ISSUE 10 JUNE2011

Monthly Market

Update

Matthew

Sharratt

Personality Type and Trading

Change Your Mind About Trading

Know Your Trading Term

Position Sizing Particulars

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MARKET UPDATE Page 5

Matthew Sharratt

TRADING ARTICLES

Graeme Pearson

Change Your Mind About Trading Page 9

Gary Stone

Know Your Trading Term

Page 15

Louise Bedford

Position Sizing Particulars Page 19

Van K. Tharp, Ph.D.

Personality Type and Trading Parts 1-3 Page 23

REGULARS

Did You Know? Page 14

Quotes to Inspire Page 13

Tool Time Page 17

News & Events Page 22

Trader’s Library – Book Review Page 29

Hello to all of our prosperous friends,

Welcome to the June issue of Your Trading Solutions eMagazine.

This issue Graeme shows you how to make lasting change in your

trading by changing your attitudes and beliefs. Gary Stone writes

about how to understand your trading term and what will suit most

traders. Louise Bedford looks at Positions Sizing to save you from

committing financial suicide.

We start an eight part series on Personality Type and Trading with

Van K. Tharp. In this issue we commence with Parts 1, 2 and 3.

Also included is our regular Market Update from Matthew Sharrat

but you may notice that the company he is representing in now

Capital 19. Not only has Matt been recently married but he has also

branched out and started his own company specialising in Global

Investments and Portfolio Management. We will let you know more

about this as news comes to hand.

We have also introduced a new section on Trading tools and this

month we feature the Slow Stochastic.

Unfortunately due to other commitments this month we won’t be

featuring any articles from Accountant Jason Cunningham or Market

Analyst this month.

We hope you enjoy the June edition of Your Trading Solutions and

as always we would love to hear any feedback or comments. Please

direct them to: support@yourtradingsolutions.com

Your Trading Solutions is committed to assisting Traders to gain the

right knowledge and to educate themselves to make informed

decisions about financial matters.

Great Trading!

Graeme and Natalie Pearson

Note: Articles have be reprinted in the English language supplied

eMagazine Producers

Natalie & Graeme Pearson

Editors

Natalie & Graeme Pearson

Natalie@OrganisedForYou.com.au

support@YourTradingSolutions.com

Design

Natalie Pearson

Contributors

Louise Bedford, Graeme Pearson, Matthew

Sharratt, Gary Stone, Van K. Tharp,

Contribution & Advertising Enquiries

Natalie Pearson

Natalie@OrganisedForYou.com.au

Important Message

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Trading Solutions eMagazine should not be

taken as financial, legal or accounting advice.

The producers, editors, contributors and any

other associated parties expressly disclaim

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every person or party, whether a reader or

consumer of this eMagazine.

We do not endorse the views, statements,

claims, strategies or ideas that are put forth

in this eMagazine. We are merely relaying

the information.

Any business or financial strategy or

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taking into consideration your own financial

situation and you should seek professional

advice before making any decisions.

We are not liable for any losses you may

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reading the Your Trading Solutions

eMagazine.

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Monthly Wrap May 2011

Sell in May and Go Away?

The old stock market adage “sell in May and go away” is looking good for 2011, whether it is self-

fulfilling or simply the effect of the northern summer holidays, it has an uncanny knack of coming

true.

As at the 29th May the S&P is off for 2.5% from its May 2nd high but it has been off as much as 4.4%

during the month. The real volatility has been seen in commodity markets, Silver fell as much as 32%

and Oil 17% with most other commodities tumbling too.

Fundamentally three major themes are affecting the “big picture”.

1. QE2 stimulus is due to end in June and the markets are betting on the Fed Reserve not

continuing with further stimulus in the form of QE3. The biggest unknown is what effect this

could have, particularly in the form of market liquidity. We have seen the effect of reduced

liquidity just recently with the raising of margins for Silver futures. Few analysts are

predicting a tightening from the Fed however there seems little consensus on what their

next move will be.

2. Uncertainty on continued global growth. To some it may seem strange how the market

managed to rally so hard when poor economic data was coming out and now this same data

is improving (better US job numbers and soaring GDP in Germany and France for example)

and the market is selling off? It is not strange however if you view the stock market as a

barometer for the economy in 12 – 18 months’ time and that is why markets look set to

move lower as analyst fear they may have overstated their growth forecast.

3. The European sovereign debt crisis continues to concern the market, there seems to be a

widening disparity in Europe between the haves (mainly Germany and France) and the have

nots (Greece, Ireland, Portugal and Spain) with the UK drifting slowly into the have nots. I

don’t see a breakup of the Euro on the horizon just yet but Europe is still a long way from a

stable recovery. To add to the mix the head of the IMF Dominique Strauss-Kahn has been

detained in New York and charged with attempted rape. Strauss-Kahn has been a pivotal

figure in the Euro Zone bailouts of Greece, Ireland and Portugal and was due to meet Euro

heads last week to discuss the ongoing crisis.

Seasonal Forecast

Here at Capital 19 our seasonal forecaster is also showing a weak period for equities from June to

September and the recent market price action is now suggesting equity markets may be rolling over.

The Black line represents the actual Dow Jones index and the blue line is our seasonal forecast.

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Remember this is not price but time, when the high and lows for year may occur. It has picked the

highs and lows quite nicely this year including the recent high in April. The next two weeks could be

positive (what we’d expect going into a new month) but things look a flat going into September.

Why do I say “equity markets may be rolling over”? Well let’s take a quick look at the S&P.

S&P 500 Index

The S&P formed a major base (low) back in March, the 5th base since to 2009 low. When markets

come out of base patterns we should see the strongest market momentum, typically I want

sustained multi-week momentum for 8 – 12 weeks with little downside price action. With every

previous base we have seen this however this current rally looks to be stalling too early. This rally

started to fail in week 7 followed by 3 weeks of lower price action. Last weeks close does offer some

upside going into June but the rally has been on weak volume and has the hallmarks of month end

window dressing by fund managers.

Last year I talked about ” overhang resistance “ for the S&P between 1257 – 1441, this was the range

of the 2008 rally before the bear market selloff and I indicated a lot of investors who bought then

and have hung on throughout the selloff would look to sell their positions at “breakeven” when the

market got back in this range. The S&P is now at the midpoint of this range so it is no surprise to see

resistance with more selling pressure than normal in play.

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My short term outlook for the S&P is “market in correction” with stock prices to trend lower in a

volatile range for a 1-3 month period.

S&P Chart

Are ready to buy the next major move up?

But is it all doom and gloom? Absolutely not, I still believe in the global growth story and nothing we

are seeing at the moment has changed my long term view. What we are seeing right now is a mid-

cycle pause where the markets (especially commodities) have run a little ahead of themselves. There

will be some great opportunities for the savvy investors very soon but unfortunately very few

Australian investors will seize this opportunity. Why?

Because too many Australian investors only look in their own back yard when it comes to picking

stocks for their portfolio, they invest their hard earned dollars in a market that represents only 1.5%

of the global market and unfortunately they will miss out on the real global growth companies.

For over a year I have been recommending to, and investing for, my clients in International

companies and international Exchange Traded Funds (ETFs). Companies whose earnings and returns

have been far superior to Australian companies and this trend will continue.

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Aussie market will continue to underperform

The strength of the Aussie dollar, uncertainty over the carbon tax, a lack of interest in the Australian

market from global fund managers and local fixed income rates at 6.5% has caused the XJO to

underperform global markets and this trend will continue. Compare the performance of the XJO (in

red) to the S&P since June of last year in the chart below to see what I mean.

The S&P is up 27% since last June compared to just 10% for the Australian market. No wonder fixed

income looks attractive to local investors, but if they knew how easy it was to invest overseas I think

the potential higher returns international equities offer would be more appealing?

What to buy?

In the next few weeks there will be a great opportunity to buy the truly global growth companies at

very attractive prices and opportunities to diversify your portfolio into great global sectors and

markets that will continue to outperform the Aussie market. Unfortunately too many Australian’s

dismiss oversees investing as too hard (maybe because Comsec and E Trade make it that way)

however it’s never been easier to do so and now you know that is the case there is no excuse for you

to miss out.

Have a great month

Matthew Sharratt

Matthew Sharratt is Head of Investments for Capital 19 who specialise in Global Investing and

Portfolio Management. You can contact him on m.sharratt@capitalnineteen.com

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Change can happen in an instant but more often than not it is a gradual

process. Sometimes it is so slow that it creeps up on you and is only brought to

your attention when you spend some time reflecting on your past or you review

old goal lists.

What I am discussing in this article is the process or steps involved in change so

that you can direct more conscious effort towards making the changes you want in your trading and your life.

Have you ever noticed that most people, when they’re not happy with results in

their life or work, typically just focus on changing their actions? But what

happens? Often, the change doesn’t last, because they lose their motivation to

make the change due to the old attitudes and beliefs that still govern their lives.

The steps I am going to take you through are set up in a hierarchy that must be started at step one. Once you begin there and get that right change will

naturally flow on till you get the results you want. Below are the six steps

involved in the change process.

Step 1 - Change your thinking.

Just as the title of Napoleon Hill's book "Think and Grow Rich"

implies change starts with your thinking. If you think about it

(pardon the pun) all results you see originated in someone's

mind. A design of a building, an invention or a trading plan all

began with an idea or a thought.

First you want to take stock on where your thinking is typically directed in relation to your trading. Without conscious effort your thoughts will usually drift

towards what you don't want or at best what you already have in your life. As

the saying goes we get what we focus on.

You will also want to take note of what self talk you have with regards to

trading. These will typically be directed to your identity. Watch out for "I am"

statements. Again you want your self talk to be directed towards what you do

want not towards what you don't want.

The key point here is to keep your focus on what you do want to have or be

with regards to your trading and not on what you don't want.

Change Your Mind

About Trading

– Graeme Pearson

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Step 2 - Change your Beliefs.

Beliefs can be seen as a repetitive or habitual thought. So by

changing the way you think and repeating that thought it will become a belief. By continual thoughts about seeing yourself as a

successful trader you will form the belief that you can be a

successful trader.

Once the new belief is formed and becomes unconscious it then completes a self

perpetuating cycle where the belief drives more thoughts which support the

belief. Beliefs are what makes up your model of the world and how things work

and what you expect to happen.

Step 3 - Change your Expectations.

By changing your beliefs you change your expectations. If you

believe that you will never succeed as a trader, your expectations for the outcome of a trade will tend to be a losing trade. If you

believe that you have what it takes and you will be a successful

trader your expectations will be more towards winning trades. You

will perform the best when what you want to happen is what you

expect to happen.

Step 4 - Change your Attitude

As you begin to expect a different outcome with your trading your

attitude towards trading will change. Attitudes are a hypothetical

construct that represent an individual's degree of like or dislike for

something.

Attitudes are generally positive or negative views which are held about

something. By making the change in your trading expectations from what you don't want to what you want your attitude about trading will change from

negative to positive.

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Step 5 - Change your Behaviours

The pleasure/pain principle dictates that you will tend to do more

things which cause pleasure and less things which create pain. By having a more positive attitude towards trading and any related

activities you will be more inclined towards trading. Not only that

but you will have a different approach to your trading and be

more solution rather than problem focused.

Where your old attitude may have projected fear or pain around trading and

kept you in your comfort zone your new attitude drives you to take action with

new behaviours. As Wallace D. Wattles states in his book The Science of Getting Rich - "A man's way of doing things is the direct result of the way he thinks

about things".

Step 6 - Change your Results

As stated earlier people usually focus on these last two steps of

changing their actions with the intention of changing their results

without any of the prior foundational changes required to make

the change lasting. Once your trading behaviours are changed as

a consequence of your changed thoughts, beliefs, expectations

and attitudes around trading your results will change from what

you don't want to what you do want.

How to Apply the Steps. If you want to make lasting change in your trading, don’t just change your

actions; change your attitudes and beliefs too. Simply work backwards through steps listed above. Start with the end in mind. Ask yourself:

What are the results that I want?

What actions do I need to take in order to produce the results I want?

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What attitudes do I need to have that will direct the actions I want?

What expectations do I need to have that will direct the attitude I want?

What beliefs do I need to believe in order to create the

expectations I want?

What thoughts do I need to have to create the beliefs I want?

So start thinking about the results you want from your trading and follow the

steps to start the process and see the changes happen.

If you are still having difficulty achieving lasting change and you would like

some assistance please feel welcome to email me:

Graeme@yourtradingsolutions.com or call me on mobile number 0400 482 653

and enquire about my coaching options aimed at helping you to be the best

trader you can be.

About the Author: Graeme Pearson is a

Professional Trader and Trading Coach

for Your Trading Solutions. Since

resigning from his Full-time job as a

Mechanical Engineer back in 2006,

Graeme realised that although he had

reached his goal of financial

independence something was still

missing. Graeme found that he gained

great pleasure in helping others and

particularly when that help involved

trading. Graeme now utilises his trading

experience, Neuro Linguistic Programming and coaching training to

combine mindset and methodology to help other traders become the

best they can be. For more information about coaching contact Graeme

at:graeme@yourtradingsolutions.com

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The nature of life is to trend.

~ John W. Henry

Forecasts are financial candy. Forecasts give people who

hate the feeling of uncertainty something emotionally soothing.

~ Thomas Vician, Jr

I learned that you are not trading a commodity-you are buying

and selling risk. As a technical trader, that’s the only way to look at it.

~ Mark van Stolk

To earn a considerable return, one must take a comparable risk.

It is essential, therefore, to have accurate measures of both risk and reward.

~ Alejandro Knoepffler

Your first thought must be how to protect your capital and make your trading as safe as possible.

~ W.D. Gann

Fact source; http://en.wikipedia.org/wiki/Silver#cite_note-46

In earlier times, silver has commanded

much higher prices. In the early 15th

century, the price of silver is estimated

to have surpassed $800 per ounce, based

on 1998 dollars.

The United States minted its last

circulating silver coin in 1969.

The name of the pound sterling (£)

reflects the fact it originally represented

the value of one troy pound of sterling

silver.

At an April 2011 price of

about $49 USD per troy

ounce, silver is about

1/30th the price of gold.

The ratio has varied from

1/15 to 1/100 in the past

100 years.

According to Wikepedia silver reached an all-time high of $49.76/TO

in late April 2011 ($49.82 according to Premium data)

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A lot has been written about an investor ‘knowing the term’ of any position that they take in the market. For example, when a long term ‘buy and hold’ position is taken, the investor must be prepared to ride the ups and downs of the market but must also be prepared to accept a lower compounded annual return from that investment. Typically, the ‘buy and hold’ approach will require less time, effort and knowledge on the part of the investor and hence is viewed more as a ‘passive investment approach’.

The main problem with the passive ‘buy and hold’ investment approach is that the investor may sit on losses for long periods of time before their investment starts returning profits. Stocks can be out of favour for many years. During that time the investors’ capital is not working well but may eventually return a profit. If an investor grows impatient and sells while the stock is in loss territory, it may return a significant loss and every now and then a total loss in that trade.

In addition, investors can watch frustratingly as their hard earned profits rise and fall over the years with cyclical and ‘defensive’ stocks that move sideways in wide trading bands. The problem is most investors do not have the knowledge to actively time their entries and exits. Hence long-term ‘buy and hold’ investors have no choice but to tolerate the ups and downs and the sub-index returns that result.

Investors who are prepared to put in a little extra effort for a better potential return may adopt a medium-term trading approach. This way, the potential pitfalls of the ‘buy and hold’ approach can be avoided, like the large loss trades, and sustained profits can be more readily assured.

Likewise short-term traders must be fully aware of the term they are trading. The short-term trader can undergo extreme stress and psychological pressures in their endeavours to trade volatile swings in the market.

Short-term trading is a far riskier venture that can return large profits but can also return large losses and, in fact, can even wipe out the inexperienced trader. Short-term trading requires:

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Multiple hours of daily attention and effort. Extensive knowledge of markets. Extensive experience in using technical analysis to trade. Immunity to stress caused by market volatility and illogical and inexplicable movement of

share prices in the short-term. The ability to differentiate between the characteristics of equities and instruments that lend

themselves to short-term trading and those that do not. Psychological strength to deal with extended periods when more loss trades than profit

trades occur.

If you wish to become a short-term trader, one way of reaching the ranks is through medium-term active investment. That is, gain experience and knowledge while exposing yourself to a lower risk of losing your capital with less effort requirement. Then slowly build from there.

Most short-term traders manage medium to long-term portfolios anyway, as the two are not mutually exclusive. The successful short-term traders apportion only a small part of their trading capital to short-term trading because of the risks and stress involved. Only a fool will constantly deploy all their investment capital to short-term trading.

I believe that the medium-term approach suits the greater majority of private active investors in the market with the potential to achieve the best balance between risk and reward as well as effort and reward. Specifically medium-term is a suitable period for new active entrants to the market.

When a stock is purchased for a particular portfolio (and therefore investment period) you need to be consistent through the ownership period of that stock. For example do not convert a stock you have bought for medium-term trading to long-term simply because the price has dropped and you have missed the exit signal! Equally if the stock price has increased by 50% do not employ a short-term strategy of taking the profit on what is meant to be a medium-term trade. Again, be consistent.

About the Author: Gary Stone is the founder Director of Share Wealth Systems and leads the Research and Development team. Trading and researching the markets since 1990, Gary is motivated by a conviction to help people do better. Share Wealth Systems are known for their trading systems SPA3 and SPA3CFD, designed for Long term, Medium term and leverage type investors and are a critical decision support tool that help guide investors through the market, no matter what the conditions.

17 | P a g e

Slow Stochastic

The stochastic oscillator is a momentum

indicator that uses support and resistance

levels. Dr. George Lane developed this

indicator in the 1950s. The term stochastic

refers to the location of a current price in

relation to its price range over a period of

time. This method attempts to predict price

turning points by comparing the closing price

of a security to its price range. The Slow Stochastic applies further smoothing

to the Stochastic oscillator, to reduce volatility

and improve signal accuracy.

To calculate the Stochastic Oscillator:

1. The first step is to decide on the number of

periods (%K Periods) to be included in the

calculation. This should be based on the time

frame that you are analysing.

2. Then calculate %K, by comparing the latest

Closing price to the range traded over the

selected period:

CL = Close [today] - Lowest Low [in %K

Periods]

HL =Highest High [in %K Periods] - Lowest

Low [in %K Periods]

%K = CL / HL *100

3. Calculate %D by smoothing %K. The original

formula used a 3 period simple moving

average, but this can be varied, based on the

time frame that you are analysing.

Slow Stochastic

1. The %K [Slow] is equal to the %D [Fast]

from the above formula.

2. The %D [Slow] is calculated by smoothing

%K [Slow]. This is normally done using a

further 3 period simple moving average.

Trading Signals

Ranging Markets - Signals are listed in order of

their importance:

Long signals:

1. Go long on bullish divergence (on %D)

where the first trough is below the oversold

level.

2. Go long when %K or %D falls below the

oversold level and rises back above it.

3. Go long when %K crosses to above %D.

Short signals:

1. Go short on bearish divergence (on %D)

where the first peak is above the overbought

level.

2. Go short when %K or %D rises above the

overbought level then falls back below it.

3. Go short when %K crosses to below %D.

Place stop-losses below the most recent

minor Low (or above the most recent minor

High) when going long (or short).

Trending Markets

Only take signals in the direction of the trend

and never go long when Stochastic is

overbought, nor short when oversold.

The shape of the bottom on the Stochastic

chart gives some indication of the ensuing

rally.

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A narrow bottom that is not very deep indicates that bears are weak and that the following rally

should be strong. A broad, deep bottom signals that bears are strong and that the rally should be

weak.

The same applies to Stochastic tops. Narrow tops indicate that the bulls are weak and that the

correction is likely to be severe. High, wide tops indicate that bulls are strong and the correction is

likely to be weak.

Example

BHP is plotted with a 50 day(red) and 100 day(blue) simple moving average (using H-L average) and

50 day Slow Stochastic with %K and %D. Overbought/oversold levels are set at 80/20.

1. The market is trending upwards (The 50MA is above the 100MA). Enter long when the %K crosses

the %D after being oversold.

2. Exit when the %K crosses the %D in overbought.

3. Enter short on bearish divergence followed by %K crossing %D.

4. Exit short and enter long when %K crosses %D after being oversold.

5. Exit Long when %K crosses %D in overbought.

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Position Sizing Particulars

– Louise Bedford Position sizing can save you from committing financial suicide in the sharemarket. Few people realise the importance of this essential skill because, at first glance, the benefits are not immediately tangible. Money management and position sizing suggests you know how many shares to buy and how much of your account to commit to a given market. Studies have shown that even random entry systems can be profitable using effective stop-loss procedures and good money management. When people begin trading, they often believe that as long as they hitch a ride with a share that is headed for the moon, they will accumulate untold riches. Few trades co-operate to this extent. Ironically, 90 per cent of my trades do not amount to a significant profit. It feels like I'm treading water, waiting for a trend to unfold. The majority of my profits are produced by just 10 per cent of my trades. Trading is often not a consistent income-generating activity. Many people give up or run out of money before they turn a profit. It could take you 20 trades in a row of mundane, frustrating, break-even or loss results to hit the one trade that will bring in an extreme profit. There is no 'normal distribution' of wins to losses in the market when you look at a small sample size. Money management and stop-losses will help keep you in the market long enough to experience a few terrific winners, even if you hit a cluster of losses.

Sector Risk If you cannot sleep at night, or if you are continually thinking about the performance of your shares, your position size is too large for you to handle. Be aware, however, that if you own more than one stock per sector, then you are effectively trading the same instrument. For example, if you have four bank stocks, and own call options on CBA, you have ineffectively diversified your trading capital. It is as if you are trading the one position only. Make it a rule never to trade more than one position per sector. If you don't, you are opening yourself up to an unacceptable level of sector risk. Your trading account will eventually suffer when the tides turn against your favoured index. There are several models to help answer the question: 'How much of my capital should I devote to this trade?' Each has pros and cons. Ultimately, you need to choose one position sizing model, or a hybrid of the available models, before buying a stock.

Equal Portions Model This model is where your capital is divided into equal amounts. For example, you may have $100,000 equity and decide to split this into 10 different positions of $10,000 each. There are some inherent difficulties with this concept. It assumes a consistent risk factor across all trades. This is an illogical assumption. This method will lead to your demise if you trade derivatives.

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In all likelihood, you will be committing too much equity to an illiquid and complex trade. This is likely to damage your overall trading equity.

The Capital Allocation Model This model divides your capital between areas of risk. One of the underlying principles behind the market is the theory that if a stock has a significant market capitalisation - for example, top 100 or top 300 - then it is likely to behave in a more predictable fashion. (Market capitalisation is the number of shares that have been issued in total, multiplied by the share price.) The market capitalisation will affect whether a share is included in Australia's benchmark All Ordinaries index.

How To Use This Model The maximum number of shares that most people can manage at one time with a larger portfolio, for example $300,000-plus, is about 15 separate positions. People with a smaller portfolio often feel more comfortable holding six to 10 stocks. This is largely anecdotal evidence, because according to my knowledge there is no reliable data regarding the ideal number of shares to hold. As a guideline, the minimum number of positions in a portfolio should be at least three stocks, in order to give you a chance to learn how to trade well. Hopefully out of those three stocks, at least one will be trending in the right direction, although there is no guarantee. As a suggestion, it may be best to allocate more money to the top 100 stocks (lower-risk), such as 50 per cent of your capital. You could allocate a moderate amount to the bottom 200 stocks of the top 300; for example, 30 per cent (moderate-risk). The least amount of money (for example 20 per cent) would then be allocated to all other stocks not appearing in the top 300. All derivative trades are also included in this category. This would mean that from an initial starting equity of $100,000, you could allocate $50,000 to lower-risk shares, $30,000 to moderate-risk shares, and $20,000 to higher-risk shares and derivative positions. For the sake of simplification, let's say that you're happy with holding 10 shares. This could be split into the equivalent of three separate portfolios defined by the risk inherent within the market capitalisation level. Your low-risk portfolio of top 100 shares could contain three stocks, from different sectors, with a position size of $16,666 each. Your moderate-risk portfolio could contain three stocks with a position size of $10,000 each. Your high-risk portfolio could contain four stocks or derivatives with a position size of $5000 each. Make your capital allocation rules with regard to high-risk areas explicit. You may decide to commit a maximum of only 15 per cent or 10 per cent of your total equity to higher-risk sectors of the market, depending on your risk profile. This will still provide exposure to potential high returns, without bursting the seams of good judgment. There are refinements to this method, but if you relate to the concept, then this can be a simple way to position size with a higher degree of sophistication than the equal portions model. There is a principle called the 'Kelly principle’, which suggests that you should not have more than 25 per cent of your trading equity placed in any single position on the sharemarket. This is in line with the rationale of minimising the effect of an unforeseeable potential catastrophic event.

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Many traders do not utilise the Kelly principle because it seems to be in contradiction to the concept 'let your profits run'. However, if your losing trade is conducted using too much of your overall trading capital, you could violate this rule easily. If you appropriately size your positions, then the chance of a one-off shattering loss leading to devastation is slim indeed.

Capital Allocation

Market Capitalisation

Top 100 Top 101-300 Top 300 +

Trading equity (%) 50 30 20

Number of positions 3 3 4

There is a fine line between letting your profits run, and planning just in case a catastrophe strikes. You want to back the winners, but have an efficient threshold that determines when you have placed enough of your equity into a particular position. The key is to not allow your overall position size to exceed 25 per cent of your total trading capital. Take into account the positions that you hold in different sectors and ensure that their combined size per sector is also less than 25 per cent. For larger portfolios, you could consider keeping overall positions to less than 15 per cent or 20 per cent of the overall trading capital. Remember to take into account the effect of pyramiding. If you have decided that you would like to add more money to your winning positions, you must make sure that you stay loyal to the Kelly principle. If you haven’t yet got an effective written trading plan – you need one. Traders who trade without a written trading plan deserve to starve. Go to my website www.tradinggame.com.au right now and register. I’ll send you my trading plan template and a free 5-part e-course. The game is on. Nobody knows how long your ride will last, but I can tell you – without a trading plan, your chances of survival are zip. Louise Bedford (www.tradinggame.com.au) is a full-time private trader and author of The Secret of Writing Options, The Secret of Candlestick Charting, Charting Secrets and Trading Secrets. Register now on her website to receive a free trading plan template.

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Sydney Trading and Investment Seminars & Expo

5th- 6th August 2011

Venue: Sydney Convention and Exhibition Centre

Darling Drive, Darling Harbour NSW 2000

Times: 10am – 5pm Daily

Melbourne Trading and Investment Seminars & Expo

7th – 8th October 2011

Venue: Melbourne Convention and Exhibition Centre

Times: 10am – 5pm Daily

Discounted Tickets available online at

http://www.tradingandinvestingexpo.com.au/

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The path toward becoming a better trader is usually a path toward wholeness, and no two paths are

identical. Each of us has to begin where we are in our own life situation. No matter what your path,

you must first determine where you are. What are the patterns in your life that block you in your

trading, your relationships, etc.? Those patterns can be available to you right now because they

show up in your trading and in every other aspect of your life as well. Unfortunately, in most cases,

people are not aware of them. Thus, the transformation journey often begins with a crisis. For it is

only when an obvious crisis begins that we wake up to the fact that something is wrong in our lives.

This article, the first in a series, on individual differences or personalities is to help people determine

where they are. Jack Schwagger has suggested from his experience interviewing "market wizards"

that the most important element of successful trading is having a trading system that fits your

personality. As a result, I'm going to base this article on the fact that knowing your personality type

is important to finding out where you are in your journey toward wholeness.

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The importance of personality traits comes into play because they

provide a quick mirror of where we are and the neglected parts of

yourself that you must nourish. For example, all of the personality

traits that we are going to examine in this series come in pairs. If your

personality tends to be extraverted, it simply means that you tend to

focus your energy more externally than internally. Wholeness for you

may mean moving more toward an internal focus (e.g., determining

how you produce your results by your thinking) until you achieve a

balance between focusing on the internal and the external.

If you've taken the Investment Psychology Inventory, you probably received a much more

comprehensive personality profile based on the four dimensions of personality developed by Carl

Jung. These include introversion/extraversion, intuition/sensing, thinking/feeling, and

perceiver/judger. When you evaluate someone along four dimensions, you arrive at 16 personality

types instead of four. This is similar to the well-known Myers-Briggs profile.

If you haven't taken the Investment Psychology Inventory, you have two choices. Take the profile

and find your personality type and determine your strengths and weaknesses for trading. Or, as a

second solution, you can go to the following web site to get a basic Myer-Briggs type test for free:

http://www.humanmetrics.com/cgi-win/JTypes2.asp. When you get your type, look it up on

www.google.com. The sites you find will tell you a lot about yourself. And in this eight part series,

we'll tell you how your type relates to trading.

Three personality types—the ENTJ (known for their ability to develop strategies), the INTJ (known

for their scientific reasoning), and the ISTJ (the trustee type person)—combined should constitute

about 12% of the population. However, at this time these three groups represent 50.1% of our

current sample. The NTs constitute 45.6% of our sample, probably because these people are always

attempting to improve themselves.

Given these interesting developments, we can discuss the four Jungian elements of personality, and

how they combine to form cognitive processing modes and temperaments. We can also discuss how

these modes and temperaments are related to trading success.

Most of us give little thought to how we process and perceive information in order to make sense

out of what is happening. Yet dramatic differences occur in how people perceive and interpret what

goes on around them. And these differences lead to dramatic contrasts in behavior and personality.

The next step in this series on personality type and trading we will examine the four dimensions of

personality developed by Carl Jung and how each of them might influence you as a trader.

Sources: Jung, Carl G. Psychological Types. Collected Works of Carl Jung, Volume 6. Princeton, NJ:

Princeton University Press, 1971. Originally published in 1923.

Myers, I. Manual: The Myers-Briggs Indicator. Palo-Alto, CA: Consulting Psychologists Press, 1962.

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The next few parts of this series on personality type and trading will examine the four dimensions of

personality developed by Carl Jung and how each of them might influence you as a trader:

1) Introversion/Extraversion

2) Sensation/Intuition

3) Thinking/Feeling

4) Judgment/Perception

First we will look at Introversion/Extraversion.

Introversion/Extraversion (I vs. E). Jung believed that human beings have a preferred attitude, being

either introverted or extraverted. Although we think of these two terms as describing whether

someone is socially oriented or not, that was not Jung's original focus. Instead, the extravert has a

focus on the outer, physical world, while the introvert has a focus on the inner, psychological world.

However, very few people are purely "introverted" or "extraverted." Instead, they apply an inward

directed focus in some situations and an outward directed focus in others. (This will become more

understandable later when I discuss cognitive styles and trading.)

An introverted trader, for example, would focus on his own subjective world primarily on concepts

and ideas. His inner thoughts would predominate. This type of trader would tend to focus on how

they produce their own results. That does not mean that they cannot be very social and likeable. It

just means that their attention is directed toward the inner world. Only about 25% of the population

is thought to have primarily an introverted focus, but 57.9% of our sample has such a focus. In

contrast, 75% of the population is thought to have an extraverted focus, but extraverts only

represent about 42.1% of our sample.

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Extraverted individuals tend to focus on the outer, physical world—actions, objects and persons.

People, things, the environment, their career, the market and their achievement are their primary

focus. The extraverted trader, for example, would search for solutions outside of himself to become

more successful. Since 75% of all people have an extraverted focus, most traders—especially those

with an extraverted focus—tend to be concerned with what system they can develop to become

more successful or with how they can change their system to become more successful.

Extraverted people tend to be energized by other people, by a party, or by crowds in the big city. If

their extraversion runs to an extreme they may risk losing their own sense of identity. For example,

if an extraverted trader loses all his capital, and he has identified himself as a trader, then that loss

could result in a total mental collapse.

The internal/external focus has little to do with trading success--at least in our sample. About 7% of

the introverts had outstanding trading records as compared with 8% of the extraverts.

Introversion and extraversion both exist in each individual. Most people can move flexibly between

both orientations. However, Jung proposed that when the individual is unaware, the non-dominant

orientation would tend to emerge from the unconscious.

We have already learned about Introversion/Extraversion (I vs. E). Continuing with our series, we will

explore the other three dimensions:

• Sensation/Intuition,

• Thinking/Feeling and

• Judgment/Perception.

Sensation/Intuition (S vs. N). The two perceptual functions are sensation and intuition. The

sensation orientation involves using the five senses—seeing, hearing, touching, tasting and

smelling—to convey a concrete reality. It is the function that receives information, from the inner,

subjective world and/or the outer, physical world. Sensation is very connected to the present

moment. While 75% of the population is thought to be sensation dominant, only 39% of our sample

is sensation dominant.

In contrast, intuition is what Jung called "perception

by the unconscious mind." The key characteristic of

intuition is imagination. It involves "seeing the big

picture" and "imagining what is possible." It also

involves moving out of the present and encompassing

both the past and the future to determine what is

possible. Although 25% of the population is thought

to be intuition dominant, 61% of our sample is

intuition dominant.

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The intuition function seems to contribute more to success than any other Jungian function or

quality. We had 31 traders in our sample with outstanding trading records. Among this group, 26 of

them were intuition dominant, while only five of them were sensation dominant. Thus, awareness of

the big picture may be very important to successful trading.

Thinking/Feeling (T vs. F). The two judgmental functions are thinking and feeling. Thinking involves

logical thought processes entailing cause-and-effect reasoning. It facilitates cognition and judgment.

In this particular style, people are concerned with facts, reality, experience, specifics, and the "here

and now." Everything is concrete and sequential. When people make decisions by thinking, they

tend to weigh all the pros and cons in a sequential way and then make a decision. However, when

trading decisions involve pure "thinking," the trade is usually gone before the decision is made.

Interestingly enough, people generally make decisions based upon thinking, but they act based on

feelings.

Feeling involves making decisions by means of value judgments. It

allows us to determine if a thing is important or not. It involves

subjective, personal values. Does the person like or dislike it? What

is the impact on a person? Is it strong enough to act upon?

If thinking is highly developed in an individual then feeling would

be much less developed and vice versa. And you can probably

guess that it takes a lot of "thinking" to develop a trading system,

but it takes "feeling" to execute the system. Thus, you must be

well-balanced in order to trade well. About 50% of the population

tends to be thinking dominant while the other half tends to be

feeling dominant. In our sample, 57% was thinking dominant, while

43% was feeling dominant.

Top traders in our sample were much more likely to be thinking

dominant (by a 6 to 1 ratio) than feeling dominant. However,

thinking dominant traders as a whole were more likely to be losing

traders than were feeling dominant traders. My guess is that the

top traders show a good balance between thinking and feeling, yet

are thinking dominant.

Judgment/Perception (J vs. P). The last dichotomy is very deceptive; in that the names used judger

and perceiver, do not adequately describe the two processes involved. This dichotomy refers to the

amount of closure a person needs in handling their affairs. Judgers, the first category, want closure,

wanting everything organized and in its place. In contrast, perceivers prefer fluidity by keeping their

options open.

The Judger is apt to feel a sense of urgency until a decision is made. They establish deadlines and

take them seriously. Judgers tend to believe that work comes before all else—rest or play. Thus,

judgers will do all sorts of preparation, maintenance, and cleaning up afterward with respect to their

work. About half the population tends to have a bent toward closure and thus be judgers. However,

about 72% of our sample showed this type of dominance.

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Perceivers tend to be "go with the flow" type people. They resist making a decision, always wanting,

and waiting for, more information. Thus, when they finally do make a decision, there is always a

sense of uneasiness and restlessness. Perceivers tend to be more playful and easy-going than their

counterpart. They want their work to be enjoyable. However, they can also become so caught up in

a work project that they totally forget about time and everything else. About half the population is

this way. I would expect that people who have trouble making a decision would stay away from

trading. And, indeed, only 28% of our samples were perceivers.

These four dichotomies can be used to describe 16 different personality types, as described by Isabel

Myers and her mother, Katheryn Briggs. The so-called Myers-Briggs test divides people into 16

different types, ISTJ, ISTP, ESTP, ESTJ, ISFJ, ISFP, ESFP, ESFJ, INFJ, INFP, ENFP, ENFJ, INTJ, INTP, ENTP,

and ENTJ. In some ways, I dislike this test because it does tend to put people into psychological

boxes. So rather than going into each of the 16 types, we will begin to look at eight cognitive styles

and four temperaments. I will describe each type and give you my opinions about how it functions in

the process of trading or trading system development.

Look for Parts 4, 5 and 6 in the July issue of Your Trading Solutions eMagazine

About the Author: Trading Coach Dr. Van K Tharp, is widely recognized for his best-selling book

Trade Your Way to Financial Freedom and his classic Peak Performance Home Study Course for

traders and investors. Visit him at www.iitm.com for a FREE trading game or to sign up for his FREE

weekly newsletter.

29 | P a g e

Super Trader By Van K Tharp

Product Description

How do you transform yourself from mild-mannered investor to Super Trader? Think clearly.

Plan accordingly .Commit completely. In other words, become a trader. And no one is better

suited to help you make the transformation than legendary trading educator and author

Van K. Tharp. Combining the sharp insight and technical brilliance that has drawn legions of

investors to his books and seminars, Tharp provides a holistic approach for becoming a

successful full-time trader. His system a meld of investing psychology and sound trading

practice is the secret to achieving optimum conditions that produce results in both bull and

bear markets. Using the lessons of Super Trader, you will approach trading as you would a

small business realistically, systematically, and enthusiastically. Drawing on his decades of

experience, Tharp has created a simple plan designed to help anyone master the market.

You can put this plan to use immediately in order to Master the psychology of trading Craft

a business plan a working document to guide your trading Develop a trading system tailored

for your personal needs and skills Create position-sizing strategies to meet your objectives

Monitor yourself constantly to minimize mistakes Throughout the book,

Ctrl/Click directly on the image

to purchase this book

Each issue we will feature a Review from Amazon.com about a book that we would

recommend for your Trading Library. If you would like to purchase the book each month

simply click on the image and you will be taken directly to our Amazon A-Store to securely

take your order.

30 | P a g e

Tharp asks the pertinent questions you must ask yourself about becoming a trader, being a

trader, and succeeding as a trader. The rewards that come with being a Super Trader both

financial and personal make you feel as if you can leap small buildings in a single bound.

Whatever your skill level, Tharp provides the formula for succeeding in a field where most

people fail.

Customer Review

By Pedro Junqueira

I am pleased to be the first one to review this book.

I am also thankful for discovering Van Tharps' as someone that changed my approach and

understanding of trading. He really helped me to destroy all strongholds that was making

my trade a blind fly. I read first Trading your way to financial freedom which is a really break

through on what it takes to be a successful trade. After reading it I realized how obvious it is

and how people just don't see it. So I am happy that I was blind now I can see.

If you haven't read any of Van Tharp as yet I would not recommend starting with Super

Trader because it doesn't spend much time to discuss new concepts and I believe the book

assumes some prior knowledge. For me that am already familiar with his concepts I cruised

reading Super Trader and it helped me to reinforce all principles that I already grasped from

previous books and articles I read. Also his does an excellent job bringing it all together.

I then suggest to read first "Trade Your way..." and then "Super Trader" will be much more

valuable and easy to understand because it doesn't go as deep as "Trade your Way..." does

in some key concepts such as R multiple, Risk Management and Positioning Size.

The book is very well structured and it is organized in an order of priority in what it takes to

be a successful trader. The book spend a fair bit of pages on the topic of psychology and

working on yourself. This is crucial and Van emphasises its importance even further. I reckon

that's the best part of this book.

Also it provides good frameworks to how to work on yourself and your business plan to get

into trading successfully.

I also love his approach totally opposing to on size fits all. What is important is what fits your

beliefs. That's fantastic.

Very pragmatic, structured and concise. This book I also consider a quick reference book to

always go back and remember what is important in trading and I intend to always go back

and revisit it from time to time to check if I am doing everything "by the book".