The name Lao Tzu is translated as “Old Master.” He was thought to be a historical figure in ancient China and a philosopher and writer. He is believed to be the author of the Tao Te Ching, the founder of Taoism as a philosophy, and even a deity in some of the more fundamentalist Taoism that is a religion.
His wisdom is ageless and many of his quotes can be applied to modern day traders and investors.
“The journey of a thousand miles begins with a single step.” – Lao Tzu
Success in trading or investing takes time, energy, study, and effort and the only way to begin is to start working on your process today. Keep working on each step required to be a successful trader, one by one, and keep moving closer to your goal every day.
The steps to successful trading are:
4. Diversification for markets & signals
5. Positions sizing
6. Max risk exposure
7. Drawdown risk tolerance
9. Risk/reward ratio
10. Return estimate
“Knowing others is intelligence; knowing yourself is true wisdom. Mastering others is strength; mastering yourself is true power.” – Lao Tzu
You may be clever if you know how other traders and investors behave in the market, but knowing how you will act under stress is even smarter. Mastering technical analysis will do little to make you money if you can’t master your own emotions, ego, and self control to follow your own system.
“Life is a series of natural and spontaneous changes. Don’t resist them; that only creates sorrow. Let reality be reality. Let things flow naturally forward in whatever way they like.” – Lao Tzu
You can’t predict or control how the market moves, fighting a trend or volatility only loses capital. Trade what is happening, go with the flow of least resistance if you want to make money.
“A good traveler has no fixed plans and is not intent on arriving.” – Lao Tzu
Don’t get stubborn about a trade and don’t try to predict how it will turn out. If your stop loss is triggered take the small loss, if it starts moving in your favor let it run until your trailing stop or profit target is triggered.
“Those who know do not speak. Those who speak do not know.” – Lao Tzu
Talking heads on financial television don’t know the future, if anyone does know, they aren’t going to tell you.
“The best fighter is never angry.” – Lao Tzu
The best traders and investors never let anger change their trading strategy.
“If you are depressed you are living in the past. If you are anxious you are living in the future. If you are at peace you are living in the present.” – Lao Tzu
If you are depressed you are focused on a past losing trade. If you are stressed you are focused on how a future trade will turn out. If you are at peace you’re open to however your current trade turns out.
“A man with outward courage dares to die; a man with inner courage dares to live.” – Lao Tzu
A trader that wants to look like a big shot trades large and risks blowing up their account. A trader that wants to grow a big account manages their position sizing and avoids the risk of ruin so they can survive.
“Do you have the patience to wait until your mud settles and the water is clear?” – Lao Tzu
Traders must have the patience to wait for their own clear trading signal to enter or exit and avoid the noise of meaningless price action and volatility.
“Be careful what you water your dreams with. Water them with worry and fear and you will produce weeds that choke the life from your dream. Water them with optimism and solutions and you will cultivate success. Always be on the lookout for ways to turn a problem into an opportunity for success. Always be on the lookout for ways to nurture your dream.” – Lao Tzu
Be careful what thoughts you let into your belief system as they can take you off track from your goals. Worry and fear are not tools for accomplishing your goals they are destroyers. Focus your mind on optimism and solving problems to reach success. Problems turn into opportunities when you focus on the lesson they contain. Visualize what you want until you have it.