Tharp's Thoughts Weekly Newsletter (View On-Line)
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Article Why Gratitude Matters for Traders and Investors by D.R. Barton, Jr.
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Trading Tip Integrating Your Beliefs about Self, Market and Systems by Ken Long
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Feature Article
Why Gratitude Matters for Traders and Investors
by D.R. Barton, Jr.
In the US, the Thanksgiving holiday celebration was declared by President Lincoln in 1863 as a day of giving thanks and praise. Almost a century and a half later, the celebration has become something of a “gateway holiday.” It marks the informal beginning of the Christmas season, a time of year that includes the celebration of the birth of Jesus, the eight days of Hanukkah and others.
If we needed convincing that people often given less attention to Thanksgiving than it deserves. Consider this: the day after Thanksgiving has been dubbed “Black Friday”—the start of the Christmas shopping season. This “non-holiday” bargain hunting extravaganza is so popular that Reuters estimates that 45% of the US actually went holiday shopping on this day in 2007.
In the same way that the nation can easily overlook this important holiday set aside to express gratitude, traders and investors can easily ignore the importance of gratitude in their approach to the markets.
Let’s explore why gratitude is such an important attribute for traders and investors. Before we dig into this concept, I’m sure that there are many folks out there who have the belief that all a trader needs is a good strategy or set of indicators to be successful in the markets. My experience in working with thousands of traders and investors is that the very people who would rather sweep the psychological side of trading under the rug are the ones who need to pay attention to that part of the game the most! So regardless of your beliefs in this area, read on for some useful info!
Prevalence of Gratitude
At the surface level, gratitude can be viewed as a tool for successful living. But at its core, gratitude is really an approach to life, or stated more boldly, it is a way of life. All spiritual traditions include gratitude among the highest virtues. For example, here is a quote attributed to Gautama Buddha:
“Let us rise up and be thankful, for if we didn't learn a lot today, at least we learned a little, and if we didn't learn a little, at least we didn't get sick, and if we got sick, at least we didn't die; so, let us all be thankful.”
The Jewish scriptures are literally filled with thanksgiving and gratitude. In the Hebrew Bible, the words thanks or thanksgiving show up 58 times.
But the reference that is the most insightful to me on the subject of gratitude is one from a biblical account of physical healing that turned into much more.
In short: while traveling, Jesus healed 10 men who were suffering from leprosy. One of them, when he realized he was healed, ran back to offer his thanks. Jesus praised the grateful man, telling him that the faith he showed through his gratitude had produced more than physical cleansing—it also brought a complete healing of body, mind and spirit. This state of gratitude, that allows one to “be the best you can be,” is essential for excelling in any endeavor.
Gratitude and Trading: Practical Application
Van is a champion of the primary importance of psychology in trading. And gratitude is central to getting into the most useful mental states for trading. Let’s start with the bottom line: if we approach the markets with a grateful attitude, we put ourselves in the best possible state for trading. We are open to see the markets more clearly. We are clinging to none of the baggage that can make us deviate from our trading plan. Gratitude also leads to the inner joy that makes us our best and most complete self—the same state that the grateful leper felt after he voiced his thanks.
So how can we can be a “grateful trader”? Just consider some of the things that you have to be thankful for:
- Your time, talent and treasure (i.e., the resources that allow you to trade).
- Tools and information at your fingertips that traders of previous eras could only dream about.
- Open markets that anyone can trade (not just a select group or privileged few).
- The freedom to trade what you want, when you want to.
- The freedom to not trade at all and be out of the markets if you so choose.
- And finally, the opportunity to serve society by providing market liquidity and risk capital.
These elements are the life blood of the financial markets and functioning economies.
If you’d really like to take your trading game (and other areas of your life) to the next level, write down a few things for which you are grateful before starting your day. That simple and quick practice can make a huge difference. Go ahead and try it now!
Think about the more useful mindset—one where you are happy to be involved and grateful for the opportunity to excel in a challenging field. Compare that to a mindset where you struggle for and gripe about every inch of ground gained, never satisfied with the outcome. When we read those two choices, no one would pick the second one. Yet many traders allow themselves to revert to that adversarial mental state when the bell rings and the markets open. Make a conscious choice to stay grateful.
Approaching the markets with gratitude allows us to participate at a much deeper level where our body, mind and spirit are aligned for the task.
As we prepare for Thanksgiving, take some time to give thanks for your many blessings, regardless of where you live! And make a concerted effort to carry that grateful attitude with you to the markets. You might just be pleasantly surprised by how such a small change in approach can make the journey more enjoyable and more profitable.
I’d love to hear your thoughts and feedback; just send an email to 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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Trading Tip
Integrating Your Beliefs about Self, Market and Systems
by Ken Long
How do you analyze your trading? Your systems? Your results? I view my trading performance as one big system, then I look at it from three perspectives: self, market, and system.
When I consider self as part of my trading system, I examine my beliefs about my strengths and weaknesses, my emotions and rationality, my goals and objectives, my appetite for risk, my habits for success, my self-discipline, the assets that support me trading well, my network of friends and associates, the circumstances of my life that surround trading, and so forth.
When I consider the market, I take a look at the broad market, segments of the market, time periods, currencies, macro-economic issues, buyers and sellers, human psychology, news and news making organizations, the behavior of the masses with respect to news surprises, governmental policy, rules and regulations governing trading, taxation, and the laws of cause and effect that I hypothesize may cause the market to behave as it does.
When I consider my systems, I think in terms of general systems theory and the idea of input, process, and output as the components of the system that perform in an environment. I know from my systems theory training and education that the whole is greater than the sum of the parts, and that emergent behavior can arise from simple rules in a dynamic environment. I am aware of the possibilities of second and third order effects and how the laws of unintended consequences can take on a life of their own. I can use an analytical approach to understand and appreciate the components of a system to look for incremental performance improvement and I can use a holistic approach to examine the interface of the system with the environment around it and with competing systems in the same environment to look for a competitive advantage.
By preparing yourself properly in this journey of self-discovery into your own beliefs, you are laying the foundations for a thorough understanding of self, markets and systems, which will pay dividends later once you add practical experience to this theoretical framework.
After first examining each of these areas and my beliefs about them, I can then consider if any areas of interest overlap between any two of these three domains (i.e., self and system, self and market, and market and system). Each of these domains is an area that can be explored and understood to find the sweet spot that works for me.
Finally, I can consider all three of these domains simultaneously and once again look for a sweet spot where all three areas contribute to my competitive advantage.
Because of the learning and feedback process from the evolutionary change in me and in the markets, I consider these three domains to be dynamic and ever-changing and so the importance of regular feedback, analysis and reflection becomes crucial to my continued performance.
I recommend beginning the process of discovery by reading a popular book or two from a respected author who trades in a manner that is similar to what intuitively appeals to you. Begin deconstructing their belief system, chapter and verse. Itemize their beliefs so you can start constructing a belief network and determine which of their beliefs resonate most strongly with you. Knowing which beliefs you hold strongly will then support analysis in to determining what actions logically follow from holding these beliefs and how you can test them.
About the Author: Ken Long is a retired Lieutenant Colonel in the U.S. Army with a Master's Degree in Systems Management. He is a doctoral candidate researching the management of uncertainty and an active trader. Ken is the founder of Tortoise Capital Management, www.tortoisecapital.com, where he conducts market research and publishes a newsletter for his trading systems' signals. He is a proud father of 3, a husband, teacher, student and martial artist. The above article was reprinted from Ken's blog. Read more of Ken's essays at http://kansasreflections.wordpress.com.
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Mail Bag
Average True Range (ATR) Formula
Q: I've learned that it´s vital to match your trading system to the current market type. I do this by using the SQN and the ATR%. The thing is that I don't have a formula for the ATR% so I made up my own:
ATR(14)/SMA(C,14)
I would like to know which formula you use, so that when I read your market comment each month I know we´re talking about the same thing.
A: ATR% is not widely known or available as a default indicator on many platforms. However, it is relatively easy to calculate: take the 14-day ATR and divide that by the closing price. The result is the percentage of the closing price that the issue has moved in the last 14 days. Simple?
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