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Internal control is one of the major determinants of the long-term trading success. The following article is based on the book “Trade Your Way to Financial Freedom” by Van Tharp...

 

Internal control is one of the key determinants of long-term trading success. The following article is based on the book Trade Your Way to Financial Freedom by Van Tharp.

 

The Importance of Internal Control

 

According to Van Tharp, internal control involves three key components:

  • Psychology (60% weight)

  • Position sizing (30% weight)

  • System development (10% weight)

In many ways, trading success is a result of internal control. However, most traders fail to recognize its significance.

  • Internal control is essential for effective portfolio risk management.

  • Traders who commit to developing internal control are the ones who ultimately succeed.

  • Most successful speculators have low win rates (35–50%), yet they remain profitable because their gains significantly outweigh their losses—this requires strong internal control.

  • Successful fundamental investors are often contrarians who wait patiently for the right opportunity before entering a position, which also demands internal control.

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Martin Zweig (1942-2013) was a famous American stock market analyst, adviser, and investor...

 

Martin Zweig (1942–2013) was a renowned American stock market analyst, adviser, and investor. His investment approach combined macroeconomics, fundamental analysis, and market timing. In addition to his popular newsletter, The Zweig Forecast, he published two books:

  • “Winning on Wall Street” (1986)
  • “Winning With New IRAs” (1987)

The following advice is taken from his first book.

 

General Advice from Martin Zweig

 

  • The major direction of the market is dominated by monetary considerations, primarily FED policy, and the movement of interest rates
  • Once established, the trend typically lasts from one to three years.
  • Combining to produce a monetary "climate" is loan demand in the economy, liquidity in the banking system, inflation or deflation, and, of course, policy decisions by the Federal Reserve
  • To succeed in the market you must have discipline, flexibility, add patience. You have to wait for the tape to give its message before you buy or sell.

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A currency exchange rate reflects interest rate policies as well as macroeconomic factors such as economic growth, inflation, and unemployment.

 

Basic Fundamental Conditions in the Foreign Exchange Market

 

Primarily, an exchange rate is influenced by a combination of the following fundamental conditions:

(i) growth, inflation, and unemployment

(ii) monetary policies, and especially the interest rate policy of the central bank

(iii) fiscal policies & government spending

(iv) political stability (political risk)

(v) legislation regarding capital taxation & the openness of the domestic economy

 

New macroeconomic developments can create trading opportunities in the Forex market

The Forex market is highly efficient, with news impacts quickly reflected in exchange rates. However, major shifts in the broader macroeconomic environment can present significant opportunities for traders. In fact, all key Forex trend reversals are driven by such macroeconomic shifts.

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The Forex market operates as a decentralized network where the world's major currencies can be traded one against another in a 24-hour basis, from Monday to Friday...

Introduction to the Foreign Exchange Market

With daily volumes exceeding USD 5 trillion, the Foreign Exchange Market, or Forex, is the largest financial market in the world. It operates as a decentralized network where the world’s major currencies are traded against one another on a 24-hour basis, from Monday to Friday.

 

The Short History of the Modern Currency Market

 

After the end of World War II, the Bretton Woods Agreement (1944) laid the foundation for a new global monetary system. Under this agreement, a country’s currency was pegged to a specific quantity of gold. When the Bretton Woods system ended in the 1970s, it gave rise to the modern Floating Currency System. In this system, the value of each currency fluctuates based on supply and demand dynamics.

  • In 1971, the CME (Chicago Mercantile Exchange) became the first exchange to offer currency trading through the International Monetary Market (IMM).
  • Following 1990, advances in information technology paved the way for a fully computerized trading environment—today known as the Online Forex Market.

More: » World’s Exchange Rates History

 

Today, hundreds of online brokers provide access to the Foreign Exchange Market. These brokerage firms typically fall into three main categories:

(1) ECN Brokers (Non-Dealing Desk)

(2) STP Brokers (Non-Dealing Desk)

(3) Market Makers (Dealing Desk)

More: » Brokers for Forex Investors

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Category: Trading Rules

 

Nassim Nicholas Taleb is a Lebanese-American mathematical statistician, author, risk analyst, and options trader. His work centers on uncertainty, randomness, and probability. He developed the risk-hedging technique known as 'Tail risk hedging' or 'Black Swan protection,' which aggregates portfolio exposure to guard against extreme market volatility. According to the Sunday Times, his 2007 book The Black Swan is one of the twelve most influential books since World War II.

 

Nassim Nicholas Taleb's Background

 

Born in 1960, Nassim Nicholas Taleb is a Lebanese-American scholar, former trader, and risk analyst known for redefining how we view uncertainty and randomness. His trading experience on Wall Street shaped his skepticism of traditional risk models.

  • Taleb’s key idea is the Black Swan—rare, high-impact events often ignored by conventional thinking. His 2007 book The Black Swan highlights how underestimating randomness leads to major failures.
  • He developed tail risk hedging, a strategy that protects portfolios from extreme market swings through asymmetric payoffs—small losses for large gains during crises.
  • His Incerto series explores concepts like Antifragility (systems that grow stronger from disorder), Skin in the Game (risk accountability), and the Lindy Effect (longer life for enduring ideas).
  • Though sometimes controversial, Taleb’s ideas influence finance, economics, and policy, advocating humility and robust systems in uncertain times.

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Linda Bradford Raschke

 

Linda Bradford Raschke is an American trader who primarily operates as a futures trader. She began her trading career in 1981, making markets in options. Later, she became a registered Commodity Trading Advisor (CTA) and founded LBR Asset Management.

 

Linda Bradford Raschke's Background

 

Born in 1959, Linda Bradford Raschke is a respected American trader known for her expertise in futures and options. With over 40 years of experience, she’s recognized for her disciplined, innovative trading and strong risk management.

She started as an options market maker in 1981, developing sharp skills in fast markets. Later, she became a registered Commodity Trading Advisor (CTA) and founded LBR Asset Management, managing funds with both systematic and discretionary strategies.

Raschke’s trading style blends price action, classic chart patterns, and momentum indicators. Her ability to adapt to various markets makes her a sought-after mentor and author, sharing knowledge on short-term, swing trading, and position sizing.

 

Trading Style and Contributions

Raschke is renowned for her technical trading methodologies, often combining:

  • Price action analysis

  • Classic chart patterns

  • Proprietary momentum indicators

As a trailblazer for women in trading, her emphasis on discipline, patience, and continuous learning continues to inspire traders worldwide.