Oxstones Investment Club™Most aspiring traders underestimate the time, work, and money required to become successful. To succeed as a trader, one needs complete commitment. Just as in any entrepreneurial venture, you must have a solid business plan, adequate financing, and a willingness to work long hours. Those seeking shortcuts are doomed to failure. And even if you do everything right, you should still expect to, lose money during the first five years – losses that I view as tuition payments to be made to the school of trading. These are cold, hard facts that many would-be traders prefer not to hear or believe, but ignoring them doesn’t change the reality. – MARK D. COOK
I believe that to be a good trader it’s very important to be rational and have your emotions under control. I’ve been trying for years to get rid of anger completely when I completely lose money, and I’ve come to the conclusion that it is impossible. I can work towards that goal, but until the day I die, I don’t think I’m ever going to be able to look a big loss in the face and not get angry. – MONROE TROUT
Managing risks is in many ways the foundation of the entire process. Managing risk comes down to two things. First is how you are going to place your stops. That goes back to cutting your losses short. Consider trading as a business venture. Managing risk means recognizing what the costs of trading are. Make a comprehensive plan. Winning traders always treat their trading like a game, but they also look at the whole thing as a money-making business. – GLEN RING
Being wrong is acceptable. But staying wrong is totally unacceptable. Being wrong isn’t a choice, but staying wrong is. To play any game successfully, you have to have some skill, an edge, but beyond that it is money management. Good traders manage the downside; they don’t worry the upside. – MARK MINNERVINI
A major misconception people have about stock market is that they tend to confuse short-term volatility with long-term risk. The longer the time period, the lower the risk of holding equities. People focus too much on the short-term day-to-day, – week-to-week and month-to-month price changes – and they don’t pay enough attention to the long-term potential. They look at all movement as negative, whereas I look at movement as a constructive element. For many investors, the lack of sufficient exposure to high-returning, more volatile assets is their greatest risk. In my opinion, investment vehicles that provide the least short-term volatility often embody the greatest long-term risk. Without significant price movement, you cannot achieve superior gains. – RICHARD DRIEUHAS
My basic philosophy is that price follows growth and that the key to superb performance in the stock market is picking the companies with the best potential earnings growth. Everything else is secondary. Interestingly, the high growth stocks that meet my criteria often sell at extremely high P/E ratios. The so-called prudent approach of buying only stocks with average to below-average P/Es will automatically eliminate many of the best performers. The stocks that I tend to buy are also often companies that are not followed by, or only lightly followed by industry analysts, a characteristic that I believe lead to greater inefficiencies and hence greater opportunities. – RICHARD DRIEUHAS
To be a successful trader, you have to be able to admit mistakes. People who are very bright don’t make very many mistakes. In a sense, they generally are correct. In trading, however, the person who can easily admit to being wrong is the one who walks away a winner. Besides trading, there is probably no other profession where you have to admit you’re wrong. In trading, you can’t hide your failures. Your equity provides a daily reflection of your performance. The trader who tries to blame his losses on external events will never learn from his mistakes. For a trader, rationalization is a guaranteed road to ultimate failure. – VICTOR SPERANDEO
I think paper trading is the worst thing you can do. If you are a beginner, trade with an amount of money that is small enough so that you can afford to lose it, but large enough so that you will feel the pain if you do. Otherwise, you are fooling yourself. If you go from paper trading to real trading, you’re going to make totally different decisions because you’re not used to being subjected to the emotional pressure. Nothing is the same. It’s like shadowboxing and then getting in the ring with a professional boxer. What do you think is going to happen? You’re going to crawl up into a turtle position and get the crap beat out of you because you’re not used to really getting hit. The most important thing to becoming a good trader is to trade.
Most of traders lose because they don’t have a winning strategy. Apart from this even among those traders who do, many don’t follow their strategy. Trading puts pressure on weaker human traits and seems to seek out each individual’s Achilles’ heel. – GILL BLAKE
One common adage about trading is that is completely wrongheaded is : You can’t go broke trading profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chances of 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. – WILLIAM ECKHARDT
The ability to change one’s mind is probably a key characteristic of successful traders. Dogmatic and rigid personalities rarely succeed in markets. The markets are a dynamic process and sustained trading success requires the ability to modify and even change strategies as markets evolve. Successful traders have the ability to adapt to the changing dynamics of the market and in the process maintain their consistency of performance. – GILL BLAKE
Since most small to moderate profits tend to vanish, the market teaches you to cash them in before they get away. Since the market spends more time in consolidations than in trends, it teaches you to buy dips and sell rallies. Since the market trades through the same prices again and again and seems, if only you wait long enough to return to prices it has visited before, it teaches you to hold on to bad trades. The market likes to lull you into false security of high success rate techniques, which often lose disastrously in the long run. The general idea is that what works most of the time is nearly the opposite of what works in the long run. – WILLIAM ECKHARDT
The most important advice is to never let a loser get out of hand. You want to be sure that you can be wrong twenty or thirty times in a row and still have money in your account. When I trade, I’ll risk perhaps 5 to 10 percent of the money in my account. If I lose on that trade, no matter how strongly I feel, on my next trade I’ll risk no more than about 4 percent of my account. If I lose again, I’ll drop the trading size down to about 2 percent. I’ll keep on reducing my trading size as long as I’m losing. I’ve gone from trading as many as three thousand contracts per trade to as few as ten. – RANDY McKAY
I believe that systems tend to be more useful or successful for the originator than for someone else. It’s more important that an approach be personalized: otherwise, you won’t have the confidence to follow it. It’s unlikely that someone else’s approach will be consistent with your own personality. It’s also possible that individuals who become successful traders are not the type to use someone else’s approach and that successful traders don’t sell their systems – GILL BLAKE
Make sure that you have the edge. Know what your edge is and employ rigid risk control rules. Basically, when you get down to it, to make money, you need to have an edge and employ good money management. Good money management alone isn’t going to increase your edge at all. If your system isn’t any good, you’re still going to lose money, no matter how effective your money management rules are. But if you have an approach that makes money, then money management can make the difference between success and failure – MONROE TROUT
My trading style blends both the risk-oriented and conservative personality of my personality. I take the risk-oriented part of my personality and put it where it belongs to : trading. And, I take the conservative part of my personality and put it where it belongs to money management. 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. – RANDY McKAY
Traders should avoid putting stops in the obvious places. For example, rather than placing a stop 1 tick above yesterday’s high, put it either 10 ticks below the high so you’re out before all that action happens, or 10 ticks above the high because may be the stops won’t bring the market up that fair. If you’re going to use stops, it’s probably best not to put them at the typical spots. Nothing is going to be 100 percent foolproof, but that’s a generally wise concept. – MONROE TROUT
My weakness has always been being a bit premature on entering positions. I’ve learned to think to myself, “ Patience, patience , patience.” I try to wait until things set up just right before I take a trade. Then, when I am ready to take the trade, I slowly count to ten before I pick up the phone. It’s better to have the wrong idea and good timing than the right idea and bad timing. – LINDA BRADFORD RASCHKE
We use technical analysis not because we think it means something, but because other people think it means something. We are always looking for market participants to take us out of a trade, and in that sense, knowing the technical points at which people are likely to be buying or selling is helpful. – MICHAEL MASTERS
A great company could be a terrible investment if its price has already more than discounted the bullish fundamentals. Conversely, a company that has been experiencing problems and is the subject of negative news could be a great investment if its price decline has more than discounted the bearish information. Fundamentals are not bullish or bearish in a vacuum, they are bullish or bearish only relative to price. – JACK SCHWAGER
I started tasting success when I developed my own successful methodology and this was a slow gradual process that took years of research and trading experience. I also read just about every book I could find on the markets and successful individuals. Out of the hundreds of books that I read, there were probably no more than ten that had a major influence on me. However, I don’t think there is no such thing as a bad book, it’s still worthwhile. Sometimes, one sentence can even change your life. – MARK MINNERVINI
To succeed as a trader, it is absolutely necessary to have an edge. You can’t win without an edge, even with the world’s greatest discipline and money management skills. If you don’t have an edge, all that money management and discipline will do for you is to guarantee that you will gradually bleed to death. Incidentally, if you don’t know what your edge is, you don’t have one. – JACK SCHWAGER
I am a firm believer in predicting price direction, but not magnitude. I don’t set price targets. I get out when the market action tells me it’s the time to get out, rather than based on any consideration of how far the price has gone. You have to be willing to take what the market gives you. If it doesn’t give you very much, you can’t hesitate to get out with a small profit. – LINDA BRADFORD RASCHKE
My advice to new entrants to stock market is to approach it only with the help of professional advisors. Otherwise stay out of the business and stay completely away from the market. For novices to come in and try to generate profit in this incredibly complex industry is like me trying to do brain surgery on the weekends to pick up a little extra cash. – MARK RITCHIE
I put a great deal of effort into getting the best entry price possible. I feel this is probably one of my strongest skills. In day trading, a good entry price is critical because it buys you time to see how the market will react. If you buy because you think the market should bounce, but it only goes sideways, you’d better get out. Part of the trading process is a matter of testing the water. If your entry timing is good enough, you won’t lose much even when you’re wrong. – LINDA BRADFORD RASCHKE
The essential element is that the markets are ultimately based on human psychology, and by charting the markets you’re merely converting human psychology into graphic representations. I believe that the human mind is more powerful than any computer in analyzing the implications of this graph. – AL WEISS
People underestimate the time it takes to succeed as a trader. Some people come here and think they can sit with me for a week and become great traders. How many people when they went to college would’ve thought to walk up to the professor and say, “ I know the course is for a semester, but I think a week should be enough for me to get it.” Gaining proficiency is the same in trading as in any other profession – it requires experience, and experience takes time. – MARK D. COOK
Being right is more important than being a genius. I think one reason why so many people try to pick tops and bottoms is that they want to prove to the world how smart they are. Think about winning rather than being a hero. Forget trying to judge trading success by how close you can come to picking major tops and bottoms, but rather by how well you can pick individual trades with merit based on favourable risk / return situations and a good percentage of winners. Go for consistency on a trade-to-trade basis, not perfect trades. – JACK SCHWAGER
Tags: AL WEISS, BRADFORD RASCHKE, Compilation of classic quotes, GILL BLAKE, GLEN RING, JACK SCHWAGER, LINDA BRADFORD RASCHKE, MARK D. COOK, MARK MINNERVINI, MICHAEL MASTERS, MONROE TROUT, RANDY McKAY, RICHARD DRIEUHAS, VICTOR SPERANDEO, WILLIAM ECKHARDT