Tharp's Thoughts Weekly Newsletter (View On-Line)

  • Article Why Market Type is So Critical
  • Trading Education Peak Performance Workshops in Cary, NC and Berlin, Germany
  • Trading Tip The Market Tends to Repeat Itself by D. R. Barton, Jr.

$700 Discounts End Next Week on All Three Sydney Workshops

In just a few weeks, Van Tharp will be bringing his three foundation workshops to Sydney, Australia: Peak Performance 101Blueprint for Trading Success, and How to Develop a Winning Trading System.

If you are interested in attending, register before next week, February 26th, to get the $700 early enrollment discounts.

The current plan is that Australia will not be on the travel schedule for 2015, so be sure to take advantage of this opportunity to attend without traveling to the US.

Check the combo discounts if you would like to attend more than one Sydney event.


Why Market Type is So Critical

View On-line

Most of you probably know people who thought they had a trading strategy buying technology stocks in the late 1990s.   By the time 1999 came around, they considered themselves market geniuses.   In 2000, however, they probably continued the strategy even as they watched the market type change.   The following chart shows the market type for the QQQ (which is where most people where investing during that time period).


Notice that the market type fell from Strong Bull in late March into Neutral by mid-April.  Then, the market stayed either Neutral or Bear for many months and it finished the year in Strong Bear territory. 

The market gave another strong sign that the type changed in 2000 — volatility.   The next chart shows the volatility of the QQQ during 2000:


Notice that the market was literally nearly off the chart in terms of volatility in the early months of 2000.   That’s not a sign of safety, that’s a sign of danger.   The market volatility decreased as it became more bearish but it stayed in the very volatile category all year long.  This is a great period for day traders who thrive on volatility but it’s not a time for a buy and hold strategy in tech growth stocks.  Most of you probably remember than many tech shares dropped 90% or more.

And how long did the Bear phase last?  Well, the market type was bearish for most of 2001, with just a short time in neutral territory as shown by the next chart.


In 2002, there was a brief period where it looked like the market type might change, but volatility remained high throughout the year and kept the market in Bear, Strong Bear, or Neutral for nearly the entire twelve months.


As you can see in the next chart, the market type didn’t turn around until 2003 when the market was either neutral or bullish and the last 2/3rd of the year was bullish.


So What’s My Point?   

Systems that worked well in bull markets would have been dangerous to trade by the end of 1999 because of the extreme volatility — which usually signals an upcoming bear.   And throughout most of the period from 2000 through 2002, bullish trading systems would not have worked at all.   Generally, you could have determined that by the market type.

Market type was even clearer at the end of 2007.   Our Market SQN® score for the 100 day period changed to a bear market in late 2007 and it remained in bear or strong bear mode for nearly a year and a half.   And, as is common in extreme bear markets, volatility was off the charts.  After the market bottomed in March, 2009 the Market SQN moved out of bear and into neutral in April 2009 so you had a chance to catch a really nice bull market.   You can see this in our Monthly Update on the market by looking at back issues from late 2007 through early 2009. 

Rather than acknowledge the importance of market types, I tend to see people look at systems first and try to find one that works.  And what they typically mean by ‘work’ is  that it works in all markets.   To me this is foolhardy.   If you understand market type, then you can understand that it is quite easy to develop a fairly good system that will work in any one market type.   But the insanity is in expecting a system to work in all market types.

My initial attempt to measure market type was based upon simple logic.  Markets go up, down, and sideways.   They are either quiet or volatile.   That makes for six market types.   And my initial definition of market type was to simply look at a six month chart.   If it was going up it was bullish.   If it was going down, it was bearish.   And if I couldn’t really tell, then it was sideways.   If the movement was very choppy, then it was volatile and if the movement was fairly smooth then it was quiet.  






Bull quiet

Sideways quiet

Down quiet


Bull volatile

Sideways volatile

Down volatile

The next chart shows the S&P 500 ETF SPY from June, 2013 through January, 2014 right before the recent dip.  I generally use a six month window to determine market type for US stocks.   Based upon my old way of determining market type by looking at the last six months, what is it?


Well, it’s pretty obvious that the market was going up, so it has been a bull market.   And at least in the last three months on the chart, there wasn’t a lot of chop so I’d call it a bull quiet market.  It’s that easy.

The drawback to my original method was that we couldn’t really objectively classify it and know when it changed.   As a result, I decided to look at the daily percent change in the SPY over the last 100 days and then look that the Market SQN score of that data.   I made it a little more complicated by having five directions: strong bull, bull, neutral, bear, and strong bear.  

In addition, I looked at the ATR % change of the last 20 days and compared it with the historical mean and standard deviation of the last 60 years.   I developed four classifications of volatility: very volatile, volatile, normal, and quiet.  And most of you know that I give you the market type on the first Wednesday of each month based upon that classification.

You probably don’t need more than the six original market types — but what you do need to know is the conditions in which your strategy works.  And when conditions change, you either stop trading or you move to a different strategy that works well in the new conditions.  It’s not rocket science, but it is so different from the way most people trade.

Trading is a statistical game.  And under different market types you are going to get different conditions.   Pollsters know that not all people are alike so they only ask questions of the type of people they are interested in learning about.    Traders should know that not all markets are alike and they should only trade systems under the conditions in which those systems are likely to work.

About the Author: Trading coach and author Van K. Tharp, Ph.D. is widely recognized for his best-selling books and outstanding Peak Performance Home Study Program—a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at His newest book, Trading Beyond The Matrix, is available now at

Back to Top

Trading Education

Just announced: Peak Performance 101, 202 and 203 will be presented in the US this June as well as in Berlin, Germany this September!

March: Sydney, Australia

Early Enroll Discounts Expire Next Week. Enroll now.

March 7-9

Peak Performance 101

with Van Tharp and RJ Hixson

March 11-13

Blueprint for Trading Success

with Van Tharp and RJ Hixson

March 15-17

How to Develop a Winning Trading System That Fits You

with RJ Hixson and Van Tharp

March: Cary, North Carolina
March 28-30

Forex Trading

with Gabriel Grammatidis

March 31-April 1

New! Live Forex Trading

with Gabriel Grammatidis

April 12-13

Oneness Awakening Weekend

with Van Tharp

April 24-26

Blueprint for Trading Success

with Van Tharp and RJ Hixson

April 28-30

How to Develop a Winning Trading System That Fits You

with RJ Hixson and Van Tharp

May 2-4

Trading in a Bear Market

with ST Graduate, Mark McDowell

May 16-18

Swing Trading Systems

with Ken Long

June 20-22

Peak Performance 101

with Van Tharp and co-instructor RJ Hixson

June 24-27

Peak Performance 202

with Van Tharp and Libby Adams and co-instructors RJ Hixson and Janie Guill

June 29-July 1

Peak Performance 203

with Van Tharp and co-instructors RJ hixson and Janie Guill

September: Berlin, Germany
September 19-21

Peak Performance 101

with Van Tharp and co-instructor Janie Guill

September 23-26

Peak Performance 202

with Van Tharp and Libby Adams and co-instructor Janie Guill

September 28-30

Peak Performance 203

with Van Tharp and co-instructor Janie Guill

Combo Discounts available for all back-to-back workshops!

See our workshop page for details.


Click here to see the full workshop schedule or to register.

Back to Top

Trading TipDR

The Market Tends to Repeat Itself — Should We Care?

“History does not repeat itself, but it does rhyme.”
 —Generally attributed to Mark Twain, though unconfirmed

An interesting chart is still making its way around the markets and financial press.  Commonly known as an analog chart, its function is to compare today’s market action to a past period in hopes that history can provide some guidance as to what we might expect going forward from today.

Are such charts useful?  Let’s look at the current chart du jour and then we’ll dig a little deeper:


Market Year Analogs — Like Almost All Market Tools- Useful in the Right Context

Let me jump to my conclusion first, and then we’ll dig into some supporting evidence.  I have been watching market analogs for decades and have tried really hard to dismiss them. But I can’t.  Mostly, however, I have seen them broadly misused as a technical tool (but then again, so are stochastics, VIX lows, etc.). 

Because they are not created or used properly most of the time, analogs can be very misleading.  There was a time back in 2003 when a very good analyst went down an analog rabbit hole that had him looking for another scorching drop.  While he was looking for that drop to happen, he missed the start of a 5 year bull market.

The current popular analog above comparing today’s market to 1929 is an example of a grossly misleading analog, though it does have some merit, as we shall see.

It’s All About the Scale

The biggest problem with market analogs is that you can use any price scale and any starting point to make two curves seem fit each other.  Put a couple of clever people in a room for a day, and they can come up with dozens.

What’s the biggest problem with the current analog? The creator used two independent Y axis scales which misleadingly makes it look like we could be facing a 1929-style crash. 

If we look at the same data and put all of it on a consistent scale (indexing both time frames to a starting point of 100), we see a very different picture:


The 1929 time period was MUCH more volatile.  On an equal basis this analog is much less compelling.

This doesn’t mean, however, that we have to throw the market analog tool out the window.  It means we should use it responsibly and with proper context – just as we should use all technical tools.

Is There a Good Use of Market Analogs? 

One of the reasons that I can’t throw out market analogs all together is that some really excellent traders have used them and continue to use them. 

  • In fact the current 1929/2014 chart has been credited back to Tom DeMark, who certainly has plenty of high-powered funds following his work. 
  • Paul Tudor Jones has widely credited market analog studies as a source of inspiration for his famous 1987 crash call (though he certainly also used other tools). 
  • A friend of mine and an extraordinary trader, Peter Brandt made a great call at the beginning of 2012 using recent market analog to call the bull market run in the first four months of the year.

If you think about technical analysis in general, it is based on the premise that market patterns repeat themselves.  Those patterns arise because buyers and sellers are subject to human emotions and the psychological biases of auction markets.  It is easy to verify that some patterns happen again and again.  Are market analog charts really so different?

Next week, we’ll look at several market analogs.  These ones aren’t in the news, aren't on twitter and aren't in the blogosphere but they will shine some light on where we are in the current bull run.

As always, your thoughts and comments are always welcome - please send them to drbarton “at”

Great Trading,
D. R.

About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured guest on both Report on Business TV, and WTOP News Radio in Washington, D.C., and has been a guest on Bloomberg Radio. His articles have appeared on and Financial Advisor magazine. You may contact D.R. at "drbarton" at "".


definitive guideNew, Second Edition, The Definitive Guide To Position Sizing Strategies is Now Available!

The name Van Tharp is often synonymous with the term Position Sizing. In fact, Van invented and coined the term. It's one of the most important concepts that a trader can understand, yet so often, traders  misjudge how critical a role it plays in your results. To help traders, Van set out to create the definitive compilation of this weighty subject some years back.  Based on the feedback from the book’s first edition readers, he was quite successful and now he is releasing the second edition.

If you think your systems are more important than your position sizing strategies in meeting your objectives, we strongly encourage you to study this book.  Understanding position sizing topics will have more impact on your trading results than any other single “technical” subject.  After reading it, you'll understand why many traders keep the book close by as desk reference.

It's a substantial book, well worth its $249 price tag.

Learn More | Order Now

Ask Van...

Everything we do here at the Van Tharp Institute is focused on helping you improve as a trader and investor. Consequently, we love to get your feedback, both positive and negative!

Click here to take our quick, 6-question survey.

Also, send comments or ask Van a question by clicking here.

Back to Top

Contact Us

Email us at [email protected]

The Van Tharp Institute does not support spamming in any way, shape or form. This is a subscription based newsletter.

To change your e-mail Address, e-mail us at [email protected].

To stop your subscription, click on the "unsubscribe" link at the bottom left-hand corner of this email.

How are we doing? Give us your feedback! Click here to take our quick survey.

800-385-4486 * 919-466-0043 * Fax 919-466-0408

SQN® and the System Quality Number® are registered trademarks of the Van Tharp Institute

Be sure to check us out on Facebook and Twitter!


Back to Top


February 19, 2014 #669


Our Mission



Yahoo and Gmail Users:

Viewing on-line eliminates spacing, and formatting problems that may be unique to your email program.



Trading Beyond the Matrix

Ongoing Contest: Learn how you could win a free workshop













ST expanded

A Must Read for All Traders

Super Trader








How are we doing?

Give us your feedback!

Click here to take our quick survey.

From our reader survey...
"I think the newsletter is extremely generous and it is a resource I utilize constantly. I have saved every single one since I first subscribed."







Trouble viewing this issue?

View On-line. »





Tharp Concepts Explained...

  • Trading Psychology

  • System Development

  • Risk and R-Multiples

  • Position Sizing

  • Expectancy

  • Business Planning

Learn the concepts...







Read what Van says about the mission of his training institute.









The Position Sizing Game Version 4.0

Have you figured out yet how to pick the right stocks? Are you still looking for a high win-rate trading system? When you’re ready to get serious about your trader education, download the Position Sizing Game to learn some true fundamentals of trading success. Learn more.

To Download for Free or Upgrade Click Here


Download the first three levels of Version 4.0 for free.

Register now. »



Trouble viewing this issue?

View On-line. »






Dr. Tharp is on Facebook



Follow Van through

Twitter »



Check out our home study materials, e-learning courses, and best-selling books.

Click here for products and pricing


What kind of Trader Are You? Click below to take the test.

Tharp Trader Test


Back to Top


Position Sizing

Introduction to Position Sizing™ Strategies E-Learning Course

Perfect for auditory/visual learners who learn more effectively from an instructional format that is full of interactive features!

Only $149

Learn More

Buy Now



SQN® and the System Quality Number® are registered trademarks of the Van Tharp Institute