top at the levels the market hit in mid-June and early August.  Bouncing off of this strong resistance adds to the argument for a short term correction. 

The Bull

Over dinner last night, I spoke with an analyst who has a long-documented track record of outperforming the market.  He has a bullish outlook based on many market sentiment indicators.  Interestingly, he also cited VIX, saying that while it may be low relative to recent history, the current levels around 20 is far from the historically overbought level of 15, which it tested in mid-April this year.  He also mentioned the still positive leanings of the put/call options ratio, despite our strong two-week up move.  Other positives that he notes are the net inflows into Rydex bullish funds (vs. the bearish funds) and a market that has continually advanced despite high closing TICK numbers.  High closing NYSE TICKs cause near term reversals in markets that aren’t as strong as the current one. (An NYSE TICK is a measure of the number of stocks on the New York Stock Exchange that are trading on an uptick minus the number trading on a downtick).

Why They Are Probably Both Right

As I mentioned earlier, I think both analysts have interesting and valid points. 

It would not surprise me at all to see the market pull back in the short term rather than blast through the triple top resistance area close to 1130 in the coming days or weeks.    

What about two months to two quarters out?  Well, governmental intervention still runs rampant in the financial markets on a global scale.   Case in point, a hedge fund friend sent me a heads-up e-mail today that the European Central Bank is buying more sovereign bonds in Europe.  This helps to reduce the bond insurance spreads and gloss over continuing debt problems there.  To this continued cash infusion, add the upcoming US midterm elections, which combined help make the most probable scenario a longer term upward continuation for the coming months.

Keep relative time frames in mind for all of your trading and investment decisions.  Clarity comes from the simple task of understanding your time horizon!

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 "iitm.com".

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Mailbag

The Four Star Inflation/Deflation Model

Q: I recently read Safe Strategies for Financial Freedom, which I found very useful.  Regarding the 1-2-3 model, the last reference I can find is the newsletter dated March 5, 2008.  Has the 1-2-3 model been discontinued?  If so why, and what has it been replaced with?

I also want to understand the Four Star Inflation/Deflation Model published in the monthly market updates.

I reviewed the relevant section of Safe Strategies, which outlines the methodology using four components: commodity prices, consumer prices, gold prices and interest rates.   The monthly update tracks four items, two of which appear to be the same (CRB/CCI and gold) but two items (XLB and XLF) appear to differ (unless these are proxies for CPI and interest rates).   I suspect since the publishing of Safe Strategies there has been a revision to the methodology, and I am keen to understand the logic behind the revision. 

Can you please advise?

A: Van did change the model he uses to monitor the big picture in his monthly market update. In an article from April 30, 2008 Van wrote,

“I’ll now be reporting market type regularly in my monthly update of the markets.  In fact, this market type filter will replace the 1-2-3 model because I believe it is much more useful.  The 1-2-3 model, in my opinion, will soon fail because the valuation portion of it will start signaling “buy” even though we are in a secular bear market in which valuation (i.e., PE ratios) could go down to the single digit range.”

Regarding XLB and XLF, it would be easier for Van to answer this question but he is traveling in India this month with minimal connectivity to us here back in the office.  Since he’s not around, I pulled out the Safe Strategies book and did a little reading online.  I’ll try to interpret what Van uses in the model now. 

Van exchanged XLB for the CPI or consumer price index.  Van has become completely distrustful of all government statistics.  It doesn’t surprise me that he wanted to use the basic materials ETF to track prices directly rather than use fudged figures from the federal government.  As you have read in his updates, he much prefers the numbers that www.shadowstats.com reports. 

As for XLF, I believe Van thinks this financial sector ETF is a more useful measure for inflation/deflation rather than the short-term rate alone.  Van probably believes the extraordinary governmental actions in the debt markets have made the short term rate much less useful in recent years for measuring the presence of inflation or deflation.  The price of XLF reflects well multiple inflation-sensitive factors beyond the short-term interest rate to make it a better measure of inflation. 

Those are my best guesses for the changes in Van’s inflation/deflation model since he wrote the Safe Strategies book in 2003.  More important than understanding Van’s logic, however, is understanding your own beliefs about inflation, deflation, and how you will assess the environment for them.  Have you written down what you believe about inflation, deflation, their effects on the economy and financial markets?  Van continually advises traders to get their beliefs down on paper so you can examine them.  Once you do this, then you may be able to effectively utilize Van’s model or you could develop one of your own that fits you well. 

RJ Hixson

Everything that we do here at the Van Tharp Institute is focused around helping you improve as a trader and investor. Therefore, we love to get your feedback, both positive and negative!

Feel free to click below to leave us any comments so that we can serve you better. Or, send Van a question that you would like for him to answer.

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