I think it's important for everyone to understand that there are three keys to becomming a master trader. You must treat trading as a business and develop a thorough business plan to guide your behavior. That plan should include such things as a worse contingency plan and an overview of all of the factors influencing the markets.

Second you need several well-research, non-correlated trading systems that fit the big picture as you outlined it in your plan. These should have a strong postiive expectancy and be high quality systems.

And third, you need on ongoing discipline to take you through the day to day tasks of trading. Part of this should be the ten tasks of trading and part of this should be an ongoing program of working on yourself.

While all of this seems like it might be easy, we've found that it takes about 2 years of dedicated work to build these first three items up to a professional level.

Posted by Van K Tharp at 08:04 PM | Permalink | Comments (0) | TrackBacks (0)

I'm currently doing research on the R-multiples of mistakes people make, but there is a problem. I don't have a lot of data. So here is the challenge. Look over your trades for the last year, especially if you keep them in terms of R-multiples and expectancy like I recommend. Notice when you made mistakes -- where a mistake is not following your written rules. And determine the R-multiple cost of that mistake. And yes it is possible that some mistakes might make you money.... those are the really bad ones that instill bad habits.

Anyway, when you finish, send me your mistake data. And in return, I'll promise to share with you my R-multiple data on mistakes. And this applies to you even if you've never bought any of our products or done any workshops. However, if that's the case, please read all the blogs on Tharp Fundamentals so there you are sure that you understand them.

Posted by Van K Tharp at 06:03 PM | Permalink | Comments (1) | TrackBacks (0)

What's the most important entry blog I've made so far? Well, it again depends upon your persepctive.

Most people think that success is all about predicting the market and picking the right investment or trade. If that's your perspective, then the most important entry so far is the blog on my outlook for the market (assuming you think it is correct). However, our research shows that picking the right investments is the least important aspect of success. And predicting the market is equally unimportant... you merely have to notice what the market is doing and that's pretty obvious, "It's going down.

Instead, our research shows that success has everything to do with psychology, treating trading like a business, and developing systems that fit who you are. And if that's the case, then my most important entries are the first ones... which give some of the essence of my core thinking and the entry on "how to make a living as a trader." That entry may seem "promotional" to some, but if you take the essence of what I said, without reference to IITM products, its probably the most important entry I've made to date. It's the essence of what I ask my SuperTraders to do.

Posted by Van K Tharp at 11:47 AM | Permalink | Comments (1) | TrackBacks (0)

"I am always asked what makes a successful trader? It's not just one thing, I actually separate it into three parts. In one sense, it's 100% psychology because its all about your beliefs and your performance. We've actually developed a workshop called the "17 Steps Workshop" that basically provides a blueprint to all the steps you need to take in order to be successful as a trader.

Today's blog will give you information about this blueprint as well as some information about various products that I have for traders that can help you if you wanted to dig deeper into these steps.

Part one is about developing a business plan to guide you. You must know who you are, you must set objectives, you must really understand your thinking and your beliefs, you must lay out the big picture, you must develop all the systems you need (and not just trading systems), and you must develop a worse case contingency plan. For help on business planning, I have a CD series which even has some sample plans at the end. In addition, I consider completing the Peak Performance Course, so that you really know yourself, to be essential for this step.

Part two is about developing strategies that fit the big picture and strategies that will work if the big picture changes. I recommend at least three strategies here. Two that are non-correlated and fit the current big picture and one that you would expect to work well should things change. And since you can only trade your beliefs about the market, this step is very psychological. Recommendations for doing this step. First, complete the Peak Performance Course and then the Systems Home Study course. And if you prefer to attend workshops to get all of the information in an intense and concentrated format then you might also want to look at our systems workshop and our two peak performance workshops.

Part three is about working on yourself in an ongoing manner to continually evolve and improve your performance. Let's look at it this way. I think anyone can develop a system that makes 100% per year, but trading it to get that performance is something else. Why? As I've discussed below, people continually make mistakes and you must be able to correct those mistakes. And if you repeat the same mistakes over and over again, it's called self-sabotage and it means that you really need self-work. Again, here I recommend all the Peak material, and other supplemental material that we provide, such as A Course In Miracles.

If you want to know more about the 17 steps and the blueprint for trading success, then it would be very beneficial to actually attend the 17 Steps workshop. For example: in that workshop you get an outline of a worse case contingency plan that took one of my supertraders six months to complete. And the group usually doubles the size of it before the workshop is through.

However, I also plan to write a brief outline of each of the 17 steps in future editions of my own personal newsletter which is called, Tharp's Thoughts. Thus, if you are not on our particular mailing list to get that free newsletter, then I'd recommend you start today. You will need to go directly to www.iitm.com to do this.

For a basic background on all of my concepts, I'd recommend that you read each of my three books which is a great way to get started

Van

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

Now you know what expectancy is...it's the average R value produced by a system. So now you can get a general idea of what to expect from your system. If it produces an expectancy of 1.21R per trade, and you make 100 trades each year. Then on the average you should make 121R each year. If you only risked 0.75% per trade with that system, you should be able to make 100% each year.

Generally, I think it is very easy to develop a system that has the potential to return 100% each year, even though most people struggle with system development.

What's HARD is trading the system to get the full return. Most people make so many mistakes that they ruin the system. But that's another topic for tomorrow. And that's where the psychology of trading comes into play.

Posted by Van K Tharp at 11:02 PM | Permalink | Comments (0) | TrackBacks (0)

In the last entry I suggested that you express all your trading results as R-multiples. So let's say you risk $1000 on each of ten trades and you have the following resuls:

-400=-0.4R
-2000 =-2.0R
-600 = -0.6R
-800 = -0.8R
+10000 = 10R
-400 = -0.4R
-700 - -0.7R
-1500 = -1.5R
-500 = -0.5R
+9000 = 9R

So are these good results? You have eight losers and only two winners? Would you want to trade the two system?

Well, one of the keys to evaluating the system is its expectancy which is the mean R-multiple of the results. So if we add them up you'll find that the eight losers sum to -6.9R while the two winners produce 19R. Thus, our total results are plus 12.1R. And if you divide that by ten trades, you get an expectancy of 1.21R. That means that this system, on average, looks like it will produce 1.21R per trades over many trades. And 1.21R is the expectancy of the system.
More on what you can do with that later.

Van

Posted by Van K Tharp at 07:39 PM | Permalink | Comments (3) | TrackBacks (0)

I wanted to start this blog out with some fundamental psychology. But just to make sure everyone is on the same page, I found that I had to begin with some Tharp Fundamentals instead, because without them, you might not understand what I want to say about psychology. With that in mind, here they are:

You should never enter into a trade without knowing your worst case loss and having a stop to get your out at that point. I define this loss to be your worse case loss or your initial risk in the trade. And we can call it 1R for short. For example, you buy a stock at $20 and decide that if it drops 25% to $15, that you will be out. This a 1R risk for you is $5.

The second fundamental is that position sizing (how much) is the key to meeting your objectives in the market. Let's say that you decide to risk 1% of a $50,000 on each trade or $500. In the prior example, your risk per share was $5 and you want your total risk to be no more than $500. If you divided $5 risk per share into your total risk of $500, you would end up with a position size of 100 shares.

Since you are buying 100 shares of a $20 stock, your total investment is $2000, while your total risk is 25% of that (i.e., you have a 25% stop) or $500.

The third fundamental is that you should express all of your profits and losses in terms of your initial risk. I call these R-multiples. Thus, if your initial risk is $500 and you make $5000, then you have a 10R gain. If your initial risk is $500, and you have a $250 loss, then you have a 0.5R loss. Similarly, if you have an initial risk of $500, but you end up with a total loss of $1000, then you have a 2R loss.

Some of you might say, if your initial risk was $500, how could you end up with a $1000 loss. Well, that's easy, the stock gaps against you on bad news, or you make a stupid mistake, like not keeping your stop. But that's another topic.

Posted by Van K Tharp at 06:30 PM | Permalink | Comments (0) | TrackBacks (0)