Wisdom From Bruce Kovner

On trading ranges and price patterns:

 

…as a trader who has seen a great deal and been in a lot of markets, there is nothing disconcerting to me about a price move out of a trading range that nobody understands.
…Tight congestions in which a breakout occurs for reasons that nobody understands are usually good risk/reward trades.
…The more a price pattern is observed by speculators, the more prone you are to have false signals. The more a market is the product of nonspeculative activity, the greater the significance of technical breakouts.
…The general rule is: the less observed, the better the trade.

On predetermined risk points:

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 always put my stop behind some technical barrier.”
I never think about [stop vulnerability], because the point about a technical barrier — and I’ve studied the technical aspects of the market for a long time — is that the market shouldn’t go there if you are right.

On the emotional burden of trading:

The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade.

On imagining alternative scenarios:

One of the jobs of a good trader is to imagine alternative scenarios. I try to form many different mental pictures of what the world should be like and wait for one of them to be confirmed. You keep trying them on one at at a time. Inevitably, most of these pictures will turn out to be wrong — that is, only a few elements of the picture may prove correct. But then, all of a sudden, you will find that in one picture, nine out of ten elements click. That scenario then becomes your image of the world reality.

On seeking vulnerable consensus:

What I am really looking for is a consensus the market is not confirming. I like to know that there are a lot of people who are going to be wrong.

On stocks vs commodities:

The stock market has far more short-term countertrends. After the market has gone up, it always wants to come down. The commodity markets are driven by supply and demand for physical goods; if there is a true shortage, prices will tend to keep trending higher.

On trading too big:

My experience with novice traders is that they trade three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks.

On the dangers of correlation:

Through bitter experience, I have learned that a mistake in position correlation is the root of some of the most serious problems in trading. If you have eight highly correlated positions, then you are really trading one position that is eight times as large.