Quotes from the Good & the Great of Trading

William Eckhardt: (Ex partner of Turtles daddy Richard Dennis, and now one of the most successful CTA's around.)

The Win/Loss Ratio
“One common adage on this subject that is completely wrongheaded is: You can’t go broke taking 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 chance of a 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. …

What really matters is the long-run distributions of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work. Current positions seem to be crucial beyond any statistical justification. It’s quite tempting to bend your rules to make your current trades work, assuming that the favorability of your long-term statistics will take care of future profitability. Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.

Market Wizards
 
- Bill Lipschutz (Biggest earning earning trader for many years at the then investment bank Salomon Brothers before he started his own hedge fund):

"I don't have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don't think you can consistently be a winner trading if you're banking on being right more than 50 percent of the time. You have to figure out how to make money by being right only 20 to 30 percent of the time."
New Market Wizards
 
- Multi-Billionaire George Soros:

"I don't care when I'm wrong. I cut my losses and move on to the next opportunity. Trading is not about being right. It's about how much you make when you are right."

An observation echoed by Kenneth Grant, who in "Trading Risk: Enhanced Profitability through Risk Control", depicts his experience as risk manager for some of the best and most successful hedge funds, amongst others Paul Tudor Jones funds and Steve Cohens SAC Capital, that:

ACROSS ALL MARKET CONDITIONS, TRADING STYLES, TIME FRAMES AND TRADERS, ONE RULE HOLDS TRUE:

10% OF ALL TRADES INEVITABLY ACCOUNT FOR 90% OF PROFITS !

http://www.amazon.com/Trading-Risk-Enhanced-Profitability-through/dp/0471650919

Realizing this probably helped me more than anything else.
 
Paulo Wonger: "Bull markets can last for years, and yet people can make ten trades a day and still lose money."


Always makes me laugh, this one.
 
80 to 20 Rule

BSD said:
- Multi-Billionaire George Soros:

"I don't care when I'm wrong. I cut my losses and move on to the next opportunity. Trading is not about being right. It's about how much you make when you are right."

An observation echoed by Kenneth Grant, who in "Trading Risk: Enhanced Profitability through Risk Control", depicts his experience as risk manager for some of the best and most successful hedge funds, amongst others Paul Tudor Jones funds and Steve Cohens SAC Capital, that:

ACROSS ALL MARKET CONDITIONS, TRADING STYLES, TIME FRAMES AND TRADERS, ONE RULE HOLDS TRUE:

10% OF ALL TRADES INEVITABLY ACCOUNT FOR 90% OF PROFITS !

Amazon.com: Trading Risk: Enhanced Profitability through Risk Control (9780471650911): Kenneth L. Grant: Books

Realizing this probably helped me more than anything else.
Click to expand...



Almost an example of the Pareto Principle:)
 
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TheBramble said:
That cotton trade was almost the deal breaker for me. It was at that point that I said, "Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?" I had to learn discipline and money management. I decided that I was going to become very disciplined and businesslike about my trading. I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out; if they are going for me, I keep them. I am always thinking about losing money as opposed to making money. Risk control is the most important thing in trading. I keep cutting my position size down as I have losing trades. When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position size when my trading is worst. 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. There is nothing better than a fresh start. The most important rule of trading is to play great defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible draw down. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out. Don't be a hero. Don't have an ego. Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead. I know that to be successful, I have to be frightened. Don't focus on making money; focus on protecting what you have.
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Just catching up on this thread, nice work fella, this quote is the best so far IMHO, it's just so me...:)
 
Larry Hite

Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don't take a hard look at risk, it will take you. If you argue with the market, you will lose. It is incredible how rich you can get by not being perfect. Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical. I have two basic rules about winning in trading as well as in life: 1. If you don't bet, you can't win. 2. If you lose all your chips, you can't bet. Frankly, I don't see markets. I see risks, rewards, and money.
 
Edwin Lefevre

It was the same with all. They would not take a small loss at first but had held on, in the hope of a recovery that would "let them out even." And prices had sunk and sunk until the loss was so great that it seemed only proper to hold on, if need be a year, for sooner or later prices must come back. But the break "shook them out," and prices just went so much lower because so many people had to sell, whether they would or not. The spectator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day -- and you lose more than you should had you not listened to hope -- to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out -- too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!
 
Bill Lipschutz

Missing an opportunity is as bad as being on the wrong side of a trade. Some people say (after they have the opportunity to realize a profit) "I was only playing with the market's money." That's the most ridiculous thing I ever heard. When you're in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading size helps achieve that goal. I don't have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don't think you can consistently be a winner trading if you're banking on being right more than 50 percent of the time. You have to figure out how to make money by being right only 20 to 30 percent of the time. Successful traders constantly ask themselves: What am I doing right? What am I doing wrong? How can I do what I am doing better? How can I get more information? Courage is a quality important to excel as a trader. It's not enough to simply have the insight to see something apart from the rest of the crowd, you also need to have the courage to act on it and stay with it. It's very difficult to be different from the rest of the crowd the majority of the time, which by definition is what you're doing if you're a successful trader. So many people want the positive rewards of being a successful trader without being willing to go through the commitment and pain. And there's a lot of pain. Avoid the temptation of wanting to be completely right.
 
TheBramble said:
Missing an opportunity is as bad as being on the wrong side of a trade. Some people say (after they have the opportunity to realize a profit) "I was only playing with the market's money." That's the most ridiculous thing I ever heard. When you're in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading size helps achieve that goal. I don't have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don't think you can consistently be a winner trading if you're banking on being right more than 50 percent of the time. You have to figure out how to make money by being right only 20 to 30 percent of the time. Successful traders constantly ask themselves: What am I doing right? What am I doing wrong? How can I do what I am doing better? How can I get more information? Courage is a quality important to excel as a trader. It's not enough to simply have the insight to see something apart from the rest of the crowd, you also need to have the courage to act on it and stay with it. It's very difficult to be different from the rest of the crowd the majority of the time, which by definition is what you're doing if you're a successful trader. So many people want the positive rewards of being a successful trader without being willing to go through the commitment and pain. And there's a lot of pain. Avoid the temptation of wanting to be completely right.
Click to expand...

Great stuff..:)
 
Randy McKay

When the trade is easy, I want to be in, and when it isn't I want to be out. In fact that is part of my general philosophy on trading: I want to catch the easy part. I never try to buy a bottom or sell a top. Even if you manage to pick the bottom, the market can end up sitting there for years and tying up your capital. You don't want to have a position before a move has started. Too many traders try and put their own opinion of what will happen before the market action. When I get hurt in the market, I get the hell out. It doesn't matter at all where the market is trading. I just get out, because I believe that once you're hurt in the market, your decisions are going to be far less objective than they are when you're doing well. If you stick around when the market is severely against you, sooner or later they are going to carry you out. I'll keep reducing my trading size as long as I'm losing... 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. You have to be more concerned about the moves you're in than the moves you're not in. You must get out of your losses immediately. It's not merely a matter of how much you can afford to risk on a given trade, but you also have to consider how many potential future winners you might miss because of the effect of the larger loss on your mental attitude and trading size. Nowadays, the breakouts that work look similar to the breakouts that are sucker plays. In fact, the false breakouts probably outnumber the valid signals. Every trader is going to have tons of winners and losers. You need to determine why the winners are winners and the losers are losers. The most important advice I have for traders is to never let a loser get out of hand.
 
William Eckhardt

I take the point of view that missing an important trade is a much more serious error than making a bad trade. Buying on retracement is psychologically seductive because you feel you're getting a bargain versus the price you saw a while ago. However, I feel that approach contains more than a drop of poison. You shouldn't plan to risk more than 2 percent on a trade. Although, of course, you could still lose more if the market gaps beyond your intended point of exit. I haven't seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren't. Many outstanding intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important. The answer to the question of whether trading can be taught has to be an unqualified yes. Anyone with average intelligence can learn to trade. This is not rocket science. If you bring normal human habits and tendencies to trading, you'll gravitate toward the majority and inevitably lose. Watch idly while profit-taking opportunities arise, but in adversity run like a jackrabbit. One adage that is completely wrongheaded is that you can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke taking large losses, professionals go broke by taking small profits. What feels good is often the wrong thing to do. Human nature does not operate to maximize gain but rather to maximize the chance of a 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. Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance. Don't think about what the market's going to do; you have absolutely no control over that. Think about what you're going to do if it gets there. It is a common notion that after you have profits from your original equity, you can start taking even greater risks because now you are playing with "their money". We are sure you have heard this. Once you have profit, you're playing with "their money". It's a comforting thought. It certainly can't be as bad to lose "their money" as "yours"? Right? Wrong. Why should it matter whom the money used to belong to? What matters is who it belongs to now and what to do about it. And in this case it all belongs to you. Victor Sperandeo The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading... I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don't cut their losses short."
 
Yogi Berra

And finally (from me) my favourite and he wasn't even thinking of trading, but for all you dyed-in-the-wool TA chartists out there who really believe...

"The Future ain't what it used to be". Amen to that.
 
"My wife ran away with my best friend and I still miss him a lot" - warren buffett
 
BSD said:
10% OF ALL TRADES INEVITABLY ACCOUNT FOR 90% OF PROFITS ![/COLOR][/B]



Realizing this probably helped me more than anything else.
Click to expand...

this is what I allude to in my signature and yet frequently get burned as a heretic
 
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