Book :Trade Your Way to Financial Freedom
A few days ago I’ve finished reading another trading book — Trade Your Way to Financial Freedom by Van K. Tharp. I’ve already written about it 3 years ago. But back then I’ve read only the chapters dedicated R-multiple risk management and some pages about the money management. Reading the whole book gives a bigger picture of Tharp’s vision of the strategy development process. I wouldn’t say that the author is a great writer (it was a boring read at times) but he does quite well explaining what’s important and what isn’t. More than that, he does that in a such way that even some high school student with IQ = 80 would understand it all without any problems.
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 a trader should seek the Holy Grail in himself, as the good trading system should fit the personality of the trader.
- There are many psychological biases that prevent the majority of traders to trade successfully.
- The structured and organized approach to system development is the first step and it’s really necessary.
- Many traders pay too much attention to entries and believe that their entry rules are, in fact, a system.
- Your exit plan for the position 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 give profits.
- Trading with a small account can be very dangerous as you won’t be able to employ the safe position sizing algorithms.
I wouldn’t call this book excellent but it can be very useful to the Forex traders and especially to the newbie traders. I’d like to list some of the book’s advantages:
- As I’ve already mentioned, it’s 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 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 the successful systems employed by the famous investors and traders.
- Charts & 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 & 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’s good for the learning process, but it’s so obvious in this case that it’s difficult not to notice the demagogic and sophistical tricks used by Van K. Tharp.
- It’s full of promotions — for other traders’ books and for the author’s projects and the website. It’s not what I expect to see in a good financial book that costs money.
To draw a conclusion here, I’d like to say that I recommend reading this book 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.
If you have any questions, comments or opinions regarding Trade Your Way to Financial Freedom by Van K. Tharp, please, feel free to reply in the comments below.