Customer Reviews

Trade Your Way to Financial Freedom

5 star:		(117)
4 star:		(27)
3 star:		(12)
2 star:		(9)
1 star:		(17)

 

 

Out of kindness I have chosen to rate this a two-star publication. There are a few, very few, useful statements here for traders.

What else would one expect from a person that does not trade? Merely talking with successful traders does not imbue one with trading wisdom.

Like all of Tharp's work, from what I have seen, the title belies the content. That is, little to no worthwhile content, but a captivating title. Anyone that honestly believes themselves to be credible enough to write a trading book that can deliver "Financial Freedom" that has never traded professionally should not be believed. It would be similar to seeking advice from a homeless person about becoming a billionaire.

Another credibility issue for me with this author is that he is now hawking "No Money Down" and "Get Rich in Real Estate" tapes, books, seminars, etc. I would speculate that Tharp would sell widgets, or, at a minimum, books about widgets, if he believed there was money to be made.

I find it impossible to believe this person could ever be a credible source of information about trading! His trading resume consists of ..., well nothing, except the idea of how to make money by writing words on a subject he knows nothing about.

Many more useful, credible books exist that will help in attaining real financial freedom. Brett Steenbarger is a trader and has produced good material on the psychology of trading, and Mark Douglas, even though he does not trade, has produced more interesting and valuable books.

The most useful advice, read books about trading that are written by traders, and read reviews written by people who trade every day.

Dr. Tharp's book is head and shoulders above most popular investment books, and I heartily recommend it to anyone who is not a professional trader but is interested in managing his or her own investments at the level of individual stocks, bonds, options or futures. Why then only a three-star rating? I explain below.

The first three chapters, on individual psychology and biases, is non-technical but essential. The middle chapters, especially Chapter 5 which contains introductions to various styles of trading (supplied by various professional traders), are moderately informative and quite entertaining. The third part, the core of the book, primarily on money management and exits but with sections on setups and entries, is as good as you're likely to find in the popular literature of the subject. All the same, this is a maddening book with all the vices of its type Some examples:

. The cute metaphors and examples ("Holy Grail", "Snow Fight", "Marble Game") are are well chosen and probably motivate some readers. They are not mere filler. But they are elaborated at the expense of more precise information on the statistics of posiion sizing, the testing of trading systems, and so on.

. The much-vaunted "expectancy" turns out to be nothing but the ordinary mathematical expectation of probability theory, applied to the result of a trade or series of trades. The use of a coined meaning for an uncommon word may prevent some readers from finding further information in the general statistical literature. The discussion of this concept in Chapter 6 is just imprecise enough, and the examples in Chapter 12, trivial enough that the reader may be encouraged to purchase Dr. Tharpe's home-study course or take one of his seminars in search of clarification. Why do I think this is probably intentional? Because it is typical of the whole genre! On the positive side, the book is not riddled with advertising---something I can't say for most introductions to trading.

. The essentially mathematical and statistical nature of position sizing is watered down to an unconscionable extent, and what's there is presented with great fuss and fury but in a shallow and confusing manner. My seventh-grade teacher would have hit me with a ruler if I'd used the expression "divided into" (despite its retention in the COBOL programming language---presumably to cater to business programmers with sixth-grade educations).

. It's unconscionable that a a book which emphasizes risk management and position sizing should contain no reference at all to the most frequently encountered derived statistics. Not even the Kelly formula nor the Sharpe ratio are mentioned. But these require first-year high school algebra and a tiny bit of knowledge of statistics (means and standard deviations).

. The book contains no verifiable results of the statistical modeling of any of the described trading or sizing system components. Indeed, for the most part the descriptions are so broadly drawn that no such evidence would be possible.

. At least there's a decent bibliography, which includes Ralph Vince's books. These contain some of the statistical details. But I don't see a standard text on investments such as Bodie or Sharpe listed. Again, it seems to assume that the prospective trader is a sixth-grader, certainly not a candidate for business school, or even for the trading floor.

. This is a McGraw-Hill book, not the product of a "vanity" (or greed?) financial publisher. Yet there are dozens of editing errors. It appears to have been proofread for style and sentence structure, but by someone completely ignorant of the subject matter. P.184: "...O'Neil's criterion being an increase of 70 percent..." (where all three versions of O'Neil's CAN-SLIM method give 20%). P.185: "A stock in the top 75 to 80 percent would probably be one to consider..." (here the author---or proofreader---seems to invert "20 to 25 percent"). See also the inversion of "winners" and "losers" on p.148. There are too many instances of this sort of reversal to list in a review. Would I trust this man with my money? It's doubtful. The frequency of spelling errors is also rather high for a professionally-produced book.

But I repeat: This is absolutely the best popular book on trading of the half dozen that I've selected and read. It deserves most of the plaudits given it in other reviews. Traders would do well to peruse it. I hope they will also be cognizant of its limitations.

What makes this book so good? It tells you how to build a real trading system. In the process, it exposes the prejudices and assumptions that cause people to lose money. For example: most people think that successful trading is a matter of picking the right stocks. Believe it or not, this belief sets you up to fail. Before reading this book you would probably rank as most important: (1) knowing when to get into the market; followed by (2) knowing when to get out of the market; (3) knowing how many shares or contracts to buy/sell; (4) understanding the psychological factors involved. The book makes a strong case that this ranking is exactly backwards! In other words, when it comes to trading it reverses your entire worldview. (It certainly reversed mine.) Some of these ideas are common, but Tharp tells you *what* and *how* to do. Not on the level of "here's a great trading system," but on the level of "here's how you *make* a trading system", oh and by the way, here's why you *need* to make your own system." That's a huge, huge difference, and other books on the subject are shallow by comparison.

The book does have problems. The writing and organization are uneven. Many passages are magnificent, others are cluttered or confused. Tharp is not a very good technical writer; technical details appear to be his weakness in general. Nor is he a good judge of others' writing (the worst parts of the book, especially the gobbledygook on neural networks, were written by other people). All of Tharp's writing that I have read suffers from poor editing. A first-class editor would have turned his first-class material into a first-class book. Instead, what we have is third-rate editing and first-class material yielding a second-rate book. It's a crying shame. However, the book still deserves more than 5 stars. Tharp shines at explaining the key concepts behind successful trading -- and this is the area that matters most -- and at this he is the best.

What this book discusses are futures and other highly leveraged financial products which are sum-zero games. This means that if you make a profit then someone, somewhere, makes a loss. It also means that the longer you play the game the more likely you are to run into a prolonged losing streak with serious financial consequences. To be able to stay in the game your trading strategy needs to superior to the majority of other traders who are also playing. Many are professionals with access to considerable computing power and the ability to constantly analyse in depth such factors as entry and exit points and profit expectancy. The expertise of the other players means that the man in the street is likely to be entering these markets with both hands tied behind his back!

Even Van Tharp, himself, doesn't demonstrate that he is a successful trader. There is no evidence that several of the ideas he puts forward actually work and my experience suggests that some of them don't. It is obvious that Van Tharp has researched the subject in depth and this is impressively reflected in the book which makes for interesting reading. However, it is important to understand that this book primarily reviews the work of others rather than calls on his own personal experience. One of the major drawbacks of that is trading strategies which have been successful in the past cease to be so once they are in the public domain and simply to repeat them is generally not a recipe for success.

To have any hope of achieving what the title of this book suggests depends on two ingredients. The first which is essential is the ability to select stocks that are more likely than not to move in your favour. The second which is highly desirable is to bet on these stocks in such a way as to maximise profit but at the same time to minimise risk. This second ingredient is bound up in what is known at position sizing which is a rabbit which Van Tharp pulls out of the hat with a great deal of panache. Clearly, from the number of 5 star ratings this book has achieved, readers are impressed. However, because this is unfamiliar territory most reviewers are not in a position to evaluate this book objectively.

Van Tharp works from the premise that it isn't possible to forecast how stocks will move and consequently it is largely pointless to try. He therefore attaches minimal importance to stock evaluation and selection. His main technique is to keep control of a portfolio by using trend following techniques and stop losses. These are well known strategies that weed out the losers while allowing the winners to advance. By their nature they produce a large number of small losses and a few large gains. In the right hands they can be sensible strategies but Van Tharp implies they are inherently capable of achieving a profit at the end of the day. Basically, therefore, all you have to do is to use any one of a variety of stock selection strategies, which one is not especially relevant, apply to it the stop loss principles and also the appropriate position sizing and maximise the profits. Wonderful - a free lunch!

What Van Tharp says about position sizing is fundamentally correct. However, to work out the figures you must have a history of profitable trading. If your trading isn't profitable it is pointless to consider position sizing. If it is then this book deals with the subject at too superficial a level to be able to apply it to full effect. You will need to look elsewhere. Van Tharp directs the reader to his own website where further information is available at significant cost. An alternative is the bibliography which is a little goldmine!

Van Tharp gives examples of how position sizing affects profits. The models were back-tested using a trading strategy that involved breakouts and stop losses. The strategy was employed very successfully by a group of traders in the 1970's but by the time this book was written it had lost almost all its edge. As a consequence, even his best model produced compound annualised profits of only 23% which isn't enough given the high risks involved. When this same strategy is applied to certain markets it now consistently produces losses no matter how you use position sizing. The reason the strategy has lost its edge is because too many know it was previously successful and are on the band-wagon. What is happening is whereas in the past the strategy selected stocks that were more likely to advance than not, now it doesn't.

The simple fact is it is impossible to trade these markets successfully without stock selection expertise, irrespective of how good the position sizing strategy might be. To put it another way, position sizing, in itself, will not produce profits. All it can do is to maximise an already profitable trading strategy. The bottom line is that this, in turn, depends on being able to select stocks that are more than likely to perform in your favour. There is no free lunch!

I dont usually like to write any reviews, but I felt compelled to write this for two reasons. The first, is that this book has been the single biggest influence in my trading out of anything I've ever read, and I actually bought it because of someone's review- so if someone reads it because of my review then I would have definitely done them a great service. Second, and more importantly, I really was absolutely disgusted by the many negative reviews written about this book, and I wanted to set the record straight for anyone reading them so that they wouldn't make the huge mistake of not reading this book. So here goes, but before I start i'd just like to say to those "nay sayers" that Tharp is a trader, and that what makes all of his insight so effective is the fact that he has studied thousands of traders over 15 years and came up with a model for effective trading based on what they all have in common. Then, using a scientific approach, he has quantified this model and given you all you need to know in simple terms. It's not a bunch of philosophy, but rather priceless insight which we should all be greatful for.

I am indeed calling this the single greatest book ever written on the subject of trading. Why does it deserve such high praise you might ask? To put it simply, this book explains the process of successful trading in such a way as to give u the most incredibly clear understanding possible. There are hundreds of trading books out there, and each one seems to give you the author's view on what sucessful trading is. The only problem is that so many authors hold the view that it's all about the methodology and that their methodology is the best or even only way. So u might have heard that you have to have at least a 3 to 1 reward to risk ratio to take a trade. Or u might have heard that you should always scale out to cash in profits, and so on and so on. But what makes this book so unique is that it doesn't explain trading from a methodology standpoint, but rather gives you the most flexible and open minded explanation out there. It alows u to see, for instance, that a 1 to 2 reward to risk ratio (yes risking 2 just to get 1) could be great in some instances depending on the system. It allows u to stop focusing so much on ur entries and focus on ur exits, which are truly the most important thing. "cut ur losses short, let ur profits run". U might have heard that before, but now u'll understand that all it's talking about is the importance of exits. The book also gives you an unparalleled understanding of what it takes to design your own method, whether it be mechanical or discretionary, and how to track it precisely to see if it will make u money over time. Perhaps more importantly, the exact way it defines the paramters of successful methods gives you a psychological edge that makes it easier for you to trade successfully by default. What I mean by this is that it shows you how to start looking at trading as a long series of trials that will over time make you money because they have a positive expectancy. Do u know how powerful it is just to view trading this way??? It allows you to stop wanting to be right on every trade because you know that while your method will make money over time, each specific trade's outcome is almost random and unknown. And so u focus on the big picture and find it easier to take losses and not get upset because over a series of many trades u'll be up. Don't underestimate the effec this will have on ur trading.

Apart from giving you all of these well defined ways of looking at the basics of trading (things that are all mentioned by the market wizards by the way, but often in vague and seemingly contradictory terms), the book is the single best insight into trading psychology. And here i'm not talking about simple knowing how to be "discipline". But rather, Tharp shows you in great detail how u need to think about all of ur trading objectives before u start, and how to even align ur trading purpose with ur general life goals.

In the end, the people who rated this book very low are those people that need this book the most. They are out looking for set-ups or for exact formulas on risk, instead of focusing on the foundations of trading success and building things from there. If they dont see the value in this book then I'm pretty sure they're not very successful because the keys for success in trading- which are no secret- are very precisely outlined in here. In fact, this book has cut down my learning curve by at least a couple of years. Without reading it I would have went off on so many wrong paths because I would have always been confused when seeing seemingly contradictory advice from different authors. That doesnt happen anymore though, because I have such a solid foundation about the essence of trading from this book and can easily tell when an author is simply talking about something which fits him and which I don't need to apply to be successful. In the end, the key thing you'll learn from this book is how to truly develope a methodology that fits you and to back it up with all of the other essential things required for long term success.

Dr. Van Tharp's excellent book "Trade Your Way to Financial Freedom" is truly a work of groundbreaking proportions. It is the single most important book I have ever read on the subject of trading sucessfully. Using a very organized and readable format, Dr. Tharp leads the reader step by step through the maze of myths about trading and arrives at the true meaning of the Holy Grail -- that the secret of success is inside you. Dr. Tharp serves as your personal guide, taking you safely through the treacherous terriroty surrounding information about trading systems. In the end we are much wiser for the experience, arriving at our destination stronger for having completed the journey. In short, we gain the wisdom that comes with knowing one's Self and become very clear on what works...and what doesn't. By interviewing thousands of successful traders during a 15 year period, Dr. Tharp was able to find out what was common in their individual systems of success. He then created a "model" of those variables, arriving at these basic truths: Low risk ideas combined with appropriate exit strategies and position sizing create the foundation for developing successful trading systems. Dr. Tharp shares his research with the reader, supporting his conclusions with rich examples. After finishing Tharp's book, even a layman has the tools to design a highly profitable trading system that contains all the strengths common to the best trading systems but also "fits" that particular trader's personality. This book transformed my experience of trading and allowed me to trade with the confidence that comes from knowing the truth about what works. Since implementing Dr. Tharp's strategies to my trading style, the results I have experienced are nothing short of miraculous. Quite frankly this is the first and last book you will ever need if you are serious about trading (or investing) your way to financial freedom. If you want to develop a highly profitable, low risk trading system that produces consistently strong returns, then read this book! All you need is an open mind and the courage to put some of Dr. Tharp's innovative research to the test. I promise you, if you read this book and apply Dr. Tharp's proven concepts, your trading will immediately improve and your bottom line will stay in the black. Without a doubt, Dr. Tharp's book is the best "investment" I have ever made. My return on this "position" is incalculable...

"Trade Your Way To Financial Freedom" starts with an unfortunate three chapters of poorly presented material of very little value to anyone about Holy Grails and psychological issues. Then we get a few more average quality chapters about systems development. The real meat starts in chapter 7, where Van introduces you to six different trading systems of various quality levels (the best of which is the William O'Neil CAN-SLIM approach popularized in his books and in IBD). These systems are all torn apart and analyzed in terms of their entry, stop loss, profit taking, and position sizing approaches. A careful reading of this hundred pages forces the reader to come to terms with how expected profitability and trade size all interact in similar ways no matter what trading approach you are using.

The strongest parts of this book are those that relate to optimal position sizing. The constant and unavoidable looks at mathematical expectation required for this may seem difficult if you're not used to thinking this way, but this is more approachable than the more comprehensive and considerably more complicated books covering similar material by people like Ralph Vince.

For short-term swing or day traders, it's probably more harm than good because it discourages several things I don't think Van really understands that are useful approaches for intraday trading. But this is a perfect intermediate level book for systems developers, fairly long-term investors, or people managing a substantial amount of capital who want a better handle on how risk analysis can be used to drive your trading.

Execellent coverage of the 10 parts of trading system design: 1) Market Selection, 2) Market Direction, 3) Setups, 4) Market entry, 5) Protective stops, 6) Market re-entry, 7) Taking profits, 8) Position sizing, 9) Portfolio selection, 10) Multiple systems.

I was so impressed with the book that I attended Tharp's $2,000 Advanced System Development Workshop. This book covers 90% of what was in that workshop. The other 10% is in Tharp's other book, Financial Freedom through Electronic Day Trading. The 10 parts of trading system design were not covered at any additional depth or clarity in the workshop. In fact, the books cover a lot more material. Just buy the books and read them several times.

With all of the hoopla surrounding "trading" recently, it's interesting that many, if not most, would be traders don't know how to get started.

I should know. I'm a professional, full time trader and I'm constantly being asked,"John, how can I daytrade and make a living?" After reading Van Tharp's new book, I finally have a great answer to that question.

Sometimes I think I've read almost everything published on trading. Some are so basic they insult the reader, in their naïveté. Others are very advanced technical treatises. Van Tharp's book is refreshing. I found it a great read...a blend of the foundational concepts such as "fundamental analysis" with very advanced concepts including "expectancy"...a topic that very few traders understand at all.

Along the way, Tharp gets the reader involved by asking plenty of self-analysis type questions. Questions designed to immerse the reader in the complete process of trading. From understanding biases and success roadblocks...to designing and implementing a winning system...it's all here.

Whether you're brand new to trading, or a seasoned pro...there's plenty of material to dig into here. A lot of meat...very little fluff. I rate it five starts. Get it. Read it. Understand it.

And best of SKILL in your trading!

Van Tharp gives some good examples from a vareity of sources on how to monitor one's trading habits. He discusses many key aspects of the game and takes a non biased stance on which way is the best for his audience. His soft sell approach and open minded attitude is quite refreshing when compared to other authors who seem to have altierior motives.

However, some of the chapters are written from an overly technical point of view. Mr. Tharp assumes his audience knows what he is talking about but really he fails to introduce some key analytical concepts. The Arbitrage Theory is extremely difficult to interpret. The use of statistics helps in spots but it is recommended that you study this book many times over which the author does suggest. Many of Tharp's examples are dry and a bit disconnected from the stock market world. Instead of displaying random statistics that merely displays his ideas from an academic person's point of view, Van Tharp could have simply cut to the chase and displayed a trend on a well known stock like IBM or Hewlett Packard which illustrates his and any other theories discussed in this book.

As a reference, this book has the potential to provide longer term value than other readings that deal with concepts that became obsolete several years ago as well as other sources that have a narrow focus/bias. This books provides a reasonably sized suggested reading list which adds to the value over the long haul. For those who have the time, this book could be worth four stars or even more for those academians out there. However, others who do not fit the above criteria will have limited returns from this source. To be fair to all, I rate it 3 1/2 stars.