Tharp!!!, February 9, 2003
Trade Your Way to Financial Freedom
This is the most misnamed book in the history of the written word.
Traders call it "Tharp!=94 One word says it all. In the world of
Trading "Tharp," is the generic name for Position Sizing or how many
securities should I trade this time?
Tharp was not written for the Individual trader, but the same
principles apply. "Tharp," along with "Reminiscences," will help
improve any trader=92s philosophy on winning in the securities trading
game.
Dr. Tharp shows you how to sift through your trades and find the
unconscious essence of your trading system. "Tharp," will be most
useful to traders who have at least six months trading history to back
analyze.
Primer!
You will see that when you go beyond the book to Tharp's web site,
videos, and tapes that the book is just a necessary primer.
Position sizing!
Tharp assumes that you have some system or method or a series of
former trades that you can calculate expectancy from. Or a research
company that tells you what to trade, how long to hold it and when to
get rid of it. So that you can use there data to isolate a trading
pattern.
Tharp's contribution "Position sizing," is mainly to help you decide
"How many," to buy and sell.
Full Stance!
In every case if you put on your full position at the beginning and
unload your full position when you liquidate. You will have more
profit than any kind of scaling scheme.
The thing is a full position is not defined as the number of
contracts, but by the amount of risk (% of equity) that you are
personally comfortable with.
Tharp's real trip is to help you look at your position as a constant
non-changing size. "The key is that the number of contracts traded
fluctuates in accordance with each securities volatility."
Unvarying risk!
Your position size is not constant relative to the number of
contracts. The number of contracts is not constant relative to the
percent of equity. In addition, the day-to-day equity is not constant
compared to yesterday=92s equity.
In order to keep a constant risk you will have to periodically adjust
the number of contracts that define that risk.
What this accomplishes is, as your equity rises you are increasing the
number of contracts; also as your volatility increases in either
direction you are reducing the number of contracts. You will have to
balance number of contracts, equity, and volatility to keep your
position size near constant.
"Tharp's is the subtlety by which the weak can overcome the strong!" -
ooO-(GoldTrader)-Ooo-
P.S. After many years of using it. I was better off without Tharp=92s
methods.
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