Trade Your Way to Financial Freedom

Van K. Tharp makes a claim that unsettles most traders: entries matter little, position sizing decides almost everything. He spent years studying winning traders with very different profiles and found a common thread between them.

They did not share the same entry system, but they did share a disciplined way of deciding how much to risk on each trade. That is where his "R multiples" system comes from, measuring any trade in terms of risk taken rather than dollars, so you can compare completely different strategies on the same scale.

He also introduces the System Quality Number (SQN), a score for judging whether a trading system is statistically viable before risking real money on it. The book equally devotes space to defining your own goals as a trader and designing a system suited to you, rather than simply copying someone else's.

It is a particularly useful read if you trade under strict drawdown rules, as happens at a prop firm, because the position sizing Tharp teaches is exactly what separates passing an evaluation from being knocked out by a bad streak. By the same author, this catalogue also has Super Trader, which revisits and expands on these ideas.