Bill Lipschutz is perhaps my favorite trader to study. Although he’s a fundamental trader, the things he managed to achieve and how he went about accomplishing them is nothing short of incredible.
Whether it’s the trials and tribulations he endured to turn a $12,000 inheritance into hundreds of thousands of dollars while still in college or his sheer passion for “the game,” there’s much we can learn from him.
He’s also a guy who holds nothing back. If you’re looking for an honest answer, look no further than Bill Lipschutz.
Just ask Jack Schwager who barely persuaded him to an interview for one of his Market Wizards books.
In this post, we’re going to analyze seven critical lessons from the man himself. I hand-picked each topic and elaborated in a way that makes each one both useful and actionable.
Let’s get started.
BONUS: Download the free PDF cheat sheet that explains all seven trading lessons in a convenient PDF format. Plus, get my daily newsletter with exclusive Forex trade setups and strategies.
Table of Contents
Who Is Bill Lipschutz?
Before we dive into the seven lessons, I first want to share a little of Bill Lipschutz’s story. Think of this as a synopsis of his early trading career.
Lipschutz started trading equities while pursuing his Bachelor’s degree from Cornell University.
He inherited $12,000 worth of stock upon his grandmother’s death. The amount was spread across more than 100 different stocks, so he liquidated the investments to find a more suitable approach.
It’s at this moment that Lipschutz caught the trading bug. He began researching and reading about the market at Cornell’s library and started investing the risk capital in his free time.
Not long after, he turned that $12,000 sum, which was far less by the time it was liquidated, into a sizeable $250,000.
However, one bad decision nearly cost him the entire account. He was back to square one.
But instead of throwing in the towel, he considered the loss a valuable learning experience. And just before the end of his time at Cornell, Lipschutz had once again built the account up to the point that he decided to leave his architectural degree behind.
Then in 1984, he joined Salomon Brothers as part of the newly formed Foreign Exchange Department. One year later he was making $300 million per year for the firm.
Lipschutz left in 1990 to pursue other ventures including the North Tower Group and Rowayton Capital Management. He then formed Hathersage Capital Management in 1995 with classmates from Cornell.
Hathersage specializes in G10 currencies and is still operational as of this writing.
If you want to read more about Bill Lipschutz’s journey and discover other lessons from highly successful traders, I recommend you buy the Market Wizards series of books.
At about $15 a book, it is by far the best investment you can make for the price.
I am in no way affiliated with Amazon nor do I gain anything from mentioning any of the books on this site. So if you see a book recommendation from me, it’s because I enjoyed it and I think you would too.
Let’s get down to business.
1) Time is a Risk Factor Too
What is the one thing in life you can never get back?
You may not realize it, but every time you put on a new trade, you’re risking more than just money.
For example, let’s say you’ve risked $100 on a EURUSD short position.
Your financial risk is $100.
That’s the easy part. But there’s another aspect to risk that most traders never consider, and that’s time.
You see, when you commit to a new position you’re tying up some amount of capital. That means you’re limited if another opportunity comes along.
I always suggest taking things one position at a time. Two or even three positions for the more experienced trader is doable, but it isn’t necessary.
In fact, the more trades you take, the less of a chance you’ll have at becoming consistently profitable. This is especially true when you are just starting out in the Forex market.
Bill Lipschutz also agrees that less is more with the following quote.
If most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money.
Another risk associated with time is the increased exposure. The longer a position stays open, the more likely it will be affected by outside forces.
Let’s go back to that EURUSD short position. This time we’ll assume it was a trade on the 1-hour chart.
I don’t often utilize the 1-hour time frame, but for purposes of this lesson, we’ll use it.
The time it takes for a 1-hour swing trade to play out is typically one to two sessions. It can take longer, but that’s a relatively accurate assumption.
What are the chances of a major news event affecting a position that lasts just 24 to 48 hours?
Well, that depends on the circumstance, but assuming the event calendar is clear of major obstacles, the odds are pretty slim.
Compare that to a position on the daily time frame that can last a week or longer.
The chances of the event calendar being clear for both the Euro and U.S. dollar for one to two weeks is slim to none.
And even if the calendar is clear, there’s always unscheduled event risk that can crop up in the blink of an eye. We’ve all experienced how something as trivial as a Tweet can influence a market’s behavior.
The bottom line is that time is a risk factor too. The longer a position sits open, the more likely it is to be affected by the news, both scheduled and unscheduled.
So, what’s the solution?
It’s quite simple. Always make sure the reward is worth the risk.
Bill Lipschutz embodies this principle perfectly. Here’s what he does:
A good rule of thumb for a short-term trade – 48 hours or less – is a ratio of three to one. For the longer-term trades, especially when multiple leg option structures are involved and some capital may have to be employed, I look for a profit to loss ratio of at least five to one.
Going back to our EURUSD example, for the intraday swing trade you’d need at least a three to one profit to loss ratio. So, if you’re risking 50 pips, your target should be no less than 150 pips away.
For the swing trade on the daily time frame, you’d only consider the opportunity if it was at least a five to one profit to loss ratio.
This is a principle that I employ every day. I never take a trade without first considering the time factor in relation to the profit to loss (reward to risk).
2) Rags to Riches in Forex Does Exist
Bill Lipschutz is the epitome of a Forex rags to riches story. Although calling his early days “rags” could be an overstatement.
Still, anyone who manages a record like his deserves recognition. You’ll recall that when Lipschutz was still in college, his grandmother passed away, leaving him an inheritance of $12,000.
That money was spread across more than 100 different stocks. So I have no doubt by the time he finished paying broker fees, and any taxes owed it was worth quite a bit less.
He eventually grew that amount to $250,000, all while still attending school.
Like any 20 something year old, he became a bit overconfident and lost it all on one mistake. But instead of giving up he persevered and eventually built the account back up to its former size.
That alone is impressive, especially for someone who wasn’t yet 30 years old.
By the time he turned 28, he was hired by Salomon Brothers. The year was 1982, and their Foreign Exchange Department was brand new.
That didn’t stop Lipschutz from producing nearly half a billion dollars in profit for the firm in the eight years he was there. That’s the equivalent of $250,000 profit for each and every trading day.
Not bad for his first real go at currency trading.
So why am I telling you all of this?
I wanted to share this because it’s important to keep stories like this close to heart and mind.
The road to success in the Forex market is paved with obstacles, many of which will test every fiber of your being. Learning about and remembering success stories such as this will keep you thinking positive when you need it the most.
So the next time someone says that only the rich succeed in the Forex market, be sure to share the story of Bill Lipschutz.
3) The Game’s the Thing
I love this one.
Because like Bill Lipschutz, I’m 100% obsessed with trading. I have been from day one. Even at the age of 14 – before I could legally trade – I was giving my mom money to invest in penny stocks on my behalf.
I probably don’t need to tell you that those “investments” didn’t end well. But that’s when the burning desire started.
Bill Lipschutz is another guy who is obsessed with trading. So much so that I bet he’d do it for free.
The following may not be a pleasant thing for some to read, but I’m going to state it anyway because I believe it to be true.
The reason 95% of Forex traders fail has more to do with a lack of passion than it does with skill, ability or psychology.
Think about it. Why do most individuals get involved with Forex?
For the money, of course.
It’s no coincidence that over half of the hundreds of emails I receive each month involve the desire to make money.
You may be saying, but Justin, isn’t that the name of the game? Isn’t that why we’re all here – to make money?
No, it isn’t. Making and losing money is simply the byproduct of your actions.
The name of the game is perfecting the process. It’s about problem-solving and an endless pursuit of a trading style that fits your personality.
But most of all, it’s about having the passion for the game. Because if you don’t have that, you won’t be able to push through the tough times.
Bill Lipschutz embodies the kind of passion necessary to succeed. The guy has multiple quote screens throughout his house so he can watch the market’s every move.
Heck, he even has one in the bathroom so he can check up on his positions while he – well, you know.
While you don’t need to watch the markets from your bathroom, you do need to have an almost obsessive passion for trading.
Note that I said a passion for trading and not a passion for making money. The latter isn’t enough on its own.
Bill Lipschutz sums it up perfectly with the following statement.
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’.
One thing I often tell my students is to forget about the money. Stop trying to make money and instead focus on perfecting the process.
If money is your sole reason for trading, you’d better take a cold hard look at your chosen interest because the desire for money alone won’t get you where you want to go.
All successful traders have one thing in common – their passion and child-like fascination for the game keeps them motivated; the profit is just the byproduct.
4) Know Pain, But Don’t Fear It
Anyone can make a few bucks on a single trade. Some may even get lucky and win a few in a row or perhaps have an entire winning month or two.
But the real test of any trader comes when losses begin to stack up.
This is especially true when those losses are consecutive. When this happens, you start to lose any confidence you’ve gained. You lose your nerve and ability to see things clearly.
Contrary to what you may think, the best traders feel the pain of a loss. They are never numb to it because if they are, it’s game over.
Bill Lipschutz once said:
When you go through a losing streak all the self-doubts come out and you do get very reluctant to pull the trigger. There is nothing you can do that is right. Just every single thing you do is wrong. That is something you just have to learn to control. You really have to learn how to control that fear. You have to feel the pain of a bad trade, or a wrong trade. If you don’t, and are numb to it, then it’s over.
You see, the moment you become numb to a loss, you start to gamble. The money in your account becomes nothing more than trade fodder that gets thrown at the market in a desperate attempt to gain back what you’ve lost.
This is why it’s so important to feel the pain of a loss – so you can practice restraint.
But here’s the thing…
While feeling the pain of a loss can be healthy, the fear of a loss can be equally harmful as being numb to it.
When you begin to not only feel pain but fear it, you also start to doubt your abilities. You become afraid to pull the trigger even when a favorable trade setup is staring back at you.
Furthermore, if you fear losing money, you’re more likely to exit a perfectly good trade prematurely.
Imagine for a moment that you have a $10,000 account and you just went long the USDJPY. Your stop loss is 100 pips away with a target that’s 300 pips above current prices.
Now consider the following two scenarios.
- You risked 5% of your account or $500
- You risked 1% of your account or $100
If the market were to drop 50 pips over the next 24 hours, which scenario above would cause you the most stress?
Remember that your stop loss is 100 pips from your entry, so the market has not taken you out of the trade just yet.
I think it’s safe to say everyone would choose number one as the more stressful situation.
The prospect of losing 5% of an account versus just 1% is enough to cause anyone a little extra anxiety.
One of the easiest and quickest ways to prevent the fear of loss is to risk less on each trade. The less capital you have at stake, the less likely you are to panic and make an emotional decision should the market test your nerves.
5) Insane Focus Is a Must
Trading is a business, plain and simple. Sure, it’s great fun (unless you’re losing consistently), but at the end of the day, it’s all business.
And to succeed in this business, you must have insane focus.
According to Bill Lipschutz:
When they call you “crazy” you know you are on the right track.
He was referring to the work ethic and insane focus that’s required to succeed as a trader.
Here’s a great example. When Jack Schwager interviewed Bill Lipschutz in 1992 for one of his first Market Wizards books, they met at Bill Lipschutz’s home.
Right away Schwager noticed an obscene amount of TVs spread throughout his home.
Now, for many families, having two or three TVs nowadays might be normal. But Lipschutz isn’t normal. Instead of having a couple of TVs for, well, watching TV, he used them to keep an eye on the markets.
He even had one next to his bed so he could roll over in the middle of the night to check on his positions.
I’m certainly not suggesting that you go out and purchase 8 TVs and place them strategically throughout your home so you can keep an eye on the markets at all times.
In fact, if you’re married or live with a significant other, please don’t do that.
It would also likely do you more harm than good (and not just to your relationship). Take it from me that watching every market tick leads to meddling in perfectly good trades. You’re better off walking away after placing a trade to let the market do the heavy lifting.
Apparently, Lipschutz doesn’t agree. But the point is that the super successful have an insane, obsessive-like focus on what they’re doing at all times.
If you want to be part of the 10% of profitable Forex traders, you have to start doing what the other 90% won’t.
That includes things like using weekends to study the markets and spending every spare moment reading about those who have achieved phenomenal success.
6) Always Consider Outside Forces
Bill Lipschutz is a fundamental trader to his core. His passions lie with studying macroeconomic and political events, past, present, and future that could affect a given currency.
But although he doesn’t consider himself a “chartist,” Lipschutz is no stranger to technical analysis.
He doesn’t use flag patterns or the head and shoulders or any of the other strategies we use here at Daily Price Action.
However, he does make himself aware of technical levels. Like most fundamental traders, he utilizes them to assist with his entries and exits.
They also help him to recognize a market’s momentum and where an influx of buyers or sellers could impact a market’s order flow.
I, on the other hand, am not a fundamental trader. I stay as far away from fundamental analysis as I possibly can.
Everything I do and teach is on the chart – no indicators required.
But even though a Fed rate decision or ECB press conference aren’t part of my technical analysis or directional bias, I’m always aware of them, just as Bill Lipschutz is aware of key levels in the market.
The reason I make myself aware of these events is that I know they can drastically influence a market’s momentum. They can help fuel established trends or reverse them just as quickly.
With that said, there’s a fine line between considering these forces and allowing them to influence your directional bias.
While I make myself aware of when major events are scheduled, I don’t use them to formulate trade ideas. I never trade in front of them nor do I let the outcome influence my decisions.
For me, knowing when these events are to occur is enough, because everything I need to put on or take off trades is on the chart.
In a similar vein, Bill Lipschutz knows where key levels are, but he doesn’t necessarily make decisions based on them. Instead, he uses broader fundamental themes to form his ideas.
Whether you rely on technicals, fundamentals or a combination of the two, being aware of outside forces and considering the potential impact on the market is always a good idea.
7) You Must Put in the Time
I intentionally saved this one for last.
Bill Lipschutz knows a thing or two about the time it takes to find success in the markets. Although he eventually found massive success, it wasn’t without committing an obscene amount of time and effort.
His feat of turning $12,000 into $250,000 is no doubt impressive, but it took years for him to accomplish it, not to mention the many struggles and (hard) lessons along the way.
One of the more common questions I receive from Forex traders is how long it takes to become successful.
The truth is, everyone is different, so there is no one single answer. We come from different backgrounds, have various skill sets and choose vastly different paths along the road to consistent profits.
I know that isn’t the answer you probably want, but for me to give you a single definitive answer would be doing you a great disservice.
If I said it takes two years, it would plant a false expectation in your mind.
The best thing you can do is take things one day at a time. Study hard but never try hard to make a trade profitable. Those are two very different things.
The hard work in trading comes in the preparation. The actual process of trading, however, should be effortless.
– Jack Schwager
Trading is unlike any other endeavor you will ever pursue in your lifetime. It has no boundaries, and it often has severe repercussions for those who try too hard to put on profitable trades.
In any other business venture, effort breeds success. The harder you try, the more money you stand to make.
For example, the more calls a salesperson makes, the more money he or she is ultimately likely to bring in.
The same holds true for just about any office job. Try hard and impress your boss and you’re more likely to get a raise and move up the corporate ladder.
Now, here’s where Forex is different…
The harder you try to make a trade profitable, the more likely it is that you’ll end up with a loss.
You can’t will your way to profits. At the end of the day, the market does what it wants, and there’s nothing you can do to stop it.
That sounds pretty doom and gloom but here’s the good news.
You are 100% in control of the effort you put into perfecting the process of becoming a great trader. And more effort in this area can equal some pretty amazing results.
So don’t focus on the profits, focus on perfecting the process. You do that, and the money will follow.
But it takes time and lots of it. How much time depends on many factors, like how devoted you are to studying the markets every day.
The more time you can commit today, the faster you will see improvements and eventually get to where you want to be.
A trader who devotes three hours each day to studying the markets, improving their mental game and practicing these teachings will likely find success much sooner than someone who only puts in an hour a day or less.
Don’t get discouraged even if you’ve been at it for years and are still empty handed. It took me eight years of cumulative efforts before I began to see the fruits of my labor.
While that may sound like an eternity, I can tell you that it was worth the grind.
Wait, Before You Go…
Are you ready to use these lessons to start trading like Bill Lipschutz?
If so, you definitely want to download the free PDF cheat sheet below.
It contains details on all the lessons above in a convenient PDF format.
Click the link below and enter your email to get instant access to the PDF cheat sheet.
Just what I needed to hear. Success or not success these are the only two outcomes to measure progress. The marker is the $. I’m more interested in the process, always was. Thanks for the reminder. Tried keeping my tablet beside the bed, you’re right not a good plan.
Cheers, Solaron. Glad I could help.
hmmm…nice post, informative and it makes me share my story as a trader so far. I started out with a 2k USD account, made 500 USD the first month of trading and that made me super confident, then i lost all of it the following month, lol. but, i didnt give up and reinvested another 5k USD this time, only to lose it all in the next 2 months. this was when i started thinking why i cannot make money anymore even tho i did it in the first month. and of course, i found my answer, i was trading too much, mostly randomly and mostly without a solid strategy! i simply didn’t know what to do when a trade started going against me and when to close it in time to minimize my losses. i just kept waiting a few more pips and usually it was too late before i decided to finally close it.
when i knew what i was doing wrong i started making a strategy for myself and started again with an investment of 20kUSD. i was making progress now and almost got back my earlier losses within just a month with my new strategy. But then one day, again being a bit overconfident, i blew up more than half my account on a single EURUSD trade. two days later, another loss left me with just 3k USD in my account. That was when i came across Justins site and started reading his posts. all the while refining my strategy to remove all the flaws it had. heck i even learned MQL and programmed my strategy into an EA. now after just about an year an half of losing almost 30kUSD, my account is sitting at 40k USD. So not only i was able to make back what i lost, i am now standing at a green level. and thanks to Justin, i now have the patience and broader understanding that i was lacking before to succeed in this great market. Reading Justin’s posts and trade ideas gave me the insight into how he thinks and how that was different from how i used to think. and of course all that helped me refine my strategy to the point that now i dont lose a single trade!!! i know that may sound unrealistic, but that is the truth. i dont trade big, the biggest position i open is merely a 0.1 size of a standard lot, and most are 0.01 or 0.02, but the fact remains the same, regardless of the size, all my trades now end up on the green side. i may make up just a small profit or it could be more but never minus 🙂
and I just couldnt thank Justin enough.
I found him just at the right time and his posts helped me a lot in thinking straight. Tho i have never met him in person i do occasionally send him mails and have told him how his posts bring me money.
Thanks for sharing your story, Sandeep. I’m sure others will find it helpful.
the pleasure is all mine mate, thanks for being there for newbie’s like me 🙂
can i get your email?
i will like to ask you some few questions
Thank you for Sharing Sandeep. Awesome Post Justin. I admire your work here.
Thanks, San. Cheers.
What strategies do you use to trade?
Was that a 4K word post? Great article btw. Cheers
Paul, I think it fell just short of 3,900 words. Glad you enjoyed it.
I did receive your course on Pin Bars, but didn’t really let it sink in, so I am going to take another look at it and this time really try to understand it better with more interest in it.
Thank you for this opportunity.
Sounds good, Sandi. Let me know if you have any questions. Cheers.
the pin bar course is really awesome sandi, once u get the hang of it it can help you spot some potentially great trades before you miss the boat 🙂
I think of the chart overall structure as representing the fundamentals in the market place such as interest rates ,capital appreciation,risk on,risk off,risk aversion.The $US and the Yen and maybe the CHF determine the structure of the charts and I cannot see how you can separate the two.Every event is reflected in the charts.Maybe by studing the macro economics my help to predict what is likely to drive the particular currency such as futures,options political events etc
Thank you so much. I am truly blessed through your post. I want to take my time to really study the pin bar lesson . It is always been my desire to master the game than the money. Once again Justin thank you
which is the most secured forex trading company one can join
Hi, I am so passionate about the markets. Can I please have an access to the tips and posts that can up my game?
This article blows my mind. I’m a toddler in the game, now learning with a demo account.
I have an active account which I’m yet to touch. I wanna exercise more patience and learn more before I jump into pulling the trigger.
I wish myself well, I wish all traders well.
Thanks for commenting.
The book, Market Wizards, only talking about the Forex, or Stock people too? I only want to know about Forex traders.
I AM 20 YEARS OLD AND AM FROM SOUTH AFRICA I WANT TO START TRADING BUT I DON’T HAVE CAPITAL TO START AND A PHONE OR ANYTHING TO TRADE ON BUT I REALLY BELIEVE THAT IF I COULD BE GIVEN AN OPPORTUNITY TO LEARN THE FOREIGN EXCHANGE MARKET I CAN ALSO MAKE A NAME FOR MYSELF FOREX CAN BE CALLED MANY THINGS BUT I PREFER TO CALL IT A GAME AND IN ORDER TO WIN IN A GAME YOU MUST KNOW THE INTRUCTIONS WHICH IS THE RESEARCH ONE MUST DO ON FOREX BUT IN THIS GAME IT’S NOT AN OVERNIGHT GAME WHICH YOU WILL UNDERSTAND TOMORROW IT TAKES A LOT OF PASSION AND LOVE FOR THE GAME AND INSANE FOCUS BECAUSE IT’S TOO RISKY , AM NOT SAYING YOU MUST FEAR RISKING BUT YOU MUST NOT RISK MORE THAN YOU HAVE AND TAKE TIME TO PERFECT THE PROCESS BEFORE YOU CAN START THINKING ABOUT MONEY SO I BELIEVE IN FOREX IS “GAIN THE KNOWLEDGE AND THE MONEY WILL FOLLOW, DON’T EXPECT IT TO BE YOUR QUICK WAY TO RICHES.
Do not be fooled. Bill Lipschutz is no trader. Look him up on Forbes.com He’s nobody in trading. Just someone with internet pages that say he is …
Please send me the PDF outline
Dude, this Bill guy is just an old guy who pretends to be a trader.
Thanks for this informative post. I, unfortunately, find myself in somewhat of a losing streak after having just started out in my trading career following completion of an extensive learning program so point 4 is especially helpful for dealing with my doubts and fears. Points 5 and 7 are a very helpful reminder of the commitment you MUST give to this process if you are to succeed. That is my plan and I am sure that one day I will look back and remind myself why it was worth it. Thanks again!
Thanks for sharing your story, very useful and informative for me. we get complete knowledge about Forex Trading Lesson.
I trade approx 14 pairs a day and make avarage 40 pips. I am scalping.