One of the late Van K. Tharp, Ph.D.’s most useful ideas was simple:
Better trading starts with better risk management.
Here are 5 principles worth keeping close. 👇
01 Trade with the market trend
Before taking a position, first ask what the broader market is doing.
One simple reference is $SPY vs. its 200-day moving average.
Historically, markets have tended to perform better when price is above the 200DMA than when it is below it.
If $SPY loses that long-term trend reference, reducing exposure can be part of the risk-management process.
02 Know your exit before you enter
Every position needs an exit plan.
“Buy and hold” without knowing when or why you would sell can leave risk undefined.
Tharp suggested using a 25% trailing stop as a starting point for some long-term positions, allowing room for the trend to develop while creating a defined risk boundary.
The exact stop matters less than having one.
03 Risk 1%, not a random position size
Position sizing should start with how much you are willing to lose, not how much you want to own.
$25K portfolio → 1% risk = $250
$2 stop → 125 shares
$20 stop → 12 shares
Different position sizes.
Same portfolio risk.
That’s the point.
04 Study your own behavior
Your trading journal isn't just a record of entries and exits.
It can reveal recurring patterns in your decisions:
FOMO.
Fear.
Impatience.
Overconfidence.
Moving stops.
Taking profits too early.
The goal isn't to eliminate emotion.
It's to recognize it before it starts making the decision for you.
05 Own the outcome
When a trade goes wrong, there will always be something else to blame.
The market.
The broker.
The analyst.
The headline.
The Fed.
The unexpected news.
But accountability gives you something blame doesn't:
a way to improve.
If you can identify what you could have done differently, every losing trade becomes data.
Markets are always moving - and sometimes, the best move is knowing what works for you.
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