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Van Tharp Wisdom

  
  Education
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Must Read ………

“The main goal is to make money, money that can be used to purchase objects of desire, such as a shiny red sports car, a spacious, luxurious home, or a large wardrobe of fine clothes. They believe that great financial success will be the solution to all their problems. Trading isn’t just a job; it’s their salvation. Although many traders are motivated by money, there’s a downside to focusing on what you can have as a result of your profits. When traders focus solely on accumulating wealth, on “having,” they tend to act greedy and may take risks in an effort to win. There is a blind and unrealistic focus on trading at a high level of performance. Unless they trade at a high level of performance, they can’t possibly “have” what they desire. But a novice trader can’t achieve a high level of performance, and so, there is a mismatch between skills and goals. Traders in a “having” state of mind often feel frustrated that their trading efforts fall short of their expectations. And when they feel frustrated, they have difficulty concentrating on their ongoing experience. They tend to make trading errors, which intensify their feelings of anger and frustration. In addition, they are tempted to give up easily and avoid putting in their best effort. They tend to think, “Why should l even try? I’ll never achieve the level of success I desire.”

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Ten Principles of Short-Term Trading

  
  Education
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1) Strength Begets Strength – A market rise that expands the number of stocks making new highs and that finds more stocks trading with strong upside momentum tends to persist in the short run.

2) Weak Rises Tend to Reverse – When markets move higher with fewer stocks making new highs and with fewer stocks showing strong momentum, the rise tends to reverse in the short run, often entering a trading range prior to making an extended decline.

3) Broadly Weak Markets Tend to Reverse – When the market is very weak (many stocks making new lows and many stocks displaying strong downside momentum), it is common to see the market make marginal new lows in the short run, but reverse after that.
4) Weak Tests of Prior Market Highs or Lows Tend to Reverse – When we get a market trading above or below its value area on low volume, few stocks making fresh new highs/lows, and weak momentum, we tend to get a “mean reversion”–a trade back into the value area. That’s basically what this week’s action has been about.

5) Strong Tests of Prior Market Highs or Lows Tend to Persist – When we see expanding volume and expanding new highs or lows on a move above or below the value area, such a breakout move tends to becoming a short-term trend. The longer the prior consolidation period (the heavier the volume within the value area), the more extended the subsequent trend tends to be.

6) Weak Pullbacks Following a Strong Move Will Reverse – When we have a strong market move that expands new highs/lows and momentum, a pullback on weak volume and with relatively few stocks participating will lead to at least a test of the impulse highs or lows and often to a resumption of the strong move.
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The Psychology of Trading

  
  Education
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There is an old saying that the market is driven by fear and greed. Anyone that has placed more than a couple of trades will surely have experienced these two emotions. All traders experience emotion. The distinction between a successful trader and an unsuccessful trader comes down to how they deal with that emotion. Let’s look at how these emotions affect a successful trader and an unsuccessful trader in various scenarios.

You go long and the market immediately goes down – you go short and the market immediately goes up. That’s 2 consecutive losses, and you are getting a little ‘anxious’ so you don’t take the ‘next’ trade. Of course, this trade is a winner. Now to make the situation worse, you then ‘chase’ the move, and as soon as you enter the trade it immediately reverses, thus giving you another loss – this is now 3 in a row. Ok, one more ‘try’ – this can’t happen on every trade can it? (more…)

Doubt and Disappointment

  
  Education
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We all want certainty both in and outside the charts. Problem is certainty is nothing more than hope wrapped in expectation.  Life is uncertain. A successful trade is uncertain.  If certainty is what we want then certainty we will get.  However, be prepared to meet certainty’s friends, doubt and disappointment.  Doubt and disappointment are, shall we say, in “cahoots” with certainty.  You can’t have one without the other.  This is a blessing really that we all too often turn into a curse.  A blessing because we have two new friends who can help keep us balanced, honest, and above all, human.  A curse because we choose to ignore their advice when we should be embracing it.  Embrace it you say?  Yes.  Because doubt and disappointment can lead to new discoveries and a deeper appreciation for what life has to offer.  Maybe, just maybe, what we believe to be certain, you know, that which we wrap up in hope and expectation, is not so certain after all.  Maybe, just maybe, our friends doubt and disappointment can lead us down a better path and a better life.  Maybe, just maybe, doubt and disappointment can teach us a new understanding about the markets and the charts, wherein we pin so many of our hopes and expectations.

What a ride this market has been on!  No roller coaster can compare. And the ride is far from over and triple digit days will continue for some time.  Today could easily be a triple digit day to the upside or downside or both!  Who knows? We have no certainty about where this consolidation will end and in what direction.  All I know is when a certain trend begins we will still be faced with doubt and disappointment, either because we doubt the new trend or are disappointed that the direction is not quite what we expected, when we expected it.  Then again, nothing in the market is quite what we expect.  Don’t be surprised if the market does exactly the opposite of what you want or expect.  If you are certain of its direction…I have two friends to introduce you to.

10 Ways to Move From Peril to Profits

  
  Education
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  1. The first question to ask in any option trade is how much of my capital could I lose in the worst case scenario not how much can I make.
  2. Long options are tools that can be used to create asymmetric trades with a built in downside and unlimited upside.
  3. Short options should only be sold when the probabilities are deeply in your favor that they will expire worthless, also a small hedge can pay for itself in the long run.
  4. Understand that in long options you have to overcome the time priced into the premium to be profitable even if you are right on the direction of the move.
  5. Long  weekly deep-in-the-money options can be used like stock with much less out lay of capital.
  6. The reason that deeper in the money options have so little time and volatility priced in is becasue you are ensuring someones profits in that stock. That is where the risk is:intrinsic value, and that risk is on the buyer.
  7. When you buy out-of-the-money options understand that you must be right about direction, time period of move, and amount of move to make money. Also understand this is already priced in.
  8. When trading a high volatility event that price move will be priced into the option, after the event the option price will remove that volatility value and the option value will collapse. You can only make money through those events with options if the increase in intrinsic value increases enough to replace the vega value that comes out.
  9. Only trade in options with high volume so you do not lose a large amount of money on the bid/ask spread when entering and exiting trades.
  10. When used correctly options can be tools for managing risk, used incorrectly they can blow up your account. I suggest never risking more than 1% of your trading capital on any one option trade.

The 10 Bad Habits of Unprofitable Traders

  
  Education
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The 10 Bad Habits of Unprofitable Traders

  1. They  trade too much. A major edge small traders have over institutions is that we can pick our trades carefully and only trade the best trends and entries. The less I trade the more money I make because being picky is an edge, over trading is a sure path to losses.
  2. Unprofitable traders tend to be trend fighters always wanting to try to call tops and bottoms, while they eventually will be right there account will likely be too small by then to really profit from the actual reversal. The money is made swimming with the flow of the river not paddling up stream the whole time.
  3. Taking small profits quickly and letting losing trades run in the hopes of a bounce back is a sure path to failure. The whole thing that makes traders profitable is their risk/reward ratio, big wins and small losses. Being quick to take profits but allowing losses to grow is a sure way to eventually blow up your trading account.
  4. Wanting to be right more than wanting to make money will be VERY expensive because  the trader won’t  want to take losses and he definitely will not want to reverse his position and get on the right side of the market because in his mind that is a failure, in a profitable trader’s mind that is a success if they start making money.
  5. Unprofitable traders trade too big and risk too much to make too little. The biggest key to profitability is to not to have BIG LOSSES. Your wins can be as big as you like but the downside has to be limited.
  6. Unprofitable traders watch BLUE CHANNELS for trading ideas. Just stop it. (more…)

Lessons from the Wizards

  
  Education
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All successful traders use methods that suit their personality; You are neither Waren Buffett nor George Soros nor Jesse Livermore; Don’t assume you can trade like them.

What the market does is beyond your control; Your reaction to the market, however, is not beyond your control. Indeed, its the ONLY thing you can control.

To be a winner, you have to be willing to take a loss; (The Stop-Loss Breakdown)

HOPE is not a word in the winning Trader’s vocabulary;

When you are on a losing streak — and you will eventually find yourself on one — reduce your position size;

Don’t underestimate the time it takes to succeed as a trader — it takes 10 years to become very good at anything; (There Are No Shortcuts)

Trading is a vocation — not a hobby

Have a business/trading plan

Identify your greatest weakness, Be honest — and DEAL with it

There are times when the best thing to do is nothing; Learn to recognize these times
(Nothing Doing)

Being a great trader is a process. It’s a race with no finish line.

Other people’s opinions are meaningless to you; Make your own trading decisions
(The Wrong Crowd)

Analyze your past trades. Study what happened to the stocks after you closed the position. Consider your P&L game tapes and go over them the way Vince Lombardi Bill Parcells reviewed past Superbowls

Excessive leverage can knock you out of the game permanently

The Best traders continue to learn — and adapt to changing conditions

Don’t just stand there and let the truck roll over you

Being wrong is acceptable — staying wrong is unforgivable

Contain your losses (Protect Your Backside)

Good traders manage the downside; They don’t worry about the upside

Wall street research reports are biased

Knowing when to get out of a position is as important as when to get in

To excel, you have to put in hard work

Discipline, Discipline, Discipline !

Discipline Trading

  
  Education
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-The market pays you to be disciplined.
-Be disciplined every day, in every trade, and the market will reward you. But don’t
claim to be disciplined if you are not 100 percent of the time.
-Always lower your trade size when you’re trading poorly.
-Never turn a winner into a loser.
-Your biggest loser can?t exceed your biggest winner.
-Develop a methodology and stick with it. don?t change methodologies from day to
day.
-Be yourself. Don?t try to be someone else.
-You always want to be able to come back and play the next day. Once you reach
the daily downside limit, you must turn your PC off and call it a day. You can always come back tomorrow.
-Earn the right to trade bigger. Remember: if you are trading poorly with two lots you
must lower your trade size down to a one lot.
-Get out of your losers.
-The first loss is the best loss.
-Don?t hope and pray. If you do, you will lose.
-don?t worry about news. it?s history.
-Don?t speculate. if you do, you will lose.
-Love to lose money. What I mean is to accept the fact that you are going to have
losing trades throughout the trading session. Get out of your losers quickly. Love to get out of your losers quickly.
-If your trade is not going anywhere in a given timeframe, it?s time to exit.
-Never take a big loss. Only a big loss can hurt you. consistency builds confidence and control.
-Learn to sweat out (scale out) your winners.
-Make the same type of trades over and over again ? be a bricklayer.
don?t over-analyze. don?t procrastinate. don?t hesitate. if you do, you will lose.
all traders are created equal in the eyes of the market.
-It?s the market itself that wields the ultimate scale of justice.

10 Trading Points

  
  Education
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1) When you see a market extended to the upside or downside, in which many new buyers or sellers pile in at the new highs or lows, be on the lookout for opportunities to fade the move. The market, on average, doesn’t reward those who chase highs or lows or who panic out at price extremes.
2) A market that trades above or below its value area on weak volume is likely to return to that value area. A breakout turns into a trend when higher/lower prices attract market participation.
3) A broad, high volume breakout move to new highs or lows from an extended range is more likely to continue in its breakout direction (and move significantly in its breakout direction) than a narrow, low volume breakout move from a briefer range. Such moves are sustained by the larger number of traders on the wrong side of the market who will have to cover their positions, thus accentuating the breakout move.
4) A breakout move accompanied by a fundamental catalyst (earnings report, news event, shift in interest rates, currency movement) is more likely to continue in its breakout direction than a breakout move that occurs without other asset repricing. Large institutional traders are more likely to reprice equities in the face of significant fundamental drivers in correlated markets.
5) Don’t chase price highs or lows; sell when buyers take their turn and can’t move the market highs; buy when the sellers take their turn and can’t move the market lower.

6) Identify what the market’s largest traders are doing and go with it on weak countertrend action. The large traders account for the majority of the market’s volume and volatility. If they are buying or selling stocks, you don’t want to get caught fighting them. Wait for pullbacks to enter in the direction of the institutions.
7) If it’s a slow market (relatively few large traders), consider the possibility of range bound action. Low volume means low volatility, and that is generally associated with relatively narrow price ranges. Take profits quickly in such markets and set targets modestly; moves tend to reverse readily.
8) If it’s a busy market (relatively many large traders), consider the possibility of volatile market action. A market with high volume means that large traders will be capable of pushing price up and down to a greater degree than average. Adjust your stops and targets to account for this incremental volatility.
9) If many sectors don’t participate in a new high or low for the broad market index, consider fading the new high or low. A trend with staying power will tend to lift or depress all major stocks/sectors. When many issues or sectors don’t participate in a market move, the buying or selling in the index is often confined to a few issues that are highly weighted. Such moves generally are not sustained.
10) If you anticipate a broad move by equities, consider trading the most volatile indexes and the sectors with greatest relative strength. What you trade is just as important to results as the timing of trades. Go with the dominant market themes unless you have tangible evidence that those themes have changed.

Marc Faber: Euro Oversold, If S&P Above 1150 Could See 20% Correction

  
Analysis, Education, US Market, Video
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Market: “I’m not so sure that we’ll make new highs but if we make a new high above 1,150, I don’t think it will be that far above the 1,150 level, maybe 1,200, and that thereafter we have a bigger kind of correction on the downside.  I think if we make a new high then I wouldn’t rule out a correction of at least around 20% and don’t forget many shares in America and globally have already corrected 20%, so for them to make a new high isn’t going to be all that easy in the first place. So what we could see is a new high in the S&P and the Dow Jones that is not confirmed by the new high list. In other words you will make a new high with fewer stocks making a new high than in January.”

Currencies:  Euro: “Now the Euro is very oversold and the news has been horrible. Everything you’ve read has been a disaster for the Eurozone and I think the Euro now can rebound to around 1.40 before it goes lower. I think there’s nothing good about the US Dollar, but I don’t think there is much good about the Euro either…”

US Dollar: “When investors realize that the fiscal deficits aren’t going to come down, that they’ll stay very high. When they also see that one state after another is essentially bust like California and Illinois. And when they see that monetization will become inevitable in the long run, I think at that point the Dollar will be weak. But don’t forget it may not necessarily have to be weak against the Euro.  Both currencies are sick and so both could go down and then ultimately you just have one or two sound currencies, notably precious metals and I think the Asian currencies will then probably also appreciate against the Euro and the US Dollar but notably precious metals will then be strong”.

Asset Class Right Now:  “Right now as of today I would probably go long the Euro and probably be long US Treasury Bonds but only as a trade for the next say 5-10 days and then we’ll have to see further.  In general, I would say better be in stocks than in bonds because we’ll get more inflation in due course”.

Dear Traders ,Just see ..What I had forecasted/Written about S&P 500 on 19th ,28th Jan’10 and on 3rd Feb’10

Technically Yours

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