Your Written Trading Strategy by Van Tharp

Author:Van Tharp
Language: eng
Format: epub
Publisher: Wiley
Published: 2013-04-15T16:00:00+00:00

Most people don’t understand that they need a trading system if they are to make money in the markets. Most importantly, that system must fit you, your objectives, your psychology, and your beliefs, for you to be able to trade it effectively.

Furthermore, that system, at minimum, needs an abort signal (when you know you were wrong about the trade), a profit taking exit, and a position sizing strategy to meet your objectives. Without those criteria as a minimum, you don’t have a system.

Money is made by cutting losses short and letting profits run. It’s made not by being right most of the time, but by always thinking in terms of the reward-to-risk ratio throughout the trade. What is my potential reward right now? What is my potential risk? If the reward-to-risk ratio is not favorable, then you should not be in the trade. That’s why I always recommend that you think of your profits and losses in terms of the initial risk in the trade (or the trade R-multiples). When you understand that your system is characterized by the distribution of R-multiples that it takes on, then you start thinking reward-to-risk, and that’s the road to success in the markets.

For more information about R-multiples, see my YouTube video:

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