Tharp Continued: Maxing My Strengths

This is the first follow up to my post Tharp Trader Test.

recap

After completing the Tharp questionnaire I was sent a personal report. I came up as "Facilitative Trader", which according to Tharp means that of the 3 core trading qualities above I have 1&3 but will need to work on 2. Making decisions based on logic and analysis.

The report starts by recommending 3 articles to ensure that I am making the most of my strengths, these are what this post will cover.

strengths

1. Energy and Creativity: not afraid to try new ideas, good at coming up with new ideas. Creativity best applied to systems ideas, need to understand all that’s required in a trading system...Read the Article “What Is a Trading System?”
2. Ability to Pull the Trigger: don't require extensive back/live testing to execute your trading ideas.  I need to understand that my ideas really are beliefs, read the article. Read the Article “Your Beliefs About Trading”
3. Quickly Develop Trading Ideas: Your ideas will continue to come easily and naturally if you remain in the flow of the markets. To see what that means, read the following article. Read the Article “The Flow of the Markets”

strength 1: working on my trading system

This was quite a long article, I will try and keep things as brief as possible but initially Tharp talks about Robert Kiyosaki's Cash Flow Quadrant. This I found very interesting and would like to spend a little time on.

defining self

1. Employees: run systems created by businesses but often don't understand that they're even doing so. They are akin to the investor who wants to be told how to do everything.
2. Self Employed (ME): are motivated by control and doing it right. Cannot see the system because they are so much a part of it, the more they work the more tired they get. Stuck in all the details, have a strong tendency to want to "complexify" things, always looking for perfection believing that the perfect system must be complex. They will likely have a discretionary system that is constantly being changed.
3. Business Owner: Creates simple systems to run the business then delegates. Usually does very well in the trading arena, would hire someone to run the system at a much lower wage.
4. The Investor: Looks for returns of 25%+ and no work. Kiyosaki says rich people typically derive 70% of there income from investments and 30% or less from wages.

This alone has been an eye opener for me. I have already been...

• Adding more trade plan rules(systems), like a "business owner", to get me further out of the in-trade decision making process and hopefully a little more like a "system following employee".
• Despite having to run the system, as I have no staff, ha! I'm trying to take a step back to remove the need to be in control by putting surplus energy into other areas, ie blogging.
• To try and avoid the desire to "tweak" I have a set a time of day that I can look for trades.

trading strategy essentials

Tharp then goes on to describe exactly what a Trading Strategy should contain, that being...

1. A market filter, 2. Setup conditions,3. Entry signal, 4. Worst case Stop Loss. 5 Re-entry when appropriate. 6. Profit taking exits. 7. A position size algorithm 8. Multiple systems for different market conditions

The fact that I have nothing to do here is entirely thanks my coach Paul.

business plan essentials

The next thing Tharp talks about is what you need in your business plan...

1. Executive Summary, 2. Business Description: mission, history, services(growth of cap and risk control), operations, equipment needed, location, organization and management of employees.(I have but needs adding to). 3. Industry Overview and Competition: needs work on! 4. Self Knowledge 5. Trade Plan 6. Your Trading Edges: self explanatory (I have but needs adding to). 7. Financial Information 8. Worst case Contingency Plan.

developing a system

Tharp then offers some tips on developing a systems...

1. Defining who you are. 2. Objectives: define what you want the system to achieve 3. Calibration: what are your performance bench marks? what are your criteria for knowing it is working? how will you make decisions when your criteria are met? 4. Tips: Work out how you will make decisions ahead of time there should be a mechanism and a range of contingencies (got). we want robust simple plans that can cover a wide range of conditions.

strength 2: understanding my beliefs about trading

Tharp says "you do not trade the markets- no one does... what your really trade are your beliefs about the market... (and) your ability to so is tempered by your beliefs about yourself". So you trade your beliefs but your beliefs can screw you, great!

belief exercise

1. Write down your beliefs about yourself, its okay if this is difficult, just start. 
2. continue this exercise each time you open, manage or close a trade.
3. keep this up until you 100+ statements about yourself.

strength 3: the flow of the markets

Paraphrasing from Tharp: "The market is like a river. The river just is, no matter how much you struggle, it moves downstream and nothing you do can change that. Your struggle "is the need to be right", to chose the right trend, chose the right turning point, chose the right SL, chose the right profit target. But these psychological needs obscure the obvious solution: Letting go. The market is not going against you personally, the market is simply moving. The market isn't the problem, the" trader's struggle" with the market is. When you realise the problem stems from you, then the solution becomes obvious, just relax and flow with the river". 

This a lovely metaphor that more than hints that we should be happy to concede. I don't disagree with this however I would say sometimes it is hard to know whether you are conceding out of fear, or out of "respect for flow". 

It therefore stands to reason you need clear rules/guides to identify "fighting flow" from a trade that's still valid. I'm happy but will revisit my rules that tell me what the trend is and when a trade has failed but I need to work on my rule that tells me when a trade has topped. These would provide a good indicator to when I am fighting the market.