Rickey says work hard

...continued from yesterday...

More discussion about The Trading Edge: How To Trade Like A Winner (Wiley Trading)

Work hard. As a beginning trader, Rickey spent 4 hours everyday during market hours taking notes about his observations of price, events concurrent with price movement and price patterns. Then he spent another 5 hours on the weekend reviewing and organizing his notes.

Rickey emphasizes working hard at practicing (paper trading) using your edge before trying it out in real time with real money.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Rickey says to practice

...continued from yesterday...

This continues a discussion about The Trading Edge: How To Trade Like A Winner (Wiley Trading)

Rickey describes three steps to becoming a winning trader:

1. Find a trading edge: observe what occurs concurrent with price movement and observe price patterns. You only need a pen and a notebook. Write down why you entered a trade, why you got out, why you think your indicator works or did not work. Then review your notes on the weekend.

2. Convert the edge to a trading system: simple systems work best.

3. Practice.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Rickey says to take notes

...continued from yesterday...

This continues a discussion about The Trading Edge: How To Trade Like A Winner (Wiley Trading)

Rickey says that you need to keep a journal in which you observe prices for patterns, writing down your thoughts everyday about what you observe.

Then each weekend, you need to spend time reviewing your notes and thinking about how to use the price patterns you observed. Out of that thinking will emerge a hypothesis.

Next, you need to test your hypothesis to see if it works on past prices. If so, you then have a theory to test on future prices as they occur.

If your theory proves profitable when papertraded with prices in real time, then your theory is your edge.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Rickey Cheung's trading edge

Do you have an edge in trading?

Rickey Cheung has an edge (maybe more than one) and describes his way of getting an edge in trading in his book The Trading Edge: How To Trade Like A Winner (Wiley Trading)

In his book, Rickey provides an example of a trading strategy that is profitable, featuring a maximum consecutive losing streak of 4 trades and a maximum consecutive winning streak of 13 trades. The percent profitable is 61.22%. The trades are done on the ES mini-futures contracts on a day-trade time frame.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Van's Hypnotic tapes

...continued from yesterday...

The version of the Peak Performance Course for Traders and Investors that I have came with four tapes. I notice that mention of the audios is omitted from the current advertisement about the course at Van Tharp's website. Side A of the tapes deal with the following topics:

Tape 1: How You Think -- a discussion about NLP theory.
Tape 2: Stress Control.
Tape 3 “Respondability”.
Tape 4 State Control.

Side B of the tapes are hypnotics on the following: Relaxation, Aligning Parts of Yourself, Confidence, Etc.

...back next week...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Vol 5 cont'd

...continued from yesterday...

In Volume Five of the Peak Performance Course for Traders and Investors Van gives an outline of how to develop a trading system. He goes into more details in his other publications and courses. Here is my interpretation of the ten steps he recommends along with my comments.

1. Know yourself. You’ll want a system that suits your speed of decision making. The system has to suit your preference in matters such as how long you want to think before making a decision; how frequently you want to trade; whether you prefer to buy low and sell high versus buy high to sell higher plus short sell low to buy lower to cover.

2. Set performance goals instead of profit goals.

3. Know and understand your beliefs about the market. Design a system that fits with your beliefs about the relevance to trading of matters such as the following: price (trend, momentum, divergence, support/resistance, price patterns); volume; time (cycles and seasonality); value; position sizing; intuition. Include only components that you believe works. Empirical research suggests that none of them really work reliably so you're just making things up here and trading your beliefs. Luckily, profits from trading do not depend much on validity of these items.

4. Design a system to fit you in terms of the foregoing. Write out in a step-by-step manner how you plan to make decisions based on market information. Limit the number of factors (e.g. indicators) you will base your decision upon.

5. Check for biases. Do that by testing the system on historical data and then paper trading it with real time data. Note whether the system satisfies your preferences for how much time you get to make a decision, how frequently you want to trade, whether you get to buy low to sell high versus buy high to sell higher and sell short low to cover lower, win-loss ratio, etc.

6. Develop a position sizing plan. How much do you want to risk each time you trade?

7. Test your system. Redundant with step 5, “check for biases”.

8. Develop a set of rules. Redundant with Step 4, “design a system to fit you”.

9. Develop a daily business procedure. This is a template for your daily to-do list.

10. Periodically check your plan to see if you are getting the profit results you wanted. Only do this periodically (e.g. after 30 trades) because on a day-to-day basis you are better off focusing on performance (e.g. triggering appropriate mental state before trading) instead of outcome goals (e.g. monthly profit target).

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Vol 5: How to make sound decisions

...continued from yesterday...

Earthlings at the present point of evolution cannot make sound decisions for reasons explained by Van Tharp in Volume 5 of the Peak Performance Course for Traders and Investors. Ironically, Vol 5 is entitled “How To Make Sound Decisions”.

Van advises that traders should use a system as a substitute for having to make trade-by-trade investment decisions. Unfortunately, most traders don’t know how to use a system. Van has discovered that to use a system effectively and consistently, the proper mental syntax should be as follows:
1. See the setup signal
2. Recognize that it is the one required by your system
3. Feel confident and convinced that you should act on it
4. Act on the signal

What traders do instead is sabotage their success by using a variation of the foregoing mental syntax that disables them from using their system. For example, after seeing the setup signal, they add an audio component such as “What could go wrong?” That prevents them from going into steps 2, 3, and 4.

Tomorrow, I’ll talk about what Van had to say about systems for trading.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Vol 4 cont'd

...continued from yesterday...

What I like most about Volume 4, the volume dealing with mental states, of Van Tharp’s the Peak Performance Course is that it is specifically for trading and investing.

Some highlights include:

1. You need the mental state of confidence in the system that you are using and in your trading plan.

2. You need the mental state of being dissociated from your body while engaged in activities related to trading. That helps you avoid deviating from your trading plan by reason of being compulsive or some other disabling mental state such as fear, greed, anger, vengefulness, poverty, lack, and sadness.

For the purpose of learning how to control your own mental state, I prefer using Tony Robbins Personal Power II audio course. It’s very entertaining although it is not specific to trading and investing. I believe Personal Power II should be used before attempting to learn the stuff in Van’s Volume 4. That will make Volume 4 easier to understand as Volume 4 is densely packed with materials whereas Personal Power II spreads out the materials over 30 days of learning segments. Plus Tony Robbins delivers the information in plain-easy-to-understand English whereas Van's materials are aimed at a more academic-like audience.

Tony Robbins’ company is currently marketing the Personal Power audio course as part of their audio program entitled "Get The Edge"


...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Vol 4: Emotions/Mental States

...continued from last week...

Volume Four of the Peak Performance Course for Traders and Investors is entitled “How to Develop Discipline”. Here’s a summary of the important points in that volume according to my understanding of them.

Van defines “mental state” as a pattern of visual, auditory, kinesthetic, gustatory and olfactory sensory activations. In the vernacular, it’s a subjective experience of emotion.

Van defines discipline as control of your mental state. He advises that you monitor yourself to ensure that you are in mental states that enable you to stick with your trading plan. Those emotions include confidence and alertness. Mental states that could cause you to deviate from your trading plan or altogether abandon your trading plan include compulsiveness, fear, greed, anger, vengefulness, poverty, lack, and sadness.

The best way to observe your own mental state is from a dissociated state (the feeling of being out of your body and noticing yourself). The dissociated state is also an effective way to neutralize emotions and is therefore useful to use while trading.

To get the mental state that you want for trading, such as confidence in your trading plan, you can do any of the following:
1. Use beliefs about the meaning of events or the context of events;
2. Use memory of having had that mental state in the past;
3. Model other people who have had that mental state;
4. Fantasize about having that mental state;
5. Use physiology (how you gesture or hold your body) associated with that mental state;
6. Build that mental state from scratch based on Visual, Auditory and Kinesthetic components.

To regulate your state, you can use Anchors. Those are stimuli that, when repeatedly used in a unique association with your mental state, become triggers initiating that mental state. On the subject of anchors, you can and should collapse any anchors associated with mental states that cause you to deviate from your trading plan. For example, do intraday charts do that? If so, then you can and should collapse their power as an anchor causing you to deviate from your trading plan – or just avoid that stimulus.

In addition to collapsing anchors which cause you to deviate from your trading plan, you need to:
1. Find out the positive intention behind those deviations. Just ask yourself.
2. Then find ways to satisfy those positive intentions outside of trading.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Continued next week

...continued from yesterday...

Next week I’ll continue discussing Van Tharp’s Peak Performance Course. There’s Vol 4 and 5 plus 4 audio programs in the course that’s left to cover.

...cont'd next week...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Vol 3: Attitudes for peak performance

...continued from yesterday...

Volume Three of the Peak Performance Course for Traders and Investors is entitled “How To Control Losing Attitudes”.

To model successful traders, you need to model their beliefs (including values – ideas about what is important/unimportant and what is right/wrong), mental strategies/syntax, and mental resources (emotions). This volume 3 is about beliefs to model.

Some beliefs have widespread influence over your life whereas other beliefs have a lesser impact. The hierarchy of importance from widespread to limited effect is: Spiritual beliefs > Beliefs about Identity > Values (ideas about what is important/unimportant and what is right/wrong ) > Beliefs about your Capability > Beliefs about Behavior > Beliefs about Environment.

Beliefs of top traders/investors to model:

1. The universe is already perfect. Only your judgment makes it appear good or bad.

2. There is no such thing as a true or false belief.

3. The universe has a purpose – it is evolving. Within that purpose, there is no success or failure, only results and feedback.

4. The universe is non-material.

5. The world does not lack resources, only people’s model of the world lack resources. A resource is a state of mind. All you need are states of mind and you already have them in you.

6. Reality is vibration so what you dwell on is what you attract into your life.

7. The universe gives you balance so that if you want something you get its opposite too. To avoid that, raise your vibration rate so that the extremes become insignificant – you just are.

8. Success requires congruent commitment. Once you get committed the universe moves to support you.

9. You are part of it, so when you change, it changes too.

10. Go with the flow. Find out what’s right for you and do it.

11. Whatever happens to you, you are in some way responsible.

12. You can relive the past or plan the future in your mind, and by doing so you change the future for the better.

13. Success in trading has nothing to do with market analysis. Instead, it has to do with developing and executing low risk ideas.

14. Mental rehearsal of your trading plan is important for peak trading performance.

15. A mistake has nothing to do with losing money. It’s not following your own trading rules that are mistakes.

16. Daily self-analysis is critical to peak performance trading.

17. Proper money management is critical to trading success.

18. It is important to plan your goals. More extensive planning on one or two goals is better than scatter attention to many goals.

19. Have fun achieving your goals.

20. Money is not important. Making it important interferes with peak performance trading.

21. You are a worthwhile person and your self-esteem has nothing to do with making money or success.

22. You believe you will succeed.

23. Trading ecology is important. Your trading is somehow beneficial to the world. For example, your trading contributes to market liquidity which benefits everyone.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Vol 2: Stress management

...continued from yesterday...

Volume Two of the Peak Performance Course for Traders and Investors is entitled “How To Control Stress”.

Stress refers to the wear and tear on your mind and body while living your life. Thirteen sources or types of stress identified by Charlesworth and Nathan in a 1984 publication include: family, work, emotions, social, change, chemical, decision, commuting, phobic, physical, disease, pain, and environmental. Additionally, trading itself has these stresses: losing, winning, missed opportunities, order entry, waiting, inactivity, work environment, and so on.

This volume includes questionnaires for testing your stress sources and stress levels. Areas tested for stress include personal, financial, health, job, and family. Some of these overlap the 13 types/areas of stress identified by Charlesworth and Nathan.

Van says that successful traders have an open (instead of a closed) attitude towards life. An example from this volume 2 of the course is “I enjoy life to the fullest. I am constantly exploring new ideas, visiting new places, experiencing change, and having fun. I try to get everything I can out of life. I eagerly look forward to each day. I am in the best of health because I eat proper foods, get plenty of exercise and sleep well. I am never overly stressed because I do not feel pressure – only challenge.”

Here's one theory about how stress adversely affects trading. People have a limited capacity for processing information needed to make proper trading decisions. That capacity is reduced by arousal (physical or mental), worrying, incentives, and focusing on results such as profits/losses (instead of the process of trading).

Van presents several strategies for managing stress. One strategy for managing stress is to avoid, reduce contact with, or eliminate from your life those situations and people that cause you to feel stress. Take the stress test in this volume to identify what makes you feel stress and set goals to avoid, reduce contact with or eliminate those situation or people. Van points out that process goals are more useful for traders than outcome goals such as profit levels.

Another strategy for managing stress is to make your body better able to physically withstand stress. You perform best when you feel positive, relaxed and energetic. For this you need to eat healthy foods such as vegetables, fruits, grains and water. You should eat 5 small meals a day instead of the usual 2 or 3 large meals. Additionally, you need to do aerobic exercise regularly.

A third strategy for managing stress is to make yourself mentally and emotionally better able to withstand stress. The most effective stress buster is to adopt beliefs about stressful events that enable you to perceive those events not stressful for you. For example, adopt the belief that it is OK to lose. Keep a diary of your self-talk during trading or during episodes of worrying to identify what your beliefs are so you can spot those that you need to change. Additionally, have regular recreation and relaxation (naps and meditation). Furthermore, regularly do mental rehearsal of your trading plan so that during stressful trading you are able to carry out your plan consistently despite the stress.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Vol 1: Risk management and more

...continued from yesterday...

"How to Use Risk" is the title of Volume One of the Peak Performance Course for Traders and Investors .

Before getting to the point, namely how to use risk, Van discusses other topics.

1. Commitment. Although Van is a psychologist, he is not talking about getting committed to a mental hospital. Rather, he makes the point that commitment means congruency in wanting to succeed in making money as an investor or trader. He points out that both the desire for profits as well as the aversion to losing are obstacles to commitment.

2. Tasks of Trading Success. These include writing out a plan for trading that is low risk and that suits your personality, lifestyle and skills; mentally rehearsing that plan daily or more frequently; getting into a mental state suitable for trading successfully and monitoring your mental state; stalking a low risk trading idea; entering the trade; monitoring the trade; exiting the trade with profits or with a loss; daily reviewing whether you followed your plan and reinforcing your discipline in following your plan; periodically (e.g. every 20 trades) examining your profits/losses to decide if your plan needs to be fixed; and taking vacations away from trading.

3. The loss trap. Reasons people let a small losing trade grow into a big loser that wipes out most or all of their account.

On the matter of risk, Van’s course teaches the following.

1. How to measure risk objectively. Risk has two definitions. The objective definition is the variability in performance of invested funds. The subjective definition is the probability of losing. Some ways to measure risk objectively include the standard deviation of profits/losses; the probability of success; calibrating your ability to predict; and preparing an accounting Statement of Revenues and Expenses.

2. Psychological elements of risking. Lots of theory here. Read the book if you want.

3. Techniques to control risk and safely manage money. These include using a stop loss order on each of your trades and pyramiding during a winning trade. Van points out that if you cannot accurately predict which trade will turn out to be a winner, then you should start a trade by risking only 1% or loss of your account on the first position. If that position is a loser, take your 1% loss and get out. But if the trade continues to be profitable, add more to it by pyramiding. The ways to pyramid include adding half the size of the prior position each time; adding half of the total current position each time; adding equal sized portions each time (the type of pyramiding you use depends on your low risk trading plan). Additional means of reducing risk include diversifying (over time, asset traded, and system traded); reducing leverage; taking only low risk trades and no others; taking profits either consistently or in large size only; and controlling yourself (managing stress, internal conflict, beliefs, emotions, mental strategies, and judgmental biases).

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Peak Performance

Emails from readers indicate that many have gone through Van Tharp’s course entitled Peak Performance For Investors and Traders.

In this week’s articles for this blog, I am going to comment on the course.

You can get a copy of the course at Van Tharp's website

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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PP2 = Psychology of Trading

...continued from yesterday...

Ironically, while Dr. Steenbarger disparages popular psychology, the materials in his The Psychology of Trading: Tools and Techniques for Minding the Marketssubstantiates the ideas from Tony Robbins’ book Awaken the Giant Within : How to Take Immediate Control of Your Mental, Emotional, Physical and Financial Destiny!.

The ideas from Steenbarger’s Psychology of Trading remarkably resembles Tony’s idea of of Neuro-Associative Conditioning and Swish Patterns, a summary of which is:

1. Identify a behavior pattern (“pattern #1”) you don’t want.
2. Identify a behavior pattern (“pattern #2”) you want to substitute for the one you don’t want.
3. Get emotional about substituting pattern #2 for pattern #1 by reviewing the pleasure you’ll get if you manage to get that done and the pain you experience from pattern #1.
4. Interrupt pattern #1 in an emotional way as soon as it starts.
5. Practice doing pattern #2 immediately after interrupting pattern #1 (i.e. Swish the patterns).
6. Keep records of your progress and reward yourself whenever you succeed in carrying out the foregoing steps.

An entertaining way of learning the information contained in the book Awaken The Giant Within is to go through the audio program by Tony Robbins entitled World's #1 Personal Improvement System : "Personal Power II - 30th Anniversary Edition" By Anthony Robbins!
.

...back on Monday next week...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Mutliple personalities

...continued from yesterday...

According to The Psychology of Trading: Tools and Techniques for Minding the Markets one way of thinking about this is to think of your winning trading behavior as being associated with one personality that you have and your losing trading behavior with a different personality that you have. To improve your trading, you need to ensure that only the personality that produces winning trading does your trading while ensuring that the other personalities satisfy their needs doing something else. That is, think of yourself as having multiple personalities.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Psychology of Trading interrupt

...continued from yesterday...

Continued discussion about The Psychology of Trading: Tools and Techniques for Minding the Markets

To increase the likelihood that you’ll use your winning trading behaviors instead of the losing ones, you need to interrupt yourself whenever you notice yourself either entering into a mental-emotional state in which your records show losing trading behaviors; whenever you start self-talk associated with losing trading behaviors; or whenever you have body posture associated with losing trading behaviors.

In addition to interrupting yourself when you start losing mental-emotional states, losing self-talk and losing body postures, you need to repeatedly practice being in winning mental-emotional states. That practice, if repeated often and with emotional intensity, will make your winning mental-emotional state your “default settings”.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Steenbarger Psychology of Trading

...continued from yesterday...

Here’s a summary of his main points that are relevant to traders from the points made in the book The Psychology of Trading: Tools and Techniques for Minding the Markets

You have a repertoire of behaviors. You have one or more sets of winning trading behavior. You also have one or more sets of losing trading behavior.

Each set of behavior, whether winning or losing, is associated with a different mental-emotional state.

You can improve your trading by keeping a record of your mental-emotional state (as well as your self-talk and body posture) while you are trading. Notice from your records what mental-emotional state you were in when you were doing your winning trading behaviors. Then invoke the same mental-emotional state whenever you trade so that you perform your winning trading behaviors instead of your losing trading behaviors.

...cont'd tomorrow...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Incoming mail during holiday

I’m back from an relaxing holiday. While away, a book arrived at my home. It’s written by Brett Steenbarger and is entitled entitled The Psychology of Trading: Tools and Techniques for Minding the Markets

Brett says in his book that he tried to balance the contents of the book between academic literature and popular literature. In this week’s series of articles, I’ll be commenting on the book.

...cont'd tomorrow...

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