LEARN
FROM MARKET WIZARDS - PART 2
Dr.
Van K. Tharp is a world-renowned trading coach - one of the best on this
planet. He’s a unique global expert when it comes to trading. He’s been
coaching people to reach their best in trading and investing. This has been his
calling since 1982. In countless instances, he’s encouraged others to surmount
challenges when it comes to creation of trading strategies, trader’s mindset
and behavioral biases, and other areas of challenges in trading. Bagging his
PhD in psychology from the University of Oklahoma Health Science Center in
1975, he’s studied and researched distinct traders and investors (market
wizards included) and has developed models for profitable speculations in the
markets. He’s devised unique presentations for financial institutions and has
showcased them all over the world. He’s been a guest of expositions and
conferences the world over. He’s the only trading coach included in that
best-seller, The Market Wizards: Interviews with Great Traders (Jack Schwager).
He’s been featured in world-class trading publications, and has authored
best-sellers like Trade Your Way to
Financial Freedom, Super Trader - Make Consistent Profits in Good and Bad
Markets, etc. A regular free newsletter from his Institute can be requested
at Vantharp.com.
Dr.
Van himself has declared without mincing words that: "Trading
and investing are very simple processes and we human beings try to make it into
something much more complex. Unfortunately,
we have a lot of biases that enter into trading decisions…I believe people
get exactly what they want out of the markets and most people are afraid of
success or failure. As a result, they tend to resist change and continue to
follow their natural biases and lose in the markets. When you get rid of the
fear, you tend to get rid of the biases… As for risk, most people don't
understand it, including a lot of professionals, and what's really interesting
is that once you understand risk and portfolio management, you can design a
trading system with almost any level of performance." (Vantharp.com,
homepage).
Lesson
There
are winning trading concepts espoused by Dr. Tharp. These concepts may help you
too. Having basic understanding of these concepts would surely help you gain a
better insight into trading. Below are some of them of them (this is not a
complete list):
Psychology of trading: There are many
psychological issues affecting traders, like gambling, perfectionism,
inordinate fear and huge losses. For example, trading without stop loss or
betting too big is gambling. Perfectionism doesn’t help because best traders
also lose; only that they still make average gains that are much bigger than
average losses. Fear might make use act irrationally. We may even shy away from
taking trades that could be winners. All these biases merely lead to huge
losses. Traders need to work on themselves to overcome these issues.
System development: Trading strategies
themselves don’t make money. It’s how they’re implemented that enables them to
help traders realize gains. Most people buy trading systems but don’t follow
the rules that come with them. This still boils down to knowing what the best
are, and sticking to them. The best trading system can lead to a margin call if
handled by an inexperienced and undisciplined trader, whereas the worst trading
system can realize long-term profits if handled by disciplined and experienced
traders.
Position sizing: This aspect of trading
shows how much one risks per trade. How many shares or contracts? Inability to apply effective position sizing
(sometimes referred to as money management) is often the reason for accounts
that go kaput.
Expectancy: One of the secrets of
successful traders is to risk less than the predetermined potential returns.
Like risking $1 to gain $2 or better $3. A risk-to-reward ratio of 1:2 allows a
trader to survive with a hit rate of 50%, and a risk-to-reward of 1:3 allows a
trader to survive with only 33.3% hit rate. The higher the reward, the better.
Positive expectancy has to do with the benefit your trading system can generate
over time. Trading systems that use no stops or use risks that are bigger than
rewards are worse expectancy systems.
Business planning: The financial market
owes you nothing. It may tease people with easy money and later take it away
when it becomes irrational. If you really mean to be a winning trader or
investor, Van says that you’d need to approach the practice of trading with the
same level of rigor with which you’d approach a high level of human endeavor or
business.
Conclusion: I came across Dr. Van Tharp
and his works at the time I was contemplating to quit trading. His works
changed my mind, and I continued to press on. I’ve never regretted that
decision till now. He is one of those individual experts in trading who’ve had
tremendous impact on my career. I’m grateful for how his concepts have
benefited me and many people around the world, either directly or indirectly.
If you also have tremendous challenges in trading, you can enlist the help of a
very good coach or trading mentor. Indeed, we have many good things to learn
form market wizards.
This
article is concluded with more quotes from Dr. Van Tharp. It can be seen in his
monthly markets updates and they’ve to do with his view on the current market
conditions:
“Crisis always implies
opportunity. Those with good trading skills can make money in this market—a lot
of money. There were many good opportunities in 2011 and, so far, many more in
2012. Did you make money? If not, do you understand why not? The refinement of
good trading skills doesn't just happen by opening an account and adding money.
You probably spent years learning how to perform your current job at a high
skill level. Do you expect to perform at the same high level in your trading
without similar preparation? Financial market trading is an arena filled with
world-class competition. Trading requires massive self-work to produce consistent,
large profits under multiple market conditions. Prepare yourself to succeed
with a deep desire, strong commitment and the right training… But
to capture those opportunities you must know what you are doing. If you want to
trade these markets, you need to approach them as a trader, not a long-term
investor… Trying to navigate these markets without an education is hazardous to
your wealth.”
NB: You would be exposed to
world-class, cutting-edge, and top-notch trading experiences here: www.advfn.com
Azeez Mustapha
Market Analyst, Trading Signals Provider and Coach
Copyright (C) ADVFN PLC
For more articles, go to: http://www.advfn.com/newspaper/azeez-mustapha-technical-analysis
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