Dr Van Tharp - Super Trader

Make Consistent Profits In Good And Bad Markets



Successful traders and investors are not just born, although they can be manufactured with meticulous planning, hard work, and discipline.

Anybody can build a successful trading business if taught the right tools and mindset.

That’s what Dr. Van Tharp preaches in his book, Super Trader - Make Consistent Profits in Good and Bad Markets.

Van Tharp is a leading trading coach and the founder of Van Tharp Institute, which offers high-quality educational services for traders and investors around the globe.

Dr. Tharp has studied over 5000 successful traders, including the very best traders to develop a successful trading model that new traders can learn from.

So, what is the successful trading formula discovered by Van Tharp?

Tharp emphasizes a 5-step process for becoming a successful trader.

The process addresses the core areas of trading, including:

● human psychology

● Money management, and

● System development

Of Dr. Tharp’s 5 steps, 4 crucial steps come together for profitability during rising, falling, and sideways markets, while the 5th step focuses on other ideas to up your trading game.

New traders should do well if they get the first 4 steps right.

Unlike other trading coaches, Dr. Tharp highlights the importance of working on the personal side and is the first step to becoming a successful trader.

Dr. Tharp is a neuro-linguistic programming modeler. As an NLP modeler, he studies many people who excel in something, studies what they do in common, and then determines what beliefs, mental strategies, and mental states are required to perform each task.

Once armed with this information, he can teach those tasks to others and expect to get similar results. He finds talented people and makes sure that they learn and follow the basics.

Like all professions, trading also requires domain knowledge and an enormous amount of practice. Just like no one can become a successful brain surgeon overnight, no one can become a successful trader without putting in the required time and hard work.

According to Dr. Tharp, when it comes to trading, 100% of the trader’s success can be attributed to trading psychology. Most traders focus largely on system development, which is the easiest part, and get entangled in their psychological biases to generate poor or mediocre returns. Therefore it’s important to work on beliefs, mental states, and mental strategies before fixing the nuts and bolts of a trading system.

The emphasis on psychology is important because humans are emotional beings. They become emotional about losing, about getting their money back from the market, about not making as much money as the next trader, and so on. All these emotions generally have devastating effects.

Okay, now we know Dr Tharp thinks trading psychology is the single most important factor to be a successful trader, but how do we get it right?

Dr. Tharp addresses this part by taking the first step of “working on yourself”.

To get the psychology right, we must start by knowing ourselves and differentiate between our harmless, and harmful beliefs.

Remember, “you” will be responsible for whatever results you generate in trading. So, always look within yourself first and address the “You” factor.

To get the broader level of psychology right, we must shed some harmful beliefs like perfectionism, low confidence, and self-esteem and be generally comfortable with the failures and setbacks. Do whatever it takes to be a peak performer. Think progressively, trade responsibly, and persevere.

Keeping a check on your mental state and having a broad awareness of your psychology will support you to flawlessly follow your strategy.

The other parts of psychology are generally concerned with keeping the right attitude, taking personal responsibility for failures and successes, shedding all excuses, and practicing mindfulness.

Be your observer and be cognizant of the cause-and-effect relationship in your life and trading.

Most importantly, a good trader must shed the desire to be right all the time. Accept being wrong and life will become much easier as a trader.

In a nutshell, a trader, like most successful individuals, requires a calm and positive mindset.

Once we are aware of the right psychological traits, it’s time to get to the next step, which is “formulating a business plan”.

A business plan provides direction and should incorporate all aspects of your trading, including a contingency plan.

How will you manage a drawdown?

Or perhaps a global recession?

What about a pandemic?

Or maybe the prospect of losing your job.

Or what if we encounter yet another credit crunch?

Knowing that situations like these will happen should make you plan for their eventuality.

The following are important aspects highlighted by Dr Tharp, and he says all should be considered when building a trading plan: After all you are building a business not a hobby.

Most new traders however jump in without following a plan and pay the costs later. Fail to prepare, prepare to fail….

Next we look at step 3; Developing a trading system.

Each trader should have a trading system which is built upon their beliefs and psychology.

To be a successful trader, you must build that system.

The system should be built on excellent risk management, which Dr Tharp measures through the concept of ‘R Multiple’ and is ultimately a measure of risk and reward. One of my previous Van Tharp videos helps explain this concept in more detail.

The system must be aligned to your trading style, which is born from your mindset.

You must ask yourself, are you patient or impatient? Do you prefer to be active or passive? Do you seek value or momentum? Do you consider the news to be of relevance? Do you like to study price charts? Or are you more of a fundamentalist?

Including the aspects of importance to you, into a system, will help you to stick with it.

The strategy I preach in our group for example, is based on my own beliefs and mentality.

I consider myself to be patient, I prefer a more passive style. I rarely listen to the news and I look for momentum in both technical and fundamental aspects.

The system should be adaptable over a longer-term horizon and be able to deliver in trending or perhaps sideways moving markets.

Ultimately, the trading system must be measurable.

We should be able to measure historical and current performance.

Historical could be in the form of back testing, or your own personal trading history.

Current would be your own recent performance.