Transform: To change markedly the appearance, form, nature, function, or condition—usually for the better.

Transformation is an interesting phenomenon. In the transformation process, your external circumstances may not change at all. That is, you may still be a trader, trading the same markets with the same system. Yet somehow, your experience of trading seems different. Why?

Transformation occurs as you break down your boundaries of who you “think you are” and expand them. For example, as you go through the process of releasing the feelings or emotions that you have stored deep inside, transformation can occur. As you develop useful beliefs about yourself, the transformation process will occur. As you move from relying on beliefs that you have learned and feel protective about i.e. “this is just the way it is” and move to relying on what you instinctively “know” deep inside - transformation will be occurring. As you move through the process of self-discovery, and learn more about yourself, you will start to transform.

Transformation doesn’t just happen to you (although it can, but this is usually when life changing events occur). It takes work and an ongoing commitment from you. Ultimately, this means that you will trade better because you will trade with less ego involvement.

But most importantly, transformation means that your entire life will move forward. The circumstances that surround you will not necessarily change, but how they appear to you and how you respond to them will be significantly different.

Posted by Van K Tharp at 02:01 PM | Permalink | Comments (2) | TrackBacks (0)

Since most people believe that stock selection is the key to making money, I'd like to share with you the source of that myth.

1) Mutual funds are by charter supposed to be fully invested. Furthermore, their job is NOT to make money but to outperform the market (which most of them cannot do).

2) If you must be fully invested, then you cannot really practice position sizing or proper risk control. And even asset allocation (which is really position sizing) seems like finding the right assets.

3) Mutual funds, by the way, don't get paid for performance, they get paid by the amount of assets they manage...they get paid if they keep your money.

4) When the market goes up, most funds make money and most people are happy to be a little richer...and the fund managers go on CNBC and talk about which stocks they like.

5) When the markets go down, most funds lose money. The funds that make money do so by stock selection. And what they do is find stocks that are selling for less than their assets are worth if they were liquidated.

6) And when we have mutual fund crises (like the one recently when funds were selling to mutual funds when the public couldn't buy), it was all blamed on market timing.

7) What most people don't understand is that the best traders get out of mutual funds and become hedge fund managers where they can really trade. And very little of what they do has to do with stock selection. It has to do with cutting losses short, letting profits run, and proper position sizing.

So much for our little myth.

Welcome to the world of how money is really made in the market.

Posted by Van K Tharp at 02:50 PM | Permalink | Comments (0) | TrackBacks (0)

Practicing Mindfulness in Your Trading

• Practice a 20-minute mindfulness meditation each day for at least a week. If you watch your thoughts (and release them as soon as you notice them), then you can be satisfied that you are doing the exercise appropriately.

• Keep a regular diary of what is going on in your life. Do it for a few days before you start the mindfulness meditation and then keep it up. When you’ve completed a week of mindfulness meditation, look at your diary and notice how your life is different.

• Bring mindfulness into your trading and investing by doing the following:

a) Imagine yourself taking the other side of every trade that you actually take. What does that position feel like? Also, imagine yourself being a neutral observer who watches you and the other person both take a position in the market. What do you think that person would think?

b) Look for new information about each new trade. What information are you normally accepting and what information are you normally rejecting?

c) When you do something you don’t like in your trading, notice the context in which you are interpreting not liking it. How else might you interpret that behavior? What other intention might cause that behavior? Perhaps those other intentions are something you value highly.

d) Concentrate on the process of trading—following your rules. In fact, at the end of each day ask yourself a simple question, “Did I follow my rules?” If you did, pat yourself on the back. If you don’t have any rules, then you obviously didn’t follow them. Think about it.

Posted by Van K Tharp at 02:24 PM | Permalink | Comments (1) | TrackBacks (0)

Putting the Process Before the Outcome

People can imagine themselves taking gradual steps, while great heights seem totally forbidding. Yet, when you take enough gradual steps, you’ll reach great heights.

If you are concerned with the final result—the outcome—then you will probably have problems attaining the outcome. However, if you concentrate on the process of getting to the outcome, then you are much more likely to arrive at your destination.

Every outcome is proceeded by a process. You will not make money trading unless you follow a predetermined plan and continually stick to that plan. That’s why you should pat yourself on the back every day if you can honestly say that you totally followed your rules throughout the day. Every "market wizard" arrives at that stature by taking one trade at a time. The primary difference between that person and the average trader is that the market wizard probably continued to follow his plan every single day.

In my next post I will list a number of things you can do to practice mindfulness in your trading.

Posted by Van K Tharp at 04:10 PM | Permalink | Comments (3) | TrackBacks (0)

Controlling the Context

Much of your behavior is context dependent. For example, many professional traders know it is quite possible to lose $20,000 in a trade—perhaps paying $1,500 in trade costs in doing so. However, the same traders are much less likely to pay $1,500 to attend a course that could dramatically reshape their trading and help them avoid many such losses. The thinking behind such logic is that the loss is a cost of doing business whereas the course is an unnecessary cost. Notice what happens to the logic if you switch it around and start to think of the course as being essential to doing business well. It becomes much more significant than the losing trades, given that it may save the trader many thousands of dollars in just a single year.

People who practice mindfulness are aware of the context in which they are interpreting events. They are also quite willing to shift contexts to determine the impact upon their behavior and their thinking. As a result, they give themselves more choices and are much more likely to make money.

I will discuss the fifth concept, Putting the Process Before the Outcome, in my next post.

Posted by Van K Tharp at 03:01 PM | Permalink | Comments (0) | TrackBacks (0)

Looking at Things from Multiple Perspectives

There are at least three general "positions" or "perspectives" from which any information can be viewed. The first perspective is the "I" position—“How does this information affect me?”

The second perspective, position two, is “How does it affect another person directly—what is that person’s perspective?” That second position might be that of the person who takes the opposite side of your trade or perhaps the person who is making the market for you. Looking at new information from that person’s perspective might be quite valuable to do.

The third perspective is that of the neutral observer who is watching all of the other participants. This is like someone out in space who can see what everyone else is doing and then view everything from a global perspective.

Of course, there are many possible players for positions one and two. You can try on numerous possibilities and gain tremendous insights because of doing so. You will gain choice in how to respond; empathy for other people; and the ability to change your own behavior much easier.

I will discuss the fourth concept, Controlling the Context, in my next post.

Posted by Van K Tharp at 03:11 PM | Permalink | Comments (1) | TrackBacks (0)

Welcoming New Information

New information is continually impinging upon all living creatures, and their ability to survive generally depends upon their openness to that information. Research has shown that people undergo temporary psychological damage if they are deprived of new information for any length of time—as in a sensory deprivation tank.

Most people are continually exposed to new information, so the lack of it is not a problem. However, most of us tend to filter, generalize, distort, or delete most of that information. Becoming more receptive to that information is a major step toward improving your performance as a trader.

I will discuss the third concept, Looking at Things from Multiple Perspectives, in my next post.

Posted by Van K Tharp at 04:22 PM | Permalink | Comments (1) | TrackBacks (0)

Mindfulness is the opposite of mindlessness. Mindlessness means living by your conditioning. It means assuming that all of your beliefs are fixed and true, so that all you can do is find evidence to support that truth. Mindfulness, in contrast, is the continual creation of new concepts and categories with no real attachment to their truth.

Mindfulness is a state of being. Harvard psychologist, Ellen Langer, has popularized the term through two books—Mindfulness and The Power of Mindful Learning. She defines mindfulness as a five states of being in which one is likely to be.

I’d like to briefly discuss all of these concepts as they relate to improved trading beginning with the concept of Creating New Categories.

Creating New Categories

Most strong opinions rest upon global categorization. The market went up yesterday. We’re in a c-wave of an abc correction. Those are global categories that you probably use to form your opinions. But what if you formed new categories of thought about the market? Think about the market in great detail. Who are the different players? What do you think each of them is doing with respect to the market? Call people you know and notice their reactions and their perspectives. Break old thinking patterns by creating new categories and you’ll step up your trading as well.
In many ways, this aspect of mindfulness is a lot like reframing as discussed in my Peak Performance Course. You might want to review that material.

I will discuss the second concept, Welcoming New Information, in my next post.

Posted by Van K Tharp at 05:40 PM | Permalink | Comments (2) | TrackBacks (0)