A number of my clients have asked me not to include certain sections in this book with the admonishment of “You’re giving away too much.” Yet my job is to coach traders and investors to achieve peak performance. Every available tool is important in attempting to do that because so much misinformation exists in the literature that the average person will constantly be led astray.

Most of the misinformation is not deliberate. People want to be led astray. They constantly ask the wrong questions. For example,

  • What’s the marketing going to do now?
  • What should I buy now?
  • I own XYZ stock. Do you think it’s going to go up? (If you say no, then they’ll ask someone else until they find a person who agrees with their opinion.)
  • Tell me how I can get into the market and be “right” most of the time.

And those selling information get rewarded by giving them the answers they want.

In April 1997, I did a two-day seminar in Germany. Toward the end of the seminar, I gave the participants the choice between doing an exercise dealing with self-sabotage (which all of them needed) and asking me questions. Although I believe hat working on yourself is the most important thing you can do, they voted to ask questions. Guess what the first question asked of me was :”Dr. Tharp, what’s your opinion about what the U.S. stock market will do for the rest of 1997?” This was despite my best efforts over the past two days to explain to them why such questions were unimportant. And hopefully, by the time you finish this book, you’ll understand why.

When people move beyond questions on what to buy to questions about “how?” they still ask the wrong questions. Now the question becomes something like this:

What criteria should I use to enter the market in order to be right most of the time?

There is a large industry available to give you the answer to such questions. Hot investment books are filled with entry strategies that the author claims to be 80 percent reliable or to have the promise of big gains. A picture tends to be worth a thousand words, so each strategy is accompanied by a graph in which the market just took off. Such “best-case” pictures can sway a lot of people and sell a lot of books. They also sell a lot of newsletters and a lot of trading systems. Unfortunately, they don’t help that many people.

At an investment conference in 1995, a well-known speaker on the futures markets talked about his high-probability entry signals. The room was packed as he carefully explained what to do. Toward the end of the talk, one person raised his hand and asked, “How do you exit the market?” His response albeit facetiously, was, “You want to know all my secrets, don’t you?”

At another conference about a year later, the keynote speaker gave an hour talk before 600 people on high-probability entry techniques. Everyone listened eagerly to every word. Nothing was said about exits except that one should keep a tight stop and pay close attention to money management. After the talk, this particular speaker sold $10,000 worth of books in about a half-hour period because people were so excited that such high-probability entry techniques were the answer.

At the same conference, I spoke about position sizing – the key factor in determining one’s profits. Thirty people listened to the talk, and about four of them purchased a book having to do with that particular topic. People gravitate toward the things that don’t work. It’s human nature.

Such stories could be repeated in conference after conference. Everyone will flock to a talk on high-probability entry signals or the software that they believe will tell them what to buy right now. And fewer than 1 percent will learn anything significant. However, talks featuring the most important keys to making real money, those on position sizing and your personal psychology, will have few people in attendance.

Even the software programs dealing with the markets have the same biases built into them. These products typically are loaded with indicators that can help you perfectly understand why markets did what they did in the past. Why wouldn’t they? Those indicators are formed from that past data about which they are predicting prices. If you could do that with futures prices, the software would be wonderful. However, the reality is that you cannot predict prices in this manner. But it does sell a lot of software. And the software does answer the question that most people have: “What should I buy now?”

I might be leaning on a lot of sacred cows before I finish this book. The reason is that you can learn the real secrets to the market only if you pay attention to what really works. If your attention is elsewhere, you are not likely to find any secrets. However, this book simply contains my beliefs and opinions. It is filled with the kind of information that will help you really improve your performance as a trader or investor. Search it out and you will take a giant leap forward in your ability to make money consistently.

Van K. Tharp, Ph.D.
June 1998