Learn from the Trader Legends!

Article Title: Learn from the Trader Legends!
Author Name: Tom Meier
Contact Email Address: info@easy-trader.ch
Word Count: 759
Category: Trading
Copyright Date: 30.10.2003
Internet Address (If Available): http://www.easy-trader.ch
Autoresponder Address (If Available): easyflashsubscriber@getresponse.com
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What do the world’s best Traders 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:

ØNicolas Darvas turned an $ 36’000 account into $ 2’000’000 in 18 months!!!
ØEd Seykota, a Turtle Trader, turned $ 5'000 into $ 15'000'000 in 12 years!!!
ØJesse Livermore made several multi-million dollar fortunes in the early 1900's
ØRichard Dennis, another Turtle Trader, made between $ 100 and $ 200 million
ØGeorge 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:

ØThey have a System which they strictly follow.
ØMost of them have a trend-following trading style.
ØMost of them have a mid- to long-term approach.
ØThey have no fear and greed mentality.
ØThey have absolute discipline and stick 100% to their system.
ØTheir trades are fully planed; they are prepared for all scenarios in advance.
ØThey know that a system goes through bad times and good times. Cut losses early and let profits run.
ØTheir 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:

ØLosses are not cut early enough.
ØInvestment with a short-term horizon become long-term horizon in hope of raising prices.
ØPeople listen to the advise of their investment Brokers and Analysts.
ØPeople invest in hot stocks recommended by colleagues of their colleagues.
ØPeople have no plan for their investments.
ØMoney Management is not considered at all.
ØPeople use trading styles which do fit their personality.
ØGreed 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:

ØEach 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.

ØA 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.

ØThe 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.

ØA ‘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.

For more information and a complete Stock Trading System based on a modified Nicolas Darvas approach, see my web site shown above.

You may freely reprint this article on your website or in your newsletter provided this courtesy notice and the author name and URL remain intact.

Tom Meier