After reading Trade Your Way to Financial Freedom by Van K. Tharp, a bigger picture of Tharp's vision of the strategy development process becomes clear. It wouldn't be correct to say that the author is a great writer (it was a boring read at times), but he does a good job explaining what is important in a trading system and what isn't. More than that, he does that in a such way that even some high school student with IQ below average would understand it all without any problems. At least, it is worth reading only for the chapters dedicated R-multiple risk management and pages about the money management.
Many Forex traders come to the market without a well-developed system. Usually, they try to create one in a very unstructured and unorganized manner without even knowing which parts make a real system out of a trading plan. Trade Your Way to Financial Freedom explains the process of system development from the basic idea to the final steps of choice of the position sizing model. It lays out the following theses:
- The Holy Grail system is possible, but traders should seek the Holy Grail in themselves, as the good trading system should fit the personality of the trader.
- There are many psychological biases that prevent the majority of traders from trading successfully.
- The structured and organized approach to system development is the first step and it is really a necessary one.
- Many traders pay too much attention to entries and believe that their entry rules are, in fact, a system.
- Your exit plan for a trade isn't a part of money management.
- Money management is position sizing.
- Poor money management can destroy your account even with a perfect entry & exit plan, while good money management can make a rather poor entry system yield profit.
- Trading with a small account can be very dangerous as you won't be able to employ safe position sizing algorithms.
It is hard to call this book excellent overall, but it can be very useful to the Forex traders and especially to the newbie traders. Here is the list of some of the book's advantages:
- As it was already mentioned, it is very easy to understand. Everything is repeated several times and different examples are given. The book's language is very simple.
- Turning traders' attention to a rather unpopular topic of position sizing and the fact that the entries are only about 10% of the actual trading system's success.
- Examples of successful systems employed by the famous investors and traders.
- Charts and tables to support the point.
- Trade Your Way to Financial Freedom is a very well-structured book.
Unfortunately, the book is quite far from being perfect and has its share of disadvantages:
- It focuses on stocks and futures and pays little attention to Forex market (only few mentions).
- The book is quite old now. Trading has become different from what it was back in 1998 (get the 2nd edition of 2006 if you can).
- NLP style. Yes, it is good for the learning process, but it is so obvious in this case that it is difficult not to notice the demagogic and sophistical tricks used by Van K. Tharp.
- It is full of promotion — for other traders' books and for the author's projects and the website. It isn't something you expect to see in a good financial book that costs money.
To draw a conclusion here, reading this book is an on-point recommendation if you are new to trading or if you are still struggling to develop your own successful system. If you are an experienced trader and have some free time, reading the book may also be useful, as it will help you understand your system and its potential problems better.
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