10 Lessons from the World's Top Traders

The journey to becoming a successful trader is fraught with difficulties and lessons learned the hard way. While awaiting the inevitable defeats that will hopefully be treasured, it is possible to absorb others in a much less traumatic way. For example, by taking inspiration from those who have made it through online trading. A good way to do this is to refer to the maxims of the most important figures in this field. Here is a quick summary.

George Soros: The Importance of Risk

"Markets are constantly in a state of uncertainty. You get rich by looking at the obvious and betting on the unexpected". George Soros, a magnate who became famous for speculating on the lira and pound sterling (back in 1992), reminds us with this maxim of the importance of risk and, at the same time, of prudence. His advice is to consider both approaches, practicing a middle ground without giving in to excessive caution.

Jesse Livermore: The Importance of Waiting

"Only act when all the elements are in your favor. No one can be in the market all the time and win. There are times when you should stay out, for both emotional and economic reasons". This is one of the most important lessons a trader can ever learn. There are two lessons to be learned. The first is that sometimes it is better to wait; therefore, it is better to abandon the presentialist approach: the intelligent trader is the trader who knows when to stand still. The second is that the trader is a human being, and therefore sometimes needs to "rest", not so much because they are physically tired, but mentally, and therefore susceptible to stress and lack of clarity.

Ed Sekyota: Beware of Ideology

"The fundamentals on which I base my trading are: the long-term trend, the daily chart, the identification of the entry and exit price. Much lower, in a very distant fourth place, I put my fundamental ideas". The most interesting part of this maxim is the last one, when he relegates his fundamental ideas to a place that is not at all a priority. Ed Sekyota, a trader who in 12 years transformed $5,000 into $15,000,000, with these words wants to tell us that "ideology" is harmful to a trader, that his convictions can represent a hindrance when they favor an excessively rigid attitude.

John Paulson: The Logic of Surplus

"Many traders make the mistake of buying high and selling low, while the best approach consists precisely in its exact opposite". It is obvious: to make a profit, it is necessary to produce a difference between the purchase price and the sale price, where the second must be higher than the first. However, with these words, Paulson, a trader famous for having foreseen the subprime mortgage crisis well in advance, also means something else: that often emotion takes over, and traders get carried away by events. This means that, like the most classic of weathervanes, they tend to buy an asset when it is doing well, i.e. when the price is high, and they tend to sell it when it is doing badly, i.e. when it is low. It takes an extra effort to resist the emotionally destabilizing forces of the market. You need to be rational.

Paul Tudor Jones: Discipline as a Weapon

"I decided to learn discipline and money management. It was a cathartic experience, during which I questioned myself. I decided I would come back to fight, and that I would become very disciplined". This passage is taken from the famous bestseller "Market Wizards". The author refers to a period of discouragement, presumably preceded by a serious defeat. These words are useful because they suggest that the only path to success is characterized by commitment to oneself, which translates into an iron sense of discipline. It is also a way to remove the obstacles caused by excessive emotionality.

Richard J. Dennis: The Trend is Your Friend

"I've done it sometimes, I've traded against the trend. However, as a general rule, you should never do it". Dennis is a famous commodities investor who became famous for turning $1,600 into $200 million in ten years and for founding, along with William Eckardt, Turtle Trader, a group of ordinary people whom they taught to trade, an experiment to prove that anyone, with adequate training, could become a successful trader. This phrase sums up Dennis's thinking, according to which one should not go against the trend. In a sense, it contradicts George Soros's maxim, but the two approaches are not irreconcilable. Also because Dennis says that as a general rule you shouldn't go against the trader, but he doesn't comment on the contingent needs that, in fact, he himself met by trading exactly in the opposite direction to the current.

Stanley Druckenmiller: The Outcome is Everything

"I learned many things from George Soros, but perhaps the most important is that it doesn't matter how many times you are right and how many times you are wrong, but how much money you make and how much money you lose". Druckenmiller is one of the traders who grew up in Soros' shadow, protagonist with him of the monetary speculation of 1992. With these words, which in truth express a teaching not his own but Soros', Druckenmiller invites traders to consider the overall results, rather than the partial ones, symbolized precisely by the difference, in absolute and purely numerical terms, between winning and losing trades. It is an invitation to detach oneself from contingency, if it causes rigidity, and look at the long term.

Jim Rogers: The Importance of Waiting - Part Two

"I only wait for there to be money waiting for me. Then, all I have to do is go there and pick it up. In the meantime, nothing. When people lose money, they say: now I have to do something to get it back. No, you don't have to. Sit down and wait until you find something". Jim Roger is a famous trader, highly appreciated commentator and well-known guru. He became famous for founding the Quantum Fund together with George Soros. This maxim of his is reminiscent of Jesse Livermore's. It reminds us that the trader, rather than being an omnipresent grab-all, must be synthetic, dry and effective. He must go with a sniper rifle, rather than a bazooka.

Ray Dalio: The Risk of Looking Inside

"The biggest problem that afflicts humanity is an excessive sensitivity towards the concept of "I", that is, the need to find out if one is right or wrong, and reason too much about one's merits and defects". This quote by Ray Dalio is very profound, and it concerns also trading. According to the American billionaire and philanthropist, founder of the investment firm BridgeWater Associates, focusing too much on oneself, and above all doing so from a moral point of view, is a great risk. The reason is simple: you lose sight of the result. One should discern, rather, between what is effective and what is not.

Warren Buffet: Exploiting the Perfect Signal

"Opportunities rarely occur. When it rains, take the bucket, not the spoon". This is also a message that speaks mainly of effectiveness. Many see it as a reference to signals. Opportunities would therefore be the signals that all converge towards a point, in a linear and coherent manner. In these cases, it is best to avoid excessively cautious attitudes and invest, trying as much as possible to maximize profits. In parenthesis, Warren Buffet is one of the greatest investors of all time. Known as "The Oracle of Omaha", he manages the Berkshire Hathaway group, which owns over 60 companies, including Geico insurance company, Duracell battery company and the Dairy Queen restaurant chain. He is a very influential person, as well as a very good one: he has pledged to donate 99% of his wealth to charity. He has currently donated something like $32 billion.