Each trader forges their own path, usually by absorbing the knowledge of successful traders that came before them. While no quote or trading tip will make you a successful trader on its own, insights from successful traders can tell you where you should be focusing your attention, and what you should be working on.
Here are 4 tips from millionaire and successful traders. Most of these quotes are from the “Market Wizards” books by Jack D.
Schwager–interesting books which look at the diverse trading methods of successful traders. Worth the read.
4 Trading Tips From Millionaire Traders
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. – Paul Tudor Jones
Loss aversion–an unwillingness to cut a loss–is one of the most common trading problems, and can deplete an account quickly. On the flip side, not giving winning trades enough room to run can also be a problem. If you win less than 50% of the time, winners have to be bigger than losers on average. Even if you win more often, strive to keep your average loss smaller than your average win.
The next three quotes align with this.
You have to learn how to lose; it is more important than learning how to win. – Mark Weinstein
Winning is as much about controlling losses as it about wracking up winning trades. If you make $1000 one trade, but lose it (or more) then next, you’re no better off. But if you can make $1000, then only lose $700, then make $1100 then lose $500, you are making progress. Trading is always two steps forward one step back; making sure the steps back don’t erase everything you have done prior is key if you want to succeed.
On the topic of controlling risk…
Whenever I enter a position, I have a predetermined stop [loss]. 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 [loss], and the stop is determined on a technical basis…. I always place my stop beyond some technical barrier. – Bruce Kovner
The stop loss order is one of the simplest ways to help control risk. Under normal market conditions, it will keep your risk limited to a specific amount of capital. With the maximum risk known, you can then assess whether the profit potential of the trade is worth the risk (remember, we want winners to be bigger than losers). For more on this topic see Day Trade Better Using Win Rate and Risk Reward Ratios.
I don’t think you can consistently be a winning trader if you’re banking on being right more than 50 percent of the time. You have to figure out how to make money being right only 20 to 30 percent of the time. – Bill Lipschutz
A strange statement? Recall that ideally winning trades should be bigger than losses, even if you do win 50% or more of the time. Most traders are searching for that elusive method where they never lose, or can win 8 or 9 trades out of 10, amassing huge profits in a short amount of time with no risk.
But successful trading takes time. There is also risk, always, and it needs to be defined and controlled. As soon you as you cap your risk, you invite the possibility of losing trades (stop loss being reached), but ironically that is more likely to make your profitable since the losses are small and controlled.
When creating a trading plan and strategies, analyze them based on worst case scenarios. Maybe you do tend to win 60% or 70% of the time (not unreasonable), but undoubtedly you will face periods where you only win to 2 to 4 trades out of 10. How does your system perform then? Does it manage to keep your account steady or profitable? Or does the slower period result in big account losses? Plan for the worst case, assume you will only win 3 or 4 trades out of 10. In that way your strategy is more robust, and during the periods where you do win 6 or 7 trades out of 10 you will be very happy indeed.
Millionaire Trading Tips – Final Word
All these traders discussed losses. Most novice traders like to think about winning or avoiding losses, but controlling risk is even more important. Anyone can make a profit simply because of random price movements…moving two steps forward. Successful traders control their risk though. When losing trades come–and they will– the trader only takes one step back, and doesn’t erase everything made prior.
Have a trading plan, control risk and focus on creating strategies that will keep you in the profit or steady even if you only win 3 or 4 trades out of 10. Eventually you may win more than that, but it isn’t wise to try to trade based on best-case-scenarios. Instead, plan for a worse case and your results will likely be better.