Van Tharp's Position Sizing
Van Tharp is a trading coach and a psychologist.he has been teaching people how to be carry out trading successfully since 1982. His approach is to help people overcome psychological behaviors that sabotage individual success in the financial markets, and to develop systems that work for them.
According to Dr. Tharp is of the opinion that the word fear carries with it a large amount of fear.once people hear the word risk they associate it with loss and therefore end up making decisions based on emotions rather then logic. In order to overcome this habit, Dr. Tharp teaches people to obey his two rules for risk which are: 1.before entering a postion in the market it is in your best interest to first ascertain the postion in which you will exit. And, 2.lets your profits run and cut your losses short.
once you have defined your risk which is the specific amount you are willing to lose (according to Tharp) then you can plan your exit strategy accordingly.Many people suffer losses as they do not have a proper exit strategy and get caught up in the upward wave. Dr. by placing trailling stops on their purchases people can develop an effective exit strategy according to Tharp. By doing so, they can avoid disaster.
during the time he spent as a trading coach , Dr. Tharp has observed that there are numerous trading systems that work. The reason they work is because they fit the personality and belief system of the person using them. However, when people buy a system in a box, it usually isn’t a good fit, and they wind up changing things, or just not following it exactly as it was designed.as they are not using the system as intended , they are falling short of success.
Tharp supports people in their effort to design their own systems based on their own values and beliefs.when you feel the time is right to make a decision , a system that has been developed keeping you in mind would prove very helpful.by using this system you would be protected at times when your emotions are running high and your logic has taken a back seat and you have to make big decisions.
Van Tharp teaches people how to use a system or strategy that has seven parts.these seven installments are as follows
1.set up requirements
2.translate your entry
3.make your defensive stop
4. Develop a re-entry strategy
5.have a plan to leave
6. Position Sizing
7. Developing systems for different markets.
most people claim that their trading is successful after reading Dr Tharp. Tharp's books help in eliminatiing fear and making trading more of a logical practise then an emotional one.