Super Trader by Van K. Tharp is a landmark book, highly recommended for building solid foundations at the start of your trading journey, whether you trade stocks, forex or cryptocurrencies like Bitcoin.
For experienced traders chasing consistent performance, whether the market is bullish or bearish, calm or volatile, Van K. Tharp’s method is built around five core steps:
- Working on yourself: an inner, self-reflection exercise to become aware of the personal blocks that hold your trading back
- Building a business plan to guide and structure your trading
- Defining several strategies that account for every kind of market condition
- Setting your goals and building a position sizing strategy to reach them
- Monitoring every action in order to minimize the number of mistakes.
According to Van Tharp, psychology is the main component of trading success, because we are “wired” to do the opposite of what we should, due to cognitive biases. Every task comes down to finding the mental states and strategies that lead to success. For Van K. Tharp, the ingredients of success are above all psychological — a topic we dig into in our complete guide to trading psychology.
2026 update: this summary covers the work of the late Dr. Van K. Tharp (1945-2022), pioneer and founder of trading psychology, who passed away on February 24, 2022. His books and tools are still distributed by the Van Tharp Institute. The method presented here — the three pillars (psychology, position sizing, system development), the R-multiple and the System Quality Number — remains fully relevant. Page and questionnaire references are based on the current edition (“Super Trader”, Expanded Edition, 2011, ISBN 9780071749084); pagination may vary depending on your copy.
Super Trader: self-reflection and working on yourself, the foundation of a high-performing trader
First, start by carrying out an honest self-assessment, then train yourself to become who you want to be. All of this without falling into perfectionism and needless complexity. Working on your self-esteem is essential, because the key is you!
Start with your self-assessment, with genuine self-reflection about yourself and your mental state in order to trade well and face the market. Van K. Tharp offers a series of 17 questions, found around page 37 depending on your edition.
Know yourself: what kind of trader are you, and for what kind of trading? Van K. Tharp designed a roughly 5-minute questionnaire to help you get to know yourself and identify your profile, a tool still offered by the Van Tharp Institute.
Trading full-time demands daily commitment, but you’ll only be a good trader if you do what you love. You must also take full responsibility for your actions: you alone produce your results — you trade your beliefs on a market. Never look for excuses when things go wrong, and if you do find some, dig into them to understand better and find the fix.
Give yourself the power to succeed, with a responsible and optimistic approach. Everyone has their false beliefs (“I’m not good enough”, …); work through them deeply and honestly with yourself, and remember that you are your own opponent.
There will be obstacles to overcome, such as living with your losses. Even though losses are part of the process, if they become too frequent or eat deeply into your capital, turn them into an ally: sit down to understand them and improve your trading.
Trade mindfully, meaning calm your mind and “observe your thoughts” to fully experience your trades. Become friends with your inner interpretation system, starting by identifying what makes you angry, for example, then understanding why that anger arises. Van K. Tharp actually offered 17 questions to practice mindfulness in your trading.
Reach balance in your trading/investing: give as much importance to gains as to losses, in a neutral way.
Overcome your mental blocks by asking yourself essential questions: am I capable of reaching success, do I have the right to it, am I good enough to be rich, am I willing to lose? Do this exercise with complete honesty in order to overcome them.
Appreciate your successes, because no condition is required to be happy: it’s up to you to decide. Take inspiration from children, who draw their joy from simple things. Accept that you can be happy without hard-earned work; why not simply enjoy life?
You can also give your soul some vitamins to improve your trading: focus on the present moment, laugh, give to others, thank those around you for your joys, follow your dreams, commit to loving others, meditate and listen.
It takes discipline to reach your goals:
- Start by breaking a broad goal down into specific steps. For example, reaching a 50% return in the first year: to do that, with 1% risk per trade, you only need to make 1R per week over 12 months.
- Make yourself your own promises, setting the triggers that let you check your promises are being kept.
- If you set yourself a new goal, look for the positive side of it, everything positive it will bring.
- Keep a journal of what you’re working on.
- Accept that you’ll give up from time to time.
- Reward yourself throughout the process.
- Remove the emotional charges that block you (fear, anger, …).
This personal work is a lifelong task: tackling your self-sabotage is hard, but as soon as the 1st block breaks and you notice it, the positive feelings are huge and you’ll know you’ve done the work. That leaves the other locks to release…
Super Trader: building your professional trader’s business plan
Like a business, your goal is to create value through trading with your capital. So take the same approach as a company and put in place a genuine trading plan structured like a business plan. You’ll start by:
- stating your mission
- your vision
- your goals
- your trading strategy
- your market knowledge
- position sizes
- psychological challenges
- your daily routines
- your training plan
- your disaster plan
- the income you want to earn from it
- the balance you’ll set up with your outside environment
Having a plan is THE necessary condition to start trading, according to Van Tharp — and I 100% agree with that!
Stating your mission is essential to succeed: whether it’s creating a hedge fund or helping others reach prosperity, everything you undertake in your trading must clearly serve that mission. You’ll need to stay focused on your goals and move step by step to get there. Your knowledge of the markets and of the economic and legal environment will affect your decisions: take them into account.
Then, depending on those markets (volatile, bearish, bullish, calm, ranging), you’ll need to define setups before entering, with clear signals to get in and out, and define how you’ll take your profits and accept your losses. To be sure of your strategy, you’ll need to test it over 50 trades to validate it. Choosing your platform also matters: for crypto trading, reputable exchanges like OKX offer a reliable and secure environment to apply your plan.
You’ll need to establish your daily routines to perform: from self-assessment to exercise, to reviewing your winning and losing trades, to meditation… in short, a daily mental, physical and technical self-assessment.
Also include a training plan: just as a growing, thriving company trains its employees, do the same and keep training yourself continuously.
Plan for the worst so you’re ready if it happens: personal emergencies, an unexpected market crash, a change in your life… this is your backup plan.
Systems other than trading also deserve thought, such as the cash flow you’ll need, the time you can devote, how you’ll collect the data you need to trade well…
Developing a trading system that truly suits you
You absolutely must know yourself! Anticipating your reactions to this or that type of situation may let you anticipate those very situations in an optimal way.
This way, you’ll be able to determine your goals and your “beliefs” about the market you’ll trade.
One of Van K. Tharp’s beliefs is that a trading system is characterized by the distribution of R-multiples it generates.
Trading concepts can be classified by trader profile. Van K. Tharp lists 9 of them (trend following, fundamental analysis, value trading, seasonality, etc.).
According to Van K. Tharp, setups aren’t as important as you might think. They’re simply part of a complete trading system, whether based on retracement, reversal, volume, etc.
We’re drilled into believing that success depends on our stock picking, when in fact you need to nail your entries, your exits and, above all, know how to read the signals from technical analysis to be profitable.
Van K. Tharp stresses exits, because a stop that’s too tight greatly affects the R.
You must know why you’re exiting. There are 4 possible goals:
- Produce a loss but reduce the initial risk
- Maximize profits
- Prevent giving back too much profit
- Psychological reasons
You need to think in terms of performance and risk. For example, Van Tharp recommends spreading the risk across several take profits, including a first exit on 75% of the position for stock trading.
He also defines the average R, which is the expected value. To be meaningful, it must be calculated over at least 30 trades. If you compute an average R of 0.68, it means that over 100 trades you’ll have made roughly 68R.
With a good set of data in a 5-column table, you can methodically track your R :
- An identification column
- The entry risk
- The number of shares bought
- The total gain or loss
- The R-multiple
If the average R is 0.25, it’s still acceptable according to Van K. Tharp.
A good trading system is defined by 6 key points:
- Reliability
- The relative size of your profits compared with your losses
- The cost of your trading
- The trading opportunities
- The size of your trading capital
- Position sizing
NB: if you don’t have enough money to trade, or if your position size is too large, you’ll be set up to fail. Having short-term profit goals is harmful.
Succeeding in trading according to Van Tharp: the key takeaways
Every trader has their own system. One of the least productive phrases is “it didn’t work”: it rules out all potential and suggests a lack of perseverance. You need to know when and why something doesn’t work, then adjust course without throwing in the towel at the first obstacle.
Do a reality check on your trading: run simulations, analyze your losses, your gains, your successes, your failures, always with the same constant — working on yourself. Once all these steps are done, your trading will flourish.
Understand the importance of the position sizing that suits you
Position sizing is the part of your system you must use to reach your goals. You could have the best system in the world and still go broke if you risk 100% on one of your losing trades. That’s why we recommend digging deeper into this topic through our dedicated guide to risk management.
Van K. Tharp created a metric called the System Quality Number (SQN™), which takes into account the number of winning trades and a small variation in losing trades within the amounts won and lost: it’s his “Holy Grail” system.
Position size matters more than you’d think, and Van K. Tharp defines three inseparable components to take into account:
- The trader’s goal
- The trader’s psychology
- The position sizing method
To determine your own position size, you take 3 variables:
How much capital will you risk? = C
What will the position size be? = P
How much will you risk per unit bought? = R
The following formula determines how much to buy: P = C/R
Ex.: you buy a stock at $50 with a $5 risk per share. You want to risk 2% of your $30,000 portfolio. How many shares should you buy?
Answer: R = $5/share; C = 2% of $30,000, i.e. $600.
Van K. Tharp advises risking only 1% of your capital: this means 1R is turned into a position size equal to 1%.
A reminder that, thanks to the stop-loss, this calculation can evolve…
The different money management models explained
What Van K. Tharp calls “position sizing” directly extends the concept of money management: the way you size each position determines your survival in the markets more than the system itself.
The simple method: it consists of allocating part of your capital (10%?) based on your capital — say $50,000 for a first trade, which means the capital available for a second trade is $45,000. If you open a second position, again at 10%, your available base capital will be $40,000. New positions are always allocated based on your available base capital.
The total equity method: the account value is determined by the amount of available cash capital plus the open positions. Using the example above, the total equity would be $60,000 after opening the first position, for the second one.
The reduced total equity method is a combination of the first two methods: it equals the base capital plus the profits of all open positions that are locked in with a stop, or the risk reduction that occurs when you raise your stop. Using the example above with $50,000 of capital and 10% allocated to the first position, the available capital is reduced to $45,000, but since you’ve placed a stop that risks only $3,000 max, the available capital is $47,000.
Van K. Tharp details other position sizing models and closes the section by stressing the importance and complexity of position sizing. One way to use position sizing to reach your goals is to use a simulator.
Here are even more ideas for producing optimal trading performance: first of all, keep your methodology and your daily tasks simple.
Becoming a profitable trader: the concrete paths to take
- Developing new trading systems
- Finding more markets on which to apply your system
- Expanding your team to cover more markets (in the case of a fund)
- Making your traders efficient in their work by specializing them, for example
- Optimizing your position sizing to reach your goals
Here are a few leads to start optimizing your position sizing, with a tutorial on the method I use to set my stop-loss relative to my position size and my risk.
In this video, the Captain shows step by step how to connect your position size, your risk per trade and your stop-loss — the concrete application of the position sizing principles described by Van K. Tharp.
Avoid making predictions about the market, and above all avoid listening to other people’s: success in trading is about instinctively understanding how the market works.
