Thinking like a Dealer Part 2

intro

This is something my coach has been talking about particularly in relation to day trading.

The idea is to try and keep in mind that the dealer/broker only gets paid when orders are triggered.  As such they are constantly trying to push price into areas where the most amount of client orders sit.

plan

When planning our day trading strategy we need to approach the market as both a bull and a bear.

Where is a bull/bear most likely to have an order to start building a position? and where will they have their stop and take profit orders?

Once you have a general idea of where the major orders will be, try and place your orders where there's a convergence of bull and bear orders doing the same thing...

For example get short at an area where bears will be looking to build a short position and bulls are either taking profit or getting stopped out. It is at these points that  market players are in a form of "unity" and you increase your probability of success.

Geopolitics & Trading Sentiment

Over the past few months my coach (Paul Wallace) has been emphasising the importance of geo-politics. He recommended I read Barton Biggs - Wealth, War and Wisdom -  and believe it or not I'm finding that a "geopolitical framework" is starting to crystallise. What follows are my thoughts to date.

my framework

My basic concept is really very simple; the market is more or less in one of two states.

1. Uncertainty (supply): Uncertainty of course exists in all markets. What I mean by "uncertainty" is an "opaque" risk / one that is becoming increasingly difficult to define and size. These events often build progressively, think pre Brexit, the 2008 GFC or 2015 crude supply glut. 
2. Stabilised Uncertainty (demand): Uncertainty still exists but it has been stabilised by an event or action, making a "transparent" risk that is easier to measure. Think post Brexit Carney /BoE promising £150B in QE, the Fed delivering $700B in QE in March 2009, Or in January 2016 simply the news that OPEC were finally talking about reducing crude output.

What is important here is news doesn't necessarily need to be particularly uplifting or downbeat, just less bad or good than it was previously. Biggs uses the Battle of Midway as an example. Despite WWII being far from over, the US Navy defeating the Japanese Navy was better news than had came before (Pearl Harbour). This marked the lows of the US stock market and the start of its recovery during that period.

brexit example

certainty - a predictive state

My final thought on sentiment is that I think it's fair to say that markets are always moving towards some kind of climax, this I see as two kinds of certainty.

1. Certain optimism: when the market and main street get to the point of believing something is genuinely amazing, the market is often overbought/topping. (Bonds and Equities)
2. Certain pessimism: when the market and main street get to the point of believing something is completely doomed, it is often oversold/bottoming. (Crude)

When things are at their unimaginable best/worst, there's really very little room for markets to climax further. Working on the Biggs premise that you only need slightly better/worse news than previously to turn a market, you can start to preempt tops and bottoms. Such as the DotCom bubble in 2000 or oil lows in 2016.

To be clear I'm not suggesting that one would trade "certainty", I see it more as a preemptive tool to start preparing for options in the other direction, if and when they are confirmed by events and price action. Actually it was this very thought coupled with a few events and technicals that made me want to get long crude last week.

summary

To me there is a catalyst that gets everyones' knickers in a twist, causing "uncertainty"(supply), then there is a "stabiliser". This doesn't eliminate uncertainty but creates a "stabilised uncertainty"(demand) that markets can rise in. Finally as a predictive tool I believe listening and looking out for when the market/world is in "certain" optimism or pessimism is a very useful tool to start preparing for a top or bottom.

Maybe my views will change again in time but at least for now this is how I believe markets work. What I like about this is that I have always believed markets move due to supply and demand. From a technical perspective I think I have a relatively good grasp of this but on a sentiment front this has always been lacking. Identifying what supply (uncertainty) and demand (stabilised uncertainty) look or feel like has strengthened my commitment to my strategy as it is starting to flow through the market in a more holistically way.

Missed a Crude Long Opportunity Due to Size

I originally posted this in a private group last week. However as it is part my trading strategy and it will also relate to a post I am putting up shortly it felt important to reblog it here...

ORIGINAL POST 080816

initial idea

I've been watching crude for the past month or so "collapse" and twitter bang on about what a turd it is. This reminded me of something Paul Wallace (my coach) says: when everyone is certain, this is often the time to look the other way.

prep

Because this was a counter trend trade, technically it wasn't STAM (STAM is a method my coach has taught me and so am unable to go into details), but it fits all the parameters I like to see. This coupled with better than expected NFPs, an increased rig count and potential demand from India made a bullish engulfing pattern (at lots of support) on the daily chart very appealing.

issue

The size, even at 0.10 in a micro account meant a £300+ stop which didn't remotely fit my risk requirements. In the end I just took a screen shot and put a tweet out for my records.

I don't particularly want to go down a timeframe, for this kind of trade I want to stay long term. I was wondering if anyone knew if there is an alternative instrument I can trade which might let me trade smaller?


Tweet screenshot (D1 and W1)

Crude as of 1917 this evening (080816) (D1)

Speculation or Gambling?

An internal debate I often have with myself is; is trading gambling or speculating? and isn't "speculating" gambling anyway?

my definitions

I define gambling as an action that relies entirely on luck, akin to betting on a horse because you like it's name or the colours its jockey wears, a coin toss.

While I define speculating as an action that is based in preparation and risk management. Knowing where the horse is running, on what surface, who the trainer is and sizing the potential bet in relation to the odds offered. Many bets will be prepared but few will be placed, as midway through the prep a horse maybe shown to have no edge (a good flats horse may be useless on jumps). This in theory leads to an educated guess that still requires a bit of luck, similar to a hand of poker.

So to answer my initial question; yes speculating is gambling, but it is gambling (like any business) with a defined risk, an edge. You're trying to be the casino.

All this has lead to a further thought...

two aspects of speculation

To carry on with the metaphor, in trading I see the setup as the horse; and the first aspect of successful speculation is defining whether "it" is on the right surface for it to be effective (1) before entering. 

However in trading we have a second aspect, that being the luxury of (2) in bet management; being able to close a bet early or add to it late. The latter of which is missing from my plan (as mentioned here). This is a void that I urgently need to fill to help improve my results. 

summary

Ultimately in any form of gambling or speculating there will always be risk. To me however speculating requires that you know when you have an edge, when your edge is fading and as importantly when it is strengthening.

Personally, I know what my edge looks like when it's failing (before it hits my stop), so I can cut my losers early but I do not know what it looks like when it is succeeding (before it hits my target), to ensure it is held or even added to. My plan to combat this is to examine the largest MFE of my losing trades. This should hopefully act as a good basic benchmark/line in the sand/distinguishing factor between a successful and fruitless endeavour. 

MOTR Trade 10 R+0.2

So I got long the NZDUSD...

prep

Technically this pair met all my criteria, momentum and trend both up and price experiencing a deep pullback.

On the macro point of view there was an issue, Fed policy was due in 2 days however my trade plan allows me to trade this, provided I close a few hours before the data is due, which is what I did.

thought

Price initially went my way by R+1 or more, then fluctuated before the fed announcement (I exited just prior to the durable goods report). I do wonder if price initially goes in my favour by quite some way, whether I might be able to hold on to this kind of trade in the future (as you can see the MFE on this trade was R+4.4).

This thought alone shows a hole in my trading plan/strategy; I don't know at what point (before hitting my target) a trade is a success. Definitely something for me to mull over and research! Ultimately my numbers are going to have to dictate my action here.

NZDUSD Long

Thinking Like a Dealer

On the day trading course I attended last Friday my coach said, you've got to "think like a dealer".

prep 

This morning I've been watching the EG after the UK GDP figures. The GBP sold off despite good figures (probably due to the imminent BoE policy shift) and  EG rallied into supply printing an M15 pin.

plan

Thinking as a dealer and where orders (and stops) will be placed; I think I would try and trigger those stops first (dealers only get paid when orders are triggered). Perhaps if I had a tick chart and an ECN I could get long into the highs for 5-6 pips but the current the plan is to wait for a stronger short, probably on the M30 chart at the current level of supply or more towards 0.8415 where yesterday's high, the ATR high and D1 supply are...

EG M15

update

Below is the EG M30 chart. You can see it  printed a bearish pin with a long wick that took out the highs (and probable stops) of the M15 pin I mentioned above. (1st chart in this post).

I set a sell stop around the M30 pin. 1:1 Target and 80% stop. Only traded small, I've earned myself a pint and a packet of crisps (which I shall enjoy later).

EG M30

Day Trading Course

I can't really go into the "ins and outs" of what I learnt, as it's not mine to share but here are a couple of trades ideas I planned for this morning. I didn't take these, as my coach suggested, for the moment I'm just getting my eye in.

prep

• Trade: Euro open
• Data due: UK Mortgages (low impact)
• News: BoE Weale says "immediate measures needed" to stimulate economy.

plan

• Idea: Choosing to trade around Weale words. I feel that Weale's words could create a GBP sell off, however seeing that it is only Weale (not Carney) the sell off will likely be short lived. 
• Trade: GBP pairs. My hope is that the sell off will be enough to nudge price on the GBPUSD down into H4 demand / yesterday's lows, where it can be bought... And nudge price up on the EURGBP into H4 supply, just above yesterday's highs where it can be sold.

what happened? 

Definitely beginners luck! Pretty much did what I was hoping for on both pairs.

Chart notes hard to read for some reason, they say:
"1. GBP sells off, helped by Weale's words into resistance/supply"
"2. 0800 EG hits H4 resistance/support, prints PIN and falls/rises"
GU

EG

MOTR Trades 8 (R-1) & 9 (R-0.6)

Bit of ring rust after a month off but hands up, I screwed up my prep.

prep

This weekend after completing my homework I noticed the NZD had been gaining strength. Actually by my reckoning it had been the strongest currency for two weeks running (although that might have changed now)!

So I went through my NZD pairs and found a long on the NZDUSD and a short on the AUDNZD, net long the NZD. I did my technical prep then looked at the economic calendar, I never trade in front major data. I noted the RBNZ had it's economy report out on the 21/07 so I thought I'd have 48 hours to hit targets and would close out before the announcement, regardless of P/L.

the mistake

The data was on the 20/07 not the 21/07 so I just traded right into and through the announcement  and it wasn't pretty for the NZD.

MOTR 8

Long NZDUSD (pin at W1 demand) I got a 100% stop on this.

MOTR 9 

Short AUDNZD (BearEP at W1 supply) I saw my mistake and managed to exit before a full stop for R-0.6.

summary

Not much to say. Seeing that I've has a month off I'm pretty pleased with my prep and management on the whole, with obvious the exception of that one mistake. Guess all I can do is double check in the future and move on.  Fact is if the data had been when I thought it was these trades were completely "trade plan valid" positions, so I'd take them again. 

Deutsche Buy-nk?

Okay I'm going to stick my contrarian neck out and say I'm putting DB in my buy watchlist.

To clarify, I am not buying. Perhaps this is the time one should start building a position but my risk profile doesn't match that kind of strategy. I want to see more confirmation geo-politically and technically before that would be an option.

reasoning

Yesterday I noted that Standard & Poor's had downgraded DB's credit rating. Experts always seem to be the last to cotton on to what's been going on, which suggests to me Deutsche might be bottoming.

To me the almost certain ECB/EU bank bailout is now almost definitely certain as: 1. Juncker won't go down without a fight (and several bottles of claret); 2. From my observations, there's nothing more motivating for an institution (ECB), than it's actions being tacitly approved by another, in this case, S&P's.

It feels nice, doesn't it Mario?

Admittedly I've been on twitter (a lot) telling anyone who'd listen what a rancid turd DB is. In my mind it still is a rancid turd but it's a potentially stabilising one.

If the ECB conducts its alchemy on DB, that of "vanishing" toxic debt from its balance sheets and buying (even more) of it's own debt (corporate bonds), where would be the risk?

Where Is The Value?

Apologies to my regular readers, I have been flat during recent volatility waiting for a position trade (and reading far too much), please indulge me.

Brexit then all time highs in stocks?!

As always supply and demand are ruling the markets but whose cash is buying the "trash" and why? I'm all for Brexit but this is BS. Of course, I'm not going to fight the market however with no growth or inflation and lower earnings, stocks fundamentally shouldn't be where they are.

the twilight zone

When has buying a poorly run company with no growth prospects made you money? As far as I'm aware never, until Bernanke and the Federal Reserve dropped the best part of one trillion dollars into markets in 2009 to keep them up. Call it what you want quantitative easing /buying debt. The truth is they didn't drop it, they pushed $1T into the markets by buying bonds and shares, this created demand-pull inflation in share and bond prices because there weren't enough to buy, so the only thing that could happen was for share and bond prices to be pulled up. It's demand and supply; if there isn't enough of something the price will go up, even if it's manure. Then of course the Bank of England, Bank of Japan and ECB got the "QE" buying bug and we've had nearly eight years of bull (shit) market. GDP down, inflation none existent, wage inflation nope.

note ascending stock prices (green), despite declining growth prospects (red)

note ascending stock prices (green), despite declining earnings (red)

So what just caused the most recent spike in the S&P500 to all time highs? As per usual for the past eight years it was another bout of central bank QE.

Note the rise in Bank of Japan (red) and European Central Bank (blue) asset purchases recently.

feed the rich

The rich have got richer and the poor have got poorer and you can see why; the central banks have only put money into things the 10% and 1% own. I am a capitalist but this is not capitalism and feel I am not overstating it when I say, central bankers have stolen our democracy. There is the perception of having choices but where are they?

The young can't choose to save because there's no interest. Central brothers, sorry "central bankers" take control of private companies because they're "too big to fail", thus management can't choose to go bust or become more efficient. Their only option has been unending stock buy backs (buying shares back off investors) inflating stock prices (to seem healthy). Worse still central bankers have stolen our job choices which has contributed greatly to the recent bout of xenophobia in the US and UK.

Believe it or not an economy based only on national demand and consumer credit (western world since 2009) creates low paid jobs. So we're now battling the migrants for the jobs that we traditionally never wanted; the fact is they're not stealing our jobs, we're stealing theirs.

To me the central banker is a dictator in everything but name. We can't get rid of them, even if we do we'll just get a carbon copy in the next one because they're brainwashed by "quantitative easing" group-think. They take away our freedom of choice and impose their will on the majority. Is there not an Orwellian stench in the air?

brexit

Brexit is good, the EU is a shambles. If you hadn't noticed there's yet another banking crisis (finally) being reported in mainstream media. But don't be fooled by them it's not Italian, it's Italian, French, Portuguese, Spanish and as it turns out German.

Deutsche Bank the biggest bank in Europe has failed two stress tests in as many years, has no capital or revenue and has recommended a €150B bailout for the EU. While Italian banks are weighed down by €360B of bad debt (about a fifth of its GDP). What's more is Italy’s terrible economic performance; it is still 8% smaller than it was pre-crisis. So it's not that surprising that UniCredit, Italy's only systemic bank of importance is in trouble and is being forced to sell its good assets. There is also the serious risk of contagion. French banks are exposed to €250B of Italian debt, German banks hold €83.2B,(Deutsche Bank alone has €11.8B) and Spain €44.6B.

While in the EU: unemployment is sitting at 10% and growing, youth unemployment is at 21% for the region but is hitting far higher levels across the region (as high as 50%) and EU growth is currently 1.7%... However paraphrasing the ECB, with the UK leaving, it will likely lose 0.6% of that (my guess is it will be more) so in reality, EU growth is probably somewhere under 1%.

youth unemployment in the EU

One final point here. Let me just mention how well the EU manages its deficit offending member states when they don't obey the rules. How many debt defaults there have been in the EU since 1999? Take into account the (PIIGS) poorer countries, 20? 50? No, try 165 unpunished deficit breaches. Hardly inspires confidence.

the uk

Well the UK isn't doing that well either? Not an unreasonable statement however every UK bank has passed rigorous stress tests for two years running, unemployment is sitting at 5%, youth unemployment's at 13% and we're growing at 2% a year, all healthier than the EU. Absolutely, our growth rate might flounder in the next twenty four months as we negotiate our exit but as I've been highlighting that will really depend on central bank policy. With Carney (BoE) promising £150B in liquidity to UK banks on the 24th July and with more to come if needed, this is far from certain. However for the same reason, a weak GBP for the foreseeable future is easier to predict; starting the money press will create a glut of supply and thus lower prices/valuations.

We'll lose our trade with the EU and the world? I can't see this happening. Sure banks will need an arm in the EU but only 7% of asset managers are thinking about moving operations out of the UK. 60% of our trade is with non EU countries and the EU sells more to us than we do to them; exports to the EU are only about 13% of the UK's economy. This is precisely why most EU members are already in "informal discussions" with the UK (the power Junck-y is forbidding anything else). Australia has just offered the UK a free trade deal. While it turns out the UK is now at the front of the US queue, with the Obama administration initiating discussions with UK officials about a bilateral trade pact. A pact like this will be more focused to the UK's needs and it's hard to argue a deal within the EU would come close to this. Plus despite all that "EU trade", the average UK individual hasn't exactly got any richer in the past eight years, which is precisely the point of Brexit.

going forward

Davis (Johnson and Fox) want to move the UK into being a more international, export led economy, think China. This kind of economy would have far better potential to create stronger GDP (growth), a growing middle class, better jobs and higher wages. All of which will help fund government services and reduce our national debt. But be prepared, an export based nation prefers a weaker currency; so we might want to get used to and start embracing our weak GBP, it could well be permanent and the new sign of health.

My guess is the EU will fudge its seven month old law, that no country can be bailed out unless shareholders first take an 8% loss, This is because this would mean Italian voters would take an EU enforced loss of around €16B before the Italian referendum in October. While the Bank of Japan will likely break its own laws and buy the US Chinook, (adopt helicopter money) because America (The US Treasury and Bernanke) tells it to, Carney will probably start the sterling printing press in the BoE's August meet and this farce will continue.

UK options as I see them...

1. We reform (some form of Brexit), reinvent our economy, gain stronger growth, real inflation and reduce the roughly two trillion pounds we still owe the central banks. Then attempt to get over this mess.

2. We follow the "do nothing, the central bank will sort it out" approach of the EU and it will all eventually blow up. But only after ruining the future of several more generations of youth whose governments will no longer be able to function due to the crippling debt (think tens of trillions of pounds) they owe the central banks. All the things we love today (NHS, housing, benefits) will, if we're lucky, survive just long enough to see us out or already be privatised. While the youth won't be able to afford any of them because we will have remained a national, consumer credit driven economy with low paying jobs, tied to a "union" of countries with an atrocious history of fiscal and monetary policy.

To me it comes down to "moralism" or realism. It's easy to say what's right or wrong but it's much harder to deliver it; this is the crux of why I am a blue.

Morality is expensive to deliver and it is my unwavering belief that we'll have a better chance of doing good and delivering morality long-term, if we focus on correct fiscal & monetary policy and capitalism (even if this brings around a temporary decline). No they're not perfect but they have a far better history than the alternatives.

our money?

Believe it or not I would like to see a crash. As I've tried to explain, what has happened for the past eight years is not sustainable or real; the UK (and world) needs a crash for long-term sustainable growth. Stock, bond and property prices would return and represent true value. Companies would be forced to innovate and a low GBP would make it easier for our exporters. With Brexit deals already in the pipeline we will have the opportunity to trade with nations experiencing far faster growth than the EU (which itself is near crash levels) and this will boost our GDP, jobs and inflation. Meaning higher interest rates which is good for savers but more importantly banks who have struggled to make money for the past eight years. This would mean a more stable financial system and better paid jobs.  All of which would mean greater tax revenues for the government to spend on services and reducing our national debt.

However my fear is: you can't fight somebody on a "monetary crusade" with an unlimited supply of cash. So for the time being we should probably be good party members and do what the central banks do, we might even make a little money.

I don't know about you, I think I might buy some tulips.

sources

ft.com

moneyweek.com

zerohedge.com

tradingeconomics.com

bloomberg.com

statista.com

conservativehome.com

We Might Want To Embrace the Weaker GBP

I recently read David Davis's post on his vision for the UK post Brexit. To surmise he states...

"(Our economy currently) depends far too much on domestic demand, which even after 2008 is excessively funded by consumer credit. This is unsustainable in the long run. So we need to shift our economy towards a more export-led growth strategy, based on higher productivity employment."

If you have around 2 hours spare you can it read the rest of it here.

Honestly I like his vision. However if we're going to be an international export lead economy, it occurs to me we might want to get used to and start embracing our weak GBP, it could well be permanent and the new sign of health.  

MOTR Trades 5&6 DHM R-1.4

intro

So last Friday I got long the AUD by shorting the GBPAUD and buying the AUDUSD. Now the entries were fine but the management could have been better, hence DHM "dickhead management".

trades

One went my way while the other hovered around breakeven. I trailed my stop to 70% on both of them as my plan dictates, but I failed to note on Monday evening that there was an RBA governor speech due overnight... This would have been the perfect time to kill the trades for more or less breakeven, instead both hit their 70% stops for a total loss of R-1.4.

lesson

My strategy is based on getting a "technical edge", this is fine but the issue is, one cannot predict the outcome of data or speeches. And so when such an event approaches my edge losses it potency until it comes to a point where it has no predictive power at all. At this point my trade turns from a calculated risk to a gamble and is where it should be closed. It could be argued that if I keep taking bets with great returns I should win, that's what most punters do. And guess what, it's the bookies making a business out of it. It is often thought that casinos also play the long game, and they do, but remember they have the odds, even if small on there side in every game. Here I started off as a trader then turned into a punter.

MOTR trade 5 

GBPAUD was in MOTR S (strong selling) and I took a bearish pin at W1 supply as an entry. 

MOTR trade 6 

AUDUSD was in MOTR B (strong buying), I took a bullish pin at W1 demand as an entry. 

Tharp Continued: Overcoming My Challenges

copyright K1 Dynamite hopefully I can channel my inner Fedor (right)

recap 

This is the third post in my Van Tharp series. Here are the links to posts 1 and 2.  On completing the Tharp Trader Test I was sent a personalised report stating my three strengths and three challenges. The challenges I face will be the focus here. Please forgive me if this turns into a rather lengthy post it's really meant more for my records and trading development...

my challenges

1. Need for External Confirmation: of ideas, your systems and beliefs, which can be detrimental to becoming a successful trader. You need inner confidence to trade consistently successfully. Read the Article “What Is Involved in Peak Performance Trading?”
2. New Ideas:  to apply to trading systems that are already working can screw things up.  Understanding the purpose of trading systems and their role in pulling money out of the markets. Read the Article “Paradigm Shifts for Trading Success”
3. Needing Excitement: Good trading tends to be boring. It is imperative that you have an outlet other than trading; excitement in trading is most often very expensive. Complete the “Compulsive Trader Test” 

challenge 1: peak performance trading

According to Tharp this requires each trader to have their own business plan.  I actually have worked on one with my coach Paul, which he calls a Strategic Business Plan.  Tharp recommends each plan has the following items.

• Your Vision, commitment is key to success, your vision is your dream life, write this out in detail, what are the "whys" in your life, this give real motivation, you'll know you have it right when you're so excited you feel you must do something right now ( written but will need a revisit as I haven't got that urgency yet!)
•  Your Purpose. Written
• Your Objectives. Written 
• Assessment of Strengths and Weaknesses, based on real trading logs: Strengths: 1. Money management, 2. risk management, 3. good record keeping 4. Organized TTP and SBP written. Weaknesses:  Fear Based Trading: 1. Cutting winners early with discretionary exits out of fear instead of TTP exits (might need faster TSL method than fractals like 3 bar stop). 2. Cutting winners early by BE trailing too quickly out of reversal fear (fixed to 70% stop).  3. being lazy, not respecting spread (respect the spread! dickhead) 4. taking shit candle patterns too "creative" (write exact rules)  5. Not trading off S/D (improving now only using W1 and MN levels) 5. Buying high , selling low. (improving now only using W1 and MN levels)
• Thorough assessment of big picture of fundamentals. yes through STAM
• complete understanding of your beliefs about the market. Working on with Tharp exercise
• How to get empowering beliefs and mental states behind you.
• Documentation of system research, determining their effectiveness, no
• Procedures for maintaining discipline, yes but needs above work
• budget and cash flow, yes
• systems for back office record keeping. yes but needs time set aside
• worst case contingency,  yes
• System 1 compatible with big pic, yes
• System 2 also compatible with big pic, no
• System 3 counter big pic yes

challenge 2: paradigm shifts for trading success

Tharp says there are 4 major shifts to make they are...

1. Trading success has very little to do with what’s outside of you, 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. Q Who are you and who do you choose to be? 
2. There is no Holy Grail in the markets outside of you. But there is a Holy Grail and that comes from developing a trading system that fits you. When you do this you can do much more than outperform the majority of market players. ...economists are beginning to say perhaps the markets are not efficient. And, perhaps by studying human frailties, one can begin to predict how the markets are not efficient. The field of behavioural finance has been born. Applying it means working on yourself to make sure you don’t have these inefficiencies. 
3. You don’t have to predict the market to make money. Instead, making money comes from controlling your exits. 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! 
4. You don’t have to be right to make money. Instead, you must understand R-multiples, expectancy and opportunity.I understand this so not going into this...
5. Big money does not come from any of the factors that most investors and traders focus their attention upon. Instead, big money comes from having a position sizing strategy that is
   designed to meet your objectives. I understand this so not going into this...

How to Make Your Own Paradigm Shifts

copyright Van Tharp Institute

1. Examine who you are and what you are doing from multiple perspectives. your perspective, another involved person’s perspective, and the perspective of an outside observer watching what is going on during the event. If you were to continually observe yourself from perspectives two and three, then it would not take long at all to jump out of the box. A simple exercise you might do is to simply replay each day at the end of the day from the perspective of an outside observer. Amazing changes will occur in you when you do so.
2.  Examine your beliefs. Your beliefs might form a set of concentric circles. inner most are the ones you know are true. then think are true, might be true. then ones you have real doubts about... Tharp says: I think the beliefs that are probably the most damaging are the beliefs in the inner circle—those we know to be true. Spend time questioning those beliefs and you’ll begin to make major paradigm shifts. Try questioning one or two of your major assumptions about life that you know are true. What would life be like if those assumptions were not true? Questioning of this sort is what would be most profitable and evolutionary for most people.
3.  Notice your projections. Operate as if the world is a mirror to your own mind, then you will really begin to find out what your boxes are. And when you know where a box is, it is a simple step to get out of the box and make a paradigm shift.
4. Keep a daily journal of your emotions and experiences. Then read regularly in order to notice your paradigm shirts
5.  Meditate regularly. Simply pay attention to your breathing for twenty minutes. Think of breathing in as “inspiration,” for it very well may be that.

These five steps should help you to make immense paradigm shifts on a regular basis. Plan to do it for the next 30 days.

challenge 3: the compulsive trader

Tharp says: compulsiveness is perhaps the most serious of all trading problems. Gamblers Anonymous has recognized that for a compulsive gamblers, stocks, options and commodities are definitely gambling. 

There is then a set 20 questions based on a GA survey to see how compulsive you are. I scored a 6 out of 20. Despite being simple "yes/no" answers some questions I found surprisingly difficult, on these grey area ones I sided with a "yes".

Accordingly compulsive gamblers answer "yes" to seven or more questions. Most speculators will answer yes to one or two of these questions, while if you answer "yes" to six or more then you probably are not a successful trader (which I'm not). If you answer yes to 7 or more you have a problem. If you answer yes to 12 or more you are definitely compulsive about your trading.

what is a compulsive trader

Tharp says: Most people are at some level compulsive. Compulsive traders get a certain sense of "being alive" that comes only when they gamble or trade. They deny they have a problem.  Their lives are falling apart around them,  but they don't feel they have a problem. If you answered yes to 12 or more questions (even if it's only 5 or more) you might be moving in that direction. A compulsive trader will have lost much of the money they originally had for trading.

3 phases of a compulsive trader

1. short winning phase:  during which many compulsive traders develop elaborate systems for winning and tend to become very skilful of carrying them out.
2. the losing phase: once consumed by the action of trading, you begin to make mistakes and starts the losing phase. The compulsive trader,however, does not focus on the losses, but on getting his money back.
3. desperation phase: all the assets are gone. all sources of credit are gone but the compulsive trader is driven to continue maybe even doing illegal things.

dealing with compulsiveness

Tharp recommends his Peak Performance Course, of course he does. But there is a good introduction above from the Peak Performance Trading article... He says you need to

1. learn how to control your mental state, your urge for action. (again some good ideas are above in challenge 2)
2. learn to break the link of trading behaviour  that is set into action by environmental cues. So the second step involves finding all the cues that trigger compulsiveness and linking them to more appropriate behaviour, each cue must be found and neutralised (look to challenge 2 ideas)
3. you need to found outlets for your need for excitement (see challenge 2)
4. recognise that you will not win as long as you are compulsive about your investing. Since action is your primary motivation for investing or speculating , once you stop craving the action,  you may not want to do what it takes to be successful.  

My notes: I found the section quite disturbing. I scored a 6 on the test so had a mini melt down, thinking I was gambler and was ruining my family's life, I even called the wife at work to make sure I wasn't making her life hell. ha! 

I feel here I'm in catch 22. I love to worry and normally when something gets under my skin I break it down, but by doing that here I worry that I might be in denial as Tharp mentions above. arhhh!

Ultimately  I've decided I'm taking this as precautionary warning. In the danger of sounding in denial, I think I have some compulsive traits but I don't think I am very compulsive in the usual connotations. This is mainly because my coach who knows me well has classified me a FBT (fear based trader) as I'm extremely risk averse. So much so that I still refuse to trade real money until a turn a paper profit (7 years in). If anything I think I might be compulsive in my risk averseness! For instance often breaking trade plan rules to take discretionary exits or trailing stops too tight to reduce risk.