Today I have the pleasure of interviewing the man I consider the best trading coach in world, Mr. Van Tharp. Van is the author of 13 trading books and an expert in NLP modeling.
In this episode, Van will tell you about the three ingredients you need to master any task, why his objectives have nothing to do with making money, how language changes the way we perceive the world (and what’s possible to do in it), and how to change your beliefs and become a better trader…
10) The best trading coach in the world Van Tharp
Ney Torres: [00:00:00] Welcome everybody to the podcast. Today, I want to introduce you to what I think is simply the best coach in the world if you want to do trading. I’ve personally been in his seminars like a decade ago, and I can tell you before meeting van Tharp, I was looking for the perfect trading system. I just thought, if I could find this right system, I will make money. And then, I met you, Mr. Van Tharp, and I can tell you, you turned my whole world 180 degrees not only to trading, but I have had some really important life lessons. I want to thank you. I want to honor you with this podcast. Welcome to the show, sir.
Van Tharp: [00:00:46] Thank you very much. I’m glad to be here. My objective in my business, and it’s one reason I probably won’t ever retire. The mission is kind of transformation through a trading metaphor. We’re about changing lives. When we change lives, people income trade better, but quite often we just get all these love letters about how much you’ve changed my life. That’s what keeps us going, and that’s why I can’t imagine ever retiring.
Ney Torres: [00:01:16] I got to tell you something. There are very few things that actually can turn into such a psychological school for any professional like trading. I’ve gone digital marketing, started a couple of business in sales, I retired through real estate very young, but I can tell you there’s nothing like turning on that screen and looking at the little dot go up and down to drive you crazy.[00:01:41] So, if you really want to do trading well, you need to do psychology first. You need to work on yourself, and that takes you to another level. What you did 40 years ago almost is you took NLP modeling of the most successful traders in the world? What is that?
Van Tharp: [00:01:57] Well, actually there was a number of ways that NLP does modeling. I found one that fit what I could do and what I wanted to do, which is you need to find a number of people who do something well, so who trade well. You find out what they do in common. So, we have things like how do you develop the system? What are the tasks of trading itself? Things like, how do you achieve your objectives?[00:02:25] So we look at all those different kinds of things that people do, and we say, “Well, what are the tasks involved?” There are three ingredients for each task, which are beliefs, mental states, and the sequencing of your thoughts, which we call mental strategies. That’s pretty much what I do. The models are not necessarily real. There could be better models that come out but they’re very very useful and I help a lot of people. I meant to use that for real.
Ney Torres: [00:02:54] And that was the first live lesson that I took from you, is you talk about beliefs. I learned with you that if you stop judging your beliefs and you can see them objectively, then you can choose what works and what doesn’t work for you.
Van Tharp: [00:03:09] When you begin to say, I’m a trader, it’s actually identity shift. There’s a lot of things that have to change before you can really become a trader.[00:03:19] Back in the day when I first started modeling, people were talking about money management. I’m going, well, money management could be managing your finances or managing other people’s money, or they could call an asset allocation as well, where the real key to asset allocation is how much is in each asset. But the meaning behind all of that was how much. [00:03:42] So, you know, I basically coined a new word position sizing. We didn’t think to do a trademark on it. And then when I tried later, they said, “Oh, well. This is everyday language. You can’t have a trademark on that.”
Ney Torres: [00:03:58] Yup. Yup. Yup. Everybody uses that now. It’s the key to 80% of success of a trader, right.
Van Tharp: [00:04:07] Right. I mean we’ve had a lot of processes that have come out of modeling, such as the impact of mistakes, focusing on reward to risk ratios instead of being right, which means you define your initial risk as R.[00:04:23] And then you think in terms of R multiple of each trade. So, profit or loss is a function of your initial risk. A 10R doesn’t mean your investment went up 10 times at value. It means you made 10 times what you are willing to risk on the trade and that’s a lot easier to do than have a something go up 10 times in value. [00:04:43] Other words like expectancy, expect unity, system quality number, the impact of market type, etcetera, etcetera.
Ney Torres: [00:04:52] Just to simplify this a little bit more for people that don’t know much about trading is you see the world in your belief system that, I guess that’s what we’re trying to describe here. It’s that you see these more like a… Could it be a mathematical process of risk reward?
Van Tharp: [00:05:13] Well, it could be. We get indoctrinated in the schools because you have to get at least 70% right on a test to even pass up. So, we get indoctrinated to need to be right. You can be right less than 50% of the time if you make three times your money every time you’re right. And you only lose what you risk when you’re wrong.
Ney Torres: [00:05:38] That describe it super well. So you can still lose most of the time, but even when you win, you win big, you make money.
Van Tharp: [00:05:45] Sometimes people get in on. I just have an incredible edge that nobody else has at the time they come in. It’s not a Holy Grail. Like [unclear] was a computerized trend follower who understood markets, money, position sizing, at a time when the commodity markets were in huge uptrends and nobody else had that edge.
Ney Torres: [00:06:13] What was his track record? I remember he’s called the Bill Gates of trading.
Van Tharp: [00:06:18] I don’t know. I worked with him for a couple of years and I know, his wife once told me he wouldn’t talk about what he was worth or anything. His wife once told me that he basically controlled two brokerage houses at the time. You would never see him listed anywhere and what his worth is.
Ney Torres: [00:06:38] Yes. I think he made a video in YouTube though, a very interesting song.
Van Tharp: [00:06:42] A song? Sure.
Ney Torres: [00:06:43] Exactly. Yeah. For anybody out there, you should Google that, but yeah. Interesting character. So, your objective you say is not making money.
Van Tharp: [00:06:52] That has everything to do with transformation. For example, David Hawkins has a scale of transformation where that goes from zero to a thousand. It’s a log scale. The dividing line between positive and negative is that 200 on the scale. Fear and greed come in at like 125 and in a hundred on the scale. And you know what happens when you try it out of fear or greed?[00:07:22] I think you need to go to about 350 on the scale, which is acceptance, but I don’t know if those numbers mean anything so I like to think of consciousness’s four stages. Fear and greed are where things happen to me. And then the second stage is where things happen because I seize control. So, that’s kind of a power thing. And then the third one is things happen through me because I have a purpose and mission, and I’m following that. The fourth stage, which very few people get to is everything is me.
Ney Torres: [00:07:56] I know you have a process to go to define conscious levels, right?
Van Tharp: [00:08:01] Well, that’s everything we do. If you start clearing out all the negative stuff inside of you, your consciousness tends to go up. Well, what you might be getting out of. I’ve recently did a training video, which I called Trading Genius II.[00:08:22] The process behind it… What’s behind it is that all our experiences basically, an internal subjective experience. It’s not real. Even though it seems real. And I can prove it because if you look out what’s got to be out there in the world, it has to be things like electromagnetic vibration. And then what happens is our sensors have to translate electromagnetic vibration into electric chemical energy. So, for example, you have cones in your eyes that would transform a 650-nanometer light wave into a certain sensation. And then when you get to a language filter, then it’s called red, but there’s no similarity between the word red and the vibrations that are out in the universe. Anybody can figure that out. By the time we’re five, we know a language and it’s shaped our brain so that we can think in that language. But language tends to divide the world into subject, object, and verb, which really isn’t out there. It doesn’t exist except because of language. [00:09:35] So, you know, if everything is one, which is hard to understand for most people, you’re not going to know that because language just separates us. I mean I think Sanskrit is the only language that doesn’t have an eye sense, but all the rest have that quality of separating the universe into subject, object, verb. Any kind of verb, which we can take that verb and basically turn it into a noun. Let’s take an example of the market. The market is a process. It’s a process of people getting together and doing buying and selling. But we basically take it and turn it into a noun. Then give the noun all sorts of characteristics. None of which is real. The closest approximation you might come to representing the market is a bunch of tick dots, but we don’t like that so we might turn them into tick candlesticks. Well, now you’re giving some importance to four dots. The first, the last, open, and the close of a time period, which you’re setting arbitrarily. [00:10:43] And then, maybe you can’t make any sense out of that so you start drawing lines on indicators, on patterns. Pretty soon you’re doing all kinds of crazy things that have nothing to do with a market. So really what you’re doing is you’re developing a bunch of beliefs about the market. None of which are true, but some of which could be very useful. If you become aware of that, the utility of the beliefs, then you begin to get into, and knowing that none of them are real, then you can begin to get into what’s potentially the Holy Grail of trading.
Ney Torres: [00:11:19] Being present, reacting.
Van Tharp: [00:11:21] I have a belief, for example. I was going up and so it starts going up.
Ney Torres: [00:11:30] Okay.
Van Tharp: [00:11:32] That’s pretty simple. Well, I could make that. So, let’s say I’m doing the stock market. I’m going to say find the strongest sectors and buy the strongest stocks in the strongest sectors. And then you go, “Okay. That makes more sense.”[00:11:47] So, you know, the strongest sectors probably have some fundamental reason behind them. And you find the strongest stocks that are likely to go up for some time. And then you say, “Well, how do you know when it stops going up?” You could say it was this big correction we’ve had because of the coronavirus or what people deem as a belief to be due to the coronavirus. Does that mean the market stopped going up or what? [00:12:18] So you have to have a definition of what useful for you when the market stop going up. Then that becomes a system and you have to figure out under what content… So every bullet… So let’s talk about beliefs for a second because no belief is 100% true. They’re just useful and they’re useful when they bring value, and my definition of value means they bring value not only to me, but to a lot of people and in as wide a context as possible. Another example of that, you might go, “Well, I don’t believe that it’s a fact.” [00:12:54] If you jump off of a 20-story building, you’ll go splat on the ground below and make a mess and that’s it. That’s a fact. I’m going, “No, it’s a belief.” And the context in which the belief is true is pretty wide. It means you live on a planet like the earth that has certain amount of gravity in which that’s a likely scenario, but even then, there are people who fall higher and they don’t die. [00:13:28] It’s a useful belief for a lot of people. And that’s the kind of thing you want to trade. And a lot of people who trade have beliefs about indicators, which is absolutely ridiculous. I think I’m going to buy and I’m going to sell one of those divergence. Well, that’s a belief about a bunch of indicators. I think the more removed you are from the original representation out there, the more trouble you’re likely to get out of it.
Ney Torres: [00:13:57] When you had beliefs, you could also have limiting beliefs.
Van Tharp: [00:14:01] Limiting belief is a belief that is useful under a very narrow context and doesn’t have very much value. When you were a kid, your mom didn’t show up in a presentation you had in school and your go, “My mommy doesn’t love me.” Well, that’s a belief that you formed in that instant and that maybe gave you an explanation. It wasn’t a useful explanation, but it gave you an explanation why mommy didn’t show up. Generally, if you just kept that, that’s the non-useful belief.
Ney Torres: [00:14:33] I saw a video of you decades ago, and your message is very consistent. That’s one of the things I’m really impressed about you. You had a lot of clarities since the beginning of your career. You used to say, trading was 80% psychological. Now you say it’s 100% psychological. Why? Because of what?
Van Tharp: [00:14:54] When I said that was 100% psychology, it just came out of the modeling because there’s three ingredients for modeling, which are beliefs,
mental states, and mental strategies. Those are all psychological things, but if you understand what I just said, which is, you can never know the outside world. You can only know your representation of the outside world, and your experience has to be a projection into the outside world. So, it’s all you creating it in some way.
Ney Torres: [00:15:25] That’s really deep. I think I understand what you were saying. Let me ask you something else, a little more basic. You mentioned once to me, if you don’t write your criteria down, if you don’t have clear rules for trading, then everything you do is a mistake.
Van Tharp: [00:15:38] Correct.
Ney Torres: [00:15:39] So that means you have to believe in a system and follow that system.
Van Tharp: [00:15:43] Right. And you have to have to have a set of rules that will guide you. And if you’ve proven that the system is useful in a certain context, this context would be a certain market type, and it works for you, and it fits you, then you can probably trade that.
Ney Torres: [00:16:06] But it’s almost… Well, you did teach me this. You need three different systems, right.
Van Tharp: [00:16:14] There’s at least six market types, which is up, down, sideways, under quiet and volatile conditions. It’s pretty easy to design a system for any one of those market types. And it’s insane to assume that it’s going to work for all market types. Most people want one system and then they try to tweak it when the market type changes and it doesn’t work.
Ney Torres: [00:16:44] So by the way, I want to mentioned here that if anybody’s listening to this right now, you should go to VanTharp.com and register for the free newsletter. I think you write on newsletter every two weeks.
Van Tharp: [00:16:59] No, every week.
Ney Torres: [00:17:01] Every week.
Van Tharp: [00:17:02] The latest one came out today.
Ney Torres: [00:17:04] Oh, great. And you update the market tag too. You have some beliefs about how to classify each market.
Van Tharp: [00:17:12] Right. I think today’s newsletter has the link to the podcast I’m doing on Friday at noon?
Ney Torres: [00:17:22] I’ll put it on the links for sure. How do you create trust on that three, six, nine systems that you’ve developed? How do you know when to use each?
Van Tharp: [00:17:34] Well, first of all, you have to have some sort of convincer strategies to convince you that it works. And that’s all subjective. It’s all made up.[00:17:45] It’s basically based on what I call sub modalities. Some people could say, “Oh, Van is an expert. If Van says it works, then it works.” And they might trust me. Or they might say, “Well, I have to understand how it works. And then hear an expert say it works.” Or you might say, “Well, I have to see it for myself.” [00:18:10] So they go to a show and they see some computer. You’re supposed to buy when the green arrows come, and sell when the red arrows come. And they see 50 examples of trades where the green arrow is lower than the red arrow. So, they make money and they go, “Oh, I want to buy that software because they’ve seen enough examples.” [00:18:29] Well, these are all examples of different people’s convincer strategy. They’re all kind of ridiculous. You have to have some strategy to decide when it works. My strategy would be to really understand your beliefs and understand the limitations of the beliefs when they work and when they won’t.
Ney Torres: [00:18:48] Easier said than done, right?
Van Tharp: [00:18:50] Correct.
Ney Torres: [00:18:53] You have a super trading program too. And I guess that’s what you do in three years is work on those beliefs.
Van Tharp: [00:19:02] There’s three programs. Super trader I is where you clear up your psychology. Super trader II is where you develop a business handbook or a business plan for your trading. Super trader III is where you develop the systems and prove you can trade at least 95% efficiency.
Ney Torres: [00:19:22] That’s not an easy task. When people come and say or ask me, “Hey, I want to do trading, what do I have to do?” I freeze because it’s somebody asking, “Hey, how do I become a doctor?” I think you will agree with me that people get confused because they can open an account for $200 and $500.
Van Tharp: [00:19:43] I always say that if trading were easy big money, it would make it impossible for you to trade. They’d have rules and regulations in place that said, “You have to pass this test.” The test would be very, very, very difficult. And if you passed, it would allow you to work for them, which means you could try the markets for them and make them money. But trading isn’t easy, so big money makes it very easy for you to get in and has lots of ways in which you can give them money.
Ney Torres: [00:20:19] Yup. I agree 100%. If it’s easy, everybody will be doing it and then it will stop being easy or profitable.
Van Tharp: [00:20:27] It seems funny, but when it’s the easiest to make money, you probably see the fewest people participating in a market.[00:20:34] In 1999, you could go into any bookstore and there were rows and rows of books on trading and all sorts of things. Now, there’s maybe one book case. Well, about 10 books that’ll have maybe Robert Kiyosaki, Tony Robbins, and maybe a Jack Schwager or something in there. None of my books will be in there. That’s sad. And we’ve had this huge bull market for at least since 2009, and hardly anybody’s participating in it.
Ney Torres: [00:21:06] That’s interesting. So, are you telling me that it’s you as an educator, most of your business comes when the market crashes and everybody wants to learn, but when there’s a bull market, everybody thinks that they’re a genius? Is that it?
Van Tharp: [00:21:21] Well, no. I think I put myself out there with saying things like, I’ve been saying here, which to probably 75% of the population would make them think Van is really kind of weird. I’m not sure I want to do it with him. I haven’t anything to do with him. So, I appeal to a certain type of people who really what I say makes sense and they really want to work on themselves.
Ney Torres: [00:21:47] That’s true. Okay. I understand. Very good. When do you think somebody should start in this, let’s call it a venture? When should somebody say, “Well, I have this amount in savings and I want to be a trader.”?
Van Tharp: [00:22:00] Well, I think if you’ve got 20,000 to 30,000, I’d spend it on your education first. Because I watch it just give it all back to the markets. I don’t know if there’s a good time, but if you’re committed to treating it like any other occupation, if you want to be a doctor, you’ve got to go through college education and then medical school, and then internship and residency and all of that sort of thing, and you know, then maybe you’ll learn to operate on somebody’s brain.[00:22:33] What happens with trading is it’s like, “Here’s a scalpel. Here’s a patient. Go operate on his brain.” You need the education that it takes to become aware and competent first.
Ney Torres: [00:22:45] And how long will that take? In order to master something, it takes a lifetime, right. How long does it take in your experience for someone to say, “I feel comfortable with this.” And everybody’s different. I understand that.
Van Tharp: [00:22:56] I’d be making up something if I said that it takes this long because I’ve had that thing that competence takes 10,000 hours of practice. Well, you could have 10,000 hours of practice of incompetence. So that’s not necessarily even true.
Ney Torres: [00:23:11] Practice creates permanence. It doesn’t make perfect.
Van Tharp: [00:23:14] Right.
Ney Torres: [00:23:15] So what is the Holy grail of trading? You mentioned that before.
Van Tharp: [00:23:18] I used to say it’s you, and now I think that’s a combination of what I just said that you only trade your beliefs, which of course is you. High level thinking, systems thinking, beyond the matrix thinking.[00:23:33] That’s quite different from say, knowledge has evolved from an authority paradigm where say the King or the church and the early Greeks were right and nothing could really contradict them to the scientific model, which basically says you can take things apart, figure out how each part work, study one variable in isolation, and find a lot of things. [00:23:59] But it turns out you always got some assumption then the assumption’s wrong. So, science models evolve every 25 years or so. To systems thinking, which really came out of things like quantum physics and more advanced things, which says everything influences everything else. And the subjective as important as the objective to what I call beyond the matrix thinking, which is getting advice from your internal guidance as well. [00:24:24] So I think the Holy grail is a combination of systems, beyond the metrics thinking, combined with you only trade your beliefs.
Ney Torres: [00:24:34] Perfect. Well, thank you very much, sir. I wish everybody could go and start reading Mr. Van Tharp books. I think you have 11 right now. Visit his webpage. Prepare yourself because trading takes a while.[00:24:45] It takes a long time. It’s not about indicators. If you’re doing that, if you’re looking for indicators of the work and stuff like that, you’re just starting out and you have a long way to go. [00:24:55] Thank you very much, sir.
Van Tharp: [00:24:58] Welcome.
Ney Torres: [00:24:59] I appreciate it. Thank you for your time. It’s truly an honor to talk to you, sir.
Van Tharp: [00:25:02] It was my pleasure. Thank you.
Ney Torres: [00:25:05] Thank you. Till the next time.
Van Tharp: [00:25:07] Alright, bye-bye.
Ney Torres: [00:25:09] Bye. Bye.