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Audio-Interview mit Dr. Van K. Tharp

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In Anbetracht dessen, dass sein Buch - Clever Traden mit System -

eben in die neu überarbeitete Auflage ging, mal wieder ein Verweis
darauf…

WSR: Trade Your Way to Financial Freedom. In your experience, what

are the best qualities that one can possess for successful trading?

Mr. THARP: Well, there are a number, but I will give you the short
version. The first one is what I call total responsibility for the results
you get. In other words, you have to make sure you are willing to
believe that whatever happens to you is a result of your actions.
Thatʼs important because when you adopt that attitude, you can
figure out the mistakes you have made and correct them. Otherwise,
itʼs easy to blame, to justify, to do all sorts of things to avoid
responsibility for your mistakes, and then you end up repeating them
over and over again. I would call that number one. Number two is total
commitment to whatever you want to do. There is a lot of work
involved in becoming a good trader. You can open up a brokerage
account and put a bunch of money in it, but thatʼs like walking into a
hospital and deciding to perform brain surgery on someone. They will
probably lose their life and you will probably lose your money. There is
a whole lot of work that needs to be done to get somebody to perform
. This includes developing a business plan, developing strategies that
step the business plan, and doing a lot of self work to make sure you
donʼt make any mistakes. Then there are other things, like really good
math skills. I think the statistics-based approach to trading is probably

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the best approach. You have to understand probability and statistics

at least a little bit. Most people are pretty good gamers, those who are
good strategist. We have discovered varied personality types. I have
classified people under roughly 15 different personality groupings. We
actually have a test that we let them take. It takes about 10 minutes,
may be less. Itʼs comprised of 35 questions. That is free on the net at
TopTraderTest.com.

WSR: Have you found out which personality has been the most
successful at trading?

Mr. THARP: It is the one that we call the strategic trader. They are very
good at this kind of engineered profile. Once they adopt some of
those qualities that we talked about, they are usually very good at
developing systems and following through.

WSR: They have some of the greater qualities that one can have for
taking responsibility and putting a full commitment to the task at
hand. What qualities can be really deadly in a trader?

Mr. THARP: I think the worst ones are probably the compulsive
gamblers, those with a need for excitement. I used to work with some
compulsive gamblers and psychologists. They were just beginning to
recognize, this was in late 80ʼs, I believe, that the markets were a
place where compulsive gamblers could go. Itʼs definitely an area in
which one can loose millions of dollars. There were gamblers who
had, somehow, managed to get money. Maybe they borrowed it from
their businesses. Who knows? They would lose millions. The IRS, of
course, would say they owed taxes on millions of dollars that they
somehow manage to earn and lose in the market. So, thatʼs probably
the worst one. Then there are things like the herd mentality, where
you basically have no clue of what to do, but as more and more
people get excited about it, you get excited about it too. A classical
example was March of 2000. We had 71 people in our stock market
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workshop. We normally have about 15-16 people in our workshop.

What a nice timing, March of 2000.

WSR: The bubble is not too far away from bursting.

Mr. THARP: Yeah.

WSR: In your books, you mention several biases that can prevent
someone from succeeding. What were the most common of those
biases?

Mr. THARP: There are lots of them, but I will mention two to make sure
we can cover them fairly thoroughly. The first one is just the need to
be right. People want to be right, and they think trading success is all
about being right. Let me give you an example of what that does to
somebody. The golden rule of trading is to cut losses short and let
profits run. Kahneman and Tversky won a Nobel Prize in Economics
for a prospect theory, which shows that people do the opposite. Say
you have a stock in the market, and its price starts to go down. You
donʼt want to take a loss, so, when it gets close to your stop, you
make yourself believe its going to turn around. You want to make sure
you donʼt lose money in this trade. So you take the loss off or you take
the stock off. Then, it goes down even more. It was hard enough to
take that loss when it was close to your stop. As it goes down more,
pretty soon your loss gets huge. Then, unless you are in a leverage
position where you are forced off, you become a long term investor
and you donʼt even look at it. I think a classical example was when
somebody sued one of the major brokerage companies for a huge
amount of money because he had lost millions of dollars in his
portfolio, which amounted to about 90%. He had to have to seen the
portfolio at 10%, and then 20%, and then 30%, and then 40%, and
then you probably stop looking at it. In the end, it was too much. He
could not take any more, it was time to sue the brokerage company.
That also illustrates the point of responsibility that I mentioned earlier.
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He didnʼt have it; it was the brokerage companyʼs fault that he lost lots
of money. So, thatʼs the loss side. On the win side, people try to get a
profit, they want to sell it immediately, so they write about it and they
have a profit before it gets away. People cut their profits short and let
their losses run because of their need to be right, which can be an
absolute disaster.

WSR: You mentioned stock stop loss to prevent big big losses, but
how about letting profits run? How can we facilitate that?

Mr. THARP: Let me give you a good example of what I call the long-
term investors (?) for buy and hold. I call this a 25% trailing stock. Let
us say, for example, that in the mid-1990ʼs, you decided that
Callcom(?) was a great investment. Letʼs say you bought $4,000
worth of Callcom and you are trailing stock. Your risk is $1,000, up 1%
of your portfolio. If it goes down, maybe the price is $20 a share. If it
goes down to 15, which is 25% of it, you are out. Now, as the stock
keeps going up in value, each time it makes a new high, your new stop
becomes 25% of that value. Callcom, at end of 1999, was about $600
a share. It was fluctuating in value by about $100 a share, but that
25% trailing stop kept you in that position all the way up until the top.
It took you out right about the time, in late in 1999, that was the
bottoms for that stock. So, generally something like a 25% trailing
stop will get you out of a lot of problem. It gives you plenty of room to
let the stock work. If it goes against you by more than (?) 25%, there is
something fundamentally wrong with it, something fundamentally
wrong about the logic of where you bought it. It tends to work.

WSR: That leads right into my next question. For someone who is
trying to get started in trading, what is the key to finding a system that
works? Is there something generic that they start with and then fine-
tune? Should they just research a specific strategy and really promote
that?

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Mr. THARP: I have a course called, ‘How to Develop a Trading System

That Fits Youʼ. Jack Schwager wrote a couple of great books, called
“Market Wizard,” in which he interviewed some of the best traders
and investors in the world. One of the qualities he saw that was
common to all of them, because they all have developed something
that fits them, was the effort of success. So, weʼve developed the
course around designing and developing a trading system that fits
you. Allow me to summarize some steps which can be taken. First,
know that you really donʼt trade the market; you trade your beliefs
about the market. So, whatever you do in the market has to be filtered
through whatever you believe about the market. Consequently, thatʼs
what you will trade. If you believe that markets tend to trend, then you
could be willing to follow a trend. If you believe that you should never
buy too high, thatʼs probably the way that you trade. You might want
to look at value or something like that. The first two exercises we
typically have people do are listing a complete introductory of their
beliefs about themselves and their beliefs about the market. I canʼt go
through all of the steps here, but you also need to decide what your
criteria are to be comfortable trading something. You might have to
back test it and do a lot of things with it. What is it that you have to do
to convince yourself that this is going to work? You really need to
know those criteria before you get into this, or you wonʼt be able to
trade it. Then, you need make sure that the system meets those
criteria in order to be able to trade it. People donʼt realize that
probably the most important part of developing a system that fits you
is determining what your objectives are. Mostpeople say, ‘well, I want
to make a lot of money, I donʼt want to lose much.ʼ But, if you really get
into objectives and fine tune them, you could say, ‘I want to make
anything from 1% to 1000%.ʼ There are a lot of numbers there. You
could say, ‘I donʼt want any losses bigger than such and such a
percentage,ʼ and that could go from anything from 1% - 100%. So, an
objective statement might be, ‘I want to maximize the probability of

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making 50%ʼ or, ‘I want to minimize the probability of losing more than
10%.ʼ You could have so many combinations of those that there is
almost an infinite number of objectives. You have to decide what they
are, because then you have to develop a system that maximizes them.
Lastly, people donʼt realize that itʼs not the system itself, which is the
entries and exits that really meet your objective, it is the factor that I
call, “position sizing” or “how much”. So, when you have all the
system together, that helps you to cut losses short and let profits run.
Then, you need to understand your objectives and develop a whole
algorithm, involving position sizing, that will meet those objectives.
So, itʼs not quiet as simple a process as you might think.

WSR: Position sizing is important because when you are trying to

build a proper investment portfolio, you never just buy all at once or
sell all at once.

Mr. THARP: Right. For example, if you follow that strategy of the 25%
trailing stop, my recommendation of position sizing strategy would be
to risk no more than 1% for position. If we have a $100,000 account,
we could have 25 positions of $4,000 each. Each could risk 1% or
25% of that $4,000. So, you would have 25% total risk. Weʼve tested
that over the years and, by far, outperformed the S&P 500.

WSR: Doctor, I would like to thank you for coming on and shedding
some light on what it takes to be a good trader and to create a
profitable system. I had a chance to read the second edition of Trade
Your Way to Financial Freedom. Why donʼt you tell us what sort of
updates are in this edition?

Mr. THARP: There is a lot more on belief. There are three or four new
chapters in there. There is a chapter that involves how different types
of people can approach the market with totally different ideas. As long
as they follow some of the sound principles that I recommend, like
cutting losses short and letting profits run, they can all make money. It
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displays about 6 or 7 positions that they might have taken, some

being long, some short. It shows how they could all make money
except for the compulsive type who doesnʼt have any of those
qualities. He, of course, always manages to lose money. I updated all
of that to be much more recent. I developed something that allows
you to rate systems according to a very strong standard. We ranked
some newsletters based on those systems. So, you get some idea of
exactly how newsletters perform as an investment system. There is a
lot of new, interesting stuff in there.

WSR: You also mentioned that you offer some trading classes. Why
donʼt you tell our listeners how they can learn more about your trading
workshops?

Mr. THARP: We have a website, either vantharp.com or iitm.com.

Either one of those gets you to the same site. We have a free
newsletter that updates you on the workshops we do on a regular
basis. We have descriptions of the workshops, all sorts of things.

WSR: Thatʼs great. I would like to thank you again for coming on. We
would certainly love to have you on again.

Mr. THARP: My pleasure. Thank you.

Hier kann auch deine Werbung stehen!

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