Without question, one of the best ways to learn any skill is to study those who have already found massive success. Learning how to trade Forex or any financial market for that matter is no different.
Legendary traders such as Paul Tudor Jones, Ed Seykota, and Marty Schwartz have all left a trail of clues for us to follow. All we have to do is translate them into a meaningful context and then apply the concepts to our trading.
Luckily, I’ve done the translations for you. Below you will find seventeen of the most insightful quotes from some of the world’s top traders. And while I can’t guarantee your success as a trader, I can guarantee that if you study and apply the mini-lessons below you will be in a much better position to succeed.
Let’s get started!
Limit your size in any position so that fear does not become the prevailing instinct guiding your judgment.
I’ve listed this one from Joe Vidich first for a reason. The number one reason 90% of traders fail, in my opinion, is because they get emotionally compromised.
The best trading strategy in the world won’t do you any good if you allow emotions to trump logic.
And what is the number one reason traders surrender to emotions?
The fear of losing money, of course.
But that fear only becomes debilitating when you allow the potential loss to exceed your comfort level.
So with this in mind, the best way to mitigate against this fear and allow logic to prevail is to reduce your position size until you’re 100% comfortable with the loss. If that means risking as little as half a percent of your account balance per trade, so be it.
There is no single market secret to discover, no single correct way to trade the markets. Those seeking the one true answer to the markets haven’t even gotten as far as asking the right question, let alone getting the right answer.
Jack Schwager – Author of Market Wizards
Jack points out what is arguably the most misunderstood aspect of trading. There is a popular notion amongst traders that there is a certain magical formula that will yield the most profitable results with the least amount of drawdown.
There is no single best way to trade. There is, however, a best way for you to trade.
What is it, you ask?
Only you can discover it because it has to fit your personality. Nobody else can do it for you. And it’s one of the reasons why it takes years of hard work and dedication to become a consistently profitable trader.
The real question is, do you have the passion, commitment and resilience to find it?
If so, the rewards will be plentiful.
My attitude is that I always want to be better prepared than someone I’m competing against. The way I prepare myself is by doing my work each night.
It’s easy to forget that trading is a zero sum game. In the financial markets, every gain (or loss) is balanced by a loss (or gain) of the same size. In other words, for every winning trade, there must be a losing one and vice versa
According to Marty Schwartz, you have to be better prepared than your competitors.
That doesn’t mean you have to come in each day with the attitude that you need to make more money than other market participants. In fact, this way of thinking can get you in trouble faster than you can say the word.
What it does mean, however, is that you have to put in more time and effort than those you’re up against if you wish to succeed. Because at the end of the day, every time you buy or sell there is someone out there doing the exact opposite.
Do more of what works and less of what doesn’t.
Now, I know what you may be thinking – that’s an obvious statement, and if it were that easy, everyone would be successful.
And I would agree with half of that thought. It is an obvious statement, but that doesn’t make it easy. Nor does it make it an everyday occurrence among traders.
In fact, I’d argue that the majority of traders never actually sit down to analyze their winners and losers. That’s what Steve Clark is referring to here as the only way to know what works and what doesn’t is to reflect on past occurrences.
So to further his point, begin tracking your successes and failures alike. You may be surprised by what you learn.
I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.
Patience is the key to trading success. Without it, you will quickly find yourself trading subpar setups and losing money left and right.
Not only that, but there is an opportunity cost that comes with overtrading. It takes a clear mind to be able to identify favorable trade setups, and if you are constantly subjecting yourself to the stress and anxiety of losing trades, you will invariably miss the setups you should be taking.
By staying flat and waiting for the most favorable opportunities, you instantly put yourself in a better position to be able to identify and capitalize on inefficiencies in the market.
The market can stay irrational longer than you can stay solvent.
John Maynard Keynes
John Keynes, the father of Keynesian economics, famously stated that markets can stay irrational longer than you can stay solvent. He said this shortly after blowing one of his trading accounts early in his career.
Of this, we can deduce two crucial lessons.
Markets are inherently unreasonable. Just when you think a market is “supposed to” drop on negative data, it rallies and vice versa. If you’ve been trading for any length of time, you know this happens.
Never try to justify your position internally. In other words, don’t convince yourself that you’re right. Instead, use what is taking place in the market to decide whether your position is still justified.
If most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money.
How often does a truly favorable trade setup come along?
While the answer will vary depending on the time frame you trade as well as your criteria for what you deem to be favorable; a general answer would be, not very often.
I’d go as far as to say that if you’re trading the 4-hour and daily charts, you may get one or two trade setups per week that are worth the risk.
Notice I said “worth the risk” and not “potentially profitable”?
That’s because you can’t have potential profits without the associated risk. And between the two, you should always concern yourself with the risk before even thinking about the profit potential from any one setup.
Don’t worry about what the markets are going to do, worry about what you are going to do in response to the markets.
Take a minute to reread the quote above and allow it time to sink in because it’s one of the most profound, yet simple, statements I’ve ever read about trading.
As traders, we are in the business of reacting. It’s one of the few professions where it pays to follow rather than lead.
By allowing the market to make the first move, we can play defense while at the same time exploiting market inefficiencies.
It’s not whether you’re right or wrong that’s important, it’s how much money you make when you’re right and how much you lose when you’re wrong.
What’s your win rate? Is it above or below 50 percent?
It doesn’t matter. And not just whether it’s above or below 50 percent; it doesn’t matter, period.
As George Soros has pointed out, what’s important is how much you make when you’re right and how much you lose when you’re wrong. That’s it. Everything else is irrelevant.
Let’s pretend for a moment that after a given month of trading, you ended up with 7 losing trades and only 3 winning trades. So your win rate for the month was 30% – which would equate to an unprofitable month according to conventional wisdom.
But what if out of the three winning trades your average R-multiple was 3R?
The breakdown would look like this:
Winners: 4R, 3R, 2R
Losing trades were all 1R.
That means your winning trades totaled 9R while your losers totaled 7R. If you had risked 1% of your account balance on each trade, you would have ended the month with a 2% profit. And if you had risked 2% of your balance on each trade, you would have had a profit of 4%.
Not bad considering that 70% of your trades lost money.
Win or lose, everybody gets what they want from the market. Some people seem to like to lose, so they win by losing money.
Take a moment to let this quote soak in because it does take a few reads to comprehend fully.
What Ed is saying here is that some traders are there own worst enemy. In fact, I would argue that this is true for most traders.
Many who trade the Forex market risk too much, trade too often and don’t do enough homework before putting money at risk. But what’s worse is that those same traders begin to feed off of the bad habits they develop, creating a vicious cycle of losses.
But the same can be said about life in general. Many individuals lack the confidence, drive, ambition, etc. that’s required to reach success in their chosen endeavor. They create bad habits through emotional discords and often become paralyzed by overthinking situations or doubting their abilities.
In trading, you have to be 100% confident that you have what it takes to become consistently profitable, yet stay humble enough to know that success in this business only comes to those who choose to learn from their mistakes.
Where you want to be is always in control, never wishing, always trading, and always, first and foremost protecting your butt. After a while size means nothing. It gets back to whether you’re making 100% rate of return on $10,000 or $100 million dollars. It doesn’t make any difference.
Paul Tudor Jones
Everything in trading is relative. This is especially the case in the Forex market where a currency is only as strong or weak as indicated by its counterpart.
But when it comes to profit and loss, the same rules of relativity apply.
A 1% risk on a $10,000 account is the same as a 1% risk on a $100 million account. They are both one percent. The dollar amount is irrelevant.
There is an important lesson to be learned here, and it has everything to do with position sizing. I hear too many traders say things like, “I’ll position size correctly once I have a larger account, but right now I need to build my small account as fast as possible.”
The statement above is a death sentence for most traders.
Having a small account is no excuse for improper position sizing. In fact, it’s likely the very reason that you don’t yet have a larger account.
As I always say, forget about making money altogether. Instead, focus on the process of becoming a patient and disciplined trader and the profits will follow.
Don’t focus on making money, focus on protecting what you have.
Paul Tudor Jones
Speaking of focus, how about this one from Paul Tudor Jones?
So many traders in the Forex market and beyond are obsessed with making money. And I get it. Can you really call yourself a trader if you aren’t making money in the markets?
But as I’ve pointed out in the past, it’s infinitely easier to lose money and twice as hard to make it back. Said differently, a 50% loss of trading capital requires a 100% gain to recoup said losses.
So before taking your next trade, ask yourself – am I doing my #1 job as a trader by protecting my capital or am I only trying to make money?
It’s amazing how an honest answer to such a simple question can help keep you out of trouble.
The hard work in trading comes in the preparation. The actual process of trading, however, should be effortless.
Jack Schwager – Author of Market Wizards
I love this quote. And who better to say it than Jack Schwager, my favorite author when it comes to trading books.
Without question, all of my best trades required little effort. In fact, I’d even go as far as to say they were easy.
But that doesn’t mean trading is easy; it’s far from it. As Mr. Schwager points out, the hard work is in the preparation. So before a profitable trade can be effortless, you have to put in the screen time to make it so.
Unlike most things in life, trading has an inverse relationship to trying harder in that the harder you try to build an account, the less likely you are to succeed.
Separating homework from the act of trading is important. It’s the homework that requires hard work, your trading, on the other hand, needs to be effortless. If it isn’t, you’re doing something wrong.
I know where I’m getting out before I get in.
Clarity of mind is paramount if you intend to become a successful trader. But the problem is, as traders, we exist in a world fueled by the prospect of financial gain, which in and of itself triggers unwanted emotions.
So how can we act logically when there are so many emotional strings attached?
One way is to know where you’re getting out before you get in. Said differently, know the exact level at which you intend to close your position should the market move against you, but do so beforehand.
Once you have money at risk, the line between logical and emotional decision making becomes blurred.
But if you define your plan of attack before putting capital at risk, you are less likely to be swayed by your emotions and thus stand a greater chance of profiting while at the same time protecting your money.
When in doubt, get out and get a good night’s sleep. I’ve done that lots of times and the next day everything was clear… While you are in [the position], you can’t think. When you get out, then you can think clearly again.
I have one rule when it comes to taking a loss. That rule is that I can’t trade again for 24 hours, regardless of how favorable another setup might seem. So if I wake up to a loss in my account, I won’t take another trade until the next day.
Why do I do this?
I do it because I believe sleep to be the great “reset” button. Think about the last time you had a lousy day. Chances are you woke up the next morning feeling much better and ready for a fresh start.
It doesn’t matter if you’ve been trading for 3 years or 30 years, every person is susceptible to being influenced by emotions to some degree. And the last thing you want to do is attempt to trade while the negativity from a recent loss is still lingering.
So do yourself a favor and take a break if you experience a trading loss, or you’re feeling uncertain about the markets. It might just save you some money.
There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time.
I often preach about the importance of having saint-like patience as a trader. In this quote, Jesse Livermore – a famous stock trader during the early 1900’s, – takes on the same sentiment with a less cordial approach.
What does it mean to be a trader? Have you ever asked yourself this question?
The answer will vary from person to person, but to most of the uninitiated market participants, being a trader means putting on trades.
But the truth is quite the opposite. Being a (successful) trader isn’t about putting on trades, it’s about not trading at all. It’s about protecting the capital in your account and waiting days or sometimes weeks for the perfect moment to strike.
If a trader is motivated by the money, then it is the wrong reason. A truly successful trader has got to be involved and into the trading, the money is the side issue… The principal motivation is not the trappings of success. It’s usually the by-product – simply stated, “the game’s the thing”.
Passion is the only thing that will keep you going when the going gets tough. And trust me when I tell you that the road to becoming a consistently profitable trader is undoubtedly tough!
For me, it was the hardest thing I’ve ever done in my life.
One of the most common questions I receive from traders is how much money one can expect to make in a given month. This line of thinking is flawed, and at the risk of being overly straightforward, if making lots of money from trading is your only motivation, it won’t take you very far.
I’m not implying that you shouldn’t be motivated to make money. After all, you have to be able to support your lifestyle if you intend to trade for a living.
What I am saying is that money can’t be your driving force. As Bill states in the quote above, money should be the byproduct of the thing you love, which is the game of trading. Because unless you absolutely love the financial markets, it will be far too easy to give up at the first sign of difficulty.
If you’d like to have these quotes in a tidy three-page document, then you’re in luck!
I’ve compiled all seventeen quotes above into a PDF that I know you’ll love. Print it or just keep it on your desktop as a daily reminder. The choice is yours.
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