Friday, September 7, 2012

Dr. Van K. Tharp: Peak Performance Trading


Dr. Van K. Tharp is a world-renowned trading coach - one of the best on this planet. He’s a unique global expert when it comes to trading. He’s been coaching people to reach their best in trading and investing. This has been his calling since 1982. In countless instances, he’s encouraged others to surmount challenges when it comes to creation of trading strategies, trader’s mindset and behavioral biases, and other areas of challenges in trading. Bagging his PhD in psychology from the University of Oklahoma Health Science Center in 1975, he’s studied and researched distinct traders and investors (market wizards included) and has developed models for profitable speculations in the markets. He’s devised unique presentations for financial institutions and has showcased them all over the world. He’s been a guest of expositions and conferences the world over. He’s the only trading coach included in that best-seller, The Market Wizards: Interviews with Great Traders (Jack Schwager). He’s been featured in world-class trading publications, and has authored best-sellers like Trade Your Way to Financial Freedom, Super Trader - Make Consistent Profits in Good and Bad Markets, etc. A regular free newsletter from his Institute can be requested at

Dr. Van himself has declared without mincing words that: "Trading and investing are very simple processes and we human beings try to make it into something much more complex. Unfortunately, we have a lot of biases that enter into trading decisions…I believe people get exactly what they want out of the markets and most people are afraid of success or failure. As a result, they tend to resist change and continue to follow their natural biases and lose in the markets. When you get rid of the fear, you tend to get rid of the biases… As for risk, most people don't understand it, including a lot of professionals, and what's really interesting is that once you understand risk and portfolio management, you can design a trading system with almost any level of performance." (, homepage).

There are winning trading concepts espoused by Dr. Tharp. These concepts may help you too. Having basic understanding of these concepts would surely help you gain a better insight into trading. Below are some of them of them (this is not a complete list):

Psychology of trading: There are many psychological issues affecting traders, like gambling, perfectionism, inordinate fear and huge losses. For example, trading without stop loss or betting too big is gambling. Perfectionism doesn’t help because best traders also lose; only that they still make average gains that are much bigger than average losses. Fear might make use act irrationally. We may even shy away from taking trades that could be winners. All these biases merely lead to huge losses. Traders need to work on themselves to overcome these issues. 

System development: Trading strategies themselves don’t make money. It’s how they’re implemented that enables them to help traders realize gains. Most people buy trading systems but don’t follow the rules that come with them. This still boils down to knowing what the best are, and sticking to them. The best trading system can lead to a margin call if handled by an inexperienced and undisciplined trader, whereas the worst trading system can realize long-term profits if handled by disciplined and experienced traders.

Position sizing: This aspect of trading shows how much one risks per trade. How many shares or contracts?  Inability to apply effective position sizing (sometimes referred to as money management) is often the reason for accounts that go kaput.

Expectancy: One of the secrets of successful traders is to risk less than the predetermined potential returns. Like risking $1 to gain $2 or better $3. A risk-to-reward ratio of 1:2 allows a trader to survive with a hit rate of 50%, and a risk-to-reward of 1:3 allows a trader to survive with only 33.3% hit rate. The higher the reward, the better. Positive expectancy has to do with the benefit your trading system can generate over time. Trading systems that use no stops or use risks that are bigger than rewards are worse expectancy systems.

Business planning: The financial market owes you nothing. It may tease people with easy money and later take it away when it becomes irrational. If you really mean to be a winning trader or investor, Van says that you’d need to approach the practice of trading with the same level of rigor with which you’d approach a high level of human endeavor or business.

Conclusion: I came across Dr. Van Tharp and his works at the time I was contemplating to quit trading. His works changed my mind, and I continued to press on. I’ve never regretted that decision till now. He is one of those individual experts in trading who’ve had tremendous impact on my career. I’m grateful for how his concepts have benefited me and many people around the world, either directly or indirectly. If you also have tremendous challenges in trading, you can enlist the help of a very good coach or trading mentor. Indeed, we have many good things to learn form market wizards.
This article is concluded with more quotes from Dr. Van Tharp. It can be seen in his monthly markets updates and they’ve to do with his view on the current market conditions:

“Crisis always implies opportunity. Those with good trading skills can make money in this market—a lot of money. There were many good opportunities in 2011 and, so far, many more in 2012. Did you make money? If not, do you understand why not? The refinement of good trading skills doesn't just happen by opening an account and adding money. You probably spent years learning how to perform your current job at a high skill level. Do you expect to perform at the same high level in your trading without similar preparation? Financial market trading is an arena filled with world-class competition. Trading requires massive self-work to produce consistent, large profits under multiple market conditions. Prepare yourself to succeed with a deep desire, strong commitment and the right training… But to capture those opportunities you must know what you are doing. If you want to trade these markets, you need to approach them as a trader, not a long-term investor… Trying to navigate these markets without an education is hazardous to your wealth.”

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Azeez Mustapha

Market Analyst, Trading Signals Provider and Coach

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