Originally posted on Amazon February 9, 2003
This is the most misnamed book in the history of the written word. Traders call it "Tharp!î 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 improve any traderÍs 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 yesterdayÍs 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-