Trader Self-Evaluation - Part Two
What are Your Key Beliefs About the Markets?
By Van K. Tharp, Ph.D.
Last week I asked you to begin a process of self-evaluation, mentioning that in my work
and investors I believe the most significant work that anyone can do to increase
market returns is self work. Really
understanding yourself and how you think can give you
an edge that others in the market don't have.
As part of my Super Trader Program, I give a long questionnaire to each trader to do an
of themselves. Some of the feedback that I get is that taking the test is like doing
a Ph.D. program! It's that involved.
I consider that answering the ten questions, the essence of this self-evaluation process, to
a minimum starting point for this type work.
This week we'll continue this process with a second important question to explore. Remember,
to my Super Traders is to spend at least an hour on each question—a day is even
better. These questions are
meant for you to really dig deep and come up with responses from
your core belief structure.
Question of the week: What are your key beliefs about the markets?
It is important for you to remember that you can only trade your beliefs about the market.
are the key beliefs that are guiding you?
To really understand what’s guiding your trading, you should list at least fifty beliefs. However,
least ten is a good starting point.
To help you get started, I’ve listed twelve of my most important beliefs about the market.
of these are core principles that I teach everyone and some of them are just things that
fit me. Also I just came
up with these twelve off the top of my head. Like I mentioned, you’ll
probably need to discover at least fifty
beliefs to thoroughly cover the key principles that guide
Cut your losses short and let your profits run!!!!!!!
Risk, as it relates to how much you can lose in a trade, is much more important
than risk as it related
to how much volatility you can have. Both are related though.
You must understand the R-multiple distribution of your trading system and the
average R it produces
(expectancy) and the variability of that distribution
(i.e., how volatile it is).
You must know the objectives you wish to accomplish. What would you like to
accomplish and what can
you tolerate in terms of drawdowns? In my case, I’d
like to make 10% per month in my trading.
To achieve your objectives, you must understand and use position sizing to
Fill your portfolio with a core position that you might adjust weekly or monthly.
However, then find
efficient stocks and use leverage with those stocks to achieve
peak performance. (Again, remember that these are
my beliefs and they might
not fit you.)
When I have a large down day, thoroughly investigate what happened and
how I might have caused it
or made any mistakes.
Keep a trading diary on every trade.
Follow the ten tasks of trading.
When I cannot be actively trading, remove all speculative positions.
Understand the risk reward of each trade before you enter it. For example,
your potential reward
should be at least three times your potential risk.
Keep stops loss levels with my core positions and actively monitor the market
for my speculative
positions. (Again, this one is my personal preference.)
I want to caution you again that these 12 beliefs are my personal beliefs. Your beliefs might
However, certain beliefs are universal for good trading. These include beliefs
1- 4 (knowing your objectives), and
8-11. These are just ideas to get you going.
So be honest with yourself, and start to look at what you truly
believe about the markets.
You may surprise yourself.
About Van Tharp: World–renowned trading coach, author
and psychologist Dr. Van K Tharp,
is widely recognized for his best-selling book Trade Your Way to Financial Freedom
outstanding Peak Performance Home Study program - a highly regarded classic that is suitable
all levels of traders and investors.
For more information click here.