# Gobsmacked - can good educators be such bad traders?



## MichaelD (7 November 2008)

I just got this in one of the few stockmarket related emails I bother with. The author emphasizes risk and money management as supreme, which sits well with me, but I am utterly flabbergasted by the utter lack of insight this author has into his own trading.

"Even trading is difficult.  Here is an example.  During our ******** workshop, I found a perfect stock for shorting.  It was down and highly efficient both on a daily basis and an hourly basis.  I shorted it with a stop of 10%.  It went down the day I shorted it, but then in after hours trading went above my stop.  And it opened above my stop.  I assumed it would fill the gap, so I elected not to exit.  It started to move down, so I just watched it (but remember I was teaching a workshop).  During the last two hours of the workshop I was preoccupied, only to find out the DOW had moved up another 400 points for the largest daily point gain ever.  The next day the market in the stock I was trading gapped up another 12%.  That was it, I again felt the gap would be closed, but I didn’t want to compound my mistake.  I just entered a market order to get out at the open at about a 3R loss.  It took me 25 minutes to get my fill back and I was trading with a firm that guarantees a 2 second fill or it is commission free.  By the time I got my fill back, the stock was already down on the day.  I was filled at close to the high of the day at about $112.  Three days later the stock closed at $66.  Bottom line, even short term trading in this market is terrible.  Most of my 3R loss occurred outside of regular trading hours."


I'm speechless.


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## tech/a (7 November 2008)

A fallible human educator. 

If only we could all be as disciplined as yourself Michael.
That Hitchcock "I know everything" Avatar gets me everytime!


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## cuttlefish (7 November 2008)

Wow, if this is someone that teaches people how to trade its quite astounding that they would apply such bad trade management to one of their own trades.

Its even more astounding that they don't seemed embarassed and instead actually chose to people about it - which implies they haven't even recognised that they've broken the most basic of trading rules and instead fallen into an emotive trading trap.

So will the email subscription be continued or has he lost a reader?


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## MichaelD (7 November 2008)

cuttlefish said:


> So will the email subscription be continued or has he lost a reader?




Continued for the moment. I find some value in the email and have certainly gained much from one of his books.

I find his market commentary an excellent example of what not to do (eg changing plans on the fly) and there IS much to be learned from the extreme example above.


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## Temjin (7 November 2008)

cuttlefish said:


> Wow, if this is someone that teaches people how to trade its quite astounding that they would apply such bad trade management to one of their own trades.
> 
> Its even more astounding that they don't seemed embarassed and instead actually chose to people about it - which implies they haven't even recognised that they've broken the most basic of trading rules and instead fallen into an emotive trading trap.
> 
> So will the email subscription be continued or has he lost a reader?




haha Cos the person who wrote that is Dr Van Tharp himself! In his latest newsletter that we received today. 

Yes, he made the mistake of not getting out as soon as the opening price was above his stop price. But who is perfect anyway?  

MichaelD, I suggest you bring this up to him personally and wait for his response.


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## BBand (7 November 2008)

I think Van Tharp is one of, if not, the best educator around!!!, and I always look forward to receiving his newsletter.

He highlighted in his newsletter the current US debacle long before it it surfaced for the general public

I wish I could trade like him! NOBODY is perfect

He has proved to be human and I believe honest.


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## cuttlefish (7 November 2008)

> haha Cos the person who wrote that is Dr Van Tharp himself!




You can't be serious?!  

I'd never heard of him except to have seen his name here and there on these forums, but I'm glad I didn't waste any time reading anything he wrote.


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## doctorj (7 November 2008)

Isn't the old expression something along the lines of 'Those that can, do.  Those that can't, teach'.

I don't think it's that unusual at all.  On the one hand, the ability to break down and organise information in such a way that it can be readily taught is a skill in itself.  And on the other, it's one thing intellectually knowing something, but execution is another.

Take ArsÃ¨ne Wenger for example.  He's one of the most successful coaches in world soccer. His playing career was mostly at amatuer level, with a handful of professional matches and a single UEFA cup match.


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## BBand (7 November 2008)

Van Tharp can teach, AND he can trade!

If you are a systems or systematic trader, then you trade strictly by your rules which you have backtested and proved to provide a positive expectancy.

On the other hand, if you operate discretionally - you still have trading rules that must be adhered to (99% of the time), unless you know from experience that if a certain event arises, you have the option to over ride your rules, with the expectation of having an expected result

This may come about from your historic knowledge of a stock, commodity, whatever, performing in an expected manner under certain conditions / events- this is called the characteristic of the stock

Also some other outside influence(s) may cause a discrectionary trader to over ride his rules.

Over riding rules is NOT for beginners, but an experienced knowledgable trader is likely to use this option

Nobody knows what the market will do next, NOBODY.

All we can go on is probabilities as we see them.

Sometimes we are right, sometimes we are wrong
Thats life
Peter


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## tech/a (7 November 2008)

firstly he copped a 3R loss 3 x Risk wont break the bank.

He's no idiot. 
If anyone is interested in reading the whole artical its here.

http://www.iitm.com/weekly_update_backissues.htm
No 397


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## MRC & Co (7 November 2008)

Plenty of good traders will sometimes hold things offside if they have conviction, only to be completely wrong.  Not often and will never hold it long enough to do serious damage.  As tech says, it's only 3R.

Mechanical, 100% disciplined trading is far from the holy grail.  Those who have basic rules but also use a lot of 'feel' and discretion can do exceptionally well.  

IMHO.


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## theasxgorilla (7 November 2008)

As Ed Seykota says, follow the rules, know when to break the rules.  Most people assume that this means knowing when you can override your system to extract bigger profits.  My take on it is that sometimes you feel like you have to override your system.  Regardless of how you justify it, you are really feeling like you want to have a hand in how things turn out.  It's a delusion, sure, but so are the _looks_ you keep getting from the hot chick in the office.  All part of being human.


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## cuttlefish (8 November 2008)

tech/a said:


> firstly he copped a 3R loss 3 x Risk wont break the bank.
> 
> He's no idiot.
> If anyone is interested in reading the whole artical its here.
> ...





Cheers tech.  The article is interesting - I can see why people are wanting to subscribe to it - there is a lot of information in there.

In relation to the trade he outlined - the mistake to me is not so much the decision to take a discretionary intervention after it gapped over its stop - I can understand an experienced trader expecting a gap fill after an open like that.  But to not trail a new protective stop behind it after it started to fill the gap, and also to not have a plan to close the trade at the end of the day regardless - seems a bit amateurish.

"Only 3R" - famous last words - emotive trading (e.g. finally exiting _on fear _at the peak - classic emotive behaviour) and not sticking to money management rules or trading plans is the road to ruin - isn't that what everyone on here preaches?  Why is it ok for this guy?

The other thing is that he's effectively blamed 'the crazy market' for his situation, rather than his poor trade management.

If taking a discretionary intervention and overriding an exit criteria then its important to put new exit criteria in place - this didn't seem to occur.


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## mazzatelli1000 (8 November 2008)

doctorj said:


> Isn't the old expression something along the lines of 'Those that can, do.  Those that can't, teach'.
> 
> I don't think it's that unusual at all.  On the one hand, the ability to break down and organise information in such a way that it can be readily taught is a skill in itself.  And on the other, it's one thing intellectually knowing something, but execution is another.
> 
> Take ArsÃ¨ne Wenger for example.  He's one of the most successful coaches in world soccer. His playing career was mostly at amatuer level, with a handful of professional matches and a single UEFA cup match.




Isn't there also research that suggests that by teaching you learn more quickly and effectively

My martial arts grandmaster teaches alot - and I KNOW he can deck alot of people


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## MRC & Co (8 November 2008)

cuttlefish said:


> "Only 3R" - famous last words - emotive trading (e.g. finally exiting _on fear _at the peak - classic emotive behaviour) and not sticking to money management rules or trading plans is the road to ruin - isn't that what everyone on here preaches?  Why is it ok for this guy?




How do you know his 3R is not simply 0.5% of his capital?  Many traders with these kind of capital bases don't use traditional money management per se.  Just a daily stop and they will LOAD up quickly if they 'feel' a big move is coming and cut it quickly if it doesn't.

Agreed Mazzatelli, teaching definately helps the learning process for them and an expert can also be a very good teacher.  The Wenger example was used, how about Cryuft the dutch legend at Barcelona, creating their dream team.


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## cuttlefish (8 November 2008)

MRC & Co said:


> How do you know his 3R is not simply 0.5% of his capital?




So what?  Are you saying that its ok to break plan and money management under a certain percentage of capital?   I would have thought that a system where 1R < 0.17% of capital would be a fairly high frequency system and thus traded fairly mechanically and unemotionally (even if it has a discretionary element).  That doesn't appear to be how this trade was approached.  



> Many traders with these kind of capital bases don't use traditional money management per se. Just a daily stop and they will LOAD up quickly if they 'feel' a big move is coming and cut it quickly if it doesn't.




Again I'm baffled by this comment - are you saying VT doesn't recommend back testing or traditional money management but recommends trading on "feel"? That would certainly explain his trade management technique in this instance ...


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## MRC & Co (8 November 2008)

High frequency is far from mechanical in many instances.  Many traders don't have rigid plans and rules, so they don't have to break it to let a trade run offside, even past 3R.  Many also scale in/out, so traditional % per trade does not matter in the way you think of it.  Trade onside and moving quickly, scale in rapidly, so you can afford to put more of your capital on the line. 

Ask Rotter what form of traditional money management he uses and how much he backtests?  "Best trader on earth" afterall.


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## MichaelD (9 November 2008)

cuttlefish said:


> "Only 3R" - famous last words - emotive trading (e.g. finally exiting _on fear _at the peak - classic emotive behaviour)
> 
> The other thing is that he's effectively blamed 'the crazy market' for his situation, rather than his poor trade management.




Exactly my concerns about this trade - the seeming lack of insight into exactly what caused the problem in the first place.


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## kam75 (9 November 2008)

I've probably already said this in a similar post.  Knowing how to trade and making money trading are distant relatives.  Just ask any trader who makes their money from the markets.  

You have to know yourself.
You have to develop your own set of rules that you'll be able to follow and that will be in sync with what you want to achieve as a trader.  There's little point in taking someone elses rules and trading their system.  Everyone's different and there's no best way to trade.

Can good educators be bad traders?  Sure as Sherlock they can and most probably are.  But they can be good salesmen.  Otherwise they'd be traders.
regards


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## MichaelD (9 November 2008)

kam75 said:


> Can good educators be bad traders?  Sure as Sherlock they can and most probably are.  But they can be good salesmen.  Otherwise they'd be traders.




A great point.

That begs the question - does the converse apply? Can a good educator be a good trader?


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## MRC & Co (10 November 2008)

MichaelD said:


> A great point.
> 
> That begs the question - does the converse apply? Can a good educator be a good trader?




100% guaranteed.


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## BBand (10 November 2008)

"Can a good educator be a good trader?"

The obvious answer is YES

I would think that good educators have the potential to be among the best traders!!

After all they have a head start with all the knowledge that they have accumulated and tested.
The real educators are the ones who demonstrate their skills practically

I think that most of us have used the skills of educators at some time in our developement as traders, and I for one cerainly would not pay an educator unless he demonstrates his qualities by trading live.



Logically the answer must be yes, but people believe what they want to believe - end of story


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## tech/a (11 November 2008)

Evidently Shwagger failed miserably as a Futures trader yet wrote many books on the topic.
George Soros was a pretty fair trader!
Stan Weinstien holds his own.
Radge i know he makes a good profit.

But there are many who you just dont know.
Guppy,Douglas,Williams to name a few.

All in all it doesnt matter what matters is if YOU make a profit and where you get the education from is of no concern.(well not by me at least).

I'll also bet many systems analysts have never made a cent trading.


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## Ageo (11 November 2008)

Hmm so he didnt close out his position when it went past his stop? what happens if the dow continued to roar up? basically he was left with a naked position and was "hoping" it would go back down.

He should teach at Star City


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## BBand (11 November 2008)

Hi Micheal,
I had never heard of "Positive Expectancy" before Van Tharp published his first version of "Trade your way to financial freedom"

Although many of us were already using some form of the concepts. I think he was the first to formalise it and make it popular to the general trading public. 
"Forget accuracy and Trade for Expectancy"

As Temjin asked earlier - why not email him - he may even make it into an article for the newsletter 

I owe a great deal to VT and I think many here knowingly or unknowingly also owe him

Some people are clever, and some people think they are


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## Temjin (11 November 2008)

tech/a said:


> All in all it doesnt matter what matters is if YOU make a profit and where you get the education from is of no concern.(well not by me at least).




I agree.

The only thing that matters is the education you get that would lead you to profit. It doesn't matter who the person is teaching, where he/she source their information on, or how "perfect" he/she is to the materials that they teach. No one is perfect in this regards.

One should not simply invalidate an expert's teaching just because he has made a mistake in his field of teaching. It would be naive and close minded to do so. The very people who accuse Van Tharp for not being "as successful" in trading and ignore his advises would probably be the one who fails in trading.


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## MRC & Co (11 November 2008)

If you listen to unsuccessful traders, then you are probably just getting the cliches you get off every other book.

If you listen to someone who is successful, they can probably provide some very small insights to help you out.  

If you listen to something unconventional from someone unsuccessful, then it's probably BS.


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## Temjin (11 November 2008)

MRC & Co said:


> If you listen to unsuccessful traders, then you are probably just getting the cliches you get off every other book.
> 
> If you listen to someone who is successful, they can probably provide some very small insights to help you out.
> 
> If you listen to something unconventional from someone unsuccessful, then it's probably BS.




It's funny though how a lot of people don't tend to follow the above advices. 

I'm actually lucky enough to start off by learning from those who were regarded as "legendary" traders and the "references" they gave me to other experts who are excellent educators. They personally "vouch" for the teachings that capture the essense of their success. 

Unfortunately, most people would follow "hypes" and from "short term" successful people and don't realise they are following the wrong advises until they have bankrupt their account and be discouraged.


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## tech/a (11 November 2008)

This is being blown out of all proportion.
A 3R loss. Good God and that was while he was training.
His timing was a day or so out.
Frankly I think it refreshing to see some humanizing.
He could have said nothing and could also have lied.

So much for transparency---good on him!


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## chops_a_must (11 November 2008)

tech/a said:


> This is being blown out of all proportion.
> A 3R loss. Good God and that was while he was training.
> His timing was a day or so out.
> Frankly I think it refreshing to see some humanizing.
> ...



Exactly. Would you listen to an educator who 'never' makes any trading mistakes? I think not. Whether it's as simple as typing in the wrong number, or something as large as altering the trading strategy, having limit sell rather than stop sell etc. we've all probably done it at some stage. And if a trader says he has never done something wrong, I'd say he was full of ****.

In any case, isn't this something similar to what Radge was suggesting for trades that were on with extra ordinary moves going against them in January?


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## cuttlefish (11 November 2008)

tech/a said:


> This is being blown out of all proportion.
> A 3R loss. Good God and that was while he was training.
> His timing was a day or so out.
> Frankly I think it refreshing to see some humanizing.
> ...





Size of the loss or that he was teaching the class doesn't matter - and yes it was a one off and he was probably caught out by some unusual volatility - but regardless it was still an example of sloppy trade management.  The most poignant thing is there was no comment to that effect in his summation of the situation - he tended to blame the market volatility.  As an educator a comment about how he could have managed the trade better probably wouldn't have gone astray.


But no, one sloppy trade doesn't mean he's not a succesful trader or a good educator - he's probably both.


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## MRC & Co (11 November 2008)

Temjin said:


> I'm actually lucky enough to start off by learning from those who were regarded as "legendary" traders




Don't know about legendary, but I would regard my teacher as good as I will ever get near.  Can't ask for anything more, got lucky!  

Agreed tech.  Not to mention, he had reasons for not exiting (gap close) etc, based on his previous knowledge, the probability was that he would be onside in the end.  He strayed from his original plan, but who says he would not have tried fade that move with seperate plays even if he did hit his original stop?  Not to mention, he said straight up what happened, didn't hide it, sounds like your normal non-internet-ego trader.


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## MichaelD (11 November 2008)

tech/a said:


> This is being blown out of all proportion.
> A 3R loss. Good God and that was while he was training.
> His timing was a day or so out.
> Frankly I think it refreshing to see some humanizing.
> ...




No, a 3R loss won't kill anyone, but breaking your trading rules will, particularly dishonouring your stops, and even more particularly if you blame THE MARKET for the loss, not YOURSELF.

1. What happens with the next trade that goes the same way? Will it be a 6R loss? A 12R loss?
2. What does he tell his classes? "I'll teach you the rules you need to follow to trade well, but they don't apply to me personally".

We all make trading errors, but there is a more insidious problem at work here.

ps I specifically avoided naming the personality involved as that IMO hinders discussion of the core issue here.


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## tech/a (11 November 2008)

> he tended to blame the market volatility.




With good reason.
I'll bet most of you have been belted by this volitility of late even those who trade mechanically.



> We all make trading errors, but there is a more insidious problem at work here.




Really.
Id have thought it would have been insidious had it been hidden/lied about or the "norm" clearly its not the norm for Vantharp or those who have been educated by his teachings.

Ive left trades on and been called out to a site and been in so much hurry I havent adjusted a trailing stop only to find I've copped a belting. My fault---yes -- the norm no---am I still net profitable---yes---have an an insidious problem--yes I'm too damned busy/to damned human at times!


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## MRC & Co (11 November 2008)

tech/a said:


> With good reason.
> I'll bet most of you have been belted by this volitility of late even those who trade mechanically.




LOL, agreed.

Intraday is the only way you can capture that volatility and not be left in the hands of the gapping.


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## MichaelD (11 November 2008)

tech/a said:


> Ive left trades on and been called out to a site and been in so much hurry I havent adjusted a trailing stop only to find I've copped a belting. My fault---yes --




And there's the difference. You take responsibility for the issue, not seeking to fob the blame off elsewhere.


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## cuttlefish (11 November 2008)

MRC & Co said:


> LOL, agreed.
> 
> Intraday is the only way you can capture that volatility and not be left in the hands of the gapping.




Depends a bit on what instruments you're trading - options enable volatility to be traded independantly to delta.


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## tech/a (12 November 2008)

MichaelD said:


> And there's the difference. You take responsibility for the issue, not seeking to fob the blame off elsewhere.







> so I elected not to exit.
> so I just watched it (but remember I was teaching a workshop).
> I was preoccupied,
> I didn’t want to compound my mistake.




Think he made it clear enough.



> It took me 25 minutes to get my fill back and I was trading with a firm that guarantees a 2 second fill or it is commission free




That can be damned annoying and very costly and not your fault.
I shudder at the slippage that could occur in 5 mins let alone 25!


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## mazzatelli1000 (12 November 2008)

cuttlefish said:


> Depends a bit on what instruments you're trading - options enable volatility to be traded independantly to delta.




Volatility can also be captured along with movements in the underlying.

I cannot remember which thread: but WayneL put on something akin to a put backspread - positive gamma, long vega before the results of bailout decision in the US last month. 

Captured both the fall in the markets and the massive jump in volatility...I miss that fella


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## julius (12 November 2008)

Think about it -- if you're short and the stock gaps up against you, but the situation suggests a positive expectancy from that point on, then it makes perfect sense to hold. The current situation has to be evaluated independently from action that's already been taken : sunk losses.

Cutting losses for the sake of it makes no sense, unless it's an emotional problem of course.


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## MichaelD (12 November 2008)

julius said:


> Cutting losses for the sake of it makes no sense, unless it's an emotional problem of course.




"I never met a large loss that wasn't a small loss to begin with"

If you have a stop and your plan says to exit when the stop is hit and you don't, you have a problem.


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## cuttlefish (12 November 2008)

julius said:


> Think about it -- if you're short and the stock gaps up against you, but the situation suggests a positive expectancy from that point on, then it makes perfect sense to hold. The current situation has to be evaluated independently from action that's already been taken : sunk losses.
> 
> Cutting losses for the sake of it makes no sense, unless it's an emotional problem of course.





Then why did he finally cut the losses on the subsequent day after he got gapped up a second time, when he again expected the gap to be filled?  And why, after taking the discretionary override on his initial plan and watching for a gap fill, didn't he put a trailing stop or some exit strategy to exit on reversal of the gap fill process?

Why did he exit at the worst possible time - the peak - after entering the short trade?


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## BBand (12 November 2008)

This could go on forever

We have two camps here - system traders with inflexible rules
and discretionary traders with rules that can be over ridden if the situation justifies it

*Both types of trade WORK*

Use the one that you are comfortable with

Discrectionary trading works well across all markets conditions, and its easy to change to a new setup that works in the current market condition. Personnally I always set initial stops, never lower them, and move them up ASAP to give a free trade. I have a variety of exits and use the one that I think most suitable for that trade.
My initial stop is always tight (low risk), and I do not mind if they get hit and I have to re-enter, if my rules allow

System trading - I'm not sure - but I would imagine it works best in trending markets, the stronger the better. I would think that trading from the weekly would be a good idea (less noise)

Just my opinion
Trade well
Peter


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## cuttlefish (19 November 2008)

What about the trading style where you ignore your stops, don't set up new exit strategies when you take a 'discretionary override' and finally exit in panic when you think your going to lose too much ... does that one work?

Its got nothing to do with the fact a discretionary override was taken - its the way the trade was managed after the override.

imo a good trader would have taken the stop, then re-entered - even if it was an immediate re-entry.  Because there is a pscyhological step to taking a re-entry that requires a proper assessment of risk/reward of the new trade, and also a formulation of an exit plan.  It also reinforces the discipline of taking planned exits.  A very experienced trader confident in their self discipline may have done all of this without physically exiting and re-entering but imo the subsequent trade management would have played out differently.


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## brty (19 November 2008)

Hi,

If VT regards himself as a master because of his knowledge of markets and exceptional traders, then he possibly thinks that the following levels of mastery apply to himself.....

This is not about just trading but mastery in anything....



> 1. Know the rules
> 
> In the first stage you learn the rules. You learn what works and what doesn’t. Discovering when to apply certain techniques and processes.
> 
> ...




My opinion is that he thought this was a time to break the rules, but panicked in the end, not good for a trader. 
A trader like Jim Rogers would sell then hold on no matter what, then pile in when the market proves him correct, obviously a different style of trading.

Perhaps going public with this trading mistake is his form of punishment to himself, to help make sure he doesn't do it again.

brty


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## MichaelD (19 December 2008)

I felt I had to resurrect this thread to offer this amazing contrast to our educator who can't trade.

http://www.pmkingtrading.com/id48.html

The relevant blog entries are;

4th November - How to generate an instant -1R loser
and
5th November - Lessons learned from an instant -1R loser


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## tech/a (20 December 2008)

I'm sure Van Tharp can trade.
Thats a rediculous comment.
Your perception of his comments is one 
of self denial (his). Fine I'm sure many of us
have done it. You of course wont have.

Interestingly your subjects top reading recommendations is none other than Van Tharp.

Good link all the same.


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## wayneL (20 December 2008)

MichaelD said:


> I felt I had to resurrect this thread to offer this amazing contrast to our educator who can't trade.
> 
> http://www.pmkingtrading.com/id48.html
> 
> ...




Geezz, that sucks.

But he's right, you learn stuff , and you move on.


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## MichaelD (20 December 2008)

tech/a said:


> I'm sure Van Tharp can trade.
> Thats a rediculous comment.
> 
> Your perception of his comments is one
> ...




1. I have never seen any evidence that Van Tharp can trade. Have you? Conversely, I have seen plenty of evidence that he has no self-discipline and chops and changes his trading style frequently, jumping from one losing method to another. Perhaps you perceive him to be a successful trader for spurious reasons.

2. I have made many trading errors and will continue to do so. I face those demons as they arise. Trading errors are inevitable. Making them more than once is unforgivable. Blaming everyone else but yourself for your trading errors is even more unforgivable.

3. As already discussed, the functions of good trading education and that of good trading are separate and not necessarily present together.


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## tech/a (20 December 2008)

No I don't.
Radge maybe able to more definitively answer the question as he has met and I believe spent time with him on a level that was not part of a teaching course.
Do you have evidence that your "Professional" trader is consistently profitable?

We have no evidence your consistently profitable.
Or I particularly now as I'm not trading any systems.

I see your point Michael but don't understand your labouring of it!


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