Sponsored Link:
Trade Your Way To Financial Freedom
The Smart Profits Report: Issue #385
Thursday, January 11, 2007
Trade Your Way To Financial Freedom: Reviewing The Holy Grail Of Investing
By D. R. Barton, Jr.
Quantitative Analyst, Mt. Vernon Research
From Arthurian legend, to Monty Python, to Indiana Jones, the mystical concept of the “Holy Grail” has fascinated people and enlivened their imaginations for centuries. Today, the quest for the Holy Grail has become a metaphor for reaching an almost unobtainable solution - the best that we hope to attain.
And it’s something that every trader and investor wants. But the good news (no… the great news) is this: You can reach the Holy Grail of trading and investing. And today, I’m going to show you how through a book that every trader and investor should have on the shelf: Trade Your Way To Financial Freedom by Van K. Tharp.
Is Trade Your Way To Financial Freedom On Your Bookshelf?
The central theme of Trade Your Way To Financial Freedom is about finding the Holy Grail in trading. It covers every key area that distinguishes top traders and investors from the crowd. Very simply, it’s a “must read.” Every serious investor or reporter includes the first edition of the book in their list of best trading and investment books.
Written by my good friend Van K. Tharp, the second edition of this classic investor’s companion was recently released. You’ll hear from me in there, too, as Van asked me to write a section on band trading. (By way of full disclosure… although I’m a contributing author, I won’t receive a penny in royalties).
So let me share with you what I consider to be the three best ideas from the book…
Van K. Tharp’s Holy Grail Investing Trifecta
“You cannot trade the markets. Instead you trade your beliefs about the market.” ~ Van K. Tharp, Ph.D.
- The Holy Grail
Take a look at the quote above from Dr. Van K Tharp. I believe this is a key concept that will be around generations after we’re all gone. Trading your beliefs about the market, rather than the market itself is your holy grail. This is not simply an idea that always makes money, no matter what - but instead, finding a system or strategy that fits you.
Time and again, I’ve seen people buy trading systems, diligently learn strategies, or be given great, workable trading methods - yet not be able to make them work, even if the strategies are successful. Why? Simply because the strategy or system was not aligned with one of more of the person’s beliefs about the market. When you find the trading style that fits your personality and beliefs, you’ll have found your Holy Grail of trading.
- The Missing Link: Position Sizing
Position sizing is a critical concept. The most common path for traders and investors is to have too much money invested when things are going poorly and not have enough invested when things are going well. Trade Your Way To Financial Freedom does a great job of describing how top traders use position sizing as the most significant weapon in their arsenal. Understanding the principals of position sizing (the part of your system that tells you “how many”) is worth the price of the book itself - but getting specifics on how to do it for any trading style is priceless.
- Understanding (And Controlling) Yourself
This is another key component that focuses on understanding the biases that keep traders from successfully building and implementing strategies. If you’re having a problem pulling the trigger when you receive a buy or sell signal, or you’re constantly tweaking your strategy, you’ll know that your strategy doesn’t yet fit you.
The Three Core Pillars of Investing Success
Bottom line: There are three core pillars of successful investing:
- Have a strategy that fits you.
- Know how much to trade at any signal.
- Understand and control your personal psychology.
Van K. Tharp covers these topics extremely well in Trade Your Way To Financial Freedom - and once you understand them and implement them, you’ll be on the right track.
Good Trading,
D. R. Barton, Jr.
|
Today’s Smart Profits Cribsheet
- Smart Profits Report Investment Director Karim Rahemtulla calls it “the most powerful investment concept in the world.” But as simple as this concept is, it’s one that continues to trip up many investors. Don’t be one of them. Find out how to “position size” your investments properly in Smart Profits #193, Position Sizing: The Most Powerful Investment Concept and in Smart Profits #229, Option Position Sizing: How Much to Invest In Each Option Trade.
- Looking for tips on evaluating that new market strategy you might be considering? There are steps you can take to prepare and objectively evaluate any new stock market index trading strategy or trading system and I explain them in Smart Profits #380, Stock Market Index Trading Strategy: A 2-Step Approach To A Successful Trading System.
- Did you know that stocks can stay overbought or oversold for much longer than you might think? Technical indicators can provide some valuable clues in picking the right time to invest “against the crowd” & adding a contrarian investing strategy can prove quite rewarding to your portfolio. Learn more about this strategy from our resident technical analyst, Jim Stanton, in Smart Profits #384, Contrarian Investing Strategy: The Most Profitable Way To Invest In 2007.
Related Articles:
- Position Sizing Safeguards: Prevent Corporate Lies From “Cooking” Your Portfolio
- Basic Trading Rules: The Four Rules of All “Smart Money”
- Trading With Confidence: How You Can Develop More Confidence In Your Trades
The Chart Of The Week
As you can see 
above, Hudson City Bankcorp (Nasdaq: HCBK) has been hanging below the key $14.00 - $14.10 resistance area for the better part of a month. I really like a dual strategy here: Shorting, or buying puts just below $14.00, then reversing to a long position if the stock closes above 14.10.
