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

• Workshops 2011 Winter Workshop Schedule
• Article Project Marathon Update by R.J. Hixson
• Special Offer 20 Percent Off Sale Starts Next Week
• Trading Tip Important Market Juncture Point by D.R. Barton, Jr.
• VTI News!! Full-Time Research Assistant Position Available

Workshop

Updated 2011 Winter Workshop Schedule

Feature Article

Project Marathon

by R.J. Hixson

My last Project Marathon article was in August. Around that time, I had started arriving at the office early so I could day-trade part of the morning session.  I had adjusted my trading plans so I could still make my 131 R-multiple trading goal for this year. Surprisingly to me, my intraday was going well and I liked it—I expected neither of these results. 

Also at the end of August, our landlord got very serious about having us move out.  He had just hired a top gun sales agent who wanted to sell an unoccupied house rather than deal with the logistical and marketing headaches of tenants.  We knew moving out had been coming for some time but, suddenly, it became quite urgent.  We had to buy a house and or rent again; either way, we had to move and move fast.  Feeling the stress build inside, I knew it would be best to stop trading and come back to the 131R task after we settled into a new dwelling. 

Not Stressed, Just Stressing

Many weeks before the actual move, the process of searching for and negotiating a home purchase got fairly stressful for several reasons.  First, our landlord gave us four weeks to be out of the house.  That magnified the amount of stress for moving over a “normal” six or eight week schedule.  Second, there was really only one house on the market that fit our search criteria.  With about four weeks left, there was time enough to negotiate and close on only that one.  If that failed, we were going to have to find a rental house, fast.  The rental situation itself was a third source of stress. 

Just after school started again in late summer, rental listings started evaporating within hours of going public.  Rental homes are in high demand and the rental rates are going up a good bit around here.  It reminds me of what shopping for a house was like in 2006/2007 when homes would have a contract on them within a day of listing.  The resale market has cooled off since then, but the rental market around here has gotten quite hot.  That has some economic big picture implications, but closer to home it meant there was no quick or easy “Plan B” rental option if the house purchase fell through. 

This additional stress only solidified my decision to stop trading until we were done with the move. 

Avoiding a TUI

One interesting experience in early September taught me a very valuable lesson about trading and stress.  During one of the more dramatic weeks of the purchase process, I happened to glance over at a live S&P price chart to see a huge move on the chart.  Wistfully, I regretted missing earning a piece of that because I wasn’t trading.  Then I looked at the price levels on the right-hand side of the screen. That "huge" move was on a day only that had a six point range. That startled me. I thought I wasn't trading because stress adversely affects the decision process. What I learned then was that stress can also adversely affect my perception.

When I related that experience to Libby Adams, she laughed and made several interesting comments. First she said that by not trading, I had avoided a TUI (i.e., “Trading under the Influence”—of stress, that is). Stress is a very big deal for traders; that’s why Van dedicated an entire volume in the Peak Performance Home Study Course on how to manage stress with respect to trading. 

In our conversation, Libby added that traders often underestimate the simple value of not losing money by sitting on the sidelines sometimes. As an individual trader, not having to trade on any given day is one of my edges. 

Anyway, to finish the moving part of the story, we made an offer on that lone house we were interested in, negotiated back and forth quite a bit with a good amount of drama thrown in and closed on it exactly three weeks after we signed the sales contract.  Everything happened just as it needed to and I’m so happy and grateful to live where we do now.

Project Marathon Scorecard

With only 5 trades taken in about the last 10 weeks, the number since the last article hasn't moved much.  I still need 104R to make 131R.  I’m very encouraged that the last 5 intraday trade sample had an average of 1R per trade.  Now, if I could just do that several times a day…

Strategy Now

I remain fully committed to making 131R this year.  With Thanksgiving, the Super Trader Summit, and Christmas all coming up, I have only 18 days of trading left this year, I will have to average +6R per trading day.  Is that possible?  In truth, I don’t already know what’s possible, so why not still go for it? 

As my life was settling back down over the last few weeks I kept an open mind about how to achieve those kinds of numbers.  Wondering what’s possible helped me hear Ken Long say how he was improving his skills by trading his favorite short term patterns on one minute bar charts.  If I could keep up my 1R per trade average and do that 6 times a day on minute bar charts, it’s possible I could still hit my target. 

Curious about trading one minute bar charts, I watched them last week and made a few paper trades.  That was reassuring too as I made one 7R trade and several other profitable trades.  Still, I was very concerned that live order fills might have price fill differ from the prices I was seeing on the chart.  To test that, I made a series of trades with real money in very liquid stocks and ETFs.  At my small size at least, I was pleased to see zero slippage.   That was very encouraging. 

So my plan now is to make lots of trades based off of the one minute charts in the remaining 18 trading days.  That’s nowhere near what I had planned earlier in the year.  It’s perfect instead.

Take care and trade well.

About the Author: R.J. 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 recently moved his family household and wondered where all that stuff had come from.  He can be contacted at “rj” at “iitm.com”.   

Special Offer

Next Week We Start our End of Year 20% Off Sale on all Home Study Products! Check back for a special coupon code.

Trading Tip

by D.R. Barton, Jr.

“May you live in interesting times.”
                                                                  —Attributed Chinese Proverb/Curse

The opening quote always has me pause for reflection.  As someone who enjoys and uses technical analysis regularly, these are certainly interesting times.

Technical analysis of the markets attempts to describe and predict market activity based on patterns and statistics from past price movement.  The challenge for technical analysis is that for any given trade or point in time, outside influences can override the technical tendency.  I would humbly submit to you that $600 billion in quantitative easing counts as a rather strong outside influence on the markets. 

But for now, (as of the end of the day Tuesday, Nov. 9), there are many technical indications that point to this moment as a key market reaction time.  Let’s take a look at where we are.

Fibonacci Test

Fibonacci ratios were fairly esoteric in the general public until the Dan Brown books (Da Vinci Code, etc.) popularized the mathematical series.

On Tuesday, the market came within a point of a very important Fibonacci number.  Let’s look at that on a weekly chart.

This weekly chart shows the Fibonacci retracement lines drawn from the October 2007 highs to the March 2009 lows.  Inside the purple circle at the right you can see that on Tuesday price traded to within 1 point of the 61.8% retracement.

This retracement level of 61.8% is significant to the traditional technical interpretation associated with this level. If price breaks through the 61.8% level, technicians would consider the trend reversed.  In this case, that would signal the end of the major October 2007 to March 2009 bear.

If we examine the pattern this chart reveals and throw in an additional momentum indicator, we can see yet another suggestion of a significant market junction. 

Divergence

Tuesday provided a beautiful double top setup.  In addition, this double top showed divergence on my favorite momentum indicator—the Chaikin Oscillator.  This oscillator analyzes accumulation/distribution and combines that with volume analysis in one indictor.  Look forward to an article sometime in the future on this indicator and an interview with its creator, my good friend and technical analysis legend Marc Chaikin.

Short Term Picture

There’s one other important chart formation that we need to cover.  Looking at a daily bar chart, here’s the S&P 500 e-Mini futures chart.

If the market trades into this gap, it could serve as the catalyst for more downside correction.  (Ed. Note:  prices moved into this gap early on Wednesday.)

Conclusion

As I mentioned earlier, outside influences can override even the most logical technical analysis conclusion.  With the Federal Reserve dumping $600 billion more fiat currency into the financial system, a good portion will find its way into the stock market.  With that kind of cash chasing the same number of shares of stock, pullbacks are likely to be more shallow than we would normally expect.

As always, I’d love to hear your thoughts and feedback on this topic or about trading and investing in general at drbarton “at” iitm.com.  Until next week…

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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