Balance is your stock in trade
BL
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. — Joseph Marshall Wade
In his interviews with the market wizards, Jack Schwager often asks what they would do differently if they were to start over again. Here is a sample of answers, together with some advice for novices:
Tom Basso: I started out by worrying about the system I was going to use to trade. The second factor I worked on was risk management and volatility control. The third area I focused on was the psychology of trading. If I had to do it over again, I would reverse the process completely. I think investment psychology is by far the most important element, followed by risk control, with the least important consideration being the question of where you buy and sell.
Michael Marcus: Because I have so many friends who are talented traders, I often have to remind myself that if I try to trade their way, or on their ideas, I am going to lose. Every trader has strengths and weaknesses. Some are good holders of winners, but may hold their losers a little too long. Others may cut their winners a little short but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach. When you try to incorporate someone else’s style, you often wind up with the worst of both. I’ve done that a lot.
Richard Dennis: Trade small because [at the start] that’s when you are as bad as you are ever going to be. Learn from your mistakes. Don’t be misled by the day-to-day fluctuations in your equity. Focus on whether what you are doing is right, not on the random nature of any single trade’s outcome.
Bruce Kovner. Besides overtrading, a mistake novice traders typically make is to personalise the market — as a personal nemesis. The market, of course, is totally impersonal; it doesn’t care whether you make money or not.
Paul Tudor Jones: Don’t ever average losers. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well. Never trade in situations where you don’t have control. 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. Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Jesse Livermore, one of the greatest speculators of all time, reportedly said that, in the long run, you can’t ever win trading markets. That is a devastating quote for someone just getting into the business. The idea that you can’t beat the markets is a frightening prospect. That is why my guiding philosophy is playing great defence. If you make a good trade, don’t think it is because you have some uncanny foresight. I am more scared now than I was at any point since I began trading, because I recognise how ephemeral success can be in this business. I know that to be successful, I have to be frightened.
Larry Hite: If you don’t bet, you can’t win. If you lose all your chips, you can’t bet.
Michael Steinhardt: One of the allures of this business is that sometimes the greatest ignoramus can do very well. That is unfortunate because it creates the impression that you don’t necessarily need any professionalism to do well, and that is a great trap … recognise that this is a very competitive business, and that when you decide to buy or sell a stock, you are competing with people who have devoted a good portion of their lives to this same endeavour. In many instances, these professionals are on the opposite side of your trades and, on balance, they are going to beat you. Good trading is a peculiar balance between the conviction to follow your ideas and the flexibility to recognise when you have made a mistake. You need to believe in something, but at the same time, you are going to be wrong a considerable number of times.
Marty Schwartz: Learn to take losses. The most important thing in making money is not letting your losses get out of hand.
Jim Rogers: People who lose money in the market say, “I just lost money, I have to do something to make it back.” No, you don’t. You should sit there until you find something. Never, ever, follow conventional wisdom in the market. You have to learn to go counter to the markets. You have to learn how to think for yourself; to be able to see that the emperor has no clothes. Most people can’t do it. Most people want to follow a trend. “The trend is your friend.” Maybe that is valid for a few minutes in Chicago, but for the most part, following what everyone else is doing is rarely a way to get rich.
Bill Lipschutz: Many people think that trading can be reduced to a few rules. Always do this or always do that. To me, trading isn’t about always at all; it is about each situation.
Richard Driehaus: The essential element is having a core philosophy. Without a core philosophy, you’re not going to be able to hold on to your positions or stick with your trading plan during really difficult times. You must fully understand, strongly believe in, and be totally committed to your trading philosophy. In order to achieve that mental state, you have to do a great deal of independent research. A trading philosophy is something that cannot just be transferred from one person to another; it’s something that you have to acquire yourself through time and effort.
Linda Bradford Raschke: Understand that learning the markets can take years. Immerse yourself in the world of trading and give up everything else. Get as close to other successful traders as you can. Consider working for one for free. Start by finding a niche and specialising. Pick one market or pattern and learn it inside out before expanding your focus. Never fear the markets. Never fear making a mistake. If you do make a mistake, don’t complicate the position by trying to hedge it — just get out.