Van Tharp had designed The Position Sizing™ Game to help you learn the secrets to trading success before you play the markets. This game does not simulate picking stocks in the market. Instead, it simulates trading a system that has certain characteristics. The system takes care of the ‘stock picking’ for you so that you can focus entirely on the most important aspects of trading-position sizing and letting your profits run
People are always looking for the ‘real’ secrets of trading success, but mental biases have them looking in the wrong places and at the wrong things. Consequently, they search for great entry systems that they think will help them pick the right stock. Picking the right stock has nothing to do with success and neither does the accuracy of your stock picking.
All Market Wizards agree that the key ingredients to your success are (1) the golden rule of trading (cut your losses short and let your profits run); (2) position sizing (the part of your trading system that tells you how much); and (3) the discipline to do both. The golden rule of trading describes exits-abort losses and ride winners. In this game, position sizing controls how much equity you risk on any given trade.
In the game, as with real trades, there’s only one position sizing question to answer when entering a trade: ‘How much do I risk on each position?’ You establish the risk amount through your initial stop price (what’s your risk per share?) and your decision about how many shares to buy (which determines your total risk). In the first few levels of the game, you will get the result immediately. Later in the game, you’ll have to manage your risk from time period to time period in order to grow your profits (as you would in real trading).
To complete this game, you must master four key principles:
(1) understanding the importance of R-multiples;
(2) understanding the difference between expectancy and probability;
(3) learning how to let profits run without letting them escape; and
(4) using position
All these four principles are explained well in the Help menu(Level Guide)
Some people play this game once or twice, shoot for the moon and try to make a billion in their equity. While that might be fun, you could choose to play the game in a way that helps you earn equity in your real account.
You get the most out of the game by following these steps:
1. Play the game multiple times.
2. Experiment with different position sizing techniques.
3. Apply the position sizing lessons you learned finally in simulated game mode trading your own system.
Follow that process and you internalize the three keys of success identified by the Market Wizards. Then find are ready for the final step –
4. Apply the position sizing lessons you learned in simulation game mode in your live trading and the effect of that knowledge on your real equity.