Market Wizards
MICHAEL MARCUS:
Cut your losses early and ride your winners.
Price controls limit the supply and cause shortages.
Never bet everything on one trade.
The best trades are the ones where you have everything going for you: technicals, fundamentals, and market sentiment.
Look to exit during excessive volatility (4th limit up /down day).
Always bet less than 5% on your one idea.
When in doubt, get out of a trade.
Follow your own ideas so you have the confidence to hold and actually risk your money.
A good trader must be objective and avoid rigid thinking.
Look for companies with a high price to earnings and low earnings per share.
BRUCE KOVNER:
The more a market is not prone to speculative activity, the greater the significance of a technical breakout.
Never risk more than 1% of your total account.
“I wish” and “I hope” language is destructive because it personalizes the market and takes away from the diagnostic process.
Always decide on an exit point before you put on a trade.
View your trades on a portfolio basis rather than just an individual basis to avoid over correlation.
Lower your position size so your stop-loss can be wider. Wider stops prevent you from getting taken out of trades that would have otherwise been successful.
Discipline, willingness to make and accept mistakes, and a contrarian mindset are at the heart of every good trader.
RICHARD DENNIS:
Don’t double up positions or trade more aggressively to recoup losses.
On any individual trade, luck is a huge factor, but in the long run, luck is not a factor at all.
It’s not wise to have your stop-loss where everyone else likely has their stop-loss.
Keynesian economics was meant to address under consumption and over saving during the Great Depression, but we have the exact opposite problem now and so it’s a flawed system.
95% of his profits came from only 5% of his trades—a true testament to rising your winners.
The times when you least want to focus on markets (during losing periods) are when you should be focusing the most on markets.
PAUL TUDOR JONES:
To be a good trader you have to be a contrarian.
Be willing to make a complete 180° on your position if the market is telling you it’s switching directions. Don’t be married to your directional bias.
If a position is going against him, he gets out right away and he always stays true to his mental stop.
Risk control and playing defense are the most important tools in trading.
Reduce your position size with every loss and increase it when you’re doing well.
Always think of your entry point as last night’s close.
Elliot wave theory creates great risk-to-reward opportunities.
Use a price stop and a time stop. If price doesn’t move the way you want it to within a certain time, cut the trade.
Don’t focus on making money, focus on protecting what you have.
GARY BIELFELDT:
Pick one area of the market and become an expert in it.
Stay with your winners and get rid of your losers.
Move your stop as a trend moves your way.
Have a strong desire to win and a willingness to lose.
Be selective about how and when you take risk and be sure not to overtrade. Wait to trade big when the odds are stacked in your favor.
ED SEYKOTA:
Longevity is the key to success and that requires a reliable and thoughtful trading system.
Being bullish and not being long is illogical. As soon as I get bullish, enter the trade.
Always cut your losses and try not to trade during losing streaks.
Strictly follow your rules, but also know when to break them.
Know the difference between intuition and intu-wishing.
In the end, you get what you want out of markets.
LARRY HITE:
If you argue with a market, you’ll lose. Don’t fight what the market is telling you.
Never trade counter to the market trend.
Avoid trading markets when their volatility is such that you can’t maintain a proper risk-to-reward ratio.
MICHAEL STEINHARDT:
To make money in markets, you have to be willing to get in the way of danger.
If you make a mistake, deal with it, don’t compound it.
Betting large positions when your conviction is highest is often what separates good traders from great traders.
Having the conviction to stick through trades during down days is another big determinant in success.
Markets are always evolving so any strategy that is static is doomed to fade over time.
WILLIAM O’NEIL:
The key to trading is to lose the least amount of money when you are wrong.
Letting losses run because of the desire not to take a loss is one of the most serious mistakes made by investors.
You can’t know the future and the goal is simply to make money so never kick yourself when you sell an asset and it keeps going higher.
Diversification is a hedge for ignorance. If you know what you own, concentration is a good strategy.
Averaging down is adding to your losers. You should be focused on averaging up (adding to your winners).
Personal feelings and opinions are far less accurate than markets.
Don’t worry over a few basis points to get your perfect exit or entry, focus on the important part: getting in or out.
DAVID RYAN:
Your biggest winners, though small in number, should offset your losses if you cut those losses early.
High volume with steady price action is a good signal a top or bottom is in.
Often times buying high and selling higher is the best approach to investing.
Generally, your best trades are winners right from the start.
MARTY SCHWARTZ:
When a market gets good news and goes down, it’s weak, but if it gets bad news and goes up, it’s healthy.
Never try to make back all your money back at once. Be patient after you lose and just try to get your rhythm back.
Trade with the moving averages. Don’t go long unless an asset is above its moving average and don’t go short unless an asset is below its moving average.
Before every trade, always know the amount you’re willing to lose.
The key to success is taking losses quickly.
Each trader must find their own path to success whether that’s through fundamental, technical, or any other kind of analysis.
JAMES ROGERS:
Don’t do anything unless there is something to do. Only take the trades when you’re absolutely convinced.
There’s no limit to hysteria. You can be dead right about an investment, but mistime an irrational market and lose it all.
Think for yourself and never follow congenital wisdom. If you do what everyone else does, you’ll never make money.
Buy value and you’ll never have to worry about substantial drawdowns.
Be flexible by remaining open to trading all markets in all directions at all times.
MARK WEINSTEIN:
Don’t guess where the market is going, let it tell you where it’s going.
Humility is an essential part of being a good trader.
Learn how to lose because it’s even more important than learning how to win.
Don’t let arbitrary material goals influence your trading. Your desire to make x amount of money doesn’t correspond to objective market levels.
Wait to take the trades in which you have overwhelming confidence.
BRIAN GELBER:
A trader won’t be successful if they’re afraid to lose.
Don’t overtrade or add to your losers.
If you’re going to listen to someone’s advice, make sure you know them well so you can better gauge its veracity.
TOM BALDWIN:
Be patient and selective about every trade you take.
What’s you focus shifts to the money, not the trade, you’ve already lost.
The best traders have confidence in themselves, but have very little ego.
Don’t exit a trade hastily or emotionally when you decide you want out. By patient and wait for the smart exit after a sharp move against you.
TONY SALIBA:
Have a healthy fear of the markets and never lose sight of your discipline.
Do your homework after every market day and ask yourself what went right, what went wrong, and think through all the what ifs.
DR. VANK K. THARP:
Bad traders tend to be disorganized and impatient.
Traders have a tendency to be risk averse when presented with a wise bet of letting their profits run and more risk tolerant with an unwise bet of letting their losses run (in hopes of it coming back).
Review your rules everyday before your trade and review your trades after every trading day.
If you don’t own your problems, you’re likely to keep repeating them.
FINAL THOUGHTS:
If you want to be a successful trader, you have to consistently do your homework—there is no easy way out.
Successful trader common denominators:
- A driving desire to become successful.
- Confidence they can win over the long run.
- A methodology that works for them.
- Dedicate significant time and effort.
- Exercise risk control.
- Patience to wait for the right trade.
- Act independently from the crowd.
- Understand losing is part of the game.
- Love what they are doing.
Trading losses do not imply trading mistakes. A good strategy will still have plenty of losses. Good trades can lose money and bad trades can make money.
You don’t get paid for being right so don’t trade to be right.
Sometimes being out of the market is the best trade.
Exercising proper risk control means sometimes the losses you cut will turn around right after you exit. Get used to it.
You don’t have to be 100% right or wrong. Be willing to take partial exits.
Have the flexibility to change your opinion and listen to what the market tells you.
Complacency during great trading stretches often precede excessive drawdowns.
You can’t copy someone else’s strategy, you have to find your own.