Trading
Wisdom From WILLIAM EKHARDT
1. What is the state
of the market?
2. What is the
volatility of the market?
3. What is the
equity being traded?
4. What is the
system or the trading orientation?
5. What is the risk
aversion of the trader or client?
Regardless of how you trade or invest … you better have those
answers in advance of betting real money.
BELOW ARE SOME SELECTED INVALUABLE QUOTES:
- “If a betting game among a certain number
of participants is played long enough, eventually one player will have all
the money. If there is any skill involved, it will accelerate the process
of concentrating all the stakes in a few hands. Something like this
happens in the market. There is a persistent overall tendency for
equity to flow from the many to the few. In the long run, the majority
loses. The implication for the trader is that to win you have to
act like the minority. If you bring normal human habits and
tendencies to trading, you’ll gravitate toward the majority and
inevitably lose.”
- “One common adage on this
subject that is completely wrongheaded is: you can’t go broke taking
profits. That’s precisely how many traders do go broke. While amateurs
go broke by taking large losses, professionals go broke by taking small
profits. The problem in a nutshell is that human nature does not
operate to maximize gain but rather to maximize the chance of gain. The
desire to maximize the number of winning trades (or minimize the number of
losing trades) works against the trader. The success rate of trades is the
least important performance statistic and may even be inversely related to
performance.” – William Eckhardt
- “The people who survive
avoid snowball scenarios in which bad trades cause them to become
emotionally destabilized and make more bad trades. They are also able to
feel the pain of losing. If you don’t feel the pain of a loss, then you’re
in the same position as those unfortunate people who have no pain sensors.
If they leave their hand on a hot stove, it will burn off. There is no way
to survive in the world without pain. Similarly, in the markets, if the
losses don’t hurt, your financial survival is tenuous.” “I know of a few
multimillionaires who started trading with inherited wealth. In each case,
they lost it all because they didn’t feel the pain when they were losing.
In those formative first few years of trading, they felt they could afford
to lose. You’re much better off going into the market on a shoestring,
feeling that you can’t afford to lose. I’d rather bet on somebody starting
out with a few thousand dollars than on somebody who came in with
millions.” – William Eckhardt-
- “In many ways, large profits
are even more insidious than large losses in terms of emotional
destabilization. I think it’s important not to be emotionally attached to
large profits. I’ve certainly made some of my worst trades after long
periods of winning. When you’re on a big winning streak, there’s a
temptation to think that you’re doing something special, which will allow
you to continue to propel yourself upward. You start to think that you can
afford to make shoddy decisions. You can imagine what happens next. As a
general rule, losses make you strong and profits make you weak.” – William
Eckhardt -
- “If you’re playing for
emotional satisfaction, you’re bound to lose, because what feels good is
often the wrong thing to do. Richard Dennis used to say, somewhat facetiously,
“If it feels good, don’t do it.” In fact, one rule we taught the Turtles
was: When all the criteria are in balance, do the thing you least want to
do. You have to decide early on whether you’re playing for the fun or for
the success. Whether you measure it in money or in some other way, to win
at trading you have to be playing for the success.” – William Eckhardt
- “Don’t think about what the
market’s going to do; you have absolutely no control over that. Think
about what you’re going to do if it gets there. In particular, you should
spend no time at all thinking about those rosy scenarios in which the
market goes your way, since in those situations, there’s nothing more for
you to do. Focus instead on those things you want least to happen and on
what your response will be.”
