Van Tharp’s Most Overlooked Lesson: Why Position Sizing Is the Strategy

❝ The Holy Grail of trading is not the system. It’s how you size your positions. ❞ — Van Tharp

Every trader wants the cheat code.

They look for the right indicator, the best setup, the secret signal hiding in plain sight.

But as Van Tharp patiently reminded us—over and over again—the real power isn’t in the system.

It’s in the size.

And not “size” in the macho, double-down-and-pray sense of the word. Size in the surgical, calculated, adapt-it-to-your-brain sense of the word.

⚠️ Why Most Traders Miss the Lesson That Matters Most

The market doesn’t punish bad trades—it punishes bad habits.

And the worst habit in the book?

That’s what makes Tharp’s philosophy so radical—because it’s so obvious. He argued that most traders don’t blow up from lack of edge. They blow up because they never learn how to manage size with emotional intelligence.

You know what he meant:

• The trade you “knew” would work… so you doubled up.

• The fifth loser in a row… so you sized down to nothing.

• The “safe” PMCC… that ballooned into an anchor.

The irony? Options give you more control over risk than just about any instrument on Earth. But more control doesn’t help if you never learned to drive.

📏 Sizing: The Most Important Decision You’re Not Making Systematically

Tharp called it “position sizing,” but what he really meant was:

The way you scale into trades. The rules you follow after losses. The throttle you pull back during chaos. The confidence you build after wins.

Options traders talk about greeks, skew, vol crush, spread width...

Meanwhile, the most important variable—how much you’re risking—is decided on gut feel and vibes. That’s not a strategy. That’s financial improv.

🔄 Where Tharp Meets the Option Table

Here’s where Van Tharp’s lesson finds its perfect home:

You don’t need a complex sizing model. You just need a conscious one.

Tharp wasn’t preaching minimalism. He was preaching deliberate risk expression. And that’s what options trading is all about.

💣 The Myth of “Fixed Size” Strategies

Options education often recommends fixed-risk trades. And that’s good—for entry-level learning.

But fixed sizing becomes a prison once you evolve.

Tharp’s point was that the trader is the system. Not the trade.

So your size should adapt based on:

• Your confidence in the current market regime

• Your recent P&L (are you revenge trading or cruising on autopilot?)

• The structure of the trade (undefined vs. defined risk, margin vs. debit)

Every trade asks a different question. Your size is your answer.

🧠 The Real Capital You’re Burning: Mental

This is the part most traders miss.

Tharp didn’t just teach money management. He taught mind management.

• What’s the real reason you exited that trade early?

• Why did you stop selling puts after three losers?

• Why do your biggest trades happen on your worst days?

Position sizing isn’t about squeezing every drop from your winners.
It’s about surviving your losers with your sanity (and capital) intact.

📈 So… What Would Van Tharp Do?

Tharp never gave a one-size-fits-all rule. He gave a way of thinking.

But if we translated his thinking for today’s options trader, it might look like this:

• Size PMCCs based on the % of LEAPS relative to account capital

• Dial back iron condors during low IV regimes

• Scale up short premium when IV rank + breadth + RSI align

• Use defined-risk spreads as a capital-efficient throttle

• Avoid doubling down on undefined risk trades after drawdowns

• Respect your own pain threshold more than your system’s stats

In other words:
Size like a trader who plans to be around in 10 years—not a trader trying to hit a home run before Friday.

🧘 Final Thought: The Last Great Edge

Let’s put it plainly:

You can’t out-edge bad sizing.

No backtest, no guru, no newsletter (not even this one) can save you from your own position-sizing mistakes.

The good news?

You control this lever more than any other.

Because in the end, position sizing isn’t a footnote. It’s the full sentence.

Probabilities over predictions,

Andy Crowder

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