Van Tharp’s Trade Your Way to Financial Freedom

The Holy Grail of Trading

The Holy Grail of trading is not a high-performing system or stock. The Holy Grail of trading is you!

There are only two limits that keep you from reaching your full potential:

• Your personal beliefs and biases about the markets
• Your lack of well-thought-out objectives for your trading system

My book, Trade Your Way to Financial Freedom, is your guide to understanding the first idea and developing the second on your journey to more significant and consistent profits.

Beliefs and Biases:

You don’t trade the markets; you only trade your beliefs about the markets. If you believe, for example, that the market is going to go up (or that it generally goes up in the long run) and that trend-following works, you might adopt a trend-following approach and buy stocks that are going up. But, let’s say you also believe that the market is currently overvalued and likely to go down soon. Now you have beliefs that conflict with one another, which can cause indecision and stress. But that conflict is in your beliefs—not in the market itself.

If your trading system doesn’t fit your beliefs, you will have a hard time following its rules, and it won’t perform well.

Objectives and Your Trading System:

Before you begin to design a system, you must determine your goals and understand what you bring to the table. Once you have thoroughly planned out what you want to achieve in your trading, you can think about what will work for you. To find systems that fit you, you need to know a few things about yourself first:

• What trading method makes sense to you
• How frequently do you want to trade (do you have a job, or can you trade all day?)
• What market do you want to trade, what specific knowledge you might have, etc?

With a full understanding of your objectives and your personal inventory, you can get to work on putting together a trading system.

A trading system is a lot more than an excellent entry method; it has many parts. Trade Your Way to Financial Freedom will introduce you to entry techniques used by the masters, show you how to develop a high expectancy system through efficient exits, and teach you how to achieve your objectives through proper position sizing strategies. You’ll learn the concepts that will help you build an exhaustive trading system based on the objectives that you can trade confidently and profitably.

“I can promise you a book filled with sound trading advice and lots of ideas you can use to develop your OWN trading methodology. And, if you don’t think that’s enough, then you really need this book.”

— Jack Schwager

Trade Your Way to Financial Freedom covers both the psychological and system-development aspects of trading. When you finish this book, you’ll come away with the ability to both create a system that coincides with your beliefs and trade that system without the psychological biases that held you back from profitable trading in the past.

But don’t just take my word for it. Here’s what others have said about Trade Your Way to Financial Freedom:

From www.meta-formula.com:

“Dr. Tharp’s book is one of the finest trading volumes written in the past ten years. While some books are chock full of hazy trading axioms and incoherent discussions of technical indicators, Tharp’s book is clear and meaningful. The point of the book is to deemphasize entry and focus on position sizing & the value of following your own system. By describing R-Multiples, stop losses, and profit-taking exits, Tharp discusses a subject overlooked by 99% of market manuals …

Investors and traders will be surprised to learn that you can create a very profitable system that is “correct” only 30% of the time, while you can also have a very unprofitable system that is correct 90% of the time. In this respect, Tharp’s book is profound, teaching individuals the real secret Holy Grail of trading and how virtually any concept can make money with a few simple rules.”

From www.bnsit.com:

“Trade Your Way to Financial Freedom, published in 1998, is author Van K. Tharp’s generous contribution to the field of trading how-tos. Boiling down the complexities of profitable trading to provide a concise and well-organized guide, Tharp presses the value of a low-risk, personalized investment plan. Providing brilliant insight into and clear delineation between the fundamental aspects of a successful system, Tharp’s text is a good overview and deserves to be read. Even those day traders eager to move on and read his more specialized Financial Freedom Through Electronic Day Trading should give his 1998 work a good look first, as it has much to offer.”

From EliteTrader.com:

“The best 20 bucks I ever spent. Don’t buy systems, don’t buy other books, don’t go to seminars, invest your money here and then proceed from there.”

“Great book. I just wish I had read this book when I first started. Then my life would have been so much easier.”

“I don’t have much to say that hasn’t already been said here. However, if you want a book that has the potential to revolutionize your trading mentality, then buy this book. If you realize that you are the only one stopping you from being a complete success, then buy this book. Tharp’s focus is on developing a successful trader from the inside out, not from gadgets as many would have you believe. He points out numerous biases that affect traders and then shows you how to correct them.”

“He points out one basic idea that I found to be profound. Making money in the markets is not about finding the ‘right’ entry points/signals or even being right. The markets are about position sizing and money management…”

“The book is a must-have, must-read, and must-keep.”

“I’d have to agree with the good reviews on this one. It offers some unusual insights which I haven’t come across in other books. The chapters about position sizing and money management are excellent! It’s not rocket science. It’s ‘obvious’ once you’ve read it, but I haven’t seen it mentioned or explained before.”

“Lots on psychology and personality issues—also useful, although I imagine some might throw the book away and go looking at charts and candlesticks instead…”

From GrowthStockWire:

“To have the importance of intelligent position sizing drilled into your head over and over again by the best traders ever, read Market Wizards by Jack Schwager. For a fuller explanation of R and intelligent position sizing, read Trade Your Way to Financial Freedom by Van K. Tharp. Both are incredibly important books for traders.”

— Brian Hunt, editor in chief, Stansberry & Associates

From Amazon.com:

“This book and a few others are the types you NEED to read and KEEP. It may not have all the answers and doesn’t purport to, but as you develop your understanding of the markets, it is this quality of information that will allow you to retain the proceeds of your efforts. If you think you know about risk management and haven’t read Van Tharp’s books—it’s likely that you should reconsider.”

“I’ve been trading for about 20 years, and I think the book is good. I have already used some of the concepts over the years, and they work. It does help greatly if you trade in the same direction as the general market and diversify into as many un-correlated markets as possible. Low-risk entries can be found using simple chart analysis and common sense. But, there is nothing magical about charts; in the end, ALL entries are mere guesses. Stop-loss protection is what makes money.”

“I was living in the dark before I read this book. If you want to trade for a living, this book is ABSOLUTELY essential. Dr. Tharp opened my eyes to the basic math and probabilities involved in developing a profitable trading system. Did you know that you can be profitable even if most of your trades are losers? Did you know that you can lose money even if most of your trades are winners? Did you know that the essential part of your system is not the entry (chart setups), but your strategy for position sizing and your exit strategy? Did you know that depending on your position-sizing model the same system can be very profitable, barely profitable, or ruinous?… Read this book! 

Stop doing whatever you are doing, because you are probably just wasting your money without understanding the basics of developing a profitable system.”

“After 48 years of successful trading—this is the Best Book. The best of over 200 trading books, CDs, and videos. If you have failed at trading (the majority have), read, re-read, and re-re-read this book to improve your trading.”

“Van Tharp is a living legend. He is opening the doors to what really matters in trading and investing. He goes beyond suggesting ways to find potentially good stocks. He helps the reader understand the importance of how much to buy, how to get out when you are wrong, how to get out when you are right, how to assess your winning percentage, how to assess your returns from your system, and—most important of all—he explains the importance of investor psychology. A must-read for any trader or investor.”

What’s New in the Second Edition:

Over the years since I wrote the first edition, I’ve adopted some new and more useful beliefs about trading and trading systems. Most of the core concepts in the book have NOT changed, but enough has changed that I felt it would be helpful to readers if I released a new edition.

Beliefs are not reality; they are your filters to reality. What I teach reflects the most useful beliefs I currently have about the market and trading success. Here are a few of the beliefs that are included in the second edition of Trade Your Way to Financial Freedom:

• All trading systems should be aligned with the big picture. People need strategies that take advantage of macro tendencies to make good profits. In my big picture, I see equities in the middle of a secular bear market. That’s not bad news for stock traders—it just requires a particular focus to make money
• Systems can be thought of as distributions of R-multiples. When you understand this, your perspective on trading systems will change
• It’s possible to use those R-multiple distributions to simulate future results. These simulations will help tell you how to meet your objectives through your position sizing strategies

The second edition also includes:

• A study of seven traders through a series of five trades. Each trader has the same opportunities, but because of their individual beliefs and strategies, they trade those opportunities in significantly different ways
• An analysis of nine prominent newsletters using R-multiple distributions to describe their performance
• A clearer, more detailed explanation of my \”expectancy\” concept, which I don’t think was explained well enough in the first edition

“Van Tharp cuts right to the essence of professional trading, if you intend to trade, you’d better know what’s in this book…”

• How to develop winning attitudes and approaches
• How to forget trading for accuracy and trade for expectancy
• How to master position sizing