Wisdom from Legendary Traders

“I absolutely believe that price movement patterns are being repeated; they are recurring patterns that appear over and over. This is because the stocks were being driven by humans- and human nature never changes”.

-Jesse Livermore (Considered by many to be the greatest stock market operator ever. Made 100 million dollars in 1929 stock market crash. Made several other multi-million dollar fortunes in his trading career).
“You have to cut your losses fast. The secret for winning in the stock market does not include being right all the time. The key is to lose the least amount possible when you are wrong”.

-William J. O’Neil (In my opinion, the best stock market operator in the world today. Has made an incredible fortune trading the stock market. O’Neil is the founder of Investors Business Daily. Much of my stock market education and training has been from William J. O’Neil).

“Whatever method you use to enter a trade, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend”.

-Richard Dennis (Turned 400 dollars into a fortune of at least 200 million dollars by using his remarkable trading skills).
“I am primarily a trend trader. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell”.

-Ed Seykota (One of the greatest traders of all time. Turned 5000 dollars into an incredible 15 million dollars or more).
“The most important rule of trading is to play great defense”.

-Paul Tudor Jones (An amazingly consistent and successful trader. In 2006, earned a whopping 750 million dollars).
“Being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong”.
-Bernard Baruch (Fantastic trader who earned ten’s of millions of dollars in the first part of the 20th century).
“The greatest safety lies in putting all your eggs in one basket and watching that basket”.

-Gerald M. Loeb (Amassed many millions in the stock market during his long career).

“I am looking for the strongest stocks in the market, in terms of both earnings and the technical picture”
-David Ryan (Multiple time winner in the stock division of the U.S. Investing Championships).

“Most of my success has been due to my hanging on while my profits mounted. There is the big secret”.
-Arthur W. Cutten (Gained wealth and prominence, early in the 20th century, as a commodity trader, mostly in the wheat market.
“I think the secret is cutting down the number of trades you make. The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone”.

– Michael Marcus (In a ten-year period, he multipled his company account by an incredible 2500 times).

“Whenever I enter a position, I have a predetermined stop. I know where I’m getting out before I get in”.
-Bruce Kovner (One of the world’s largest traders in the 1980’s. Made profits of over 300 million trading for himself).
“I try to assemble facts and decide what kind of scenario I think will unfold”.

-Bill Lipschutz (One of the most successful currency traders ever).

“Virtually every successful trader I know ultimately ended up with a trading style suited to his personality”.

-Randy McKay (Turned $2000 into $70,000 his first year of trading. Went on to double digit million dollar gains).

“The biggest misconception is the widespread belief that it is easy to make a living trading in the stock market”.
-Stuart Walton (Fantastic stock trading track record in the 1990’s).
“If you decide to trade for a living, you have to treat it just like any other business endeavor and go into it with a plan”.

-Mark D. Cook (Great annual returns trading the markets).

Lessons of the Legendary Traders

What do the worlds best Trading masters differently than the average investor? Can the average investor learn from the Player Legends success stories and their techniques used? What do the most famous Players have in common that can be applied by the average talented trader?

Before we should give some insights on those questions lets have a look at some of the most successful Trade jockey Legends:

Nicolas Darvas turned an $ 36000 account into $ 2000000 in 18 months!!!
Ed Seykota, a Turtle Financier, turned $ 5’000 into $ 15’000’000 in 12 years!!!
Jesse Livermore made several multi-million USD fortunes in the early 1900’s
Richard Dennis, another Turtle Player, made between $ 100 and $ 200 000.000
George Soros is believed to be one of the greatest Trade jockey of all time!!!

The results are quite impressive and some different amazing Financiers should be added easily to the list above. Why do these guys have such tremendous results?

There are common factors, that can be observed through most of the successful Pitbull Legends:

They have a Strategy that they strictly follow.
Most of them have a trend-following average trading style.
Most of them have a mid- to long-term approach. Some of them burned their fingers over the preceding 3 years and some even lost a fortune. Here are some examples of observed behaviour patterns:

Losses are not slice early enough.
Investment with a short-term horizon become long-term horizon in hope of raising asking prices.
People listen to the advise of their invested $ Trade facilitators and Analysts.
People risk coin in hot issues recommended by colleagues of their colleagues.
People have no plan for their investments.
Money Management is not considered at all.
Greed and fear is omnipresent.

What can average talented trading insiders learn from the above and how can the mistakes listed above be avoided? The after key notches can be learned from some of the most successful Trading expert Legends:

Each investor has its own personality. Some of the investor have a very aggressive paper trading style and are stockmarket trading very frequently. Some prefer shares as different are increased risk oriented and speculate in contracts. Other players want only spend a minimum of effort. An investor need to reflect on his outline and choose a note trading approach that fits his personality.

A trade needs to be completely planned in advance. g. when they go on holiday, when they move house etc. But do they have a plan when they invest? An investor needs to have a method that helps him to be prepared for all scenarios of a exchange. One needs to know in advance when to buy, how much to buy, when to exit. Once a buy / sell is executed the bottom line of the instrument (stock, promise note, fixed interest paper etc.

The most important component of a stock trading method is Cash Management? Surprised? Lots of pitbulls and super traders spend most of their time developing a very advanced trade entry strategy. But the entry methodology contributes only approximately 15% to the success of a Note trading Method based on academic studies.
The most important question of a Paper trading Technique is how much to risk bucks and how many deals to trade at the same time.

A can do attitude is required to buy / sell successfully. Why? Because with phrases like it should be great, but I cant or one day perhaps I should succeed in the lottery, but until then I must work hard they have already lost.

Trend Following Doesn’t Always Mean Crowd Following

“Trading has taught me not to take the conventional wisdom for granted. What money I made in trading is testimony to the fact that the majority is wrong a lot of the time. The vast majority is wrong even more of the time. I’ve learned that markets, which are often just mad crowds, are often irrational; when emotionally overwrought, they’re almost always wrong.”

– Richard Dennis  (Famous Trend Follower) 

Richard J. Dennis, a commodities speculator once known as the “Prince of the Pit,”. In the early 1970s, he borrowed $1,600 and reportedly made $200 million in about ten years.

Quotes from Trading Legends :Paul Tudor Jones-Gary Bielfeldt-Richard Dennis

Paul Tudor Jones:
“We have tested every system under the sun and, amazingly, we have found one that actually works very well. It is a very good system…(under the realm of) trend following. The basic premise of the system is that markets move sharply when they move. If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try and fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.”
“The most important rule of trading is to play great defense, not great offense.”
“I don’t really care about the mistakes I made three seconds ago in the market. What I care about is what I am going to do from the next moment on. I try to avoid any emotional attachment to a market.”
” I always believe that prices move first and fundamentals come second.”
Gary Bielfeldt:
“The best thing that anyone can do when starting out is to learn how a trend system works. Trading a trend system for a while will teach a new trader the principle of letting profits run and cutting losses short. If you can just learn discipline by using a trend-following system, even temporarily, it will increase your odds of being successful as a trader.”
Richard Dennis:
“You should expect the unexpected in this business; expect the extreme. Don’t think in terms of boundaries that limit what the market might do. If there is any lesson I have learned in the nearly twenty years that I’ve been in this business, it is that the unexpected and the impossible happen every now and then.”
“A good trend following system will keep you in the market until there is evidence that the trend has changed.”
“The correct approach is to say: ‘This structure is up, and this structure means no more, but never that this structure means up this much and no more’.”
“I could trade without knowing the name of the market.”
“The market being in a trend is the main thing that eventually gets us in a trade. That is a pretty simple idea. Being consistent and making sure you do that all the time is probably more important than the particular characteristics you use to define the trend. Whatever method you use to enter trades, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend.”

The Four Principles of Trading

  1. The price has the final say. You may have an opinion on the market, but it is dangerous to marry it to your positions, as famous trader Richard Dennis explained, “You don’t get any profits from fundamental analysis; you get profit from buying and selling. So why stick with the appearance when you can go right to the reality of price and analyze it better?”

  2. Follow instead of forecast. Legendary trader Paul Tudor Jones once declared that he would never hire fundamental traders who frequently tried to outwit the market and got burned, because by the time the fundamentals become clear, the trend is over. You can never know if the next trade wins or not, so simply follow your rules and see.

  3. Preserve your capital. Since the market is impossible to forecast, all great traders agree that you must limit your losses before it gets out of hand, since they have seen a lot of intelligent traders got bruised in a market crash simply because they held on to the losers or even averaged down on the way as the price became “fundamentally” attractive.

  4. Let your winners ride. The other side of the coin is not to cut the profit too soon before it can grow large. Jesse Livermore explained, “I’ve known many men who… began buying or selling stocks when prices were at the very level which should show the greatest profit. And … they made no real money out of it.” Why? They sold too soon.

Trading Quotes

The tape tells the truth, but often there is a lie buried in the human interpretation
Jesse Livermore
 Charts not only tell what was, they tell what is; and a trend from was to is (projected linearly into the will be) contains better percentages than clumsy guessing
R. A. Levy
The biggest risk in trading is missing major opportunities, most of enormous gains on my accounts came from 5% of trades.
Richard Dennis
 Your human nature prepares you to give up your independence under stress. when you put on a trade, you feel the desire to imitate others and overlook objective trading signals. This is why you need to develop and follow trading systems and money management rules. They represent your rational individual decisions, made before you enter a trade and become a crowd member.
A. Elder

Russell Sands on What Causes the Market to Move.

Russell Sands was one of the original “turtles” trained by the famous commodity trader Richard Dennis. Dennis believed that commodity traders could be trained, as opposed to a colleague who believed great trading was an innate ablility. To settle a bet, Dennis placed ads in trade magazines and interviewed hundreds of candidates, eventually choosing 32 trainees. The new traders were named turtles, after the turtles Dennis saw being raised on a farm in Singapore.

   By the way, if that story line sounds familiar, you may have seen the movie Trading Places, starring Eddie Murphy and Dan Akroyd. And for my only movie review on this site, I give it two thumbs up. Very funny. (more…)

William Eckhardt Quotes

Partner of perhaps the best-known futures speculator of our time, Richard Dennis.Created the famous trading group known as the Turtles. William has averaged over 62 percent return.  

“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.”  

Qutotes from Richard Dennis & Paul Tudor Jones

Richard Dennis

“when you start, you ought to be as bad a trader as you are ever going to be.”

“I always say that you could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.”

“my research on individual stocks shows that price fluctuations are closer to random than they are in commodities. Demonstrably, commodities are trending and, arguably, stocks are random.”

“There will come a day when easily discovered and lightly conceived trend-following systems no longer work. It is going to be harder to develop good systems.”

“The secret is being as short term or as long term as you can stand, depending on your trading style. It is the imtermediate term that picks up the vast majority of trend followers. The best strategy is to avoid the middle like the plague.”

Paul Tudor Jones

“First if all, never play macho man in the market. Second, never overtrade. My major problem was not the number of points I lost on the trade, but that I was trading far too many contracts relative to the equity in the accounts that I handled.” (more…)

King of Turtle Traders

I’m currently rereading “Complete Turtle Traders“ and if you’re not familiar with the story, I highly recommend this book. There aren’t many books that I reference often and this is one of them due to the psychological insight of trading and it’s impact on your performance. And what you’re going to read below is just a snippet from the first 27 pages of the book.

Richard Dennis is fast becoming one of my trading icons as I learn more about his attitude and methodology on trading and life. Here are a few quotes from the book that will offer some insight into what type of person and trader he was at that time:

His emotional attachment to dollars and cents appeared nonexistent.

He thought in terms of leverage.

You’re much better off going into the market on a shoestring, feeling that you can’t afford to lose.

Reacting to opportunities that others never saw was how he marched through life.

….you had to be able to accept losses both psychologically and physiologically.

I’m an empiricist through and through.

….the majority is wrong a lot of the time. The vast majority is wrong even more of the time.

He was an anti-establishment guy making a fortune leveraging the establishment.

Dennis read Psychology Today to keep his emotions in check and to remind him of how overrated intuition was in trading.

I think it’s far more important to know what Freud thinks about death wishes than what
Milton Friedman thinks about deficit spending.

You have to have mentally gone through the process of failure.

He has the ability under tremendous pressure to stand there with his own money and pull the trigger when other people wilted.

When he was wrong, he could turn on a dime.

One man’s volatility is another man’s profit.

SUBJECT: What makes a frustrating market?

I wanted to end with a quote from one of the most famous Turtle Traders of all, Curtis Faith, that very much resonates with my methodology of zentrading. This comes from “Inside the Mind of the Turtles”which is another book I recommend. Do not buy his second book “Way of the Turtle”. It was absolutely horrible and very poorly written. I’m still reading his new book (very promising) and I’ll let you know how that one goes. Anyhow…here’s the quote and pay special attention to the phase in italics and if you found this post especially useful please retweet and share with your networks. I look forward to reading your comments and any particular insight you may have.

Winning traders think in the present and avoid thinking too much in the future. They look at the future as unknowable in specifics, but foreseeable in character. To win you need to free yourself and your thinking of outcome bias. It does not matter what happens with any particular trade.

10 losing trades + sticking to your plan = bad luck.

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