Forex Trading: Bill Lipschutz's Philosophy

Bill Lipschutz is one of the world's most famous traders. His fame is well-deserved, given his performance both as an independent trader and as a strategist in investment banks. His experience can be useful for traders who want to know the secrets of trading, with explicit reference to Forex. His story, in fact, is very particular, and is studded with defeats (few) and victories (many). In this article, we present the figure of Bill Lipschutz and try to draw some lessons from his story and the statements he has made over the years.

Who is Bill Lipschutz

Bill Lipschutz was born and raised in New York in a family that does not boast speculative investors. He is therefore "self-made". His first adventure in trading took place during his university years, when he inherited 12,000 euros in shares and within a few years resold them at a figure 20 times higher. Money that he lost, however, due to some failed trades. Bill Lipschutz rolled up his sleeves and, even before graduating (in architecture), recovered the capital. At this point, given the performance he was achieving, he decided to pursue a career as a trader. He was hired by Salomon Brothers (a Wall Street investment bank), where he worked for several years as a reference point for the Forex department. Just one year after signing the contract, he began to grind out excellent performance and continued: the average profits he generated amounted to 300 million dollars per year. In 1995, together with an old university companion, he founded Hathersage Capital Management, a company that operates in trading. Bill Lipschutz immediately took the reins of the Forex department, through which he deals with the ten most important currencies. Bill Lipschutz is still part of Hathersage Capital Management today. From this position, he has acquired a certain fame not only as a trader, but also as a trainer. Over the years, among other things, he has made some very useful statements from which to draw lessons.

The teachings of Bill Lipschutz

Time as a risk factor

Among Bill Lipschutz's most famous quotes, the following stands out: "If traders learned to work for 50% of the time they are currently used to, they would make a lot of money". What does this sentence mean? It actually has two meanings. One: the more time you spend with an open position, the greater your exposure and therefore the higher the risk. Two: it is always best to work on one position at a time, as more positions means more time spent in front of the computer, trading, and this increases fatigue and reduces clarity. In short, Bill Lipschutz is one of the proponents of the English saying "less is more", which is very much in vogue among traders.

Money as a collateral element

This is one of Bill Lipschutz's most disruptive (and least obvious) quotes: "If the trader is motivated by money, then he is motivated by the wrong thing. A truly successful trader must feel involved in trading, and consider money as a collateral aspect". This is clearly a paradigm shift, which is also difficult for beginners to swallow. Yet these are words of common sense: the desire to generate profits risks creating a vicious circle, to the detriment of effectiveness. Therefore, it is worth giving importance to processes, to the way of trading, and simply trying to do one's best. Performance anxiety, in fact, is not one of the ingredients to make one's trading activity effective.

Awareness of defeat

Bill Lipschutz is a successful trader, also very rich, but that does not mean that he is always winning. No one is, nor can they hope to be. Defeat, in fact, is a fundamental element of the human condition, and trading is no exception. From this point of view, a quote from Bill Lipschutz is illuminating: "When the trader faces a losing trade, there is a risk that he will be caught by the doubt of not being good enough. From here, the fear of making the next move. There is nothing you can do about it, except try to control the fear. The trader must recognize the fear, accept it and go on his way". This is a splendid piece of advice, as it offers a glimpse of the trader as a man. Of the trader as a suffering person, prey to fear but who nevertheless manages to move forward.

The importance of raising the bar

"If people consider you a 'trading freak', it means you are on the right track". It is easy to misinterpret this quote, perhaps motivating it with the simple desire to emerge from the crowd, to boast a certain degree of nonconformity. In reality, this quote from Bill Lipschutz has to do with the concept of perfectionism. With these words, Bill Lipschutz invites the trader to perfect himself, to never be satisfied, to optimize trading processes frequently and pervasively. Inevitably, this means sacrificing part of one's private life, but there is no escape: trading, and above all doing it at certain levels, means becoming true professionals, and the only path to professionalism (in trading as in all other areas of life) is hard work.

Concentrating efforts in preparation

"The bulk of the work, in trading, concerns the preparation phase. The actual trading should be effortless". This, more than advice, is an observation, or at least an invitation to manage energy intelligently. The most important part, according to Bill Lipschutz, lies in the preparation and not in the operation. Indeed, this must be consequential, as if it were a simple appendix, a mechanical phase in which the degree of unpredictability is reduced to the bone. In fact, this is a good approach. Trading must be programming, i.e. strategy, analysis, risk management. These phases represent the most important part of the trading process, where the hopes of profit are played out. Moreover, this approach also allows to manage emotions, as it gives the exposure phase an aura of security determined precisely by the analytical-strategic work that precedes it.