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Expert Citations
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Make sure you also read the Sayings. |
... and other successful trading
shibboleths.
Success Leaves Clues
There are certain 'business rules' that triumphant investors
and traders adhere to.
If you were able to model these business rules then maybe it's
possible for you to also achieve similar results.
You would need to understand and appreciate the beliefs,
attitudes and behaviour, as well as the timing and sequencing of
the strategies these individuals implement.
In order to assist you we have researched a number of modern
classics, and extracted the following citations.
As you're reading these citations it will soon become evident
that exiting a trade is a very important aspect of your trading
success.
You are encouraged to read through the citations many times.
More importantly you are encouraged to obtain your own copy of the
various books. It is essential that you become familiar with the
context in which each quotation was delivered.
At the bottom of this list of citations you will find a brief
overview of the various contributors.
You will also find a list of books from
which the various citations were referenced.
To Judy my best investment,
and
Marvin and Marion, my best returns.
Acknowledgment of an author of a trading book.
The quotes listed below come from interviews Jack
Schwager conducted with top Traders in his best seller Market
Wizards.
Jack D Schwager
Trading provides one of the last great frontiers of opportunity
in our economy. It is one of the very few ways in which an
individual can start with a relatively small bankroll and actually
become a multimillionaire.
Of course, only a handful of individuals succeed in turning
this feat, but at least the opportunity exists.
A rigid stop-loss rule is an essential ingredient to the
trading approach of many successful traders.
Winning streaks lead to complacency, and complacency leads to
sloppy trading.
As I use the term, a 'trader' would be primarily concerned with
which direction the stock market was heading, while an 'investor'
would concentrate on selecting stocks with the best chance of
outperforming the market overall.
Joseph Marshall Wade
If I wanted to become a tramp, I would seek information and advice
from the most successful tramp I could find. If I wanted to become
a failure, I would seek advice from men who had never succeeded.
If I wanted to succeed in all things, I would look around me for
those who are succeeding and do as they have done.
Michael Marcus
Taking advantage of potential major winning trades is not only
important to the mental health of the trader but is also critical
to winning. Letting winners ride is every bit as important as
cutting losses short. If you don't stay with your winners, you are
not going to be able to pay for the losers.
In addition to not overtrading, it is important to commit to an
exit point on every trade. Protective stops are very important
because they force this commitment on the trader.
Bruce Kovner
Michael Marcus taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best
judgment, being wrong, making your next best judgment, being wrong, making your third best
judgment, and then doubling your money.
Whenever I enter a position, I have a predetermined stop. That
is the only way I can sleep. I know where I'm getting out before I
get in. The position size on a trade is determined by the stop,
and the stop is determined on a technical basis. I never think
about other people who may be using the same stop, because the
market shouldn't go there if I am right.
Place your stops at a point that, if reached, will reasonably
indicate that the trade is wrong, not at a point determined
primarily by the maximum dollar amount you are willing to lose.
If you personalize losses, you can't trade.
Richard Dennis
When things go bad, traders shouldn't stick their head in the
sand and just hope it gets better.
You should always have a worst-case point. The only choice
should be to get out quicker.
The worst mistake a trader can make is to miss a major profit
opportunity. 95 percent of profits come from only 5 percent of the
trades.
Jerry Parker
Probably my best technique is not picking up the phone to close out a winning
trade.
Bernard Baruch
Show me the charts, and I'll tell you the news.
Have an opinion on what the market should do but don't decide what the market will do.
Be happy with a percentage of the move.
Paul Tudor Jones
That cotton trade was almost the deal breaker for me. It was at that point that I said,
"Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than
pain?"
I had to learn discipline and money management. I decided that
I was going to become very disciplined and businesslike about my
trading.
I spend my day trying to make myself as happy and relaxed as I
can be. If I have positions going against me, I get right out; if
they are going for me, I keep them.
I am always thinking about losing money as opposed to making
money.
Risk control is the most important thing in trading.
I keep cutting my position size down as I have losing trades.
When I am trading poorly, I keep reducing my position size. That
way, I will be trading my smallest position size when my trading
is worst.
If I have positions going against me, I get right out; if they are going for me, I keep them... Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back
in. There is nothing better than a fresh start.
The most important rule of trading is to play great defense,
not great offense. Every day I assume every position I have is
wrong. I know where my stop risk points are going to be. I do that
so I can define my maximum possible draw down. Hopefully, I spend
the rest of the day enjoying positions that are going in my
direction. If they are going against me, then I have a game plan
for getting out.
Don't be a hero. Don't have an ego. Always question yourself
and your ability. Don't ever feel that you are very good. The
second you do, you are dead.
I know that to be successful, I have to be frightened.
Don't focus on making money; focus on protecting what you have.
Gary Bielfeldt
The most important thing is to have a method for staying with
your winners and getting rid of your losers.
By having thought out your objective and having a strategy for
getting out in case the market trend changes, you greatly increase
the potential for staying in your winning positions. T
he traits of a successful trader: The most important is
discipline - I am sure everyone says that. Second, you have to
have patience; if you have a good trade on, you have to be able to
stay with it. Third, you need courage to go into the market, and
courage comes from adequate capitalization. Fourth, you must have
a willingness to lose; that is also related to adequate
capitalization. Fifth, you need a strong desire to win.
You have to have the attitude that if a trade losses, you can
handle it without any problem and come back to do the next trade.
You can't let a losing trade get to you emotionally.
If a trade doesn't look right, I get out and take a small loss.
Ed Seykota
(So you didn't have a clear exit point) In other words, the
only way you could stop trading was by losing.
If you can't take a small loss, sooner or later you will take
the mother of all losses.
There are old traders and there are bold traders, but there are
very few old, bold traders.
Dramatic and emotional trading experiences tend to be negative.
Pride is a great banana peel, as are hope, fear, and greed. My
biggest slip-ups occurred shortly after I got emotionally involved
with positions.
I prefer not to dwell on past situations. I tend to cut bad
trades as soon as possible, forget them, and then move on to new
opportunities.
The elements of good trading are: 1. Cutting losses, 2. Cutting
losses, and 3. Cutting losses. If you can follow these three rules,
you may have a chance.
Trying to trade during a losing streak is emotionally
devastating. Trying to play "catch up" is lethal.
I set protective stops at the same time I enter a trade. I
normally move these stops in to lock in a profit as the trend
continues.
One evening, while having dinner with a fundamentalist, I accidentally knocked a sharp knife off the edge of the table. He watched the knife twirl through the air, as it came to rest with the pointed end sticking into his shoe. "Why didn't you move your foot?" I exclaimed. "I was waiting for it to come back up," he
replied.
Losing a position is aggravating, whereas losing your nerve is
devastating.
I intend to risk below 5 percent on a trade, allowing for poor
executions.
The trading rules I live by are: 1. Cut losses. 2. Ride
winners. 3. Keep bets small. 4. Follow the rules without question.
5. Know when to break the rules.
Be sensitive to subtle differences between 'intuition' and
'into wishing'.
Everybody gets what they want out of the market.
"The "aha!" process lies at the heart of price change. For instance, consider the series: OTTFFSSE. What is the next letter? This puzzle creates tension - until you see the first letters of the ordinal numbers - one, two. "Aha!" you say. A lot happens during an "aha." The puzzle dies and the tension dissipates. A societal "aha!" drives price. Read the newspapers and the news magazines during a major move. At first, no one gets why the move is happening. There's a lot of confusion. Part of the move's way up, some people get it. At the end, everybody gets it. The tension is resolved and the move
ends."
Larry Hite
Throughout my financial career, I have continually witnessed
examples of other people that I have known being ruined by a
failure to respect risk. If you don't take a hard look at risk, it
will take you.
If you argue with the market, you will lose.
It is incredible how rich you can get by not being perfect.
Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical.
I have two basic rules about winning in trading as well as in
life: 1. If you don't bet, you can't win. 2. If you lose all your
chips, you can't bet.
Frankly, I don't see markets. I see risks, rewards, and money.
Michael Steinhardt
The word 'trading' is not the way I think of things. I may be a
trader in the sense that my frequency of transactions is
relatively high, but the word 'investing' would apply just as
much, if not more. In my mind, trading implies an anticipation of
a sale at the time of purchase.
Good trading is a peculiar balance between the conviction to
follow your ideas and the flexibility to recognize when you have
made a mistake.
The balance between confidence and humility is best learned
through extensive experience and mistakes.
There should always be respect for the person on the other side
of the trade. Always ask yourself: Why does he want to sell? What
does he know that I don't?
All great traders are seekers of truth.
The markets are always changing, and the successful trader
needs to adapt to these changes.
William O'Neil
My philosophy is that all stocks are bad. There are no good
stocks unless they go up in price. If they go down instead, you
have to cut your losses fast.
The secret for winning in the stock market does not include
being right all the time.
I make it a rule to never lose more than 7 percent on any stock
I buy. If a stock drops 7 percent below my purchase price, I will
automatically sell it at the market - no second-guessing, no
hesitation.
Some people say, "I can't sell that stock because I'd be
taking a loss." If the stock is below the price you paid for
it, selling doesn't give you a loss; you already have it.
Letting losses run is the most serious mistake made by most
investors.
With an individual stock, you absolutely have to have a
stop-loss point, because you never know how far down the stock is
going. I remember selling a $100 stock one time and it eventually
went to $1. I didn't have any idea it was going down that far, but
what would have happened if I had held on to it? One mistake like
that and you can't come back.
The majority of unskilled investors stubbornly
hold onto their
losses when the losses are small and reasonable. They could get
out cheaply, but being emotionally involved and human, they keep
waiting and hoping until their loss gets much bigger and costs
them dearly.
Investors cash in small, easy-to-take profits and hold their
losers. This tactic is exactly the opposite of correct investment
procedure. Investors will sell a stock with profit before they
will sell one with a loss.
Commission costs of buying and selling stocks, especially
through a discount broker, are a relatively minor factor, compared
to more important aspects such as making the right decisions in
the first place and taking action when needed. One of the great
advantages of owning stock over real estate is the substantially
lower commission and instant marketability and liquidity. This
enables you to protect yourself quickly at a low cost or to take
advantage of highly profitable new trends as they continually
evolve.
Novice investors like to put price limits on their buy-and-sell
orders. They rarely place market orders. This procedure is poor
because the investor is quibbling for eighths and quarters of a
point, rather than emphasizing the more important and larger
overall movement. Limit orders eventually result in your
completely missing the market and not getting out of stocks that
should be sold to avoid substantial losses.
Some investors have trouble making decisions to buy or sell. In
other words, they vacillate and can't make up their minds. They
are unsure because they really don't know what they are doing.
They do not have a plan, a set of principles, or rules to guide
them and, therefore, are uncertain of what they should be doing.
The whole secret to winning in the stock market is to lose
the
least amount possible when you're not right.
Sunny Harris
I like the Japanese philosophy where you ask questions rather than
look for answers. The more questions you come up with the better.
The answers will happen.
David Ryan
The more disciplined you can get, the better you are going to
do in the market. The more you listen to tips and rumors, the more
money you're likely to lose.
My percentage of winners is only about 50/50, because I cut my
losers very quickly. The maximum loss I allow is 7 percent, and
usually I am out of a losing stock a lot quicker. I make my money
on the few stocks a year that double and triple in price. The
profits in those trades easily makes up for all the small losers.
If you really think the stock is going to make a big move - and
that should be the only reason you are buying the stock to begin
with - then there is no reason to haggle over an eighth of a
point. Just buy the stock. The same thing applies to the downside;
if you think the stock is going to drop, just sell it.
The single most important advice I can give anybody is: Learn
from your mistakes. That is the only way to become a successful
trader.
Marty Schwartz
The marketplace is an arena and other traders are the
adversaries.
I turned from a loser to a winner when I was able to separate
my ego needs from making money. When I was able to accept being
wrong. Before that, admitting I was wrong was more upsetting than
losing the money.
When I became a winner I went from 'I figured it out, therefore
it can't be wrong' to 'I figured it out, but if I'm wrong, I'm
getting the hell out, because I want to save my money and go on to
the next trade.'
By living the philosophy that my winners are always in front of
me, it is not so painful to take a loss. If I make a mistake, so
what!
My attitude is: Never risk your family's security.
Whenever you get hit, you are very upset emotionally. Most
traders try to make it back immediately; they try to play bigger.
Whenever you try to get all your losses back at once, you are most
often doomed to fail.
After a devastating loss, I always play very small and try to
get black ink, black ink. It's not how much money I make, but just
getting my rhythm and confidence back.
Before taking a position always know the amount you are willing
to lose.
The most important thing is money management, money management,
money management. Anybody who is successful will tell you the same
thing.
I always take my losses quickly. That is probably the key to my
success.
The best advice I can give to the ordinary guy trying to become
a better trader is Learn to take losses. The most important thing
in making money is not letting your losses get out of hand.
James B Rogers, Jr.
The first loss is the best loss.
Mark Weinstein
The biggest mistake I made was having a specific target of what
I wanted out of the trade.
I think there are a lot of people in this business who just
enjoy watching others lose money.
I don't believe anyone ever gets wiped out in the market
because of bad luck; there is always some other reason for it.
Either you were off when you did the trade, or you didn't have the
experience. There is always a mistake involved.
I have found that the greatest traders are the ones who are
most afraid of the markets.
Don't get too complacent once you have made profits. The
toughest thing in the world is holding on to profits.
You have to learn how to lose; it is more important than
learning how to win.
Limit losses quickly. Most traders hold on to their losses too
long because they hope the loss will not get larger. They take
profits too soon, because they fear the profit will diminish.
Instead, traders should fear a larger loss and hope for a larger
profit.
Tom Baldwin
The best traders have no ego. To be a great trader, you have to
have a big enough ego in the sense that you have confidence in
yourself. You cannot let ego get in the way of a trade that is a
loser; you have to swallow your pride and get out.
Tony Saliba
I realized that this chipping away approach was what I should
be doing, not putting myself at big risk, trying to collect a ton
of dough.
I always define my risk, and I don't have to worry about it.
No matter what happens, I know my worst case. My loss is always
limited.
The biggest problem with some traders is that they think they
are bigger than the market. They don't fear the market place, and
they lose sight of their discipline.
If I have a bad day trading or a losing position I either
liquidate it or neutralize it, because then I am back afloat. When
you are in a boat that springs a leak, you don't drill another
hole to let the water out.
The quotes listed below are from Van K Tharp's best
seller Trade Your Way To Financial Freedom.
Van K Tharp
In my opinion, you do not have a trading system unless you know
exactly when you will get out of the market position at the time
you enter it.
Your worst-case exit, which is designed to preserve your
capital, should be determined ahead of time.
In addition, you should also have some idea about how you plan
to take profits and a strategy for letting your profits run.
People avoid looking for good exits because exits do not give
them control over the market. However, exits do control something.
They control whether you make a profit or a loss, and they control
just how big that profit or loss will be. Since they do so much,
perhaps they are worthy of a lot more study on the part of most
people.
There are a lot of problems to solve with exits. If the worst
case does not happen (i.e., so you don't get stopped out), then
the job of your system is to allow you to make the most profit
possible and give the least amount of it back. Only your exits do
this!
There are many different classifications of exits other than
your initial stop loss. These include exits that produce a loss
but reduce your initial risk, exits that maximize profits, and
exits that keep you from giving back too much money, and
psychological exits.
In order to maximize your profits (let them run), you must be
willing to give some of them back.
In fact, the ironic part of system design is if you want to maximize
profits, you must be willing to give back a great deal of
the profits you have already accumulated.
You can't make money if you're not willing to lose. It's like
breathing in, but not being willing to breathe out. Various types
of exits will help you do this (i.e., breathe fully), including
trailing stops and the percent retracement stop.
There are four general categories of exits: 1. Exits that make
your initial loss smaller; 2. Exits that maximize your profits; 3.
Exits that minimize how much profit you give back; and 4.
Psychological Exits.
Psychological factors always come into play in any sort of
trading.
When you enter a position it is essential to know the point at
which you will get out of the position in order to preserve your
capital.
If you are risking over 3 percent of your trading capital then
you are a 'gunslinger' and had better understand the risk you are
taking for the reward you seek.
My first advice to anyone is to look to yourself as the source
of everything that happens in your life.
Make a list of everything that can go wrong and determine how
you will respond to that situation. That will be the key to your
success - knowing how to respond to the unexpected.
J P Morgan
To be a money master, you must first be a self-master.
Jesse Livermore
Investors are the big gamblers. They make a bet, stay with it, and
if it goes the wrong way, they lose it all.
Kenny Rogers
You've got to know when to hold 'em; know when to fold'em; know
when to walk away; and know when to run.
Richard Harding
Your protective stop is like a red light. You can go through it,
but doing so is not very wise! If you go through town running
every red light, you probably won't get to your destination
quickly or safely.
John Sweeney
Just as it was tough when we were children to look under the bed
or in a dark closet for night monsters, it's equally tough to look
at a loss and acknowledge it. It was easier to hide under the
covers back then and now it's easier to adopt some defense
mechanism. (The one I hear most is 'Oh, that trading rule doesn't
work!' as if the entry strategy caused the loss.)
The quotes listed below are from Dr Alexander Elder's
best seller Trading For A Living.
Alexander Elder
Proper money management is essential for successful trading.
A disciplined trader cuts his losses short and outperforms a
loser who keeps hanging on and hoping.
As soon as you buy, place a stop-loss order.
Greed and fear destroy traders by clouding their minds. The
only way to succeed in trading is to use your intellect.
The goal of a successful trader is to make the best trades.
Money is secondary. If this surprises you, think how good
professionals in any field operate. Good teachers, doctors,
lawyers, farmers and others make money - but they do not count it
while they work. If they do, the quality of their work suffers.
Serious traders place stops the moment they enter a trade.
We all like to hope that a trade will succeed - and a stop is a
piece of reality that prevents traders from hanging on to empty
hope.
Learning to place stops is like learning to drive defensively.
A stop is not a perfect tool but it is the best defensive tool
we have.
The quotes listed below come from interviews Jack
Schwager conducted with top Traders in his best seller The
New Market Wizards.
Jack D Schwager
Don't trade when you can't afford to lose. In fact there are
few more certain ways of guaranteeing that you will lose than by
trading money you can't afford to lose. If your trading capital is
too important, you will be doomed to a number of fatal errors.
Over concern about losing may even lead to staying with losing
trades as fear triggers indecisiveness, much like a deer frozen in
the glare of a car's headlights.
Our natural instincts will mislead us in trading. Therefore,
the first step in succeeding as a trader is reprogramming
behaviour to do what is correct rather than what feels
comfortable.
Combine your enthusiasm, energy, focus, devotion, and
discipline to becoming the best trader you can be, but once you
have done that, there is no point in agonizing over the details.
My current goals are to make a 30 percent return each year, with no peak-to-valley draw downs greater than 10 percent.
Edwin Lefevre
It was the same with all. They would not take a small loss at first but had held on, in the hope of a recovery that would "let them out even." And prices had sunk and sunk until the loss was so great that it seemed only proper to hold on, if need be a year, for sooner or later prices must come back. But the break "shook them out," and prices just went so much lower because so many people had to sell, whether they would or
not.
The spectator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day -- and you lose more than you should had you not listened to hope -- to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out -- to soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big
profit.
It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting
tight!
Bill Lipschutz
Missing an opportunity is as bad as being on the wrong side of
a trade. Some people say (after they have the opportunity to realize
a profit) "I was only playing with the market's
money." That's the most ridiculous thing I ever heard.
When you're in a losing streak, your ability to properly
assimilate and analyze information starts to become distorted
because of the impairment of the confidence factor, which is a
by-product of a losing streak. You have to work very hard to
restore that confidence, and cutting back trading size helps
achieve that goal.
I don't have a problem letting my profits run, which many
traders do. You have to be able to let your profits run. I don't
think you can consistently be a winner trading if you're banking
on being right more than 50 percent of the time. You have to
figure out how to make money by being right only 20 to 30 percent
of the time.
Successful traders constantly ask themselves: What am I doing
right? What am I doing wrong? How can I do what I am doing better?
How can I get more information? Courage is a quality important to
excel as a trader. It's not enough to simply have the insight to
see something apart from the rest of the crowd, you also need to
have the courage to act on it and stay with it.
It's very difficult to be different from the rest of the crowd
the majority of the time, which by definition is what you're doing
if you're a successful trader.
So many people want the positive rewards of being a successful
trader without being willing to go through the commitment and
pain. And there's a lot of pain.
Avoid the temptation of wanting to be completely right.
Randy McKay
When the trade is easy, I want to be in, and when it isn't I
want to be out. In fact that is part of my general philosophy on
trading: I want to catch the easy part.
I never try to buy a bottom or sell a top. Even if you manage
to pick the bottom, the market can end up sitting there for years
and tying up your capital. You don't want to have a position
before a move has started.
Too many traders try and put their own opinion of what will
happen before the market action.
When I get hurt in the market, I get the hell out. It doesn't
matter at all where the market is trading. I just get out, because
I believe that once you're hurt in the market, your decisions are
going to be far less objective than they are when you're doing
well. If you stick around when the market is severely against you,
sooner or later they are going to carry you out.
I'll keep reducing my trading size as long as I'm losing... My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds.
You have to be more concerned about the moves you're in than
the moves you're not in.
You must get out of your losses immediately. It's not merely a
matter of how much you can afford to risk on a given trade, but
you also have to consider how many potential future winners you
might miss because of the effect of the larger loss on your mental
attitude and trading size.
Nowadays, the breakouts that work look similar to the breakouts
that are sucker plays. In fact, the false breakouts probably
outnumber the valid signals.
Every trader is going to have tons of winners and losers. You
need to determine why the winners are winners and the losers are
losers.
The most important advice I have for traders is to never let a
loser get out of hand.
I take the point of view that missing an important trade is a
much more serious error than making a bad trade.
Buying on retracement is psychologically seductive because you
feel you're getting a bargain versus the price you saw a while
ago. However, I feel that approach contains more than a drop of
poison.
You shouldn't plan to risk more than 2 percent on a trade.
Although, of course, you could still lose more if the market gaps
beyond your intended point of exit.
I haven't seen much correlation between good trading and
intelligence. Some outstanding traders are quite intelligent, but
a few aren't. Many outstanding intelligent people are horrible
traders. Average intelligence is enough. Beyond that, emotional
makeup is more important.
The answer to the question of whether trading can be taught has
to be an unqualified yes. Anyone with average intelligence can
learn to trade. This is not rocket science.
If you bring normal human habits and tendencies to trading,
you'll gravitate toward the majority and inevitably lose.
Watch idly while profit-taking opportunities arise, but in
adversity run like a jackrabbit.
One adage that is completely wrongheaded is that you can't go
broke taking profits. That's precisely how many traders do go
broke. While amateurs go broke taking large losses, professionals
go broke by taking small profits.
What feels good is often the wrong thing to do.
Human nature does not operate to maximize gain but rather to maximize
the chance of a gain. The desire to maximize the number
of winning trades (or minimize the number of losing trades) works
against the trader. The success rate of trades is the least
important performance statistic and may even be inversely related
to performance.
Two of the cardinal sins of trading - giving losses too much
rope and taking profits prematurely - are both attempts to make
current positions more likely to succeed, to the severe detriment
of long-term performance.
Don't think about what the market's going to do; you have
absolutely no control over that. Think about what you're going to
do if it gets there.
It is a common notion that after you have profits from your original equity, you can start taking even greater risks because now you are playing with "their money". We are sure you have heard this. Once you have profit, you're playing with "their money". It's a comforting thought. It certainly can't be as bad to
lose
"their money" as "yours"? Right? Wrong. Why should it matter whom the money used to belong to? What matters is who it belongs to now and what to do about it. And in this case it all belongs to
you.
Victor Sperandeo
The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading... I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don't cut their losses short."
Michael Carr
Don't worry about what the markets are going to do, worry about
what you are going to do in response to the markets.
Howard Seidler
The single most important element to being successful in the
markets is having a plan. First, a plan forces discipline, which
is an essential ingredient to successful trading. Second, a plan
gives you a benchmark against which you can measure your
performance.
It's important to distinguish between respect for the market
and fear of the market. While it's essential to respect the market
to assure preservation of capital, you can't win if you're fearful
of losing. Fear will keep you from making correct decisions.
Monroe Trout
There is no question about what to do because one of my risk
management rules is that if we lose more than 1.5 percent of our
total equity on any given trade we get out.
If we're down 4 percent on a single day, we close out all
positions and wait until the next day to get into anything.
The market is not a personal thing; it is not trying to get me.
I try to keep my anger in check as much as possible because I
believe that to be a good trader it's very important to be
rational and have your emotions under control.
I try to be conservative in my risk management. I want to make
sure I'll be around to play tomorrow.
We have a maximum loss point of 10 percent per month. If we
ever lost that amount, we'd exit all our positions and wait until
the start of the next month to begin trading again.
At the beginning of each month, I determine the maximum
position size that I'm willing to take in each market, and I don't
exceed that limit, regardless of how bullish or bearish I get.
This rule keeps me in check.
The traits of a successful trader are that they are rational,
analytical, able to control emotions, practical, and profit
oriented.
Most small speculators bet too much on their trades.
If you have an approach that makes money, then money management can make the difference between success and failure... ... I try to be conservative in my risk management. I want to make sure I'll be around to play tomorrow. Risk control is
essential.
My current goals are to make a 30 percent return each year,
with no peak-to-valley draw downs greater than 10 percent.
Tom Basso
I realized that every time I had a loss, I needed to learn
something from the experience and view the loss as tuition at the
College of Trading. As long as you learn something from a loss,
it's not really a loss.
Stop looking at losses as problems and start viewing them as
opportunities to elevate yourself to the next plateau.
Develop the concept of never taking a trade that would jeopardize
your ability to continue trading. I manage to stay
composed because I know that the risk and volatility in my
portfolio is exactly the same as it was yesterday, last week, and
last month. So why should I let my emotions go up and down if I'm
in exactly the same exposure all the time?
Think of each trade as one of the next one thousand trades you
are going to make. If you start thinking in terms of the next one
thousand trades, all of a sudden you've made any single trade seem
very inconsequential. Who cares if a particular trade is a winner
or a loser? It's just another trade.
I think investment psychology is by far the more important
element, followed by risk control, with the least important
consideration being the question of where you buy and sell.
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