Category Archives: Dr. Van K. Tharp

A-Gamers

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Hey, …

…nowadays, …

…we only play our A-game.

There’s no time for formalities.

It’s late in the day.

All weapons are out.

This is the need of the hour.

So, what are the salient features of our A-game?

A well-forged, multiply-faceted, time-tested road map – our system of systems – our one Strategy. This one’s 360 degrees. It incorporates both trading and investing, and leads to very long holds in cost-free form. Includes more than twenty highly competitive, sharpened, edge-providing Modules, about which I wrote a few articles back. As far as strategies go, we are cruising in a Maybach on the Autobahn. No worries there.

Patience. In the last twenty odd years, we have learnt how to sit. Makes biggest money, said we know who. Patience is ubiquitous, or is it? Many people have developed it. Many are born with it. But then, many are not. And, markets demand their own kind of patience. Over the years, we have learnt and developed market-patience. We wait for our levels before acting. We sit on our Cost-Free-Ness, like, forever. We are not in a hurry. I ‘can behave’ as if this is my own module 🙂 (do allow me the indulgence), but patience is universal and out there for everyone to incorporate and exploit on their own.

Liquidity. This is a module. Am reiterating it here since it is key. Our initial small-entry-quantum strategy (remember, that’s how we started!) allowed us ample liquidity, always. Yes, we were always liquid in situations, when they came, while building up the backbone of our portfolios. Slowly, portfolio-size started to grow. Then came the incorporation of position-sizing, thanks to my learnings from Dr. Van K.Tharp. Subsequently, I instinctively added my own twist to this, making it Non-Linear Position Sizing (NLPS) that we follow. NLPS initially allows for small entry quanta. As portfolio-size increases, so does each entry quantum-size. However, the latter increases more than y = x, i.e. more than linear. This means that over the very long term, entry quanta become remarkably substantial in size. Nevertheless, we still maintain balance by perhaps Fine-Tuning entries and exits to the nth level, i.e. with huge win probabilities, which automatically / mathematically leads to lesser entries. Strategy thus goes on cruise-control. Furthermore, outstanding entry-prices, followed by Quick Generation of cost-free-ness make our very long-term holdings as Anti-Fragile (thanks for the term, Mr. Taleb) as possible.

Talking of cruise-control, our back-end allows for full Automation at button-clicks. All transactional trail-mail is auto-forwarded to every required avenue. It’s a one-time self-setup time-expense, so don’t be afraid of it, since the reward is disproportionately huge. Each avenue allows preview and further transfer / storage after button-clicks. Taxation? Button-clicks. Indexing? Button-clicks. Retrieval? Button-clicks. Viewing in any format? Button-Clicks (baby).

Time. We have all the time in the world. We do our own thing. Income is sorted. Wealth is being generated on auto, and is multiplying. Learn languages. Travel. Pro-bono. I teach kids. To manage their own finances. From a young age. Currently I’m teaching four kids. It’s a give-back, and they can pay it forward.

In a nutshell, that’s my A-game. I’ve taught it forward, so I can talk about a we. You’ve seen it develop in this space over the last 14+ years. I’ve nothing to hide. It’s for everyone to use and benefit from. The act of Giving gives me the most Satisfaction in life.

Winnings

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Not all…

…winnings…

…are tangible.

Intangible winnings…

…can be far greater…

…in stature.

One can carry these with…

…anywhere.

Don’t need to know more.

They’ve won their case already.

Let’s break this down, using a concrete example.

Let’s take this blog.

First, the losses.

Subscribers?

Hardly.

Financial loss?

A few pennies a day, equalling domain charges plus plus divided by 365.

Effort loss?

Yes, a lot of effort goes in. However, it is rewarded heavily, though indirectly. Since there are no more losses, let’s talk about winnings.

Sharpening of skill – maximum.

As words flow, ideas are elucidated, take greater shape, and are cemented into a system.

I’ve often spoken about the fact that this blog can also be seen as fundamental / critical / what have you research towards developing a 360 degree unified market field approach. I think I’m there.

Let’s look at the system that has evolved over the last fourteen years – specifically, let’s look at modules incorporated.

Small Entry Quantum.

Non-Linear Position-Sizing.

Cost-Free-Ness.

Long-Term-Hold.

Positional-Hold (culminating in trade booked with cost-free-ness generated).

2 Demat Approach.

GTT incorporation.

Buy Low.

Sell High.

Entry.

Sitting.

Letting Profits Run.

Exit.

Averaging Down.

(Stop-)Loss attenuated by Cost-Free-Ness’s capability to rise by…

…’Banking on Infinity’…

…in a Non-Linear Long-Term Growth-Market.

The Zone.

The Line.

Fitting.

Market Forces.

Market Presence.

List goes on.

Bottom line is that what has emerged is a decent-size double-digit list of modules incorporated into one clear-cut, multi-level and dynamic wealth-creating strategy…

…with results that make ‘losses’ due to lack of subscribers statistically too small to even mention.

I write to create a magnificent system, and to keep fine-tuning it.

My system creates wealth for my family.

I donate a small part of our wealth to charity.

Hence my writing facilitates pro-bono work.

Some of the few readers of this blog might one day choose to implement a few modules, or perhaps the whole approach. I’m happy for them. God bless them. Magic Bull is completely free, and is part of my give-back to society.

I create good causes with my writing.

While writing, I feel buoyant, sharp, and fulfilled, carrying this combination of feelings into the day, spilling them over into other good causes created over the whole day.

Am thankful for this avenue, since it gives my creativity an outlet.

🙂

Nath on Trading – II – Building up on Basics

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21). You started small, right?

22). Ultimately, you’re staying consistently in the green, correct?

23). Then it’s time to scale up. Slowly does it.

24). Why the whole spiel about starting small? You make your biggest mistakes in the first seven years.

25). Hopefully, you don’t repeat a mistake once it has happened, and once you’ve learnt from it.

26). However, mistakes are good, because they teach you. Nothing else can teach you with incorporation into DNA. Mistakes can.

27). No university can teach you. No books. No professor. Play the market, make the mistake, and learn.

28). A big break early in the markets is a recipe for disaster. More likely than not, you’ll blow up later, when it matters.

29). The best possible way to scale up is using position-sizing as delineated by Dr. Van Tharp.

30). The good thing about position-sizing is that it makes you scale down, when trading corpus goes below par.

31). Day trading takes up the day. You’re exhausted and are not able to do much else.

32). Short-term trading also keeps you riveted to the terminal, mostly.

33). However, position trading and longer time frames keep you in the line for whatever else you wish to achieve.

34). Market TV makes it a video game. Switch it off.

35). Trading with targets caps big-win potential.

36). When you trade, you trade. You don’t invest.

37). Successful trading means buying high and selling higher, or…

38). …selling low and buying back lower…

39). …as opposed to successful investing, which is buying low, not selling for the longest time, and then selling for a multiple.

40). Read points 16 to 19 again.

Winning Marketplay, Anyone?

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Two words. 

Psychology.

Strategy. 

That’s it. 

Prediction?

No. 

Prediction is not pivotal here. 

We’re getting psychology and strategy right. 

We want winning marketplay, right?

Prediction is for losing marketplay. Prediction might be wrong. That’s when strategy and psychology save you from big loss. A big loss can wipe you out. Thus, dependence upon sheer prediction brings a wipe-out into play. That’s why, prediction is almost always relegated to the bottom rank when one talks about winning marketplay.

We’ll travel with a hint of prediction, though. Just a hint. Doesn’t suffice for losing yet. 

For entry purposes. Only.

Even this hint of prediction is bias-giving, though. Once we enter, we need to quickly lose the bias. Yeah, once we enter, we only react to what we see. 

Our system has an edge. It helps us choose market direction. After that, psychology and strategy take over. 

Meaning, after we’ve entered, there’s no more prediction in play. 

So what’s in play then?

The raw trade. 

And you.

At this point, all your mental strength comes into play. 

Oh, and your strategy. 

You do have a strategy, right?

As in, if x happens, they y, and if a happens then b.

You need a stoploss too.

You don’t have to show it. It can be mental, provided you don’t fool yourself into not using it when the time comes.

You won’t execute your stop. 

Sure. 

Again and again. 

Till you teach yourself how to. 

Till you lose big. And are still left standing. To want to enter again. 

Learning to take a small hit, again and again and again – that’s winning marketplay. Requires huge psychological strength. You acquire this. You don’t have to be born with it. 

Now comes another punchline. 

That profit-sapling just emerging…see it? You will not nip it in the bud. 

You’ll still do it. 

And again. 

You’ll nip it in the bud. 

Again and again. 

Till you teach yourself not to. 

It’s not easy. 

95%+ of all market players continue to nip profits in the bud all their lives. 

To allow the sapling to grow into a tree is the most difficult of all market lessons. Learning to let profits run is winning market play. 

To want more profits, you have to risk some of your current profits. 

No more risk, no more gain. 

You want to quickly exit and post that 22% gain on your Excel sheet. Sure. Why can’t you let it grow into an 82% gain? God alone knows. That’s how the cookie crumbles. You nip the opportunity to make that 82%. 

What’s with 82?

Just a random number. 

Am trying to get a point across. There’s a run happening. In a direction. It’s crossing +22%. Fast. Momentum could see it to +102%, to then backtrack and settle at +82%. It’s a probable scenario. 

Anyways, there are some smarties that risk 12 of the 22% and stay in the trade. Soon the 22 can even go beyond 82. Lets say it does. What do you do?

Nip?

No. 

Not yet. 

You let it travel. Momentum is to be allowed free leeway, till it halts. Let’s say it halts at 102. You say to yourself that the winds might change if 102 goes back to 82, and tell your broker to exit if 82 is hit intraday.

That and that alone is the proper way to exit a winning trade. You exit it with the taste of loss. You let the market throw you out. For all you know, the market might be in the mood for 152. You want to give the trade that chance. Thus, a momentum target exit while the move is still on would be less lucrative for you in the long run, or so I think. 

Why?

Statistics are defined by big wins. These matter. Big-time. Allow them to happen. Again and again and again. 

Now add position-sizing into your strategy. The ideology of position-sizing has been discovered and fantastically developed by Dr. Van Tharp. 

In a nutshell, position-sizing means that an increasing trading corpus due to winning should result in an increasing level risked. Also, correspondingly, a decreasing trading corpus due to losing should result in a decreasing level risked.

With position-sizing added to your arsenal, no one will be able to hinder your progress.

Psychological strength that comes from experiencing first-hand and digesting learning from varied market scenarios, coupled with a stoploss/profitrun position-sizing strategy – that’s a winning combination.

Wishing you happy and lucrative trading!

🙂 

Dynamics of a Long-Long System

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What if your system doesn’t allow you to second-guess yourself?

Wouldn’t that be a wonderful situation?

And you’d be right there, in the middle of it all.

What would such a system look like?

Right, it would only go one way.

Long-long. “A-la-la-la-la-long”, to quote Inner Circle!

Why aren’t we talking about a short-short system?

Theoretically, we could. Theoretically, everything is possible.

Well, a short-short system would have no limits on your potential loss, if the trade went against you. That’s the fundametal problem I have against a short-short system, without even having gone into the whole leverage discussion.

You could bring the stop argument.

Fine.

Just take a deep breath.

Think clearly.

Take a look at the average price-speeds of both directions, long and short.

The average price-speed in the short direction is far higher. Price-jumps are greater. The probability of your stop getting high-jumped over is much higher in the short direction. Frankly, that doesn’t work for me.

Also, which market allows you to set an overnight stop, barring the international forex market?. None that I know of, at least in India. No stops overnight means potential exposure to a large drawdown upon next market-opening, and here I’d like to be in a long-situation, because loss is capped.

Therefore, when we’re discussing a system that doesn’t allow us to second-guess ourselves, I will only discuss a long-long system.

What does long-long mean?

Yeah, we’re talking about a system, where you’re looking for long trades all the time. You don’t look for trades to go short in-between. There’s no shorting in the equation whatsoever. The moment you start thinking about shorting, you start second-guessing your long-approach.

What does that mean for someone applying such a system?

It means that the whole world might be crumbling apart, and one is still looking for long-trades. Yes, one could take some hits here. One just needs to make sure, that one’s consecutive drawdown doesn’t exceed a bearable level. Also, as losses might pile up, one position-sizes one’s way through. The concept ot position-sizing has been pioneered and elucidated by Dr. Van K. Tharp @ www.iitm.com.

It also means that when your underlyings start to run, you’ll be piling up winning trade upon winning trade.

The thing is, nobody knows when what is going to run. If you’ve taken all second-guessing out of your equation, you’re aligning yourself with the correct direction once things start to run. Going the other way now would mean further losses.

Then, it further means that if you lock in a big winner in a running market, your paper profits can now be used to harness even greater profits in the same trade. Such big winners provide a big boost to your trading corpus, and, in my opinion, are the difference between winning and losing in the markets. One needs to keep oneself aligned correctly when such opportunities come along. A long-long system will keep you aligned, no matter what.

You could argue about dry spells.

In any dry spell, or when markets are tanking, there are still underlyings that are going up. You just have to identify them. Today, such identification is not difficult at all.

For such identification, you need market software, a data feed, and an algorithm which defines what you are looking for. Your software then scans the entire breadth of the market you’re in to try and find what you’re looking for, and opens corresponding charts for you for underlyings that are still going up, or where there is buying interest, buying pressure, unusual increment in volume or what have you.

Don’t let the word algorithm scare you. You don’t have to learn a new programming language to put an algorithm together. Common-sense is enough. You know what you’re looking for. Let’s say what you’re looking for involves volume and price. You look inside your market software. Then you couple two algorithms together into a new algorithm which defines what you are looking for. You see, a typical market software like Metastock already uses algorithms for volume moving average, price etc., and these are visible to you. Just copy-paste and make a new algorithm that suits your purpose.

Lastly for today, decouple yourself from the market during trading hours, except when you’re feeding in the trade. Analyze your current trades when the market is closed. Intuitively, you will probably feel that your decisions during off-market hours will be better than when you’re coupled to a live market. Find out for yourself. More on this some other day.