Positive Expectancy & Position Sizing

Your trading style forms a basis for your beliefs about how to enter the market.

This is important because you really only trade your beliefs about the market. It’s very hard to trade something that’s going up if you believe it is overvalued.
Similarly, it’s very hard to trade something that’s considered undervalued, if you believe (because it is going down) that it will continue to go down.

But it really doesn’t matter what framework you select for picking your trades or investments. That’s only the starting point for real success.

What’s really critical is that you understand that you make money by cutting losses short and letting profits run. This will give you a positive expectancy system.

And if you can do it in such a way so as to develop a good system, then you can probably achieve your objectives through the appropriate use of position sizing.

And if you can continue to do this without making many mistakes, then you’ll probably be happy with the results.

These are the real keys to investment success.

Van K. Tharp

Source: IITM Weekly Update