Van Tharp's Psychology of Trading
Van Tharp is a trading coach and a psychologist.since 1982 he has been helping people learn how to be sucessful traders.his style is to help people overcome psychological behaviours that interfere with their success in the financial markets , and develop methods that work for them.
as according to Dr Tharp. Tharp is of the opinion that the word fear carries with it a large amount of fear.once people hear the word risk they associate it with loss and therefore end up making decisions based on emotions rather then logic.to conquer this habit ,Dr. the two rules for that sharp teaches are as follows.it is advisable to first know exactly in what position you will exit before entering a position in the market. And, 2.lets your profits run and cut your losses short.
According to his theory, risk can be defined as the specific amount you are willing to lose, and once you have defined your risk, you can plan your exit accordingly.a very common mistake that people make when investing is not having an exit plan they get so involved in riding the wave upward that they are usually surprised when the wave comes crashing down and they suffer losses. Dr. by placing trailling stops on their purchases people can develop an effective exit strategy according to Tharp.the can avoid disaster by doing so.
during the time he spent as a trading coach , Dr. according to Tharp many trading systems are available that work.their success is attributed to the fact that they fit the personality and belief system of the individuals using them.when people buy a system in a box , it usually does not fit and they therefore wind up changing things and not following it as it was designed.as they are not utilising the system as planned that is why they are likely to fall short of success.
He encourages people to design their own systems based on their own values and beliefs.a system which is created keeping you in mind will prove very helpful when making decisions when you feel the time is right.at moments when emotions are high and logic has taken a back seat , a system such as this would protect you from having to make big decisions.
Van Tharp teaches people how to use a system or strategy that has seven parts. These seven parts are as follows:
1.set up requirements
2.translate your entry
3. Set your protective stop
4.make a re-entry plan
5. Know your exit strategy
6.important position sizing tips
7. Developing systems for different markets.
numerous people claim that they are more successfull after reading Dr Tharp. Tharp's books making trading more of a logical experience then an emotional one.