Trade your way to financial freedom by Van K. Tharp
This is a great book, even a brilliant book — but nobody will read it. The problem is that Tharp looks at trading from a deeply theoretical perspective, offering no quick fixes or solutions, and, while this is exactly what makes it great, it is also why most won’t read it. People want instant answers, they want secrets, not effort.
Tharp is the acknowledge authority on positioning sizing; however, this book tackles the entire ambit of trading, from start to finish, and he significantly expands on Elder’s book “Come into my trading room”. However, the highly enjoyable Elder book does try to play tothose looking for instant answers; hence, Tharp’s book is by far the better one for traders.
The reality is that trading relatively easy and very rewarding, but, like anything else, one has to learn the ropes. Trading requires learning and acquiring skills. The process of opening a trading account“doth not a trader make”.
Delving into the book, two lessons really hit home. First is that Tharp proves that a random-entry system (throwing a dart or tossing a coin) can produce a profit if one has excellent exit rules and trade size (Tharp calls this “position sizing”).
The second major lesson follows on from the first; ask a trader what’s the most important part of trading, and they’ll say “the entry”. I have long held this to be a false belief, as I believe the random system proves. So, what is the most important part of trading? Selling! Think on it for a moment; it is the selling that determines the profit or the loss, not the buying. Profits can flow only from selling.
Tharp also spends a lot of time dealing with the various biases we have to deal with in order to be successful. A bias is something which you believe to be true, but for which you have no proof, or, worse, which is not actually true. This is issue I have long spoken on in my seminars; biases can only be obstructive — and traders should earn to identify them, and eliminate them.
Other issues covered include: different entry systems, exit strategies, understanding risk and how it affects profits, managing position sizing. Tharp covers every aspect of trading, albeit from a theoretical angle.
Aspirant (and experienced) traders should read this book — but do not expect it to be an easy journey.
