Q:Having been through the whole trading experience from failure to extreme success, what basic advice could you give a beginning trader or a losing trader?
A:The first thing I would say is always bet less than 5 percent of your money on any one idea. That way you can be wrong more than twenty times; it will take you a long time to lose your money. I would emphasize that the 5 percent applies to one idea. If you take a long position in two different related grain markets, that is still one idea.
The next thing I would advise is to always use stops. I mean actually put them in, because that commits you to get out at a certain point.
Q:What other advice would you give the novice trader?
A:Perhaps the most important rule is to hold on to your winners and cut your losers. Both are equally important. If you don’t stay with your winners, you are not going to be able to pay for the losers.
You also have to follow your own light. Because I have so many friends who are talented traders, I often have to remind myself that if I try to trade their way, or on their ideas, I am going to lose. Every trader has strengths and weaknesses. Some are good holders of winners, but may hold their losers a little too long. Others may cut their winners a little short, but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach. When you try to incorporate someone else’s style, you often wind up with the worst of both styles. I’ve done that a lot.
– Both excerpts from the first chapter of Jack Schwager’s Market Wizards. Remember to check out DT’s site on Tuesday to discuss. The book is elucidating, entertaining and enlightening. (And there’s your weekly alliteration fix).