#855 September 13, 2017
  • Feature: Paradigm Shifts, Part II — Trading Success, by Van K. Tharp Ph.D.
  • Workshops: Forex Trading Systems Coming this November!
  • Tips: Canaries In the Coal Mine — Why I’m Still Not Worried About the Aging Bull, by D.R. Barton Jr.
  • FREE BOOK!: Trading Beyond the Matrix
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Feature Article

Paradigm Shifts, Part II — Trading Success
by Van K. Tharp Ph.D.
In this three part series, I will explore the idea of major shifts in your thinking and your mental maps of the world. One of the steps to making big changes in your life is to make paradigm shifts — or shifts in your lateral thinking. This means to get out of the box you are in (your perceptual limitations from your current perspectives) and determine what is possible from other perspectives. If you understand the power of paradigm shifts, you can begin to understand what it is to be a genius. You can accomplish what seems like miracles.
In part one we explored six major paradigm shifts that most people must make to gain real wealth. Through paradigm shifts, you can begin to understand what it is to be a genius. You can create money out of nothing. You can accomplish what seems like miracles. In this week's article we'll explore five paradigm shifts specifically related to trading covered in my first book, Trade Your Way to Financial-Freedom. In the next article, we'll explore some techniques that you can use to make your own paradigm shifts.

Trading Paradigm Shifts

Many years ago, I taught Infinite Wealth Workshops but they were very different in structure and content than the one I teach now. The old version covered a lot of financial strategies to attain wealth. Abundance, however, is an internal state and external wealth flows out of that internal state. Without the proper mindset, the best financial strategies in the world are worthless. The new workshop version (I’m teaching it in London in October) focuses much more on understanding the wealth mindset and working on your inner self — being wealthy inside first so that then you can effectively use financial strategies that fit you to achieve infinite wealth. (Infinite wealth does not mean numerous and luxurious possessions but rather having your monthly expenses taken care of by your passive income.)

At an Infinite Wealth Workshop which happened shortly after my first book Trade Your Way to Financial-Freedom was published, I spontaneously started talking about paradigm shifts in the book. Before that, I had never thought about the book including any paradigm shifts but suddenly all of this information about shifts that traders needed to make was pouring out of my mouth. I remarked at the workshop that the book explained four major paradigm shifts. I have no idea where that number came from but I was able to elucidate them very well. After being totally amazed by this discovery, I decided to spend some time thinking about what I had said.

Since that time and with considerable thought, I came up with additional shifts but for today's article, here are the five major paradigm shifts most traders and investors need to make:

1) Trading success has very little to do with what's outside of you such as what the market does. Instead, you must determine who you are and what your objectives are. Once you have done that, you can design a trading system that fits you and that performs very well.

Most people believe that trading success has to do with the markets, indicators, analysis, or finding some magical edge that will help them perform slightly better than their competitors. This is totally wrong! Instead, trading success is an inner search. Success in the markets has to do with finding yourself. Who are you and whom do you choose to be? When you've answered those questions, you can then decide how to express the new you through the markets. This decision, however, is a major one. Most people give it no credence. Even when they are aware of it, they give it no time at all. This is the first step and without it, you cannot climb the ladder of trading success. It supports everything else.

2) There is no Holy Grail in the markets (outside of you). But there is a Holy Grail — it is inside. When you understand this, you can do much more than outperform the majority of market players. Instead, you can achieve levels of performance that others might think is impossible.

Academic psychology is full of people who study the shortfalls of average traders and these academics have done marvelous research. Perhaps by studying human frailties, economists have come to believe they can predict how the markets will perform because they are not efficient. Thus, the field of behavioral finance was born.

I consider myself to be a student of behavioral finance also but I believe I am one of the few people who helps traders really apply it. Applying behavioral finance doesn't mean predicting inefficiencies in the market, however, it means working on yourself to make sure those inefficiencies have no effect on your trading. That is too much of a major shift for most people who are into what the markets are doing and have not mastered this paradigm shift. When I talk about traders being able to make consistent 50-100% returns (or more) with little risk, people who believe “It is all outside of us” think those kinds of returns are just impossible

3) You don't have to predict the market to make money. Instead, making money comes from your exits.

This idea can stimulate an argument in many of my students — even those who have read Trade Your Way to Financial-Freedom several times and think they understand it. I'm not going to discuss this extensively because I've done so many, many times. The golden rule of trading is "Let your profits run and cut your losses short." What does that have to do with prediction? Absolutely nothing. Instead, it has everything to do with getting out of the markets using a systematic plan. Enough said!

The next paradigm shift is simply an elaboration of the third.

4) You don't have to be right to make money. Instead, you must understand R-multiples, expectancy and opportunity.

Once again, I'm going to be brief on this. Suppose you enter a rising stock but get stopped out at your -1R point, say $1 below your entry price. You've lost a dollar per share or -1R. Suppose this happens five more times. Now you've had six -1R losses. On the seventh trade, the stock takes off and you ride it for a $30 gain. That's a +30R profit. You had seven trades, six -1R losses and one +30R profit for a net gain of +24R. Let's say that your transaction costs amount to 0.5R per trade so for the seven trades, we must subtract another 3.5R. Even now, you still have a total profit of +20.5R. If that's your average for every seven trades, how much would you make if you placed 21 trades each month? You'd have a profit of +63R for the month — even though you were “right” on about only 14% of your trades.

If you have not made this paradigm shift yet, you'll probably find all sorts of reasons to refute the logic of this example. I've heard them all. They all come from people who were having trouble with the paradigm shift and needed to defend their position.

5) Making big money does not come from factors where most investors and traders focus their attention. Instead, large returns come from designing and using a position sizing strategy that meets your objectives.

Let's use the results from the example in the previous point. Suppose you risked 0.5% of your equity on every trade. After six losers in a row, your equity would be down about 3%. After your +30R win, however, your equity would be up about 12%. Further, if you made 21 trades per month with those kind of results, (even assuming huge transaction costs of 0.5R or 0.5% of your portfolio per trade), you'd be up over 30% in a single month.

If you could do that for say nine months in a year with small drawdowns in the other three months, your equity would be up hundreds of percent for the year. Now do you understand how some of our day trading clients can make those kinds of returns?

Let's assume for a moment, however, that getting three +30R trades a month is improbable — but that averaging three +15R trades every month could be realistic. Eighteen -1R trades and three +15R trades would still give you a net profit of +27R per month. That scenario makes you a 13.5% return a month risking 0.5% of your equity per trade. Let's add in the previously mentioned unrealistically high transaction costs. You would net a return of +16.5R per month — or 99% on the year. Again, you make that kind of money being right only 14% of the time and risking no more than 0.5% of your equity per trade.

If you haven't made this final paradigm shift, you'll find lots of flaws and you’ll also find logic to support your position. That's okay — it doesn’t bother the people who regularly make big profits while giving up the need to be “right”.

Getting Outside of Your Box

While my purpose in writing this article has simply been to get you to think in new ways about your trading and step outside of your current perspective, I've only scratched the surface on the paradigm shifts that most of you could make. If you would like to explore more paradigm shifts (beyond those covered in this article), there are probably at least five major ones in each of the five volumes of my Peak Performance Home Study Course.

In the third and final article for this series, we’ll look at how you can produce your own paradigm shifts.

Workshop Schedule

September 2017
October 2017 LONDON, ENGLAND
Peak Performance 101 is Dr. Tharp's core psychological workshop, and his most transformative course for over 25 years. If you want to know how great traders think, behave and act so you can achieve consistent and profitable results, without stress, then this workshop is for you.
Workshop Objectives
Check out this brief overview video about our Peak Performance 101 Workshop from Van.
We'll teach you one of the real secrets of success — how to use all the system building blocks to design a trading system in such a way that it fits your personality and style of trading.. In the process of learning how to do this, you'll probably come up with dozens of winning systems that will work because they'll be based on criteria that fit your situation.
Workshop Objectives
Instructor RJ Hixson expains what this course will cover in this five minute video.
Van shares years of knowledge about wealth concepts, wealth creation modeling, being wealthy inside, and the infinite wealth processes. Attend this workshop and completely reshape your attitudes toward money, work, paychecks, income, wealth, scarcity, and abundance. Your paradigm shifts in just three days will amaze you and release you from your current beliefs about wealth that have been running in your unconscious and holding you back.
Infinite Wealth
Watch this brief 2 minute video to get an insider's look on attending this workshop.
November 2017
Learn to Trade Three Forex Trading Systems with an Edge

Gabriel will be teaching three robust Forex systems based on trend-following. Each system is based on similar “ingredients,” but each has a different recipe to capture a different part of the trend. Consequently, the systems are complementary to each other and together offer several trading setups nearly every day of the year.

Join us for this three-day workshop and leave prepared to trade the systems right away. Plus, join us for 2 days of live Forex trading so you can trade the systems live for even more hands on experience!

  • Start your study early. Order the Forex Home Study Course now and walk through the door with a thorough understanding of the Busted Breakout (System 1). Home study buyers get $600 off the price of the live workshop!

More about Forex
Learn more about what it's like to attend Gabriel's Forex workshop by watching this brief video featuring some of our past students.

The Super Trader Summit is in December.

Trading Tip

Canaries In the Coal Mine:
Why I’m Still Not Worried About the Aging Bull
by D.R. Barton Jr.
In a previous article, we talked about how the advanced age of this 8 ½-year bull market run gives many analysts a cause for concern. In fairness, many people were griping when this bull market turned 5 years old. Griping continued in years 6, 7, 8 and continues today as well… The duration of a market move is a useful concept to keep in the back of our minds but — it shouldn’t drive our thinking or our trading.

What could be a couple of things, though, that could change my mind? We might call these indicators of a market change our little “canaries in the coal mine.” That term has a real meaning based on the pre-instrumentation practice of using song birds in coal mines.

Early Warning Systems

Canaries, like all birds, have respiratory systems that allow them to fly at heights where oxygen is less concentrated. Evolution has supplemented their relatively small lungs with air sacs that allow them to retain oxygen while inhaling and exhaling. Scottish scientist John Scott Haldane opined that since birds had a double exposure to gases, they would be good early detectors of carbon monoxide and other poisonous gases. So miners brought canaries (and other small birds) down into the mines with them to “detect” toxic gases before the miners would ever notice. Interestingly, the use of canaries was a very real thing — a practice used extensively in the mines of Britain, the U.S., and Canada all the way up to 1986!

Like coal miners from last century, I’d like a heads-up for pending changes in the financial market conditions. The two canaries we’ll talk about today are:

  1. Our old friend the cumulative advance/decline line that shows how many stocks are participating in the bull move.
  2. Global market strength.

I’ve talked to you before and showed you charts of the cumulative advance/decline line. In short, this indicator starts with a daily breadth number. Breadth is simply the number of stocks on the New York Stock Exchange that closed higher than yesterday minus the number that closed lower. That’s where the term advance/decline comes from. When we add that breadth number day after day, we “accumulate” the daily breadth numbers giving us a cumulative advance/decline line. Here’s what that chart looks like today:
This is the chart of a normal, healthy bull market — regardless of its age. Many stocks are participating in the move that’s keeping the market high — either near or at its all-time highs. When the market starts making new highs but the cumulative A/D line fails to follow along higher as well, then we will have something to concern us. But that day is not here yet…

Global Markets

I could show you lots of major market charts which look very strong. Europe, China, Japan, and even Latin America are all at the top of the page. All of those charts look nearly the same as the one below for the Emerging Market Index (using the ETF EEM) —
As long as so many markets across the globe are strong right now, it’s hard to make a case for why a downturn is imminent here in the U.S. markets.

The Bottom Line

We’re still favoring the bullish bias while keeping our eyes open for signs that would tell us to change posture.

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

Great Trading,
D. R.
NEW E-learning Course!
Forex Trading Systems: The Busted Breakout System
Click on the image below to watch a brief 1 minute video that hightlights this new course.
Gabriel developed and refined his Busted Breakout system on the concept of trend-following while he was still enrolled in the Super Trader program.

The system has a high win rate (about 65%) and it takes advantage of a price pattern that happens again and again in the charts — breakout failures. The main advantage of this is that it benefits from running for other peoples’ stops. This is a unique edge of the system making the trade break-even early on. Watching 15-minute charts for 4-6 hours a day and trading only the biggest, most liquid currency pairs, the system finds easily more than 150 trades per year. The pattern works equally well on 5min, 60min and 240min charts so the trade opportunity per year can be much higher depending how you trade. Gabriel is confident that someone with the programming skills could turn the system into a well-performing automated trading system.

The three-day workshop cost is $3,995 but the cost of the home study program is $1,295. As a special introduction price for early responders you can get this new home study for just $995.
Plus, buy the home study now and if you decide to join us at the 3-day Forex Trading workshop in November (or for any Forex workshop in the future), you can deduct $600 off of your course payment for the workshop.
This is win-win for all! If you are among the group of clients who simply cannot come to one of our workshops this home study offers you the benefit of still gaining access to a robust and premium forex trading system. Gabriel has traded it himself in several timeframes for many years now offering a persistent edge in the market.
But, if you have already been considering attending the workshop this is a great way for you to get a full-steam head-start and walk through the workshop door already understanding the system well. You will then have the opportunity to ask Gabriel anything you need. And in addition, learn two new Forex trading systems. The three systems taught in the workshop all offer unique advantages. They complement each other giving you the opportunity to reap various stages in a trend.

Learn More About This Course...or Buy Now!

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The Red Pill for Traders and Investors

Eleven traders tell their stories about transforming
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Cary, NC Workshop Information
For a list of nearby hotels for our Cary, North Carolina locations, click here.

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