Achieving integration and synergy is a critical part of the military planning process as well as a critical part of trading successfully.

Military units achieve integration and synergy through a process of phasing, control measures, decision criteria, a synchronization matrix and rehearsals. Each of these can be a great to help you improve your trading performance.

Малоизвестную у нас Хетти Грин называют самой загадочной фигурой американской истории. В 20-е годы прошедшего века ее слава была настолько велика, что имя Хетти стало даже нарицательным. Её биографию экранизировал в 30-х годах Голливуд. А в 40-е это имя ушло в небытие. Но не навсегда. Через тридцать лет о ней опять вспомнили.

Have you ever tried to walk through an open glass door only to find that the door was, in fact, closed?

Immediately prior to the collision of your body and the glass, there were two futures:

• You walk unimpeded through an opening. 
• The glass door blocks your path. 

The point of realization between the perceived future and the actual future is the collapsing of the two possible future realities into the present.  It requires a switch between one (ultimately) false perception (lacuna) and one (ultimately) true perception.  If you were to have stepped back from the door into the light conditions that obscured the glass, your senses may have allowed you to perceive two parallel universes of “glass” and “no glass.”  This visual metaphor offers the observer a potential quantum leap. 

While I found a number of the concepts in Van's book Trade Your Way provocative, the most potent for me by far was the power of position sizing™ strategies. Position sizing strategies are simply the part of the trading system that answers the question “How much will I risk on this trade?” Sounds simple, doesn’t it? It is, and it isn’t.

I love to learn, and I was excited any time an author could add some knowledge to my repertoire. So, I became excited as I read Trade Your Way and came to view the book—though Dr. Tharp might disagree—as not just about psychology, which seemed like such an intangible way to view trading. [Note from Van:  I consider everything to be 100% psychology these days, but in the scheme of things, Trade Your Way was about system development.] The book included very tangible suggestions, and the author clearly understood how I thought about trading.

Tharp Think 101

I hadn’t realized it before, but I was really looking for a perfect system, or the Holy Grail as Dr. Tharp refers to it. In short, Holy Grail systems focus on picking the right stocks and when to enter the market and should pretty much work whether the market is bullish, bearish, or neutral. He was exactly right. I didn’t want to think about having different systems to enter the market—one when I was in a bullish market, one when the market was neutral, and one when the market was bearish. What a pain that would be! Wouldn’t it just be easier to use one system for all markets rather than a different one for each type of market? Also, having one system per market type would mean I’d need a way to determine the market type. In other words, this approach would require me to do more work.

Unfortunately, Dr. Tharp said finding a system that worked on all types of markets was very rare. “Ugh,” I thought, “implementing this guy’s ideas is going to take time and effort.” My brain was already trying to find a way out of putting in the work, and at this point I had no concept of the amount of work required to implement all his ideas. Double-ugh.

He also said making a lot of money in the markets would not be fast or easy. “I don’t like this guy,” I thought. Reading that type of stuff was frustrating. As much as it made sense, I really didn’t want anyone telling me how hard it would be. After all, I’d read tons of books and done more work than most people. The work should be hard for THEM, those people who hadn’t done as much work as I had, but not for me. I wasn’t done with the first chapter yet, and this guy was already frustrating me. Just give me the bullet-point list of how to make money!

I kept reading and Dr. Tharp kept pressing my psychological buttons. He said there was very little chance anyone could give me a system I could use to make a lot of money in the market. He didn’t say the system couldn’t be built, only that if someone gave it to me, it probably wouldn’t work for me. I started thinking this Dr. Tharp guy was off his rocker. He seemed to be saying that if someone gave me a perfectly good system, I’d screw it up somehow. How could he make such a broad statement? I’m smart, disciplined, and successful in my non-trading career.  He must have been talking about other people, not me. (It would take me nearly a decade to realize he was right and my inability to find a system that consistently worked well for me was a direct result of continuing to look to others for the “perfect” system.)

Dr. Tharp also talked about the importance of taking responsibility for your results. In other words, if you decide to trade based on newsletter recommendations as I did and lose money, it is your fault, not the newsletter’s fault. You chose the newsletter and you chose to invest based on its recommendations. You decided to trust the newsletter’s published results. You decided not to paper-trade the recommendations for 6 months to confirm the results before starting to trade real money. You didn’t stop to find at least one independent source who had confirmed the track record before trading. You, you, you!

While it was frustrating to take full responsibility for my losses, I knew it was the right way to view the situation. Go ahead and try the exercise above with any external source you counted on for trading advice and see as at fault for some losses, and try to figure out how you might have caused a disaster you blamed someone else for. Your broker told you to buy that stock and you trusted him? Your choice. Your money manager vanished with $1 million, your entire net worth? You didn’t do enough background checks on him because you didn’t see the possibility of him stealing your money as likely. You also chose not to split your money into three equal parts and give each part to a different money manager. Go ahead—try the “it wasn’t my fault” game the next time you lose money. If you can’t trace the results back to you, ask someone else to help you and tell them to be relentless.

How can you fix something if you don’t think you were responsible for it happening? Is it possible you didn’t do all the checking you should have on that newsletter because you didn’t know who to talk to? Or maybe you didn’t independently validate the results because you didn’t know how and didn’t hire someone to do it for you because it would have cost you $500? Maybe you didn’t want to wait to make money and thought about all the money you wouldn’t be making if you paper-traded the system for six months before putting real money on it? Or you relied on a recommendation to trade based on a newsletter from someone who turned out not to be credible? Test yourself—if you aren’t able to come up with five to ten things you could have done differently, you’re not trying hard enough. More importantly, you’re more likely to continue to struggle at trading successfully.

The book said most people think of a trading system as the answer to the question, “When do I enter the trade?” Unfortunately, when to enter is the least important part of a trading system. I’ve heard both Dr. Tharp and Linda Raschke, another trader mentioned in a Market Wizards book, say they have tested random entry trading systems that make money, albeit not enough to be easily tradable. These systems enter the market on a coin toss, and then use good exits to accept losses and take profits, and seem to confirm the relative importance traders should ascribe to entries.

Even with all of the things that resonated with me, there were plenty of things that didn’t, at least not immediately. For example, Dr. Tharp argued a good trading system would have 10 parts, the most important of which is objectives. Objectives? I want to make as much money as humanly possible, that’s my objective! Anything less would limit my potential, wouldn’t it? What crazy person would want to limit how much money he or she could make in any year? Unfortunately for my ego, the book makes a good case for objectives and other trading system decisions being more important than entries.

To be concluded next week...

Van uses the System Quality Number® (SQN ®) score to measure the market performance of countries, currencies, commodities, and various equity sectors in this world model.  Van based his model off of one that Ken Long developed some years back using several weighted factors and a shorter time frame.  For each of the ETFs in his database, Van calculates the SQN 100 score using the daily percent change for a 100-day period. Typically, a SQN score over +1.45 is strongly bullish; a score below -0.7 is very weak. We use the following color codes to help communicate the strength or weakness of the ETFs:

by D. Witkin

This week begins a three-part series from an excerpt of a new book that Dr. Tharp is working on due out in late 2012. This book will be a compilation of Dr. Tharp's insights as well as personal stories of transformation from traders.

“That’s another 1R loser,” Van announced to the class as he drew the final marble from the bag. There was an audible groan from most students, but not from me. “OK,” I thought, “Maintain your composure. No matter what, DO NOT smile. Smiling would be bad. Just think about dead cats or something.”

The military uses the term “command and control” to describe the management of current operations. One of the most important concepts in command and control is the idea of span of control.

Span of control describes how many simultaneous, subordinate operations you can successfully manage at the appropriate level of detail given the current situation of uncertainty, stress and pressure.

Recently, I finished a biography of Thomas Jefferson that focused on the 50+ years he spent as an architect/builder at Monticello and on other projects as a sideline to his primary profession in law and politics. The book dealt frankly with several paradoxical aspects of Jefferson. 

He authored much of the American Declaration of Independence and helped write the US Constitution, yet he was a lifelong slave owner. Jefferson was also opposed to borrowing money; however, he died very heavily indebted.  His debt is all the stranger because he was a compulsive man who kept record of every single cent he spent in his adult life. As it turns out, however, he never seemed to once actually tally the amount he was in debt.  He never viewed the “big picture” of his financial position and died hugely in debt, strapping his family with a great burden. 

Ken Long loves to trade and to teach. He happens to excel in both of those roles so this week we thought we’d ask Ken to share a little bit about how he thinks and what makes him successful. As an example of Ken’s self-awareness and his sense of service, he emailed us back this note after he had completed the interview questions: