Q: "The constant need to shift mental states between tasks is one reason that so many people lose money day trading." - Van Tharp

Van, hopefully I quoted you properly; I can't remember where I got that from, but it's been an insight that has become very real and clear to me over the last year. As I have a day trading system and a longer term system, I've had need to think about shifting states. Many times I endured frustration until the light bulb went on one day, illuminating me to the fact I was trying to mix oil and water - meaning: "Long term thinking and short term thinking do not like playing together." I'm not suggesting that my catchy little quote captures the essence of what you were conveying, but for me, it's at least a part of it. What I find very effective is to rehearse the day's trading and settle in my mind beforehand what my objective is and visualize keeping the bigger picture in mind to see how the developing trade fits. I stand back from my trading chair and picture myself watching a fast-moving trend while frequently checking other market indicators to evaluate the bigger picture and how my trade looks and feels in comparison. I also picture pushing back from the screen without having made a trade because nothing fit my definition of a "fat" trade.

My day trading system could very easily make less than 10 trades a month. I'm working on the discipline to wait like a snake. It's becoming easier for me to wait all coiled up for a long time and then strike fast (2 hours is a long holding period) and hard (put on an aggressive position size). Then, I get to pull back and patiently wait for the next trade.

1. Do you have any comments or suggestions with respect to shifting mental states and what I've shared above?
2. Do you have any recommended reading or studies regarding shifting mental states?

A: Our Peak Performance Home Study Course has information in it pertaining to mental states -- especially volume 4. We also have a Peak Performance 101 workshop in which is teach 15 ways to change your mental state. Another suggestion would be learning, understanding, and following 10 tasks of trading (also found in our home study). Also various NLP books each go into one or two methods.

I am traveling for the next few months, so I won't be able to post as often, but please keep sending those questions in.

Posted by Van K Tharp at 09:18 PM | Permalink | Comments (0) | TrackBacks (0)

Q: In the Jan 9th edition of Tharp's thoughts, you explained that you don't like to buy stocks that have had previous highs above the current traded price. You showed an example of QCOM, where the prior high was back in 2001. I was surprised you made that comment when people like William O'Neill and Stan Weinstein talk about giving 2 years for the "over head supply" to subside. Is there any research you have done to demonstrate that belief? Are you basing your belief on experience and chart reading? I'm not sure where O'Neill or Weinstein came up with 2 years. I assume they have drawn their conclusions from just years of chart reading experience as well.

A: Your statement is a misinterpretation of what I said. First, I have the belief (and you can only trade your beliefs) that people tend to buy at or near the highs and hold on forever when the price goes down. While they are holding on, they keep saying to themselves, “if it just gets back to that price again, I’ll get out.” Of course, that varies from stock to stock according to the psychology of who is in the stock. However, I think it’s a good rule of thumb to believe that people will unload when the stock retests prior highs. Now what I said is that I look at the highs as a resistance point. We actually teach that in some of our workshops. From that resistance point you can determine your potential profit and compare that against the initial risk (R ) that you’ve set up. I like to see at least a 3R potential to take a trade. Does that mean that there is no chance that the stock will just blow by the old highs. No, not at all. It could easily do that. But I need some basis for estimating my potential risk to reward and that’s one of them.

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

Q: I have been recently designing a trading system that uses a mixed bag of highly liquid ETFs. Doing any kind of testing on ETFs is becoming a challenge due to the lack of data. ETFs didn't really become popular until about 5 years ago, and some ETFs are newer than 5 years. Do you have any suggestions on trading system development with limited data? At this point plan to test something on SPY, DIA, and QQQQ data and trade other ETFs with that system. Thoughts?

A: This is an easy question. You can get a free historical download of all of those ETFs you want to test, plus all of the rest from YAHOO finance. Just go to Yahoo.com and the go to finance. Enter your symbol and then click historical data. You can download it to Excel. Or better yet you can get XLQ for free with a 30 day trail and it will get the data for you.

Posted by Van K Tharp at 06:17 PM | Permalink | Comments (2) | TrackBacks (0)