Van Tharp: Position Sizing, R-Multiples and Expectancy
Tharp taught that position sizing and your own psychology matter more than entries.
Trade a real day like Van K. Tharp
A real market day with the date hidden. Run the checklist on the chart, then buy, sell or stay out: the real candles answer.
Check every point of the list before you decide. Stay out if the setup is not there.
Who they were
Van K. Tharp held a PhD in psychology and became a trading coach after studying what successful traders had in common. He was interviewed in Jack Schwager's "Market Wizards".
His book "Trade Your Way to Financial Freedom" (1998) popularised R-multiples, expectancy and position sizing as the core of a trading system.
Principles and rules
1. Think in R
Measure every result as a multiple of the initial risk (R).
2. Expectancy
A system's value is its average R per trade, not its win rate.
3. Position sizing
How much you risk per trade decides whether you reach your objectives or blow up.
4. You trade your beliefs
Your psychology and beliefs shape every decision; work on them.
Key lessons
- A 40% win rate can be very profitable with 3R winners.
- Risk a small fixed fraction per trade.
- Keep a record of every trade in R.
Strategies from this method
How to practise it
In Candlemind every trade is scored in R. After 30 trades, calculate your expectancy: the average R per trade.
Frequently asked questions
What is an R-multiple?
The result of a trade divided by its initial risk: a $200 gain on $100 risk is +2R.
What is expectancy in trading?
The average R you make per trade over many trades.
Summaries and paraphrases of public books and interviews, for education. Not investment advice.