Bruce Kovner
You have to be willing to make mistakes regularly; there is nothing wrong with it.
Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.
Whenever I enter a position, I have a predetermined stop. 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, and the stop is determined on a technical basis. I never think about other people who may be using the same stop, because the market shouldn't go there if I am right.
Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined primarily by the maximum dollar amount you are willing to lose.
If you personalize losses, you can't trade.
Michael Marcus
Taking advantage of potential major winning trades is not only important to the mental health of the trader but is also critical to winning. Letting winners ride is every bit as important as cutting losses short. If you don't stay with your winners, you are not going to be able to pay for the losers.
In addition to not overtrading, it is important to commit to an exit point on every trade. Protective stops are very important because they force this commitment on the trader.
William O'Neil
My philosophy is that all stocks are bad. There are no good stocks unless they go up in price. If they go down instead, you have to cut your losses fast.
The secret for winning in the stock market does not include being right all the time.
I make it a rule to never lose more than 7 percent on any stock I buy. If a stock drops 7 percent below my purchase price, I will automatically sell it at the market - no second-guessing, no hesitation.
Some people say, "I can't sell that stock because I'd be taking a loss." If the stock is below the price you paid for it, selling doesn't give you a loss; you already have it.
Letting losses run is the most serious mistake made by most investors.
With an individual stock, you absolutely have to have a stop-loss point, because you never know how far down the stock is going. I remember selling a $100 stock one time and it eventually went to $1. I didn't have any idea it was going down that far, but what would have happened if I had held on to it? One mistake like that and you can't come back.
The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.
Investors cash in small, easy-to-take profits and hold their losers. This tactic is exactly the opposite of correct investment procedure. Investors will sell a stock with profit before they will sell one with a loss.
Commission costs of buying and selling stocks, especially through a discount broker, are a relatively minor factor, compared to more important aspects such as making the right decisions in the first place and taking action when needed. One of the great advantages of owning stock over real estate is the substantially lower commission and instant marketability and liquidity. This enables you to protect yourself quickly at a low cost or to take advantage of highly profitable new trends as they continually evolve.
Novice investors like to put price limits on their buy-and-sell orders. They rarely place market orders. This procedure is poor because the investor is quibbling for eighths and quarters of a point, rather than emphasizing the more important and larger overall movement. Limit orders eventually result in your completely missing the market and not getting out of stocks that should be sold to avoid substantial losses.
Some investors have trouble making decisions to buy or sell. In other words, they vacillate and can't make up their minds. They are unsure because they really don't know what they are doing. They do not have a plan, a set of principles, or rules to guide them and, therefore, are uncertain of what they should be doing.
The whole secret to winning in the stock market is to lose the least amount possible when you're not right.
Ed Seykota
If you can't take a small loss, sooner or later you will take the mother of all losses.
There are old traders and there are bold traders, but there are very few old, bold traders.
Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions.
I prefer not to dwell on past situations. I tend to cut bad trades as soon as possible, forget them, and then move on to new opportunities.
The elements of good trading are: 1. Cutting losses, 2. Cutting losses, and 3. Cutting losses. If you can follow these three rules, you may have a chance.
Trying to trade during a losing streak is emotionally devastating. Trying to play "catch up" is lethal.
I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues.
Losing a position is aggravating, whereas losing your nerve is devastating.
I intend to risk below 5 percent on a trade, allowing for poor executions.
The trading rules I live by are: 1. Cut losses. 2. Ride winners. 3. Keep bets small. 4. Follow the rules without question. 5. Know when to break the rules.
Be sensitive to subtle differences between 'intuition' and 'into wishing'.
Everybody gets what they want out of the market.
"The "aha!" process lies at the heart of price change. For instance, consider the series: OTTFFSSE. What is the next letter? This puzzle creates tension - until you see the first letters of the ordinal numbers - one, two. "Aha!" you say. A lot happens during an "aha." The puzzle dies and the tension dissipates. A societal "aha!" drives price. Read the newspapers and the news magazines during a major move. At first, no one gets why the move is happening. There's a lot of confusion. Part of the move's way up, some people get it. At the end, everybody gets it. The tension is resolved and the move ends."
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 -- to 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!
I like reading quotes from famous traders/authors. I learned a lot from the quotes.
I will try to post quotes on each Friday.
Here is the first one. Enjoy!
Paul Tudor Jones
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. I am always thinking about losing money as opposed to making money.
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.
