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Van Tharp Institute Peak Performance Course for Traders. My journey through the course.

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I just started the Van Tharp Institute Peak Performance Course for traders (home study edition). I really need to improve issues with my trading (fear, self-sabotage, over-trading, etc.). I think this course could really help. To place some accountability on myself to finish the course I plan to post my reading notes and assignments online. Hopefully, the info provided will help others as well.

 

 

Van Tharp Institute Peak Performance Course

Vol 1: How to use Risk

Preface:

The three stages of growth for a trader.

1)    They think they can make easy money from trading. They think the most important thing to investing/trading is picking the right stock.

2)    A substantial change has to occur where the trader begins to asks, “how should I trade to make money.” Thus, they start looking for a trading system that fits them.

3)    The trader realizes that trading success does not come from external control, but from internal control. Controlling risk, profit/loss>1 and position sizing all comes from internal control.

 

Chapter 1

Commitment means congruency. It means the whole person is working together for a common purpose. No internal conflicts. When committed, trading is no longer just a hobby. The moment one definitely commits one’s self, then Providence moves too. I translate that as: when you are committed to work hard, luck will be on your side.

To develop commitment first you must determine your obstacles. Second, and more difficult, you need to determine how those obstacles reflect what is going on within you. The last step is deal with them. Make peace with the obstacles by making them unimportant.

Below I created my personal obstacle table:

Obstacle

Internal reflection

Make them unimportant

Fear

1)    Fear of being wrong

2)    Fear of missing my stop

3)    Fear the loss will affect my trading and mood.

4)    Fear the little success I’ve had is due to an accommodating market. Once the market changes I will fail and quit.

1)    Your supposed to be wrong at least 50% of the time. If you are wrong less than 50% you are scalping too much.

2)    You are working the mental muscle, it will get easier. I do have risk controls, if I miss my stop I can’t lose too much.

3)    If you learn something from the trade, it was still worth while taking it.

4)    Have faith in yourself that you will learn and adapt.

Self sabotage

1)    Every streak of good trading is ended with catastrophic failure.

2)    I take way too many partials hurting my win/loss ratio.

1)    You will wind down your streaks with smaller share size and SIM trading. So it will end with a whimper not a roar.

2)    With more trades, more data will be available for analysis to determine proper partialing. Data is stronger than my nerves. The math will prevail.

Over trading

1)    If you only take one trade the whole day, but it had a poor setup, you already overtraded.

1)    I am having slow progress, but I do see progress. My trades are slowly getting better. I have the time to learn. I am in no hurry. As long as I have progress there is no issue.

Health

1)    Not enough sleep and exercise

1)    My family is slowly becoming more accommodating. It is taking time but they will come through for me. In the last 6 months my average sleep has increased from 4.8 hrs to 5.7 hours a night. Still a far cry from 8 hours but again as long as there is improvement.

 

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Van Tharp Institute Peak Performance Course

Vol 1: How to use Risk

Chapter 2

What happens to you in the market is a terrific mirror to what is going on inside your head. You will not be able to duplicate the success of the best traders until you duplicate their thinking.

The main assignment for the chapter is to take the 176 question Investment Psychological Profile. I did quite poorly on the test, ranking in the bottom 13% of the traders who took it. I thought I have improved, psychologically, in the last 15 months. So I can’t imagine how I would have scored on the test last year. Here are the results:

image.png.8394e5c55ab7bde93b07d3f993db98c4.png

 

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i would love to take this test. so interested what it would say about me. i would also be really interested to see Andrew's results on a test like this. i don't think your scores are terribly bad. the IN score comes with training for most so with time you'll have the management and discipline section right where it needs to be. the low RS score is great and a critical piece to consistency. have you given any thought on your MT score? what are the reasons other than making money that you trade? i wonder about that question a lot about myself since it's a big topic in trading in the zone. thanks for sharing!

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Thanks Mark,

The test is $100 on their website. I did get a 25% discount by buying the course. I think the test is only valuable if you happen to be taking the course since they send you a three page letter explaining what part of the course pertains to that specific poor score that I have.

Yes, I thought the same thing, Andrew would do amazingly well on this exam. I am also reading a book, Market Mind Games that also describes an  ideal trader and you could easily see they are describing someone like Andrew.

They are concerned about a high MT score because if you are not trading for money you are probably trading for the excitement or may have a gambling issue. Money is definitely a factor why I want to learn to trade, but a lot of it is because I like the financial markets. I like analyzing charts. I like to think what other people are thinking and what they may do. I don't think this is harmful, but it gave me a low MT score.

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Van Tharp Institute Peak Performance Course for Traders

Vol 1: How to use Risk

Chapter 3

The most important trait that a winning trader can have? Personal responsibility.

Ed Sakota in Market Wizards said, ”people get exactly want they want out of the markets.”

This chapter has two stories describing the above statement. One who got rich and lost it in the dot-com bubble and who still blames everyone else. The other example is the author who got into a car accident. A witness would clearly see it was the other driver’s fault. But was it? The author hated the car he drove and was actually receptive to have the car destroyed. He was shocked to realize that yes he was likely also at fault for the accident.

Then it became clear how one totally creates their world.

Personal responsibility is the most important characteristic for the person who wanted to transform himself or herself into a good trader or anything else for that matter. If you believe in personal responsibility, you could change.

The author plays a marbles game with his traders “in training”. The marbles are randomly picked and are labeled as winners and losers of different degree. It is designed to give the player an average return of 0.45R. So it would be a really good trading system. 1/3 of the class go bankrupt. 1/3 lose money and about 1/3 get rich. The unusual differences has to do with position sizing and is not the point of the course yet. The point here is some of the losers blame the person who picked the marbles from the bag and had a losing streak. Thus not taking personal responsibility. They did not recognize their mistakes and thus will not learn from them. So they will repeat their mistake over and over.

The best thing a trader can do, when things go wrong, is to determine how he or she produced those results. Then determine what the choice point was and give yourself other options to take when you encounter a similar choice point in the future.

Daily debriefing (journaling): Acknowledge the mistake, determine the circumstances that caused the mistake, then mentally rehearse an alternative (more useful behavior).

Assignment: listen to Rhonda Byrne’s The Secret. It took a few days for my request through the local library to go through. I have listen to some of it already. When I finish I will come back to this page and update it.  The secret is the “law of attraction,” Which is essentially positive thinking gets positive results. But it pushes two thoughts with that. One is negative thoughts attract negative results as well and that this law of attraction has some new age “power” to it.

Forgetting about the latter for the moment I have seen the former in action. I meant one of the luckiest people and worked with him in graduate school then the cooperate world for about 12 years. It’s amazing how luck is always on his side and he always makes the assumption that luck will be on his side. After 12 years I see how it actually works. It’s two major traits. One there must be dozens (or more) little decisions made every day that are very binary. He will always lean to making the decision that may bring something positive, though the odds are very small. I will tend to do the opposite and make decisions that may cause something negative to happen. After say a week, a few hundred of these choices have occurred. One or two pan out or a combo of several and something reasonable go his way and the opposite for me. Since it is impossible to follow the repercussions of all these choices, it looks like good or bad luck.

The second trait is an open mind to different possibilities. If you think that something positive may happen, when an opportunity, though it may be outside the box, crosses your path, he would see it and act. I would be close minded and not see it. There is actually some data for this. I once read about an experiment where volunteers were gathered. One set of people considered themselves usually the lucky type and the second group considered themselves unlucky. Everyone was given a newspaper and asked to count the number of pictures in the newspaper. The unlucky group usually took 2 or 3 minutes to count all the pictures. The lucky group usually took around 10 seconds. Because the lucky group all noticed a big sign on page two stating, “there are 46 pictures in the newspaper.” The unlucky group were focused on just looking for pictures and never noticed the sign. You can imagine how that applies to day trading. So you need to make yourself luckier by using the power of attraction.

 

 

Edited by Rob C
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Van Tharp Institute Peak Performance Course

Vol 1: How to use Risk

Chapter 5

In order to duplicate successful trading, you need to adequately perform all the tasks that are part of that success. This has been determined to be 15 different tasks.

Preparation tasks:

Developing self-insight. Self-insight allows one to capitalize on strengths and overcome weaknesses. Goal setting is a very important part of self-insight. If you have trouble with self-esteem, then you will probably transfer that issue to being unable to take market losses.

Developing a low-risk game plan. A trading mistake means not following your rules. One must have written rules. If you don’t have rules, everything you do is a mistake.

 

Top Trading Tasks:

1)    Daily Self-Analysis. Trading involves human performance and that performance can be objectively measured in terms of profits and losses. You cannot hide from your performance record. Determine how you feel before each trading day and give yourself a rating. Check for correlation to your trading, then trade or not trade accordingly. Also perform a dialogue with yourself, this will be taught later in the course. Are there any internal conflicts? If so correct them before you trade. The optimal state for self-analysis: be open and honest, be thorough, be very aware.

2)    Daily Mental Rehearsal. Mental rehearsal is how one prevents mistakes. You need to anticipate what can go wrong and rehearse it so that you avoid mistakes when your brain is under the reduced capacity of stress. There are two types of mental rehearsal. First part is to develop a worst case contingency plan as part of your came plan for trading. The second type of mental disaster is to ask yourself “what may cause me to make a major mistake in my trading today and break my rules?”

3)    Focus and Intention. You attract to yourself what you think about. This is done through internal guidance. As you establish a strong relationship with your internal guidance, it will tend to give you what you ask for as long as it is in your best interest. Need laser focus on what you want.

4)    Developing a low risk idea. A low risk idea is an idea with a positive expectancy that’s traded at an exposure level that allows you to survive the worst possible contingency in the short run so that you can achieve the long-term expectancy of the system. All of the research and thinking should be done before the trade occurs. You must have predetermined risk before you enter a trade.

5)    Stalking. The essence of “stalking” is to find the best possible price for entry. Waiting for the right moment will save you money and lower your overall risk. Jump down to a lower time frame to find a better entry signal. Opportunity will come to you if you are patient and wait for it. When you are stalking you need into the flow of the market.

6)    Action. All the strategy work should be done ahead of time so that you don’t need to think about what you should do. The action should be a total commitment (with no thought what so ever) to getting it done (entering the position). See the signal, recognize that it is familiar, feel good about it and act without question.

7)    Monitoring. Which is two subtasks. Detailed monitoring involves paying detailed attention to the pulse of the market while getting ready to take action (adding, aborting or taking profits). The trader should be alert, vigilant and suspicious. Overview monitoring occurs when the trade is running in your favor and the trader can step back and monitor. The worse mistake a trader can make during the monitoring phase is to rationalize and distort data according to expectations. The purpose of monitoring the market is to pay attention to market signals.

8]    Abort. There are two action like stages, that occur after the monitoring. These stages are “abort” and “take profits. In executing trades, the golden rule of trading, cut your losses short and let your profits run, comes into play. Controlling risk involves aborting and taking profits under the appropriate conditions. Three important beliefs about aborting. If the market goes against you, then that is the most critical time to get out. When the original reason for a trade no longer exists, get out. And when you are uncertain, get out. When time is against you, you probably should be in a better position, so get out. Your primary advantage to trading is that at any time you don’t have to be in the market. You can be picky. Use that advantage.

9)    Take Profits. There are many more reasons to exit a trade than there are for an entry, so most good traders have multiple exits. If the reason for your trade no longer applies, then take profits. Take profits if your objective has been reached. Take profits if a climatic move in your favor.

10) Daily Debriefing. This is critical to correcting mistakes and making sure you don’t repeat them. A trading mistake means not following your rules. First, avoid self-recrimination. Instead, resolve not to repeat that mistake again. Second, replay the trade in your mind. Prior to the mistake you reached a choice point. Third, mentally go back to that choice point and review your options. Fourth, for each possible option, determine what outcome would have been if you had taken it. Fifth, once you have found at least three options with favorable outcomes, mentally rehearse them. Summarize the mistakes and new choices in writing (journal).

11) Show gratitude for what went right today. Acknowledge what went well and be grateful for it. This could mean you are grateful for a losing trade that taught you something valuable. Or that you didn’t break your rules today. Make a list. You will be surprised the positive effect it will have on your trading. Regular gratitude will reinforce your ability to use the Law of Attraction to increase your trading profits.

12) Periodic review. Markets change and you change. You need to review and check if your rules are still appropriate for the current market. If you make several trades a day you should review once a month. If you only take a trade three or four times a week, then review each quarter. Also, drawdowns and a certain number of losses should trigger a review, system your system may have become obsolete. Current market conditions are reported regularly in Tharp’s Thoughts.

13) Being out of the market. This is the most important part of the model. Top traders who last lead well-balanced lives. You have certain needs. If you don’t take care of them outside the market you will try and satisfy them in the market. That will cause losses in the long run.

 

 

 

Edited by Rob C
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Van Tharp Institute Peak Performance Course

Vol 1: How to use Risk

Chapter 6

Trading risk is defined objectively as the variability of performance of invested funds that go up and down in value. Better to define risk as the worst case loss in a trade which we label “R”. The big message: YOU MUST MAKE IT OK TO LOSE, IF YOU WANT TO WIN. Taking losses goes against our cultural training. A loser is not respected. The loser feels inferior. If you are unable to lose, you will lose. The “Loss Trap”.

 

Chapter 7

There are at least 5 factors that are involved with the loss trap.

1)    Framing. Framing guards are used to hide the loss from the trader. A) The loss is not a loss. B) the percentage frame. c) The criterion frame.

2)    Need to explain. Trader uses superstition and social confirmation to relieve the anxiety.

3)    Overconfidence. Most traders rather be right than make money.

4)    Probability. We prefer the unwise gamble of holding onto the losing trade, than exited the certainty of the sure loss.

5)    Commitment. When traders commit themselves to a position, their rational plans become fuzzy at the moment of commitment.

Framing of our losses is another behavior we do so we won’t feel so bad about our losses. Like calling our losses a tax write off. We also like to think in percentages. Many of us would drive across town to save $5 on a $20 piece of clothing. But we would not think of driving across town to save that $5 on a $500 appliance.

Compare these two gambles:

Bet A:

A 90% chance to win $400 and a 10% chance to lose $200

Bet B:

A 30% chance to win $1600 and a 70% chance to lose $200.

So of course I did the math before deciding and I see both bets are equivalent. But as the book later said, it predicted me correctly and I chose Bet A because the odds of winning something is higher.

Then you are asked to consider if someone offered you to sell one of these bets for $250 which would you sell. The book says most would sell Bet A since the $1600 possible win in Bet B gives it more “value”.

 

The course then asks for you to look at 25 different charts of actual stocks. Then predict where these stocks would be in 1 month and 5 months (up, down or unchanged). Thus you make 50 predictions. Then you rate each prediction on this scale:

0.33

I don't have a clue

0.5

Maybe, but I wouldn't bet on it

0.65

I might bet on it

0.8

I would bet on it

0.9

A good bet

 

After you make your predictions you check the appendix for accuracy. I was ~40% accurate which was about the same as the author. But, accuracy was not the point of the exercise. Instead it was to show the lack of correlation from your confidence rating and the actual result. Unless you are one of the few who actually have correlated data from your confidence rating and the result, then you shouldn’t change your share size based on your confidence level. Use a consistent R that is within your comfort level and optimized for the type of setup you are using. It should not be changed on the fly.

They ask you to split all you predictions into 5 groups (highest confidence, next highest, etc.). Then compare that confidence rating with the actual accuracy to see the lack of correlation. Below are my results:

Group Confidence Level

Accuracy

0.87

0.3

0.74

0.6

0.65

0.3

0.5

0.2

0.364

0.5

 

Actually the middle three tiers actually correlate well. The top and bottom tier really show the lack of trust I should have in position sizing due to confidence level. I am using fixed risk in my trading anyway, but I always assumed with experience I would start changing my risk based on my confidence. I am now thinking I should never trade that way.

 

When people believe something they manage to find evidence to support their belief. More information does not increase the accuracy of expert prediction, just the confidence in his/her predictions.

We weight probability more at the extremes. An increase from 0% (no chance) to 5% (some chance) is huge, but an increase from 30% to 35% is small. Same from believing that the increase from 95% chance to 100% is large. That is why most of us would prefer a sure profit of $900 than a 95% chance of a $1000 profit. The same goes with risk aversion. Most of us would choose a 95% chance of losing $1000 than a sure loss of $900. Both these decisions go against the fundamental law of trading. By choosing the sure win, you are not letting your winners run. But not picking the sure loss you are letting your losers run. If you make the first decision 100 times on trades and the second decision 100 times, you will have a loss of -$5000. If you go against your natural inclination over the next and choose the better profit/risk you would gain $5000 in the next 200 trades.

The cost of backing out at the moment of commitment (enter a trade) is small monetarily, but large psychologically. Time starts to go by faster and fears seem much larger.

 

 

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Van Tharp Institute Peak Performance Course

Vol 1: How to use Risk

Chapter 8

The danger of risk-taking occurs not only when you don’t recognize that you’re taking one, but also when you do not recognize the extent of the risk you are taking.

Risk can be objectively stated using these methods:

1)    The standard dev of your return over a 12 month period

2)    The probability of success with a 95% confidence limits

3)    Calibrating your ability to predict with your game plan

4)    The trading salary and overhead

If you are a net loser, then your risk of ruin is 100% if you continue to use the same strategy.

Standard deviation of the percentage change in your account is a good indicator of the “risk value” of your account. The issue with applying this to my account (besides I have only been trading effectively for 6 months) is I have been keeping my fixed “R” very low while I am in the learning phase. In addition I have been essentially flat P/L each month for the last 6 months. So my standard deviation of my percent change is near zero. Thus I am taking on almost no risk. Which I knew, since I am keeping my “R” very low. But, I will use this later, when I increase my “R” to determine my risk.

Then the course asks you to calculate your 95% confidence interval. I will use the last 3 months of data for 1min/2min ORBs. I took 93 trades with a success of 46%. So my interval is:  =0.46+/-(1.96*sqrt((.46*.54)/92) = (56%, 36%). Thus there is a 95% confidence my success rate will be in between 36% and 56%.

The course also asks the reader to retake the prediction test with their own system. Hopefully there will be better correlation. I am setting that up now, but since I will remember the trades after I set it up, I will test myself a couple of weeks later to make sure I don’t remember the trade.

The last part of the chapter is a test you take to determine if trading is more like a business or a hobby. Obviously profits are more critical as a business, but if you are really enjoying it as a hobby, profits become less critical. Though I can’t list the questions due to copyright issues I will list one example so you can understand the test:

I enjoy listening to financial discussions. Respond with a score from 1 (strongly disagree) to 7 (strongly agree). The higher the score on all the questions, more likely it is a hobby.

I scored a 37 on the test. They say 40 and over you consider trading a hobby. So I am borderline, when considering trading between hobby and a business.

 

 

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Van Tharp Institute Peak Performance Course

Vol 1: How to use Risk

Chapter 9

The first part of the chapter explains profits and losses in multiples of “R” and the importance of a predetermined stop loss level. Since I know these too well I will not add any notes.

The rest of Chapter 9 discusses techniques for swing and position trading. I read it but nothing was note worthy for day trading.

 

Chapter 10

Chapter 10 is a self-assessment test. The test has a possible 123 points and if you score below 80 you should stop trading until you finish the course. I can’t list the questions, due to copyright infringement, but I will list the title of each section so you can see what they are looking for.

1)    Preparation, how well do you know your strengths and weaknesses.

2)    Business Plan

3)    System that fits me

4)    100 R-multiples with the system expectancy

5)    30R from each market type collect and examined

6)    Use the system for the market type intended

7)    Objectives that fit me

8]    Position sizing algorithm to achieve my objectives

9)    My major issues identified and fixed

10) Do top tasks regularly

I scored high enough that the test suggested that I could keep trading, but I have a lot of work to do. The “a lot of work to do” is no surprise. Its amazing after 16 months with BBT and working ~15-20 hours a week on trading during that time, I feel that I am barely starting to get the hang of it and I know I have years to go.

So that’s the end of volume 1. There are 5 volumes in the course.

 

 

Edited by Rob C
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Van Tharp Institute Peak Performance Course

Vol 2: How to control stress

Chapter 1

The first chapter of this volume essentially describes why stress is bad for you and your trading. I read the chapter, but there was nothing new or noteworthy.

 

Chapter 2

This chapter was a self-assessment test. It comprised of 116 questions in three parts.

1)    WT test = Worry Tendencies

2)    LSI test = Life Stresses Inventory

3)    SPI test = Stress Protection Inventory

All three scores should be analyzed in conjunction with one another to determine your final assessment. How easily do you worry? How many issues in your life are there to worry about? What behaviors do you daily perform to protect yourself from these worries?

So I scored a 38 on the WT test. This means I worry more than the average person and I may have psychological difficulties with any sort of investment.

The LSI test first started that I have type “A” personality tendencies. Also, the test splits your amount of stress into 5 categories: personal, financial, health, job-related, and family. Sadly I scored “high” stress amount in all 5 categories for a total score of 110. Anything above a 60 is considered high.

The SPI test I scored a 39 which means my stress protection is average. As a rule of thumb your LSI/SPI ratio should be <0.6 for a trader. Mine is 2.8 :classic_mellow:

When you take the three scores combined, the book has a table. You take your WT score and match it with your SPI score than it has the LSI/SPI ratio you need to be a trader. According to this table the book gives me (and my scores) this warning:

You should not be trading under any circumstances

Ouch! What’s even more painful is I have really improved on all of these categories in the past year. I can’t imagine how I would have scored last year. I am hoping the course will improve the first two WT and LSI, but I will try and immediately improve the SPI.

SPI is split into 5 categories. I did score well in two of them (Nutrition and problem solving). I scored poorly in Exercise, recreation and mental relaxation. I actually like exercising, but time constraints and the lack of energy has really caused an exercise deficit. See graph below which shows how my fitness level has really degraded this year The chart is VO2 Max versus month. I guess I should have shorted in July when it broke the 47 support level :classic_laugh:

image.png.aab6cd092b231d965fc9ebb2abcc37f4.png

I will really need to get this curve moving in the opposite direction.

I have increased meditation recently so in a month or so that score should increase. As for recreation, I don’t think I have done anything for myself in over 20 years. If I have any spare time I immediately think what can I do for my family. I am going to have to think about how to improve that area.

I will retake the test at the end of the course or in 3 months. Which-ever comes last.

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You're putting a lot of effort here buddy! Thank you!) It's in my bookmarks! Will keep an eye here

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3 hours ago, Aiman Almansoori said:

You're putting a lot of effort here buddy! Thank you!) It's in my bookmarks! Will keep an eye here

Thanks for reading.

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Rob, this is such a great thread. It's extremely interesting. At the same time, it makes me think that I have a lot further to go in my development as a trader than I previously believed to be the case. I really ought to look into taking this course as well. Thanks for the post!

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On 8/9/2019 at 8:29 PM, Rishi said:

Rob, this is such a great thread. It's extremely interesting. At the same time, it makes me think that I have a lot further to go in my development as a trader than I previously believed to be the case. I really ought to look into taking this course as well. Thanks for the post!

Hi Rishi, thanks for the post. The Van Tharp Institute has their newest book Trading Beyond the Matrix free from their website. The book comes with a 20% discount code for their Peak Performance for Traders course. 

https://www.vantharp.com/

I sure know how you feel. I started on SIM May 2018 and went live Nov 2018 and have been barely staying a float. At first it stressed me how much I still need to learn even after all this time. On the other hand I am enjoying the learning process.

Rob

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