In my reading of hundreds of trading books and my endless research on rich traders, I have come across many quotes that are very powerful. These principles could really change the entire dynamic of a new traders plans and methods. Here are my favorite ten that I not only love but have made huge impacts on my own trading and enabled me to grow capital. Some of these capture principles in one sentence that whole books could be written about. The key is do you “get” what these traders are saying? Anyone who has traded the markets for many years and through different environments will understand the power behind this advice.
Surprisingly rich traders are quick to realize when they are wrong and even sometimes reverse their position. The ability to quickly admit that you are wrong in a trade and get out is very powerful and limits your losses.
“Good investing is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake.“ –Michael Steinhardt
Do not stay bullish or bearish go with the current flow of the market. Be on the team that is making the money.
“There is only one side of the market and it is not the bull side or the bear side, but the right side.” –Jesse Livermore
Putting it all together, it is more than just numbers. Successful traders trade in three dimensions.
“Successful trading depends on the 3M`s – Mind, Method and Money. Beginners focus on analysis, but professionals operate in a three dimensional space. They are aware of trading psychology their own feelings and the mass psychology of the markets. Each trader needs to have a method for choosing specific stocks, options or futures as well as firm rules for pulling the trigger – deciding when to buy and sell. Money refers to how you manage your trading capital.” – Alexander Elder
The money is in the primary market trend, not jumping in and out.
“I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements-that is, not in reading the tape but in sizing up the entire market and its trend.” – Jesse Livermore
This is one of the best ways I know to measure short term trends, and be on the right side of the primary moves. Key moving averages are the best measuring stick I know of to keep traders on the right side of a stock. Short term 5 day ema, intermediate 10 day sma, reversion to the mean 20 day sma, corrections in a bull market 50 day sma, the line in the sand for bulls versus bears is the 200 day sma.
“The 10 day exponential moving average (EMA) is my favorite indicator to determine the major trend. I call this “red light, green light” because it is imperative in trading to remain on the correct side of moving average to give yourself the best probability of success. When you are trading above the 10 day, you have the green light, the market is in positive mode and you should be thinking buy. Conversely, trading below the average is a red light. The market is in a negative mode and you should be thinking sell.” – Marty Schwartz
Why it is so important to let your winners run and cut your losers short? The only way to win at trading is to have your winners pay for your losers and leave you with profits.
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you‘re wrong.” -George Soros
Eliminating the risk of ruin in one easy step. If you only risk 1% of your trading capital on every trade your odds of ruin or almost 0%.
By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical.” Larry Hite.
Never add to a losing position because you are fighting the trend. Money is made in riding trends not fighting them.
“Losers average losers.” this was posted in Paul Tudor Jones’ Office
This is successful stock trading summarized>
“My basic philosophy is: Expose your portfolio to the best stocks that the market has to offer and cut your losses very quickly when you’re wrong. That one sentence essentially describes my strategy.” – Mark Minervini
Trend Trading in a nut shell>
“It is always the best discretion to let the market show us where it is going and just simply follow (this would be prudent), rather than predict where the market is going and place a position (this would be gambling).” -Anne-Marie Baiynd