Sunday, September 20, 2009

Super Trader by Van K. Tharp

Super Trader - Make Consistent Profits in Good and Bad Markets by Van K. Tharp
is a four step program to help traders develop a business plan that will allow them to make profits in any market environment - bull, bear, and sideways.

The four step program involves:
  • self assessment of personal beliefs that will determine your personal trader psychology;
  • developing different trading systems to suit your personal trader psychology under different market conditions;
  • understanding and incorporating position sizing into the trading system in order to manage risk; and
  • developing a personal business plan to guide your trading success.
That may sound pretty simple however, in order to maximize trading performance under different market conditions, we need to track setups(systems) in a vigorous fashion. Do you have any idea what the ratio of expectancy to the standard deviation of R for each of your trading setups? Yeah, exactly. And how could knowing these stats make a difference in your trading? Well, if we take any random setup, we might determine that the setup has a much higher expectancy in strong bull trends, but a very low expectancy in sideways markets. So we want to develop different trading setups for different market conditions. Tracking market trends and applying the right setups will greatly enhance trader performance.

The book emphasizes matching trading setups with individual trader psychology. What does that mean? If your primary objective is capital preservation and you have a low tolerance for losses and draw downs, you'll want to focus your trading on setups with higher expectancy which will mean fewer trades. In order to develop a workable business plan, traders have to do the exercises in the book, including tracking setups with live trades in order to develop meaningful sample data. Once the business plan is complete, the trader has a road map to success.

Highly recommended!


Anonymous said...

Good summary - thanks Jamie. The concept of personal beliefs is extremely important. While rereading and thinking about Mark Douglas's books this summer, I recognized a belief that was having a significant impact on my management of swing trades. It is amazing how our decisions are governed by (hidden) beliefs that are not obvious at a conscious level.

Jamie said...


That's interesting. Trader psychology and beliefs have a big impact on trading results, yet we rarely see them discussed, except by psychology experts.

Anonymous said...

An insightfull post. Will definitely help.

Karim - Creating Power

Warren said...

This is a really good post. You have summarized Dr. Van Tharp’s book very well. I haven’t personally read this book but I have heard a lot about it from my friends and on the internet. I think that I will read the book and see how it goes.