I love great trading quotes, especially by those who actually know what they talk about. In this post, I’m sharing 20 lesser-known ones from Van Tharp.
First, a little bit about Dr. Van K. Tharp—he was a renowned trading psychology coach, perhaps as popular as the OG Mark Douglas back in the 90s.
Dr. Van Tharp’s work on trading psychology revolved around concepts like risk-reward ratio, position-sizing, and system expectancy. (He didn’t invent those concepts as some folks appear to believe, he just popularized them)
That aside, perhaps more importantly, Van Tharp specialized in helping traders overcome their self-limiting beliefs.
He was first featured in Jack Schwager’s first Market Wizards—a wildly popular trading book in the 90s—and he was the only trading psychology coach that was featured in the book.
Van Tharp’s ability to simplify complex issues made him very popular and he was dearly loved by his students.
I learned a lot from Dr. Van K. Tharp myself. In fact, I reached out to him a few years ago to get some feedback on a book I was writing. He was very generous with his time, and his feedback was direct, honest, and instrumental in my development as a trading psychology educator. For this, I am indebted to him.
Without further ado, 20 lesser-known quotes from Van Tharp…
Dr. Van K. Tharp Quotes
You don’t trade the markets, you trade your beliefs about the markets.
You must discover your beliefs about the market so that your system will fit those beliefs. You must know yourself well enough to develop your personal objectives and a system that fits those objectives. And you must work on your system until you are comfortable trading it. You must know your criteria for comfort. Most people have many biases against doing it well. To overcome those biases, most people need to take some steps in their personal development.
People want to be led astray. They constantly ask the wrong questions. For example, what’s the market going to do now? What should I buy now? I own XYZ stock. Do you think it’s going to go up? (If you say no, then they’ll ask someone else until they find a person who agrees with their opinion.) Tell me how I can get into the market and be “right” most of the time. And those selling information get rewarded by giving them the answers they want […]There is a large industry available to give you the answer to such questions.
There are probably hundreds of thousands of trading systems that work. But most people, when given such a system, will not follow it. Why not? Because the system doesn’t fit them. One of the secrets of successful trading is finding a trading system that fits you.
You cannot develop an adequate system for making money in the market unless you totally understand what you are trying to accomplish in the markets. Thinking about your objectives and getting them clearly in mind should be a major priority in your system development.
Most investors believe that there is some magic order to the markets. They believe that a few people know about it and that those few are making vast fortunes from the market. These believers are constantly trying to discover the secrets so that they too can become wealthy. Such secrets exist. But few people know where to find them because they are where one would least expect the secrets to be.
The Holy Grail system is an internal search.
You’re playing a game of life. Sometimes you win and sometimes you lose, so there are both positive and negative consequences. To accept both the positive and the negative, you need to find that special place inside of you in which you can just be. From that vantage point, wins and losses are equally a part of trading. That metaphor, to me, is the real secret of the Holy Grail.
And if you cannot accept the negative consequences, you’ll never succeed as a trader. Good traders usually make money on less than half their trades. If you can’t accept losses, then you are not likely to want to get out of a position when you know you are wrong. Small losses are more likely to turn into giant ones. More importantly, if you cannot accept that losses will occur, then you cannot accept a good trading system that will make a lot of money in the long run but might lose money 60 percent of the time.
Almost every successful investor that I have encountered has realized […] that success in the markets comes from internal control […] Internal control is not that difficult to achieve, but it is difficult for most people to realize how important it is.
Most investors believe that markets are living entities that create victims. If you believe that statement, then it is true for you. But markets do not create victims; investors turn themselves into victims. Each trader controls his or her own destiny. No trader will find success without understanding this important principle at least subconsciously.
Most successful market professionals achieve success by controlling risk. Controlling risk goes against our natural tendencies. Risk control requires tremendous internal control.
Most successful speculators have success rates of 35 to 50 percent. They are not successful because they predict prices well. They are successful because the size of their profitable trades far exceeds the size of their losses. This requires tremendous internal control.
My belief is that the largest profit percentages are made by active short-term traders who really have their psychology together. I’ve seen short-term traders who could make as much as 50 percent or more per month (on small amounts of money such as a $50,000 account) when they were very in tune with the market and themselves.
When I’ve had discussions about what’s important to trading, three areas typically come up: psychology, money management (that is, position sizing), and system development. Most people emphasize system development and deemphasize the other two topics. More sophisticated people suggest that all three aspects are important but that psychology is the most important (about 60 percent), position sizing is the next most important (about 30 percent), and system development is the least important (about 10 percent).
A good trader once told me that his personal psychology did not enter into his trading at all because everything he did was automated. I responded, “That’s interesting, but what if you decide not to take one of your signals?” He responded, “That would never happen!” About six years later this trader went out of business as a professional trader because his partner did not take a trade. That trade would have made them very profitable for the year because it was a huge winner, but they’d had so many losses in that particular area that his partner decided not to take it.
I’ve argued for a long time that trading is 100 percent psychology and that psychology includes position sizing and system development. The reason is simple: We are human beings, not robots. To perform any behavior, we must process information through the brain. Behavior is required to both design and to execute a trading system. And to duplicate any behavior, one must learn the ingredients of that behavior.
Most people lose the money game because they follow someone else’s rules for how to win the game. They believe that the person with the most money or the most toys wins the game.
Financial freedom occurs when your passive income (income that comes in when your money works for you) is greater than your monthly expenses. Thus, if you need $5,000 per month to live on, you become financially free when your passive income is greater than $5,000 per month. It’s that easy, and anyone with enough desire and commitment can do it.
If you can generate enough income through trading or investing to meet your monthly expenses, and if the process requires only a few hours of your time each day, then I’m willing to call that income “passive income.” And through this process you can be financially free. Although you may have to spend several years learning the business of trading and developing a business plan and systems that fit your plan, once that is complete, you could be financially free by my definition.
Thanks for reading! Dr. Van K. Tharp and Mark Douglas were the real OG trading psychology coaches, and I really am grateful for their contribution to the trading world.
By the way, these quotes were taken from Van Tharp’s book Trade Your Way To Financial Freedom. (It’s a great book, don’t let the perhaps get-rich-quick-sounding title deter you from reading it!)
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