George Soros gained international notoriety when, in September of 1992, he risked $10 billion on a single currency speculation when he shorted the British pound. He turned out to be right, and in a single day the trade generated a profit of $1 billion – ultimately, it was reported that his profit on the transaction almost reached $2 billion. As a result, he is famously known as the “the man who broke the Bank of England.”
Soros went off on his own in 1973, founding the hedge fund company of Soros Fund Management, which eventually evolved into the well-known and respected Quantum Fund. For almost two decades, he ran this aggressive and successful hedge fund, reportedly racking up returns in excess of 30% per year and, on two occasions, posting annual returns of more than 100%.
“I’m only rich because I know when I’m wrong…I basically have survived by recognising my mistakes.”
Understanding that he was not always right enabled him to cut losses short and position size right.
Most traders have been in that one monster, parabolic trade where they made a killing. The problem is the exit. It is important to always be wary and plan a trailing stop to get out of your huge winners. So many investors and traders just get lucky, get in the right trade at the right time, and catch a monster trend. Their patience to hold pays off by catching a full move in their favour by letting their winner run. Unfortunately, this patience is a liability if they also hold all the way back down, coughing up big profits. One part of the exit is a well-placed trailing stop under a near term support price, or moving average. Additionally, you can use the psychology of the market as an indicator that it is time to look for a profitable exit.
10 Signs Your Big Winning Trade Is About To Go Bad and it is time to look for the exit.
If they put the ticker symbol, currency, commodity, or index that you are trading as a live permanent quote on CNBC, the end of the trend is near.
If a bull or bear is on the cover of a major national magazine, that market is very close to ending.
If you are on the side of the vast majority of traders, and people against you are vilified, then the trend is almost over. Continue Reading →
AK has been an analyst at long/short equity investment firms, global macro funds, and corporate economics departments. He co-founded Macro Ops and is the host of Fallible.
AK speaks with Tyler of Macro Ops all about how important it is to avoid overtrading in the market. We also cover tactics you can use to prevent yourself from making this mistake. Make sure you watch the video above for the full conversation!
There are seven things that I believe are pretty common in the successful traders I have known, read about, and seen in action. Whether it is stock trader Nicolas Darvas in the sixties, commodity trader Ed Seykota in the twentieth century, or Jesse Livermore at the turn of the last century, many of their principles hold true to this day. The closer I get to these principles, the better I trade. The farther I stray from them, the worse I do. In trading, discipline pays. Adopt these seven habits of highly successful traders.
Traders must have the perseverance to stick to trading until they are successful. Many of the best traders are the ones that had the strength to push through the pain, learn from their mistakes, and keep at it until they made it.
Great traders cut losing trades short. The ability to accept that you are wrong and put your ego aside is the key to personal and professional success. Continue Reading →
A profitable stock trader’s success is not based on picking the right stock at the right time. There are dynamics that determine success other than entries and picks. Millionaires aren’t created because they have a magic system for trading through all market environments. There are a couple of things that influence profitable trading, and they could surprise you.
#1. Having the right mindset to win; psychology.
#2. Managing your risk exposure on each trade; risk management.
No system will work if you can’t trade it consistently. You must stick to your method when you are losing. Whether it’s to keep taking entries, to go to the sidelines and wait for volatility, or to settle down and wait for a trend to emerge.
You must stay in the game and be ready to take your entry signals. The primary reason that traders lose money is that they give up when things get tough because they don’t have faith in their system. A trader must persevere, never quit learning, never quit working, and always be ready to trade.
There are some common mistakes that the majority of traders make as they dive into trading before they have really studied what does and does not work. All new traders will find many of these things familiar. Some of us had to fight our natural impulses hard to overcome these bad habits.
A Dozen Dumb Things that New Traders Do
Being a stubborn bear in a bull market. Continuing to sell short inside a strong uptrend not only causes the loss of money as a market makes higher highs but you miss out on the easy profits made buy simply holding positions or buying the dips.
Being a stubborn bull in a bear market. Some markets are under distribution and keep making lower lows. If a market is not in an established uptrend or trading range then it can go lower if support does not hold. A stop loss gets you out of a downtrend.
Risking your entire trading account on one trade. You should never risk your whole trading account and trading career on one trade. Safety comes in trading a small size so every trade is just one of the next one hundred trades not your whole future on the line. This is a poor choice financially and emotionally. It is also a sign of arrogance believing you can predict a non-existent future. Continue Reading →
Amos Hostetter cofounded Commodities Corporation (otherwise known as CC) along with Helmut Weymar back in 1969. CC is the trading shop that produced more legendary trading talent than the Yankees have All-Stars. Alumni include Bruce Kovner, Michael Marcus, Paul Tudor Jones, Ed Seykota and more…
Hostetter was considered the wise sage and mentor of the group. He’s credited with imbuing many of these trading greats with the wisdom and knowledge they used to achieve their grand heights.
Upon his untimely death in a car accident in 1977, the directors of CC commissioned one of their traders, Morris Markovitz, to gather and record Hostetter’s timeless philosophy on markets and trading. The goal was to ensure future CC traders could benefit from his invaluable teachings. The resulting work was an internal booklet titled Amos Hostetter; A Successful Speculator’s Approach to Commodities Trading.
I must admit, I am not smart enough to have devised these ridiculously simple trading rules. A great trader gave them to me some 15 years ago. However, I will tell you, they work. If you follow these rules, breaking them as infrequently as possible, you will make money year in and year out, some years better than others, some years worse – but you will make money. The rules are simple. Adherence to the rules is difficult.
“Old Rules…but Very Good Rules”
If I’ve learned anything in my decades of trading, I’ve learned that the simple methods work best. Those who need to rely upon complex stochastics, linear weighted moving averages, smoothing techniques, Fibonacci numbers etc., usually find that they have so many things rolling around in their heads that they cannot make a rational decision. One technique says buy; another says sell. Another says sit tight while another says add to the trade. It sounds like a cliche, but simple methods work best.
If you have a winning system with the right risk management you can still fail to be profitable if you do not have the right trading psychology to trade it with discipline.
If you have a winning system with the right trading psychology you can still fail to be profitable by blowing up during a losing streak without the right position sizing and risk management.
If you have the right risk management and trading psychology you can still fail to be profitable because you are trading with no edge because you don’t have a winning trading system.
Profitable trading requires three dynamics: a winning price action trading system with an edge, proper position sizing with risk management, along with the right trading psychology to allow you to trade your process with discipline.
The original post is authored by Steve Burns of newtraderu.com and is available here.
