Van K. Tharp, Ph.D.
I believe the most significant
work that anyone can do to increase market returns is self- work.
Really understanding yourself and how you think can give you an edge
that others in the market don't have.
part of my training, I give a long questionnaire to each trader to
do an evaluation of themselves.
Some of the feedback that I get is that taking the test is
like doing a Ph.D. program! It's
consider the ten questions that I give my Super Traders to be the
essence of this self-evaluation processóa minimum starting point
for this type of work.
We'll start with just one of the points. My advice
to spend at least an hour on each questionóa day is even better.
These questions are meant for you to really dig deep and come up
with responses from your core belief structure.
are seven key psychological areas that you need to work on or are
currently working on?
Donít say ďnoneĒ
because that answer really suggests that you are totally unaware of
what is going on with you.
basically live in a society in which we are programmed to feel
separate and alone from everyone else, programmed to follow the
rules of the games that others invent for us to play.
The net result is most people do the exact opposite of what
is necessary for success. As
you become aware of this, youíll also become aware of all your
patterns, beliefs, and emotions that you need to work on or clear
out to become more successful as a trader.
are some examples that might fit some of you:
- I really
have a fear problem that enters into my trading.
I want to make trades but Iím afraid to pull the
trigger. And that
fear seems to come up in other areas too; I guess Iím really
afraid of failure.
- I have some
internal conflict when it comes to working on myself.
On one hand I want to, but on the other hand, Iíd
rather do other things. Working
on myself feels like having a tooth pulled.
For some reason, I just donít want to do it.
- I donít
have any discipline. Sometimes
I just decide to trade. I
make almost random trades or take recommendations that Iíve
been given, but just certain select ones appeal to me.
And the net result is that those trades never seem to
work out. (Note:
this is also an incomplete answer.
What is the selection process?
What happens to those trades?
Do you cut losses and let profits run?
Are you compelled by some emotion to trade?)
- My mother
continually criticizes me. My
mother gave me everything when I was growing up, and Iím very
grateful to her. But
sheís always telling me what I do wrong.
In fact, it upsets me to be around her.
Yet at the same time, I feel that I must support her.
I need to find out why her criticism bothers me so much
and what I can do about it.
- I really
donít like to be alone. When
I do things that are important to trading success, like
psychological work, I have to go inside and search and that
really disturbs me. Also
when I try to meditate, things come up that cause me to be
afraid. (And, of
course, if you had this response, Iíd want you to at least
find out whatís trying to come up that is causing this).
five statements are just examples of what might come up for you.
But whatever you findÖlook thoroughly.
Whatís really going on?
What are the emotions you donít want to feel?
What are the hidden beliefs?
What is the internal conflict where part of you wants certain
things and another part wants something else?
are your key beliefs about the markets?
is important for you to remember that you can only trade your
beliefs about the market. So
what are the key beliefs that are guiding you?
really understand whatís guiding your trading, you should list at
least fifty beliefs. However,
at least ten is a good starting point.
help you get started, Iíve listed 12 of
my most important
beliefs about the market. Some
of these are core principles that I teach everyone and some of them
are just things that fit me. Also
I just came up with these twelve off the top of my head.
Like I mentioned, youíll probably need to discover at least
fifty beliefs to thoroughly cover the key principles that guide your
- Cut your
losses short and let your profits run!!!!!!!
- Risk, as it
relates to how much you can lose in a trade, is much more
important than risk as it related to how much volatility you can
have. Both are
- You must
understand the R-multiple distribution of your trading system
and the average R it produces (expectancy) and the variability
of that distribution (i.e., how volatile it is).
- You must
know the objectives you wish to accomplish.
What would you like to accomplish and what can you
tolerate in terms of drawdowns?
In my case, Iíd like to make 10% per month in my
- To achieve
your objectives, you must understand and use position sizing to
- Fill your
portfolio with a core position that you might adjust weekly or
then find efficient stocks and use leverage with those stocks to
achieve peak performance. (Again,
remember that these are my beliefs and they might not fit you.)
- When I have
a large down day, thoroughly investigate what happened and how I
might have caused it or made any mistakes.
- Keep a
trading diary on every trade.
- Follow the
ten tasks of trading.
- When I
cannot be actively trading, remove all speculative positions.
the risk reward of each trade before you enter it.
For example, your potential reward should be at least
three times your potential risk.
- Keep stop
loss levels with my core positions and actively monitor the
market for my speculative positions.
(Again, this one is my personal preference.)
want to caution you again that these 12 beliefs are my
personal beliefs. Your
beliefs might be different. However,
certain beliefs are universal for good trading.
These include beliefs 1- 4 (knowing your objectives), and
8-11. These are
just ideas to get you going.
be honest with yourself, and start to look at what you truly believe
about the markets. You may surprise yourself.
the Author: Trading Coach Dr. Van K Tharp, is widely recognized for
his best-selling book Trade Your Way to Financial Freedom and
his classic Peak Performance Home Study program for traders
and investors. Visit him at www.iitm.com
for a FREE trading game or to sign up for his free weekly