Trading for Beginners... In this article, we propose 13 teachings from some of the most historically significant traders.
Teachings collected through quotes, which are used to impart important trading notions for beginners.
Teachings that experts have already internalized, but that novices often disregard (and therefore would do well to assimilate).
Does it make sense to follow a famous trader?
Although the "profession" of trading is quite solitary, indeed it is the solitary activity par excellence, it is impossible to do good trading isolated from everything and everyone. We are not referring to the need to assimilate news and analysis from others (that is a given dynamic), but rather to the exchange between traders.
After all, if in recent years some services have been created whose purpose is, precisely, to put traders in contact with each other, there must be a reason. The truth is that
the circulation of ideas is a dynamic present in trading, especially in trading for beginners. Firstly, because sociability is innate in the human soul. Secondly, because a market is a place of uncertainties, and exchanging views and strategies is an effective way to dominate or endure this uncertainty.
Therefore, why not cut to the chase and refer, when possible, directly to expert traders? Hence the opportunity to follow the "pro" traders, and to assimilate their teachings, when they happen to impart them in a clear and concise way.
The teachings of the most famous traders
Below, we present the teachings of the most famous traders in the world,
Jesse Livermore, Ed Seykota, Richard Dennis, Richard Rhodes. They are reported by Rayner Teo, an independent trader with a following in the United States. He exposed them himself, in the form of quotes, on his blog, and more specifically in an article (in English) entitled "
23 Trading Quotes That Made Me a Better Trader".
The teachings mainly concern stocks, but in most cases they can be applied to trading in general, regardless of the market.
"A stock is never too expensive to be bought, or too cheap to be sold"
The purpose of trading, obviously, is to buy low and sell high. Therefore, one tends to think that it is not worth buying when a stock has appreciated a lot, as there is a feeling that the trend will soon reverse.
Similarly, it is thought that it is not smart to sell when a stock has depreciated a lot. Jesse Livermore, with this aphorism, wants to tell us one thing: a stock can always reach a new high, just as it can always reach a new low. The above dynamic, therefore, is not at all obvious.
"I trade with the information I obtain myself and with the methods I have developed"
It may seem like a strong statement, and also quite arrogant. A declaration of absolute autonomy that would sound excessive even in the mouth of the best trader in the world.
In reality, it is just an exaggeration, a hyperbole, to recommend everyone to
personalize their own trading activity. Ready-made recipes do not exist, and this concerns analysis as well as operations. Many of these "recipes" are useful, provided, however, that they are personalized, adapted to one's own trading style, to one's own needs and to one's own objectives.
"Buy high and... Sell higher"
This quote is quite counter-intuitive. Shouldn't the rule be "buy low and sell high"? Again, we are faced with a phrase that draws its strength from the ability to break a taboo. Behind this break, however, there is a very intelligent thought, and actually not even too much in contrast with common sense.
With this phrase, Jesse Livermore points out one thing: it might be okay to buy when a price is low, the only problem, indeed the real elephant in the room, is that a trader can never know for how long the price will remain low. So his advice is to buy an uptrend, that is, when prices are rising, rather than hypothesizing hypothetical breaks of downward trends.
"The most important things are: the long-term trend, the patterns that form in the present, the identification of a good point to buy or sell"
This quote from Ed Seykota is a true trading manifesto. Simply put, it lists his priorities. They reveal a balanced approach, based on chasing the trade but also on receptivity about present movements (see patterns).
"I always set stop losses when I start a trade. However, as the trend continues and proves me right, I move the stop losses".
It is a very refined concept, the one proposed by Ed Seykota with this phrase. That stop losses should be set when trading, there is no doubt, everyone is aware of that. That stop losses should be "moved" is already less obvious.
The goal is to follow the market. If the trend continues to be favorable, the parameters need to be updated, and this includes moving stop losses and, one might add, take profits as well. It's a way to give the market the possibility to grant an even wider gain. In complete safety, as much as possible.
"Trading systems do not eliminate false signals. Rather, they include them as part of the process".
This is also a counter-intuitive phrase. Generally, trading systems are assigned an aura of infallibility, at least potentially. A trading system is such only if it is effective. So, how can it allow the existence of false signals? The truth is that false signals are an inescapable eventuality. They will always be there, for one reason or another. The trading system, if well designed, however, cannot and must not remain helpless in their presence. Rather, it must put in place the conditions to repair the possible damage, or contain its effects. For example, through a correct setting of money management.
"If you are trading, you should expect the impossible, and deal with extreme situations. Don't think in terms of inviolable limits".
This is a quote from Richard Dennis. The meaning is clear: the market, despite all the possible and imaginable dogmas of technical analysis, is always ready to amaze. Something unexpected can always happen, the overcoming of a "secular" high, or a particularly low low. The trader therefore advises to contemplate among the possibilities even extreme situations. It is a matter of preparing for the worst, or the best, so as not to be overwhelmed by the "hard" phases of the market, with all the consequences that this inattention would produce.
"Set small trades, so that you can learn from your mistakes".
This is a true lesson in trading for beginners. Once again, taught by Richard Dennis. The meaning could be cryptic, but let's analyze the phrase in all its complexity. Dennis links small traders with the ability to learn from their mistakes. Well, the nature of this link is very solid: if you make small trades, you can also afford to make mistakes. And if you make mistakes, but the consequences are not catastrophic, you put yourself in the best mental condition to think of the mistake as an opportunity to learn. In this way, you learn faster. This also applies to experts, when they move in unknown waters or when the phase in which the market is in is new to them.
"When the market is in a strongly bullish phase, not having a position... Is itself a position".
This is a quote from Richard Rhodes. With these brief words, the trader wants to recommend taking advantage of a market in a bull phase, as not doing so would be equivalent to losing money. In this perspective, standing still, not entering the market, is equivalent to placing a losing order. Simply put, you are giving up a (more or less assured) gain.
"Be patient: if you fail a trade, wait for a change in the market before placing a new order".
The strength of Richard Rhodes lies (among other things) in modulating behaviors according to the context. If with the previous phase he invited to action, with this one he invites to reflection. Very simply, he recommends not chasing the market in an attempt to recover a loss, but to wait for the right conditions. The truth is that if the goal is to recover a loss, the trader cannot afford another one, so he must go for sure (or almost).
"Be patient: when you have placed an order, give it time to develop and produce the profit for which it was programmed".
A new call for caution from Rhodes. In this case, he refers to the anxiety that assails the trader when his order does not go in the hoped-for direction from the very first moments. Well, in this case it is necessary that the trade takes its course, that
the market takes its course. Therefore, it is good to wait before launching into evaluations. Without prejudice to the fact that there are all the tools to limit the damage, in case it becomes inevitable (above all, the stop loss).
"The market forms its lows during periods of calm".
Here, this is a counterintuitive phrase. In the collective imagination, periods of panic are those that produce the worst consequences, therefore the lowest lows. In reality, if you look at the historical data, the issue is more complex. In fact, it is noted that the lowest lows are formed during periods that are all in all quiet, detached from the dynamics of panic selling. It doesn't always happen, but often.
For what reason? Simple: during panic selling, not only declines occur, but also powerful rebounds. Investors become sensitive in one sense, but also in the other. So the lowest lows are reached little by little, without sudden flare-ups, especially in periods of calm. And even the lows are more impactful, as they often present structural and non-emotional elements.
"Market highs often form quickly but retrace 50% of the growth 10% of the time"
With this quote, Rhodes wants to tell us that markets reach highs in moments of euphoria, but that the situations that come to form are not sustainable. In fact - but it is a statistic to be demonstrated - 10% of the times in which the price grows exponentially, the price itself produces an almost immediate retracement of 50%. These dynamics concern a bit of all assets. A glaring example, although sui generis, is Bitcoin: often and willingly, when it grows it retraces heavily.
