Trade Your Way to Financial Freedom by Van K Tharp
Quotes
We typically trade our beliefs about the market, and once we’ve made up our minds about those beliefs, we’re not likely to change them. And when we play the markets, we assume that we are considering all of the available information. Instead, our beliefs, through selective perception, may have eliminated the most useful information. - Van K Tharp, Trade your way to financial freedom
You don’t trade or invest in markets. You trade or invest according to your beliefs about the markets - Van K Tharp, Trade your way to financial freedom
Chapter 2: Judgmental Biases
We typically trade our beliefs about the market, and once we’ve made up our minds about those beliefs, we’re not likely to change them. And when we play the markets, we assume that we are considering all of the available information. Instead, our beliefs, through selective perception, may have eliminated the most useful information. - Van K Tharp, Trade your way to financial freedom
Biases That Affect How you Trade your system
Gambler’s fallacy bias
People assum that the probability goes up for a win after long losing streak or up for a loss after long winning system
Conservative with profits and risky with losses bias
People want to take profits quickly and give their losses some room. This gives them the illusion of being right, but what they are really doing is cutting their profits short and letting their losses run.
My current trade or investment must be a winner bias
what makes all these problems come ot the forefront is the overwhelming desire of humans being to make current position work out.
What happens? when you have losing position, you’ll do anything tot nurse it along, hoping it will turn around. As a result, losing trades tends to become even bigger. Second, people take profits prematurely in order to make sure those profits remain profits.
why? people have overwhelming desire to be right. Over and over again, I hear traders and investors tell me how important it is for them to be right when they make a market prediction or, even worse when they invest their money in market.
Once a person makes prediction, the ego becomes involved in it, making it difficult to accept anything that happens in the process of trading that seems to differ from your prediction. Thus, it becomes very difficult to trade anything that you publicly predict in any way.
Summary
The amount of information to which the average individual is now exposed doubles every year. consciously, however we can only process about 7 chunks of information before it is lost. As a result we have developed a number of shortcuts or heuristics to help us cope with the vast amount of information to which we are exposed. These heuristics are useful under most circumstances, but their implications for traders and investors are so strong that my belief is that the average person has no probability of making money in the markets unless he or she deals with them.
Chapter 3: Setting Up your objectives
This chapter mostly explain about how to setup your personal system by questions like, I already have clarity about most of this questions, so i don’t see much point in this
- how much time do you have for trading
- how much distraction do you have
- how’s your programming skills
- how’s your statistic skill
Chapter 4: Steps to developing a system
You don’t trade or invest in markets. You trade or invest according to your beliefs about the markets - Van K Tharp, Trade your way to financial freedom
This entire chapter explain how to develop your system, how to review it , its good for beginners but i already have good system in place
Chapter 5: Selecting Concept that works
This chapter mostly explain different types of trading system, i am already set for trend following so this don’t bring any value for me so just speed reading this
Chapter 6: Trading Strategies that fit the big picture
This chapter discuss about keeping big pictures in mind while trading
- Global factors like Effect of emerging country like india and china
- Effect of rise of mutual funds
- Us consumer Debt
- like changes in tax regime