As one of the top psychology coaches for traders around the globe, Van K. Tharp knows first-hand what separates the top traders from the rest of the bunch.
Tharp has been in the business for many years and has released a number of best-selling trading books including “Trade Your Way to Financial Freedom”, “Trading Beyond the Matrix”, and “Super Trader”. Pick up a Tharp book and you’ll soon be learning all the skills necessary for beating the markets.
Having an edge
A key principle that runs through all of Van Tharp’s books and teachings is the importance of having an edge in the markets. It’s crucial to build up a strategy you are confident has an edge. Trading when you have an edge means only taking the best risk:reward trades and always trading with the most optimum position size.
Guest post by FXTM
Know your goals
Van Tharp’s principle expertise is in psychology which is why a big part of what Tharp teaches concerns visualization and achievement of goals. Tharp explains that traders must be completely clear of their goals before they sit down to trade. Otherwise they are doomed to fail.
Having a clear target of return helps to focus trading and eliminates gambling. If you haven’t laid down how much money you’d be happy with, you will end up going for higher profits and possibly assuming too much risk.
Understand your conflicts
Van Tharp also explains that each one of us has their own unique personality traits and emotional struggles. Traders are real people, not machines and must therefore combat against many conflicting desires. Some traders will feel the responsibility of providing for their family, others will find it hard to tolerate swings in equity and/or trading activity. Traders should understand their conflicts and make plans to tackle them a priority.
R multiples
Perhaps most importantly, Van Tharp suggests that novice traders approach the markets with a mindset that is focused on the numbers. Traders should analyze trades in terms of ‘R multiples’, another way of saying risk:reward, and ‘Vola’, another way of saying volatility.
The best trades are therefore the ones that given the highest ‘R multiple’ for the least amount of ‘Vola’.
Seeing the market in terms of the trading numbers allows the best trades to be taken at the most appropriate opportunity. Once a trader starts to do this, Tharp suggests that they can quickly move on to the next level.
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