My Home About Me

Today, I'm sharing an article from our trading education partner, Dr. Van Tharp of International Trading Mastery Institute. Van Tharp is world renowned for his trading courses, seminars workshops, and books on the subject of trading success. Trade Your Way To Financial Freedom is but one of his excellent books and highly recommended reading for all traders and investors.

Click the Van Tharp - The Traders Coach header link above to learn more about Van Tharp and his high acclaimed trading education programs.

The following article is from Van Tharp’s associate, D. R. Barton Jr. D. R. has taught extensively in many investment areas including intra-day trading, swing trading, and cutting edge risk management techniques. His writing credits include co-authoring Safe Strategies for Financial Freedom and co-creator and contributing author on Financial Freedom Through Electronic Day Trading.

For the past four weeks we’ve discussed one of the big problems with finding a trading system that fits you. I call it the Christmas Present Syndrome because the problem is like the one that faces people as they open presents. When we unwrap a present or dig into new trading system or idea, we are confronted with a difficult emotional and intellectual transition: we move from the world of possibility filled with hope and unlimited expectation into the world of definitive knowledge, filled with the reality that flaws and tradeoffs really do exist and that it may not work as well as it did on TV. During the holidays, having our Christmas presents turn from possibility into reality can cause a bit of post-celebration overeating.

But with a trading system, Christmas Present Syndrome can cause us to toss out good and useful ideas. Or worse yet to blindly tweak systems, killing long-term performance or leading to other unintended consequences.

To combat the knee-jerk of throwing out a trading system or idea the first time we find a tradeoff that has to be considered, we spent the last two articles talking about setting goals for our trading (BEFORE looking for a system) and looking at some key big-picture measurements of system performance that should help be considered. This week we’ll look at some other measure of performance that should be considered when evaluating your trading system. Make sure you look at the following as you review your candidate system (in addition to the items that we discussed last week):

What percentage of the system’s profits did the top two or three winners generate? This is a frequent problem for systems that have a low frequency of trades or long holding times. Some position trading systems are notorious for generating great track records because they caught one or two phenomenal moves and were mediocre on the rest of the trades. While catching big trades is a good thing, you can’t have a system that is breakeven or even a loser except for that once-in-a-decade move in coffee… One way to test your system to make sure it isn’t a “one hit wonder” is to see how well it performs if you omit the best three and the worst three trades.




"Secrets of the Masters" Trading Game. Helping others become the best trader or investor they can be has been Tharp's mission since 1982. An Original Market Wizard, Dr. Tharp offers unique learning strategies, and his trading education techniques for producing great traders that are some of the most effective in the field. Over the years Tharp has helped people overcome problems with system development and trading psychology, and success related issues such as self-sabotage. His trading education programs are of the highest quality and are world-renowned. When you think about the golden rule of trading, it basically describes exits-how you abort losses and ride winners. When you think about Position Sizing, it basically controls how much you risk on any given trade.

Knowledge > Goals > Plan > Action > Success. Have a good weekend!

options   oil   technicals   stock   investor   charts   Short selling opportunities   Technical chart patterns   support/resistance levels   ETFs (exchange traded funds)   Deron Wagner   Basic Materials sector   IRS denies trader tax status   trader tax status   mark to market accounting   Patience in the markets   Dow Monthly Performance   Dow Performance since 1900   Amateur Investors   Nasdaq Composite chart pattern