#824 February 8, 2017
Tharp's Thoughts
Weekly Newsletter
  • Feature: Bear Markets Happen! By Kirk Cooper
  • Workshops: Forex discount expires TODAY on Singapore Event!
  • Mailbag: Letter From a Workshop Attendee
  • Tips: Goal Setting for Traders and Investors — Part 4, By D. R. Barton, Jr.
  • FREE BOOK!: Trading Beyond the Matrix
March 3-5 - How to Develop Winning Trading Systems ($700 Early Bird Pricing is Expiring Soon!)
March 7-9 - Bear Necessities ($700 Early Bird Pricing is Expiring Soon!)
March 18-19 - Oneness Awakening Course

Feature Article

Bear Markets Happen!
A short history and how any trader can prepare.
by Kirk Cooper

Click here to resolve formatting problems

"Education is the passport to the future,
for tomorrow belongs to those who prepare for it today." — Malcolm X

In my opinion, the heading “Bear Markets Happen” states a simple fact, however, identifying bear markets at their start can be challenging if not impossible for the unprepared and unaware. Numerous boom/bust periods in markets have happened going back as long as we have recorded history. Some of the best-known examples from history include: The Tulip Mania of 1636 in Holland; The South Sea bubble in 1720 in England; and The East India Company collapse in 1772 in Amsterdam.

While these are certainly dated, they have certain similarities with today’s post ‘great recession’ boom — while this is also a very different kind of boom as a result of the unprecedented involvement of the world’s central banks. Consider that since 1854, the US has seen 33 cycles with the boom periods lasting three and a half years on average while the busts have lasted a year and a half on average. The table below includes the cycles from the depression of the 1930s until the present day which provides us an account of the recurring nature of the bull and bear market cycle. When you study the table for even a short while, you see plainly that this cycle is simply how the markets work. Perhaps that is no surprise given that markets are nothing more than a collection of people — whose emotions vacillate over time.

U.S. Boom and Bust Cycles Since 1929

As Confucius Said . . .

History and historic information is certainly limited in its usefulness but it is better than no information. As Confucius said, “Study the past, if you would like to divine the future.” Using history, we can’t predict the precise timing and exact degree of the next bear market cycle but those historical cycles do help us prepare to profit from the next bust when it comes. Having a plan and working that plan stacks the odds in our favor as traders.

Through researching bear markets, I have come to understand one psychological aspect that I had observed previously but never fully grasped: bears cause many people (even professional money managers) to become very conservative. A lot of people worry about bear markets a lot — whether a bear market actually occurs or not. They worry a lot about the potential to suffer great losses during the cycle. You don’t have to look very hard to read a lot about the doom and gloom heading our way — there are many analysts and newsletters that specialize in this — some even promote it. As a result, many people’s fear causes them to miss the great opportunities available in bear markets.

During my years as a fund manager and as a prop trader, I saw many CIOs, CEOs, and other financial services executives hindered by a fear of a “pending” bear market. From a career preservation standpoint, a C level executive is being completely rational by “preparing” for the next bear. But when an executive constantly “prepares” for the next bear, that kind of behavior hurts returns to unit holders and investors. For an individual trader, a fear of bear markets is definitely suboptimal as this market type actually provides great trading opportunities — for those who are ready. For the unprepared, one aspect of bear markets (volatility) can shock unprepared traders and cause a powerful psychological reaction — as well as the potential for a sudden and dramatic loss.
Another Interesting Bear Market Psychological Phenomenon

You have heard Van state the importance of understanding market types and using trading systems that fit you. It is critical, therefore, that you “know thyself” before attempting to trade a bear market. Generally, I have noticed that introverts and extroverts handle bear markets quite differently. Introverts generally focus more on all the warning signs and the risks, which can then prevent them from profiting greatly from the full cycle. On the other hand, extroverted traders tend to focus more on the huge rewards available so they can miss the signs the markets provide about shifts in market type. Missing the signs of a shift in market type can then result in catastrophic losses at the extreme.

Creating Your Plan for the Next Bear

In the process of updating and teaching the bear market trading workshop for Van, I have completed nearly a year of extensive research on bear markets. The Bear Necessities Workshop, is about you planning for a bear market BEFORE you have to deal with one and we will thoroughly cover the various ways you can trade in bear markets. Even though I developed the following list for the workshop, it’s also a good list for any trader to review and think about now - in advance of a market downturn.

  • Clarify who you are as a trader and what your important values and goals are. Without this understanding, you won’t understand what fits you as a trader.
  • Outline your objectives for trading — both for bear market types, other market types, and overall.
  • Understand the big picture and its various components.
  • Ensure you have a monitoring plan to follow for the big picture.
  • Understand how you intend to evaluate market type.
  • Know if or how you plan to use options or other hedging methods and what additional work you will require to become proficient with these critical tools.
  • Evaluate what others have done to immunize their portfolios and determine what fits your trading. Various trading methods can be used throughout the entire cycle and certain ones do particularly well in down markets.
  • Analyze bear market trading systems and strategies and determining which fit you. The opportunities in this area range from simple to complex. Consider which you can use to profit from bear markets given your objectives. (I teach these systems and strategies at the workshop.)

Being prepared and having a thorough plan will provide you many benefits including the following abilities:
  • to embrace opportunities for every phase of market cycles,
  • to fully understand the risks and the opportunities of bear markets,
  • to face the next bear market with peace and confidence,
  • to allow you to exit the next bear market in better shape than when it started, and
  • to allow you to benefit even more from the following bull market.

You can certainly consider how this thinking applies to the broad, global equity markets but you can also apply equally to other specific markets. For example, think of the huge busts in oil and gold in the last few years. Even though we have experienced mostly a bull phase in the equity markets, everything we discuss in this workshop could have been applied in those two markets (for handsome returns!). Regardless of what equities are doing, you can always find a bear market somewhere.

Mail Bag

Reaching My Goals Today,
Not in Five Years!
A note to RJ Hixson following a workshop.
All I can say about the last year is WOW and thank to you, Kirk, and everyone at VTI.

It has been a year since I took the Blueprint and Infinite wealth workshops at the beginning of February in 2016 and a lot has happened since then. Those were my first in person trading workshops. Between the end of the 1990's and last year, I had read all of Van's books, purchased and studied all of Van's material including completing the Peak Performance Home Study Course. In the fall of 2015, I purchased and went through Ken Long's two elearning courses — Swing Trading Systems and Core Trading Systems. I have been trading almost 40 years but that was all long term position trading and I was looking to add swing trading to generate income. I wanted to take the Blueprint and Infinite Wealth workshops as I had just started on a 2016 goal to transition to full time trading within the next 5 years. I thought those workshops would provide a good foundation to build on.

As I mentioned in August when we talked after the SQN workshop, the Blueprint workshop helped me tremendously. After Blueprint, I added about 25 pages to my trade plan titled my “Escape Plan” since I am looking to make the change from the corporate world to trading. After Blueprint, I was consistently meeting my quarterly goals for trading each month — which was a big change all in itself. The Infinite Wealth workshop helped me organize my life and finances to get ready to transition to full time trading, whenever that could happen.

At the SQN workshop, you had suggested that I think about a monthly goal of 10% returns . . . that was interesting to me as your suggestion was much larger than I had considered when writing my plan. The numbers in my trade plan were already about 100% more than I had been making on average every year and I thought maybe that 10% a month was too much of a stretch. Based on your suggestion, I looked at what I was doing and I tweaked things a little based on what I learned at the SQN Workshop. I was able to figure out a way to make the new profit goal and stay away from the maximum draw down. I started trading those numbers after my vacation in the early part of September.

At the end of the year, even with my time off and travel for work (when I travel I only position trade not swing trade) I had met the 10% profit target each month with less than a 4% draw down over the entire 4 month period. To say I was happy is an understatement. I was pretty astounded at how well I traded, how few mistakes I made, and how well everything came together.

When I was updating my trade plan and working through my objectives for 2017, I noticed something that I had previously overlooked. If I tweaked my position size and changed my profit targets I could replace my daily salary from my corporate job now, today, not some time in the future. And the best part - there is no additional risk required to make this happen. I guess I had overlooked this because it was too simple or I was making things too hard. But there it was staring me in the face so I wrote a special section in my trade plan to make just this change in my normal strategies and allocated a portion of my account for trading it. I started to trade the variation in January right after the new year.

In the five weeks since I started to trade the variation, I have missed my target two days. Other than the four days I did not trade as I was traveling, the national holiday in January, and the two days when I missed my target, I met or exceeded my goal on every other day. I call it my daily financial-freedom number. So now I've added another goal to my trade plan for the rest of this year to perfect this new position sizing strategy with my different trading systems so that no matter what the market is doing, the trading system that I employ in that market type will allow me to meet my daily financial-freedom number. If I can continue to do this through the end of 2017, then I can transition to phase 2 of my Escape Plan in 2017 where I will work only part time. I have also set a goal that if I can go part time at the end of 2017, then by July of 2018, my birthday month and my anniversary with my employer, I will have the option of entering phase 3 of my Escape Plan — full time trading and not working for others. That would be implementing my plan in two and a half years instead of the five I allotted. That would be quite the accomplishment.

So I have some new goals for 2017, lots of excitement and enthusiasm for accomplishing those goals, and a new outlook on everything in general. When I look back at the last year, I see a lot of change in a very short period of time.

Thanks again to you, Kirk, and everyone there at VTI. I'm looking forward to coming out again for another workshop in the future.

Jim A, California, USA

Note: Jim mentioned the SQN Workshop held in August, 2016. An elearning version of that course will be released in the coming two months. More information will follow.

Workshop Schedule

February 2017
$700 Early Enrollment Discount Expires TODAY on Forex Workshops and Next Week on Peak Performance in Singapore!
March 2017
April 2017
May 2017
June 2017 New Dates Confirmed!

Trading Tip

Goal Setting for Traders and Investors — Part 4

by D. R. Barton, Jr.

Click here to resolve formatting problems

In recent newsletters, we’ve gone through three articles in our series on goal setting for traders. Today, we’ll dig into some specifics for the more seasoned traders and investors in the audience. As a treat, we’ll look into an oft-cited goal-setting narrative which you have certainly heard told. First, let’s recap the series.

Part 1 of this series provided background information on process-oriented goal setting. Then in Part 2, we reviewed the dangers of pushing yourself by using results-oriented goals too soon in your trading journey. Part 3 of the series looked at the importance of using process-oriented goals when you start a new trading or investing endeavor. What if, however, you are somewhere in the middle of the trading experience spectrum or even a very experienced trader? Is a goal setting process important for you as well?

Goal Setting for More Seasoned Traders

Fortunately, there is credible research that confirms the usefulness of goal setting – for every level. Locke et, al (1981), Medin & Green (2009) and Bipp & Kleingold (2010) have found that goal setting led to higher performance. Using the right type of goals at the right time, however, matters greatly.

As Part 3 in this series cautioned, seasoned traders starting a new strategy and all beginning traders should focus on process goals. Traders with some experience, however, can start to integrate results-oriented goals into their trading. Here are some useful guidelines for two types of traders with experience:
  • The break even to slightly profitable trader. Once you can consistently break even in your trading or you can make profits on a regular basis, you can begin to add results-oriented goals to your process goals. These performance goals should be reasonable but also, they should require you to stretch yourself a bit to reach them. At this point, you have learned to avoid losing big money and now probably need the challenge and discipline that results-oriented goals can provide. Continuing to refine your technique by monitoring your process-oriented goals is a very necessary part of a trader’s growth at this stage. Results-oriented goals also require you to evaluate critically your trading system or strategy. If your trading results consistently fall far short of your goal, it could be that your strategy, as it is written, can only produce results that are little better than breakeven. If you want to do better, you may realize your systems could need some work.
  • The successful trader trying to make step changes in performance. Here’s where results-oriented goals really come into play. Dr. Ari Kiev has chronicled the changes that successful traders make when they really stretch themselves. Like athletes at the highest levels of sports, traders who have mastered their processes need to constantly review their performance and evaluate areas where they can make further improvements. Results-oriented goals that really stretch performance on a regular basis serve two purposes for successful traders —
    • First, they give traders a constant reminder that they have to perform at a high level – no coasting allowed.
    • Second, the goal setting process demands regular performance reviews so that performance can be optimized through the feedback process.
Hopefully, you can see how goals for more seasoned traders will be different in kind than for newbies. The right kind of goals at the right time create effective goal processes. I also believe strongly in the importance of writing down goals . . . even if one well-known story might not have happened.

The Famous 1953 Yale Goal Study

Chances are that you’ve heard or read about some self-help guru extoling the virtues of the Yale class of ’53 goal study. The stories go something like this: at or around graduation, researchers surveyed the graduating class of seniors to find out how many had goals in mind after graduation. 3% of the class had specific written goals. Then twenty years later, the researchers surveyed the surviving members of that class and found that the financial wealth of the goal-setting 3% was higher than the remaining 97%! A compelling story — but one that never happened.

In 1996, Fast Company magazine completely debunked the Yale class of ’53 myth. The magazine related what they found:

“. . . the CDU(Consultant Debunking Unit) went to Yale for the last word on the Class of 1953. Research Associate Beverly Waters reports that a recent outbreak of articles citing the study in publications as diverse as Dental Economics and Success magazines prompted her to undertake an exhaustive search of Yale alumni archives — where she found no evidence that such a study had ever been conducted. Says Waters, "We are quite confident that the 'study' did not take place. We suspect it is a myth."

Myth or Not

I strongly believe that using a goal setting process can help you improve your trading. Even if the debaters over goal setting styles will never totally agree, you now have a simple goal setting roadmap that can guide you through your trading journey. Individual traders have different needs at different points in their careers so concentrating on the right type of goals at the right times in your trading journey can help you manage stress and propel you in the right direction.

Your thoughts and comments are always welcome — please send them to drbarton “at” vantharp.com

Great Trading,

D. R.

Free Book

FREE Book!
We pay for the book, you just pay for shipping.

Read Van’s Latest Book —
The Red Pill for Traders and Investors

Eleven traders tell their stories about transforming
their trading results and lives, in this 400 plus page book.

Below is a brief video on how powerful this book is to traders.

General Info

Cary, NC Workshop Information
For a list of nearby hotels for our Cary, North Carolina locations, click here.

Book your flight arriving to the Raleigh-Durham International Airport (RDU).

When traveling to a three-day course, it's best to arrive the evening before.
To help determine your arrival and departure times, see:

Questions? Click Here to Ask Van...


If you no longer wish to receive our email updates, click the unsubscribe link in the bottom-left corner of this email.

This is a supplement to our subscription based newsletter, Tharp's Thoughts.

800-385-4486 * 919-466-0043 * Fax 919-466-0408
Share this email with your network on LinkedIn

This email was sent to by Van Tharp Institute
102A Commonwealth Court | Cary | NC | 27511
Forward to a friend | Manage Preferences | Unsubscribe