Van Tharp – Position Sizing

The “How Much” Factor:

Your success as a trader has little to do with selecting the right investment or even having a great system. Instead, it has everything to do with the “how much” factor when investing or trading. Investment professionals have called this factor “asset allocation” or “money management.” Risk Management is what most call it. But risk management can mean so many different ideas.

Most traders fail to understand that the key aspect of risk management is “how much” to invest in any position. Others work so hard to get themselves a good system but fail to realize that position sizing strategies are the key to getting what they really want.

To clarify the vast differences in what traders refer to as “Risk Management”, Dr. Tharp coined the term Position Sizing to be specific about this approach.

When you have a great trading system, it is certainly easier to meet your system objectives through your position sizing method; however, you still have a chance to meet your objectives and profit with an average system if you understand how to position size properly.

Yes, your position sizing strategy is that important.

For many years Dr. Tharp has specialized in helping traders and investors understand position sizing strategies and how to use them effectively manage risk. He originally published The Money Management Report as his guide to position sizing methods. But as the information, he learned expanded he wrote The Definitive Guide to Position Sizing.