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.