Trading can be considered as a unique career. It can be the most rewarding but it can also be very difficult. I’m sure if almost anyone you just knew asks about what you do for a living and you say you’re a trader, they’ll say, “wow, really?”. It’s common for people to just see the positive aspects, especially if they’re not in the circle. But trading isn’t just a wow, is it? It involves mastering your true self, mastering your emotions, controlling them, and controlling yourself when you’re trading.
It’s normal to take one step back to make two step forward. In trading, it’s normal too. This is where we have the chance to learn. But to actually get inspired, we often need to look at professional traders. How can they do it? They also have their set backs but they continue their journey, their path to success. When I’m feeling overwhelmed with some losses I got or just to get back at my normal, disciplined and focused way, I like to read quotes from professional traders. They actually inspire me to get to the right mindset and to become a better trader. Hopefully, they can help you as well. Here are some of my favorite ones:
1 – “In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” – Peter Lynch
If you’re just starting trading, you might not get it as right as if you already had some experience. But just let me point something out here and maybe you can understand it. Winning percentages are important until a certain degree. In the real world, having a 60% win rate is considered good. Why? Because professional traders tend to let their profits run and cut their losses short.
Just consider the following example:
Scenario 1: You have a 60% win rate: an average $1,000 profit and an average loss of $100.
Scenario 2: You have an 80% win rate: an average $200 profit and an average loss of $200.
If you look at both scenarios, you can easily realize that the scenario 1 has a pretty better risk:reward than scenario 2, despite the win rate percentage.
What Peter Lynch means with this quote is that it matters far most the profits you’re making consistently than having a great win rate percentage and poor risk:reward. This is managed by using good money management rules.
2 – “What seems too high and risky to the majority generally goes higher and what seems low and cheap generally goes lower.” – William O’Neil
The main point William O’Neil was referring to was to the trend. When you know how to “read” charts and start feeling the price isn’t stopping just because it’s near the top or near the bottom, you need to follow your gut. This is just appropriate for experienced traders because they already evolved, understand and saw their gut being confirmed even when they weren’t in the trade. Obviously this doesn’t apply to every trade. But there are times when we look at a chart and we see the opportunity is there, usually going against what the majority of traders believe. This belief in your instincts will grow as you grow as a trader. You’ll see it first, and as a disciplined trader, you won’t enter the trade. You’ll need to see it happen a couple of times before you actually enter the trade. This is you trying to trust your instincts against what the crowd thinks. It’s not easy to take a stand; it never is. The best trades usually aren’t comfortable at all. They threaten to stop you out, they go against you until your last limit and finally they go on the way they were supposed to. Just like what you predict it.
3 – “It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett
Warren Buffett has great quotes and this is just one of them. The way I see it, I can translate this easily to trading: risk control.
You can be the most disciplined and focused trader and there might be one time, one single time, where you decide to go against your rules, your system, just because. And you decide to invest not the regular amount, but twice or even more because you’re just so sure about it. And when the setup fails, they will have lost more than they’re comfortable with. And usually, and unfortunately, it turns out to be only the first mistake this traders make. They’ll try to recover the loss, but stop being focused and disciplined because they’re just overwhelmed with how much thy lost. Thy will just do a mistake after another. This is why you need to control the risk on every single trade you make. Even if you believe you’re seeing the perfect opportunity that is going against your system, your trading plan, but if you believe, if you “gut” tells you this might be a good opportunity, you might enter the trade. Just enter it with the exact same amount you usually do, and don’t forget the old saying: let your profits run and cut your losses short.
4 – “In investing, what is comfortable is rarely profitable.” – Robert Arnott
If you’re reading this post carefully, I already mentioned this before: the best trades aren’t the most comfortable ones. And one thing I didn’t mention: usually, these trades are the most profitable ones.
5 – “I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have” – Paul Tudor Jones.
As I’m sure you already seen all over the Profitfeed blog, your main goal when you’re trading is to protect your capital. It’s not making more, it’s protecting the one you already have.
By maintaining this as your primary goal, you’ll be able to make more profits. You’re just controlling the risk, and the risk is always there when you’re trading. The less risks you’re facing, the more profits you’ll make. When you’re protecting your capital, you’re not just reducing your losses; you’re also maximizing your gains. And this is why having a proper money management system is so important.
6 – “If you personalize losses, you can’t trade.” – Bruce Kovner
You need to be aware that trading involves having wins and losses. They’re both part of the process. You need to detach yourself, detach your emotions. Look at trading as you look to any other business, where you need to be rational and make rational decisions.
If you make the mistake of “falling in love” with one trade, your decisions won’t be rational. If the trade starts going against you, you might feel the urge to add more capital based on hope; if the trade goes on your way, you might feel the urge to sell it too soon fearing that it might turn against you at any given point.
When you’re trading, a single trade doesn’t mean anything, whether it is a win or a loss. It is the sum of all your wins and losses that give you the perspective, the insight about your trading performance. So, looking at just one single trade, especially if it a loss, won’t get you anywhere. If you want to focus on the loss you had, try to learn from it. See if you made any mistake, if your system failed in any way, if you didn’t use the proper money and risk management. Learn from it; don’t be stuck on it.
7 – “The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliché, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.” – Victor Sperandeo
Making consistent money in the financial markets has nothing to do with intelligence. It has to do with discipline, focus, self-control, patience, not intelligence. If this wasn’t the case, there would be a lot more people making money trading.
In order to be a successful trader you need to know yourself as the back of your hand. You need to know what can get at you and how to control it. You need to be able to see what affects you most when you’re trading, what can avoid it, and how to actually prevent it. This is why it’s not easy to be a successful trader. In most careers, you don’t need such a deep knowledge about yourself. You just need to put into practice what you learned. In trading, besides having to put into practice what you learned, you need to keep learning and you need to know yourself deep.
8 – “Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” – George Soros
George Soros is the living proof that trusting your instinct works. That’s how he got rich in the first place. Obviously, you need to have a well proved strategy and a proper money management system. And you need to be disciplined to comply with it. But with experience, you’ll be able not only to improve the system you’re using right now as to also develop the capability of trusting your gut. When you spend a lot of time looking at charts, interpreting the economic indicators and news releases, you’ll start to anticipate what’s going to happen next. You’ll never be right or wrong 100% of the time. But there will be times when there’s something telling you that you should make a particular trade, even if it goes against all you and most traders believe. This is exactly what George Soros did on the 1992 Black Wednesday UK currency crisis.
9 – “The goal of a successful trader is to make the best trades. Money is secondary.” – Alexander Elder
When you get into trading, you’re main goal usually is to make money. Mine is too. But I rather focus on the battle between the bulls and the bears, in beating the odds and becoming a better trader. Money, for me, comes in second place. It’s my prize for being competent, for playing the game right. When you start focusing on other things rather than the money, it’s the moment when you’ll start seeing the money pouring into your account.
10 – “I have learned through the years that after a good run of profits in the markets, it`s very important to take a few days off as a reward. The natural tendency is to keep pushing until the streak ends. But experience has taught me that a rest in the middle of the streak can often extend it.” – Marty Schwartz
Sometimes, we just need a break. It doesn’t matter what you do, whether you’re performing or just losing some steam, you need a break. Even the best traders need it. And usually they take a break after a winning trade to cool off. Most traders would do just the opposite and continue trading.
Generally, taking a break shouldn’t depend on whether you has a win or a loss. It should depend on how you are feeling. If you had a winning trade, one memorable trade, and are feeling overconfident, it might be a good idea to take a couple of days off. If you just had a losing trade and are feeling the urge to trade just to recover your losses, this is another sign that you need a break.
First of all, know yourself and pay attention especially to your subconscious. It will promptly tell you if you’re needing a break or not. With experience, you’ll start to recognize some signals that might lead you to stop. In the meanwhile, when you notice your emotions are taking control, stop. It’s the best thing you can do. Recover and come back full of energy, motivated, focused, disciplined and ready to make rational decisions.
11 – “The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements.” – Jesse Livermore
Who could think that such a thought from the beginning of the XX Century would still be up to date today? This thought allowed Livermore to make millions during the 1929 Crash and is still valid today. If you think about it for a moment, not just regarding trading but everything in general: things change but human nature remains the same. People are hunted by fear, greed and hope. This happened then and happens today.
Looking at what these successful traders said in the past usually allows me to get in the right mindset. It doesn’t happen overnight. But thinking about what they sad and trying to apply it to the present, to your present situation, may help you deal with your trading and allow you to become a better trader. I believe these quotes are all quite inspiring and I hope they can help you as well as they help me.