There’s no simple way to learn how to trade – the only real way is through practising and dedicating time and effort to understanding the markets. Taking advice from those who have succeeded at trading is an easy, surefire way to set you on the right tracks to learning. Passing on their wisdom and top tips, we reveal what some of the masters of the industry have to say.
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Risk Control
Risk control is vital to help cut down your losses and protect your account. Hedge fund manager Paul Tudor Jones said: “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.” He shorted the Black Monday 1987 crisis (the largest single-day US stock market decline by percentage ever) and, by holding on to short positions, made a 62% profit, earning himself a $100million profit that year.
Take the Bad with the Good
Traders will have wins, but they will also have losses. Jesse Livermore, the inspiration behind one of the top trading books Reminiscences of a Stock Operator by Edwin Lefèvre, discussed how his psychology got in the way of keeping profits. Mark Weinstein’s advice on this is: “You have to learn how to lose; it is more important than learning how to win.” If you keep winning, you can become complacent, but by losing, you can analyse where it wrong and learn from the mistake.
No One Is 100% Perfect
You shouldn’t expect to win 100% of your trades. The “law of large numbers” says that any winning streak will eventually be overcome by the limits of the game. Bill Lipschutz, a trader in the fast paced foreign exchange market (forex) trader, said: “I don’t think you can consistently be a winning trader if you’re banking on being right more than 50% of the time. You have to figure out how to make money being right only 20-30% of the time.”
Have a Plan
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Fail to plan, plan to fail. Don’t get caught up in the markets that you lose yourself – and your goals along the way. Martin Schwartz, winner of the US Investing Championship in 1984, said: “A lot of people get so enmeshed in the markets that they lose their perspective. Working longer does not necessarily equate with working smarter. In fact, sometimes it is the other way around.”
Analyse vs Forecasting
To make a forecast you will look at past and present data and current trends to see if it could happen again. To analyse is to examine something in great detail to try to explain it. They go hand in hand, but one should analyse the market before forecasting as you don’t want to be making guesses. Nicolas Darvas, known for his ‘box theory’ on technical analysis and who taught himself to trade and made $2m, said: “I believe in analysis and not forecasting.”
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