Wisdom words from Market Wizards

Over the long run, the question of who wins and who losses is determined by skill, not luck.

We put the order in, and as as soon as we got the confirmation back, almost mystically, the prices started ticking down.

Ed Seykota never would get out of anything unless the trend changed.

What kind of place is this that one’s greatest joy is to be found when somebody else is getting screwed?

I think that, in the end, losing begets losing. When you start losing, it touches off negative elements in your psychology; it leads to pessimism.

Trading is emotion. It is mass psychology, greed, and fear. It is all the same in every situation.

Don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand.

I assume that the price for a market on any given day is the correct price, then I try to figure out what changes are occurring that will alter that price.

One of the jobs of a good trader is to imagine alternative scenarios. I try to form many mental pictures of what the world should be like.

Whenever a trader says “I whish” or “I hope”, he is engaging in a destructive way of thinking because it takes attention away from the diagnostic process.

The most important thing is to have a method for staying with your winners and getting rid of your losers.

You should have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can’t let a losing trade get you emotionally.

The market is going to go where it is going to go.

Now I spend my day trying to make myself as happy and relaxed as I can be.

Never trade in situations where you don’t have control. For example, I don’t risk significant amounts of money in front of key reports, since that is gambling, not trading.

Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you’re very good.

Judge not, lest not be judged.

Eventually, as I became more confident of trading with the trend and more able to ignore the news, I became more comfortable with the approach.

In order of importance to me are: 1) the long-term trend, 2) the current chart patterns, 3) picking a good spot to buy or sell.

If I were buying, my [buying] point would be above the market. I try to identify a point at which I expect the market momentum to be strong in the direction of the trade. […] I don’t try to pick a bottom or top.

Being bullish and not being long is illogical.

Pride is a great banana peel, as are hope, fear, and greed.

The elements of good trading are: 1) cutting losses, 2) cutting losses, and 3) cutting losses.

Trying to trade during a losing streak is emotionally devastating. Trying to play “catch-up” is lethal.

[Ed Seykota regarding the trading rules he lives by]

1. Cut losses
2. Ride winners
3. Keep bets small
4. Follow the rules without question
5. Know when to break the rules

Be sensitive to the subtle differences between “intuition” and “into wishing.”

Charting is a little like surfing. You don’t have to know a lot about the physics of tides, resonance, and fluid dynamics in order to catch a good wave. You just have to be able to sense when it’s happening and then have the drive to act at the right time.

Trying to understand the markets is a bit futile. I don’t think it makes any more sense trying to understand the stock market than trying to understand music.

A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.

One of the best ways to increase profits is to do goal setting and visualizations in order to align the conscious and subconscious with making profits.

I came away with the idea that successful investment was really a matter of odds, and if you could compute the odds, you could find and test methods that could beat the market.

While you may not know what will happen tomorrow, you can have a very good idea what will happen over the long run.

If you know what the worst possible outcome is, it gives you tremendous freedom.

While you can’t quantify reward, you can quantify risk.

Never risk more than 1 per cent of total equity on any trade.

You can risk 1 per cent of your capital, you can risk 5 per cent, or you can risk 10 per cent, but you better realize that the more you risk, the more volatile the results are going to be.

I knew that if you traded across the board, controlled your risk, and went with the trend, it just had to work.

If you don’t bet, you can’t win. If you lose all your chips, you can’t bet.

His system never trades counter to the market trend.

It is a happy circumstance that when nature gives us true burning desires, it also gives us the means to satisfy them.

Good trade is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake. You need to believe in something, but at some time you’re going to be wrong a considerable number of times.

The balance between confidence and humility is best learned through extensive experience and mistakes.

There are no absolute formulae or fixed patterns. The markets are always changing, and the successful trader needs to adapt to these changes.

Traders who try to find fixed approaches will be doomed to failure sooner or later.

Great opportunities occur every year in America. Get yourself prepared and go for it.

You will find that little acorns can grow into giant oaks.

Anything is possible with persistence and hard work. It can be done, and your own determination to succeed is the most important element.

It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower.

You don’t want to anticipate a breakout from a base because a stock may never breakout.

The idea is to buy when there is the least probability of a loss.

Top formations in the market averages occur in only one of two ways. First, the average moves up to a new high, but does so on low volume. This tells you that the demand for stocks is poor at that point and that the rally is vulnerable. Second, volume surges for several days, but there is very little, if any, upside price progress as measured by market closes. In this latter case, there may not be a pickup in volume when the market initially tops, since the distribution has taken place on the way up.

The secret for winning in the stock market does not include being right all the time. […] you should be able to win even if you are right only half the time. The key is to lose the least amount of money possible when you are wrong.

Letting losses run is the most serious mistake made by most investors.

It is never your thinking that makes big money, it’s the sitting.

You have to realize that you will never sell the exact top. Therefore, it is ridiculous to kick yourself when a stock goes higher after you sell.

[Unskilled investors] cash in small, easy-to-take profits and hold their losers. This tactic is exactly the opposite of correct investment procedure.

Some investors have trouble making decisions to buy or sell. […] they vacillate and can’t make up their minds. They are unsure because they really don’t know what they’re doing. They do not have a plan, a set of principles, or rules to guide them and, therefore, are uncertain of what they should be doing.

In the most general sense, trading success requires three basic components: an effective trade selection process, risk control, and discipline to adhere to the first two items.

The most disciplined you can get, the better you’re going to do in the market.

The more you listen to tips and rumors, the more money you’re likely to lose.

— Is that a good rule: avoid stocks under $10?
— Yes, because they’re usually down there for a reason.

Stocks should be at a profit the first day you buy them. […] having a profit on the first day is one of the best indicators that you’re going to make money on the trade.

Learn from your mistakes. That is the only way to become a successful trader.

When traders deviate from their own rules, they invariably tend to lose.

A rigid stop loss rule is an essential ingredient to the trading approach of many successful traders.

When the market gets good news and goes down, it means the market is very weak. When it gets bad news and goes up, it means the market is healthy.

— When did you turn from a loser to a winner?
— When I was able to separate my ego needs from making money. When I was able to accept being wrong. […] I used to try to will things to happen. I figured it out, therefore it can’t be wrong. When I became a winner, I said, “I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.

Whenever you try to get all your losses back at once, you are most often doomed to fail.

If you physically remove yourself from the premises, which is the same thing in futures trading as getting flat, you can see things in a whole different perspective.

I’ve always had my biggest setbacks after my biggest victories.

The great thing about being a trader is that you can always do a much better job. No matter how successful you are, you know how many times you screw up.

My biggest losses have always followed my largest profits.

Bottom fishing is one of the most expensive forms of gambling.

Before taking a position, always know the amount you are willing to lose. Know your “uncle point” and honor it.

I always take my losses quickly. That is probably the key to my success.

The pressure you feel when you are in a position that is not working puts you in a catatonic state.

Winning streaks lead to complacency, and complacency leads to sloppy trading.

I learned quickly not to do anything unless you know what you’re doing.

I learned that it is better to do nothing and wait until you get a concept so right, and a price so right, that even if you are wrong, it is not going to hurt you.

You should be willing to buy or sell anything. […] You should be flexible and alert to investing in anything.

— So the markets today are basically as the markets in the 1970’s, 1960’s, and 1950’s?
—The same as the markets in the nineteenth century. The same things make markets go up and down. They have not changed the rules of supply and demand.

Wait for the right trade to come along. Never trade for trading’s sake. Have the patience to sit on your money until the high probability trade sets up exactly right.

I am always looking for a market that is losing momentum, and then go the other way.

I look at the individual stocks; they all have their own personalities.

Knowing when to stay out of the market is as important as knowing when to be in them.

Traders should fear a larger loss and hope for a larger profit.

[It] seems to be a mistake to translate the potential profit or loss of a trade into material terms.

Many [great traders], if not most, maintain relatively low profiles and are therefore virtually unknown to the public.

As opposed to saying, “I have an opinion and I want to express it in the market”, I started asking, “How do I make money out of all this?”

An opinion isn’t worth that much. It is more important to listen to the market.

In our business, you have to have a total disregard for money. You can’t trade for money.

[Average traders] end up forcing the trade rather than waiting patiently. Patience is an important trait many people don’t have.

Trading is like any other job. You work hard, put in the time and effort, and make your own luck.

To be a great trader, you have to have a big enough ego only in the sense that you have confidence in yourself. You can not let ego get in the way of a trade that is a loser; you have to swallow your pride and get out.

[Tony Saliba’s trading rules:]
— Always respect the market
— Never take anything for granted
— Do your homework
— Recap the day
— Figure out what you did right and what you did wrong

That is one part of the homework; the other part is projective:
— What do I want to happen tomorrow?
— What happens if the oposite occurs?
— What happens if nothing happens?
— Think through all the “what-ifs”. Anticipate and plan rather than react

All I know is that all the money in the world isn’t the answer.

Two primary rules to successful speculative trading are: cut your losses short and let your profits run.

Successful speculators have learned that an essential ingredient to winning is to make it OK to lose. Since most people in our culture are taught that only winning is acceptable, most investors must change their beliefs about losses to become successful.

Generally, […] top traders believe:
— Money is not important
— It is OK to lose in the markets
— Trading is a game
— Mental rehearsal is important for success
— They’ve won the game before they start

Most people […] have trouble taking losses and letting profits run. When you think of trading as a game and play by certain rules, then it becomes much easier to follow those two golden rules.

The moment one definitely commits oneself, then providence moves too.

The best thing an investor can do, when things go wrong, is to determine how he or she produces those results.

Winners know they are responsible for their results; losers think they’re not.

Everybody gets what they want out of the markets.

There are no shortcuts. If you want to be a good trader, you have to do your work on the markets every day.