A guide to financial freedom: The book also covers a guide to achieving financial freedom through trading and the steps you need to take to reach it by creating the right mindset and trading system that fits you. The practical aspects of implementing trend following: The book provides a detailed guide to the practical aspects of implementing trend following, including how to identify trends, how to manage risk, and how to create a trading system.

where none exists, and it only takes a few well-chosen examples to convince someone that a pattern has meaning. When you combine this bias with the conservatism bias (below), you have a very dangerous situation. The book also shines in that it gives you some perspective about how to look at trading in general. The "snowball fight" analogy is very good, you're trying to accumulate earnings while accepting that there will be losses. However over the course of hundreds/thousands of trades, they need to average out to where you're accumulating, net. Trying to Beat Random Entry 200 Common Entry Techniques 202 Designing Your Own Entry Signal 220 An Evaluation of Entry Used in Some Common Systems 224 Sunmary 2 2 9 Now, you can look at your sources of income in two ways: active income (trading time for money) or passive income (money that can keep coming in, even while you sleep). The psychology of trend following: The book delves into the psychological aspects of trend following, including the importance of discipline and the ability to handle volatility and risk.later in this chapter) would stop most people from ever testing a system. And more importantly, most people never get to the point where they even have a testable system. However, for those who do get to this point, the result of these next biases can be insidious. Degrees-of-Freedom Scientific research knows about this kind of bias. Even the most careful researcher will tend to bias the result toward his or her hypothesis. That’s why scientists have double-blind tests-tests in which the experimenter does not know which group is the experimental group and which group is the control group until the experiment is over. Conservatism Bias What beliefs do you have about entering the markets? How important do you believe entry to be? Entry is probably the least important component of my trading. I By spending less, two things work in your favor. One, you’ll have more money to put aside for your financial freedom. Two, you’ll learn that you actually need a lot less stuff to survive, which also helps you put aside more money. he first key step is to take an inventory of yourself-your 3trengths and weaknesses. To have market success you must

What is your trading capacity? How do you expect to achieve it? What do you expect to do when you achieve it? How will that change your trading? They expect risk in the 5-10 percent range. Any drawdown that is over 15 percent or fhat lasts~over a year is deadly-lots of clients would fire us. is supposed to represent something, that it really is what g is supposed to represent. Thus, we assume that the daily bar chart is the market or that our favorite indicator is the market. Instead, it is just a shortcut for representing a lot of information. Reliability bias. People assume that something is accurate when it may not be. For example, market data that you use in your historical testing or that come to you live are often filled with errors. However, unless you assume that errors can and do exist, you may make lots of mistakes in your trading and investing decisions. Lotto bias. People want to control the market, and so they tend to focus on entry, where they can “force” the market to do a lot of things before they enter. Unfortunately, once they enter, the market is going to do what the market is going to do. And the goldeM rule oftrading-“Cut your losses short and let your profits run”-has nothing to do with entryThe first edition of Tharp's book came out in 1998, and is certainly a classic and deserves credit for opening many traders eyes to the importance of money management. Two other classics worth looking at with regard to this topic are Nauzer Balsara's Money Management Strategies for Futures Traders (Wiley Finance) and Ralph Vince's The Handbook of Portfolio Mathematics: Formulas for Optimal Allocation & Leverage Balsara and Vince are the "grand daddys" of money managemant, and are essential reading. Another more recent book that is written in an easy to understand style is Bennett McDowell's A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin (Wiley Trading) . It’s very useful to believe that if several people can do something well, then the same skill can be copied, or modeled, and taught to someone else. This is what NemoLinguistic Programming, or the science of modeling, is all about. To develop a good model, you need to find several people who can do the task well. You then need to interview those people to find out what they do in common. These are the key tasks involved in the model.’ It’s very important to find out what they do in common. If you don’t, you’ll simply discover the idiosyncracies of the people involved, which usually are not that important. I’ve worked with hundreds of outstanding traders and investors in a coaching role over the past 12 years. During that time, I’ve had the opportunity to learn how to do trading research ,from these experts. The steps are quite clear and easy to do. This chapter is a synopsis of the 12-step model I’ve developed through ~~thi.3 association. :1. What’s the worst thing that can happen in terms of your client relationship? How can you prepare for that so that it will not occur? likely to change them. And when we play the markets, we assume that we are considering all the available information. Instead, we may have already eliminated the most useful information by our selective perception. Interestingly enough, Karl Popper points out that progress in knowledge results more from efforts to find fault with our theories, rather than prove them.’ If his concept is true, then the more we tend to realize our beliefs and assumptions (especially about the market) and disprove them, the more success we are likely to have making money in the market. The purpose of this chapter is to explore how such judgmental heuristics or biases affect the process of trading or invest-

Analysis of the psychological aspects of trading: The book also covers the psychological aspects of trading and how successful traders have maintained their discipline and emotional control in the face of market volatility. What would you like to accomplish in the markets this year? (Affer LZ long pause) I’d like to buy my wife a car out of my trading profits. 45 Financial freedom is about taking ownership of your finances. You have a dependable cashflow that allows you to live the life you want. You aren’t worrying about how you’ll pay your bills or sudden expenses. And you aren’t burdened with a pile of debt. While paying someone else isn’t as glamorous as having money in the bank, it does bring you closer to financial freedom.If you don’t have a lot of time to devote to earning income, you can focus on increasing your income streams with passive income like: Advanced concepts in trading: The book also delves into more advanced concepts in trading, such as position sizing, risk management, and performance measurement. Chapter 6 Understanding Expectancy and Other Keys to Trading Success 130 The Six Keys to Investment Success 130 I’m very good with computers. 1 custom-programmed all of Trendstat’s early models myself. However, at this time 1 have a fully automated ofj?ce and a stafloffull-time programmers. My job is simply to lookfor inefficiencies and see to it that the staff takes care of them. What do you know about statistics? If you are looking for fast answers, a get rich scheme, or an algorithm that will tell you how to find winners, what to buy and when to buy it, then you will probably be disappointed - but in fact you may need the book more than you realize.