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  • Workshops HUGE Combo Discount Just Announced for May!
  • Article Reluctance Revealed by R.J. Hixson
  • Trading Education Peak Performance for Traders, New Students, Start Here
  • Trading Tip Extremes in Volatility and Price Movement – Something Has to Give! by D.R. Barton, Jr.
  • Mail Bag Trading Systems for Specific Markets


Learn to Profit in Bear Markets and 
How to Develop Your Own Systems that Fit Your Unique Trading Style

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The Van Tharp Institute designed this workshop and these particular systems for our clients who want to take advantage of declining markets—a condition that we expect to reoccur through the coming years during a secular bear market.

May 3
  Dinner at Dr. Tharp's Home for attendees
May 5-7



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How to Develop a Winning Trading System That Fits You Workshop

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Feature ArticleRJ Hixson

Project Marathon—March Update

Reluctance Revealed

In this Project Marathon series, I wanted to talk about the process of using Van’s guidelines and best practices to achieve a big stretch trading goal. That would mean applying Van’s teachings and showing steady progress through the year as I marched merrily towards 131R in December. Last month, however, I was getting reluctant to write the next article. What was I going to talk about? There wasn’t much I wanted to say because one part of me thought I didn’t have much going on. That’s where my head was in late March.

At the Peak Performance 202 workshop three weeks back, Libby Adams guided us through her transformational meditation to deal with a stressful area of our life.  I had a part of me that believed I couldn't write about what was really going on with my trading.  In the meditation, I went inside with that concern and received this response: "Acknowledging the truth is an expression of love." Wow!  OK, I could do that, even if it seemed uncomfortable.  

Then, in the next workshop, Peak Performance 203, I had another big realization.  My fears about what readers might think about my trading weren’t that at all.  I was projecting my own fears onto you, dear reader.  My concerns were all mine, not yours.

I was concerned that people might believe I wasn’t fully committed to my goals, and I didn’t want people to think I couldn’t trade.

In reality, it was accurate for me to recognize that I was concerned that I might not be fully committed to my goals and I didn’t want me to think I couldn’t trade.

With that insight and some useful exercises from the workshop, I was able to inquire into my beliefs and see the truth as well as the lies within them.  That gave me a lot of freedom to write a more authentic article rather than one that makes everything seem peachy keen.  So, let me tell you what’s been going on for the last three months. 

Short Chronology

In early January, I started trading at a feverish pace. That 131R goal was looming large and I knew I should get going on it early. After two weeks of working hard and basically breaking even, I realized I needed more of a fleshed out set of objectives and a plan to get there. I decided to stop trading and gave myself until mid-February to really think through a full set of objectives. 

Then that market dip started on January 20, and I couldn’t resist taking some substantial positions to ride the correction.  I wrestled with the idea of not having a defined system to put those positions on versus just letting a great trading opportunity go by.  Again, that 131R goal was front of mind.  The planning could wait a bit because the market wasn’t about to.  Besides, I was very careful with my risk management, had a sweet reward-to-risk ratio, and I have honored my stops faithfully in the past year.  (BTW, entering trades without a trading system is a clear mistake by Van’s guidelines and I logged it as such.)

Well, after the drama of scaling in to the dip and scaling out of the subsequent recovery over a few weeks, I exited my positions at about breakeven.  I still hadn’t finished my objectives or my plan.  I have noticed again and again in the last few years that when I trade, I use a lot of mental energy and time for trading.  This is why I find the need to stop trading completely when I have to do any serious “groundwork” or to work “on the business” in a big way. Being flat again in mid-February, I finally finished those objectives and that's what I wrote about in last month’s article.

The "plan" I thought I needed was the daily execution of the top tasks of trading and how I was going to track those. I completed that and by the end of February I had punched out several 100% weeks on all the tasks. That was great!  Funny thing, though, I was doing all that but not entering much in the way of trades.  I then realized that after my late January/early February experience, I wanted fully written out systems to trade with clear rules to follow for my systems.  The structure provided by defined systems is still important to me as a novice trader.

Current Status

So I “stopped” trading again in March to write a full blown trading plan and flesh out three trading system write-ups.  Well, March/April has been very busy with several workshops and an Easter vacation.  At this point, I have written out my trading plan and two of the three primary systems I plan to trade this year. Two are intraday systems with entries shortly after the open entries and exits typically in the afternoon.  One of those systems has setups nearly every day; the other has setups only once or twice a week.  The third system is a swing system, which has entry signals once or twice a month.

I expect to finish the third system write-up in the coming week and then start trading those systems in the last week of April—along with completing the top tasks of trading every day. 

Given my workshop and vacation schedule for the remainder of 2010, I will have 126 days available to trade as of the end of April. My plan is to average 1R+ per day from the intraday systems and then average another 1R+ per week from the swing system. Thinking a bit conservatively, that still gets me to 131R for the year although my personal ramp up time trading new systems and market conditions are the two biggest variables I foresee at the moment.

Even Deeper?

". . . life will give you everything you need to go deeper . . . "

That’s a quote from Byron Katie, which rang so true when I heard her say that this morning on the audio book version of Loving What Is.  The owner of our house just told us he needs to sell it in the coming months.  In my business plan’s worst case contingency section I have an item on moving my family even though I wasn’t really thinking about that for this year. Now what?  Do we lease again or pull some money out of the business for a down payment?  Does the stressful process of moving kill any chance of me making 131R this year or does it just notch up the challenge?  Well, I guess I am supposed to go deeper still. 

Until next month, trade well and take care. —R.J.

About R.J. Hixson: R.J. Hixson is a devoted husband and active father. He started trading again in late 2008 after completing Van Tharp’s Super Trader program and making a full recovery from his previous poor trading habits. He researches and develops new products and services at the Van Tharp Institute. He expects to start riding his bike soon to and from the Van Tharp Institute offices several days of the week until it gets too hot.   


Trading Education

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"You don't trade the markets.  You trade your beliefs about the markets." —Dr. Van Tharp  

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Extremes in Volatility and Price Movement—Something Has to Give!

-- Quote originating in the U.S. in the 1930s

The quote from today has often been attributed as a “Chinese curse.” There are no credible sources that can reference the quote before 1936 – 1939 right here in the good old U.S. of A where traders are living through some interesting times indeed.

Sometimes B Doesn’t Follow A

The markets have seemed to follow this pattern recently. While many macroeconomic indicators still scream, “Recession!” the market continues its seemingly unstoppable drive higher.

Around the globe, central bank printing presses keep cranking out unprecedented amounts of paper money. The markets don’t seem to know which currencies to punish more, so they all kind of squirm without significant movement. Any school kid can see that money isn’t worth as much on face value as it was even 18 months ago.

And when we look at the technical aspects of the market, volatility is at its lowest levels since July 2007 by some measures. Indifferent to the fundamentals and technicals, the stock market keeps making new 52-week highs after one of the biggest 12 months advances of the post depression era.

As we’ll see shortly, the market is past due for an explosive move. But in which direction? Let’s look at two very interesting charts to gain some perspective.

The VIX Unvexed

Let’s take a moment to understand the VIX indicator (Symbol: $VIX).

The stated goal of VIX is to represent expected volatility for the next 30 days. From its inception in 1993, VIX did this by measuring the variation between put and call prices in the S&P 100 index. In 2003, however, some significant changes were made to the calculation of VIX:

• S&P 500 options are now used instead of S&P 100 options.
• A full range of active strike prices is used instead of just the at-the-money strike.
• The Black Scholes option model is no longer used to calculate an implied volatility. Rather, expected volatility is derived by averaging the weighted prices of out-of-the-money puts and calls.

Market pundits like to say that VIX measures the fear of participants in the market. High VIX equals fear and low VIX means complacency. In simpler terms, the old trader’s saying goes, “When VIX is high, it’s time to buy. When VIX is low, it’s time to go.”

As with all conventional wisdom, it’s usually right—at least eventually. The problem, however, is that it doesn’t tell us much about timing. VIX can be classified as a sentiment indicator and sentiment indicators are usually early.

Can You Say “Volatility Contraction"?

Let’s take two looks at the CBOE’s Volatility Index, which recently hit an interesting extreme that had technical analysts buzzing this week. This is a weekly chart of the VIX going back to mid-2005.

Chart one

The first thing we should notice is that VIX hasn’t been this low since July of 2007. The second is that the extreme highs hit late in 2008 were unprecedented.

Now let’s drill down and look at recent data for the move that got all of the tech analysts excited.

Chart two

When the VIX has closed below the standard lower Bollinger Bands, that’s been a useful indicator of short term overbought sentiment in the markets. 12 of the last 15 such closes have led to short term corrections.

But be aware that this pattern is a relatively blunt instrument. Remember that sentiment indicators are usually early and that trading tops usually take time to develop. By no means does this tell us that the bull’s run is over but such extreme complacency does point to the high probability for at least a short term correction.

There’s a longer-term indicator that has reached overbought levels not seen since 1999. We’ll take a look at that next week. Until then…

Great Trading!
D. R.

About D.R. Barton, Jr.: 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 "".

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Trading Systems for Specific Markets

Q: Have you developed a system/strategy exclusively for Indian Stock Markets (NIFTY or SENSEX)? I trade from India and am not able to use your expertise and guidance.

A: Dr. Tharp doesn't develop trading systems himself, although many of his workshop instructors do. Dr. Tharp focuses on teaching the best trading practices and helping traders understand how their psychology affects their trading. He gives three main pieces of advice: 1. Understand yourself (You are the most important aspect of your trading). 2. Manage your risk and meet your objectives through position sizing strategies. 3. Develop trading systems that fit your beliefs and style.

While individual markets influence trading strategies,  Dr. Tharp's principles apply regardless of where someone trades. We have clients from literally all parts of the world who apply his methods profitably.  Additionally, most of the trading systems taught at our workshops can be traded directly in other markets or modified slightly to perform well in other markets.

To learn more about system development, consider his home study course or workshop, both titled, How to Develop a Winning Trading System That Fits You. You can also download a free teleconference on the subject of system develop. Click here for the free download, (no registration required).

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April 15, 2010 - Issue #470


SuperTrader Book

Dr. Tharp loves his Kindle. His new book is now available for all other Kindle lovers out there. Click here.


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Tharp Concepts Explained...

  • Psychology of Trading

  • System Development

  • Risk and R-Multiples

  • Position Sizing

  • Expectancy

  • Business Planning

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