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November 25, 2002 ó Issue #93

IITM, Inc.

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In this Issue:

Trading Tips Tip# 41  The Art of Journaling, Part Two
Listening In From Dr. Tharp, More on tithing...learning from Native Americans


Quote of the Week:

ďThe unexamined life is not worth living.Ē ~Socrates~

Trading Tips: 

The Art of Journaling, Part Two

by Brian June and Van K. Tharp

In part one of this tip we discussed that at the end of the trading day, your first impulse is probably to shut down all your equipment and get far away from trading. But, even though you may feel drained at the end of the day, you need to either discipline yourself to continue on with a daily debriefing process or to discipline yourself to come back and do it at a set time that evening. The daily debriefing is a critical part of your trading success. We discussed: The 5 steps to the debriefing process, some details about putting your raw data into a database of some sort that will make it useful for you in the future, and we touched on the topics of Environmental Influences: Personal Thoughts: Market Influences: Equipment and Support: We will continue now with a discussion on debriefing and your trading rules. If you missed part one, click here to read it first.  

Debriefing the Trades: Rules are Not Made to be Broken

The key to debriefing your trades is to ask yourself one critical question: Did I follow my trading rules? If you can say, ďYesĒ with certainty, then pat yourself on the back ó even if you lost money (especially if you lost money!). Pay close attention to this comment: following your rules has nothing to do with making or losing money. When you follow your rules, no matter how good your strategic plan is, youíll still lose money on some days. Itís particularly important to pat yourself on the back when this happens, because you need to congratulate yourself for following your rules.

You must understand this critical distinction right now. If you followed your trading plan ó particularly your exit rules and your position sizing rules ó then you made a good trade, regardless of whether you made money or not. You have to consider such trades to be good trades. When you do that, you will mentally and emotionally reinforce the longer-term aspects of good trading as opposed to the shorter-term aspects of making money. By defining a good trade as one in which you followed your rules, you will reinforce the discipline that you need on a long-term basis to stick with your plan and therefore remain profitable over the long-term.

Similarly, bad trades, by our definition, are those trades in which you didnít follow your trading rule or your trading plan. And hereís the key: if you didnít follow your trading rules and you still made money, you must classify that trade in your mind as a particularly bad one. You must do everything in your power to keep from reinforcing bad habits! As you progress as a trader through the program we are giving you, we hope that youíll find that you actually have very few bad trades. 

In my own trading, Iím to the point where I donít often have bad trades. I might have one to three bad trades a week, but on a daily basis Iím very, very consistent. The reason I know this, of course, is because Iíve kept a trading journal. Again, Iím not saying that I only have three losing trades a week! Iím saying I have just a few trades each week where I donít stick to my trading rule or my trading plan. And my goal is to get these down to zero. Actually, if you look at my written trading plan, one of my top goals for my trading plan is to have zero bad trades, meaning trades where I didnít follow my rules or my plan. Iíve found that over time thatís been easier and easier to accomplish. Itís also easier if you do the research in advance and you know your systems well. The better you understand your system and the more precisely you write it down, the less likely you are to break your trading rules.

All errors are basically psychological. However, given that caveat, we have classified mistakes into four categories: 

1) execution errors, 

2) entry or setup errors, 

3) exit errors, and 

4) position sizing errors. 

Editorís note: This article is excerpted from ďFinancial Freedom Through Electronic Day TradingĒ by Van Tharp and Brian June. 

Listening In....

Author: Van Tharp
Date: 11-15-02 23:36

I've found the tithing conversations to be interesting and enlightening. However, much of it focuses on getting more money. I'd like to suggest an alternative way of thinking.

First, there is the infinite wealth idea....you win the game of money when you have enough passive income to equal what you have in expenses. At that point you don't have to work.

However, there's an even more significant idea. I was struck with the idea from Conversations with God that almost describe American Indians as being highly evolved people. Interesting! There were a lot of ideas in there that turned me off at first, such as highly evolved people don't need to live in boxes and don't need to own things. That's a total paradigm shift.

However, I read a wonderful passage from Thom Hartmann's book, The Phophet's Way. Excellent book and a must read! Anyway, he talks about visiting an Indian shaman to learn some of his healing secrets. He learned that the Indian has at most a salary of $5000 per year and that he mostly exchanged his healing services for things he needed -- the barter life.

The reason this worked is because everyone in the tribe felt responsible to help every other members of the tribe to make sure they had enough -- enough food, enough clothing, enough shelter, enough love, and enough health. He pointed out that it really doesn't take a lot of time to make sure everyone else has enough. And after that they have a lot of free time for personal development and spiritual growth.

Perhaps that's really the answer...to personally take responsibility to help make sure that everyone we know has enough.