What do the world’s best Traders do differently than the average investor? Can the average investor learn from the Trader Legend’s success stories and their systems used? What do the most famous Traders have in common that can be applied by the average talented trader?
Before we will give some insights on those questions let’s have a look at some of the most successful Trader Legends:
- Nicolas Darvas turned an $ 36’000 account into $ 2’000’000 in 18 months!!!
- Ed Seykota, a Turtle Trader, turned $ 5'000 into $ 15'000'000 in 12 years!!!
- Jesse Livermore made several multi-million dollar fortunes in the early 1900's
- Richard Dennis, another Turtle Trader, made between $ 100 and $ 200 million
- George Soros is believed to be one of the greatest Trader of all time!!!
The results are quite impressive and some other amazing Traders could be added easily to the list above. Why do these guys have such tremendous results?
There are common factors, which can be observed through most of the successful Trader Legends:
They have a System which they strictly follow. Most of them have a trend-following trading style.
Most of them have a mid- to long-term approach. They have no fear and greed mentality.
They have absolute discipline and stick 100% to their system. Their trades are fully planed; they are prepared for all scenarios in advance. They know that a system goes through bad times and good times. Cut losses early and let profits run. Their systems fit to their personality.
Some of these points sound logical and I see people nodding their heads. But in reality the average investor behaves completely different. Some of them burned their fingers over the last three years and some even lost a fortune. Here are some examples of observed behaviour patterns:
- Losses are not cut early enough.
- Investment with a short-term horizon become long-term horizon in hope of raising prices.
- People listen to the advise of their investment Brokers and Analysts.
- People invest in hot stocks recommended by colleagues of their colleagues.
- People have no plan for their investments.
- Money Management is not considered at all.
- People use trading styles which do fit their personality.
- Greed and fear is omnipresent.
What can average talented investors learn from the above and how can the mistakes listed above be avoided? The following key points can be learned from some of the most successful Trader Legends:
Each investor has its own personality. Some of the investor have a very aggressive trading style and are trading very frequently. Some prefer stocks as other are more risk oriented and invest in options. Others want only spend a minimum of effort. An investor need to reflect on his profile and choose a trading approach which fits his personality.
A trade needs to be completely planned in advance. People plan a lot of their activities, e.g. when they go on holiday, when they move house etc. But do they have a plan when they invest? An investor needs to have a system that helps him to be prepared for all scenarios of a trade. One needs to know in advance when to buy, how much to buy, when to exit. Once a trade is executed the price of the instrument (stock, option, bond etc.) cannot be influenced by the normal private investor anymore.
The most important component of a trading system is Money Management? Surprised? Lots of investors and traders spend most of their time developing a very sophisticated trade entry system. But the entry strategy contributes only approximately 15% to the success of a Trading System based on academic studies. The most important question of a Trading System is how much to invest and how many positions to trade at the same time.
A ‘can do’ attitude is required to trade successfully. 99% of the world’s population probably has this dream of being financially free, but only 5% have reached it. Why? Because with phrases like “…it would be great, but I can’t…” or “…one day perhaps I will win in the lottery, but until then I must work hard…” they have already lost.
Before we will give some insights on those questions let’s have a look at some of the most successful Trader Legends:
- Nicolas Darvas turned an $ 36’000 account into $ 2’000’000 in 18 months!!!
- Ed Seykota, a Turtle Trader, turned $ 5'000 into $ 15'000'000 in 12 years!!!
- Jesse Livermore made several multi-million dollar fortunes in the early 1900's
- Richard Dennis, another Turtle Trader, made between $ 100 and $ 200 million
- George Soros is believed to be one of the greatest Trader of all time!!!
The results are quite impressive and some other amazing Traders could be added easily to the list above. Why do these guys have such tremendous results?
There are common factors, which can be observed through most of the successful Trader Legends:
They have a System which they strictly follow. Most of them have a trend-following trading style.
Most of them have a mid- to long-term approach. They have no fear and greed mentality.
They have absolute discipline and stick 100% to their system. Their trades are fully planed; they are prepared for all scenarios in advance. They know that a system goes through bad times and good times. Cut losses early and let profits run. Their systems fit to their personality.
Some of these points sound logical and I see people nodding their heads. But in reality the average investor behaves completely different. Some of them burned their fingers over the last three years and some even lost a fortune. Here are some examples of observed behaviour patterns:
- Losses are not cut early enough.
- Investment with a short-term horizon become long-term horizon in hope of raising prices.
- People listen to the advise of their investment Brokers and Analysts.
- People invest in hot stocks recommended by colleagues of their colleagues.
- People have no plan for their investments.
- Money Management is not considered at all.
- People use trading styles which do fit their personality.
- Greed and fear is omnipresent.
What can average talented investors learn from the above and how can the mistakes listed above be avoided? The following key points can be learned from some of the most successful Trader Legends:
Each investor has its own personality. Some of the investor have a very aggressive trading style and are trading very frequently. Some prefer stocks as other are more risk oriented and invest in options. Others want only spend a minimum of effort. An investor need to reflect on his profile and choose a trading approach which fits his personality.
A trade needs to be completely planned in advance. People plan a lot of their activities, e.g. when they go on holiday, when they move house etc. But do they have a plan when they invest? An investor needs to have a system that helps him to be prepared for all scenarios of a trade. One needs to know in advance when to buy, how much to buy, when to exit. Once a trade is executed the price of the instrument (stock, option, bond etc.) cannot be influenced by the normal private investor anymore.
The most important component of a trading system is Money Management? Surprised? Lots of investors and traders spend most of their time developing a very sophisticated trade entry system. But the entry strategy contributes only approximately 15% to the success of a Trading System based on academic studies. The most important question of a Trading System is how much to invest and how many positions to trade at the same time.
A ‘can do’ attitude is required to trade successfully. 99% of the world’s population probably has this dream of being financially free, but only 5% have reached it. Why? Because with phrases like “…it would be great, but I can’t…” or “…one day perhaps I will win in the lottery, but until then I must work hard…” they have already lost.
