Van K. Tharp - Super Trader: Make Consistent Profits in Good and Bad Markets: Make Consistent Profits in Good and Bad Markets

SUPER

T R A D E R

MAKE CONSISTENT PROFITS IN

GOOD AND BAD MARKETS

Van K. Tharp, Ph.D.

WITH ILLUSTRATIONS BY JILLIAN COMPHEL

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This book is dedicated to three very special people in my life.

My wife, Kalavathi Tharp, provides a very special spark in my life. Without that spark and her tremendous love, this book would not be possible. My son, Robert Tharp, is one of the real joys in my life. Hes a trader, and hes worked very hard to understand these concepts. Im very proud of him.

And my niece, Nanthini Arumugam, has in my mind become the daughter that I always wished I would have. I am very blessed to have all of you in my life.

Copyright 2009 by Lake Lucerne LP. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

ISBN: 978-0-07-171316-0

MHID: 0-07-171316-6

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Contents

iii

iv Contents

Contents v

Acknowledgments

So many people contributed to the content of this book, and although I cannot recognize each of you individually, to all of you, let me just say thank you. Some of you may have just asked a question that stimulated me to think in a certain way.

Some of you may have made a suggestion that started me in a new direction. However, certain people deserve a special acknowledgment because their contribution was enormous.

In particular, Id like to thank Jillian Comphel for her wonderful illustrations for the book. Jillian is a member of my staff, and I was delighted to find that she was so talented.

Id like to thank Becky McKay for her work in proofing and editing, and for being an all-round jack-of-all-trades for this book. Thanks, Becky.

Id also like to thank Cathy Hasty and Melita Hunt for everything they do for me because what they do makes it possible for me to write a book like this. Thanks to both of you.

Melita, who used to be the CEO of my company, passed away in early 2009. She was a joy and she will be greatly missed.

Thank you all for your incredible contributions, as well as all of you who contributed in a small way that Ive not mentioned directly.

Van K. Tharp, Ph.D.

vi

Preface:

The Fate of the

Average Investor

Countless times people call me up asking for help; however, their plea usually comes with the condition I dont want to spend a lot of time or do a lot of work because Im just an average investor. Is that you? Well, Joe Smith considered himself an average investor.

Joe retired in 2003. He had done well during his working years and had a retirement income of $6,500 per month, including Social Security. He had saved about $623,000 as a nest egg for emergencies in his retirement. He still owed about $350,000 on his house. Joe and his wife debated a lot about whether they should pay off the mortgage with their cash. The house payment was nearly $2,000 per month, and if they paid it off, theyd have plenty of money to spend each month and little to worry about.

Joe had lost about 30 percent of his retirement nest egg during the market crash from 2000 to 2003. However, in 2003

the market was going up. Joe figured the worst was over and he probably could make 10 percent per year on his money. That would give them an additional $5,000 per month for spending, which more than covered his mortgage payment. Joe had an advanced degree in civil engineering, and as far as he was concerned, investing wasnt rocket science. Hed do well in the market because he was a smart guy. Chances are, he thought, he could be better than average and get his account back up to a million dollars (the way it was before the 2000 crash).

Joe made a mistake that many people make. Hed spent nearly eight years learning his profession and much of his life staying on top of it. He thought he was smart enough to