12 pieces of sound trading advice

"Markets can remain irrational longer than you can remain solvent."

Although the above quote may not be from John Maynard Keynes as is widely attributed, it nonetheless is a great reminder for traders. Although everyone wants to be then next great trader, this is a tough business and very few are able to profit over time. So, we gathered the best trading advice from some of the most iconic traders. Throughout the years, we have written about most of the things they discuss, so be sure to check out those longer pieces.

"Rule No. 1: Never lose money; rule No. 2: Don't forget rule No. 1"

"I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."

 “Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the models. Beware of geeks bearing formulas. ”

― Warren Buffett, CEO Berkshire Hathaway

Minimizing loss: Run-length trade statistics

Greeks: The what, why and how of options pricing

“The four most dangerous words in investing are: ‘this time it’s different.’”

"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. If you want to have a better performance than the crowd, you must do things differently from the crowd."

― Sir John Templeton, Founder The Templeton Mutual Funds

What’s your (market) type?

Four stages of a bull market and how to profit

Anatomy of the Bear: Lessons From Wall Street’s Four Great Bottoms

“People are too quick to accept conventional wisdom, because it sounds basically true… It's a basic fact of life that many things ‘everybody knows’ turn out to be wrong.”

― Jim Rogers, Chairman of Rogers Holdings and Beeland Interests, Inc.

Sentiment: Putting trading into context

Conversation with Jim Rogers"One common adage about trading that is completely wrongheaded is: You can’t go broke trading 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 success rate of trades is the least important performance statistic and may even be inversely related to performance"

― William Eckhardt, Founder Eckhardt Trading Company

How to set profit targets and control losses

William Eckhardt: The man who launched 1,000 systems 

How to leverage a performance report "Traders should avoid putting stops in the obvious places… If you’re going to use stops, it’s probably best not to put them at the typical spots. Nothing is going to be 100% foolproof, but that’s a generally wise concept."

— Monroe Trout, Founder Trout Trading

Controlling losses: Stop placement techniques

Setting stops the Bayesian way

"I think paper trading is the worst thing you can do… It’s like shadowboxing and then getting in the ring with a professional boxer. What do you think is going to happen? You’re going to crawl up into a turtle position and get the crap beat out of you because you’re not used to really getting hit. The most important thing to becoming a good trader is to trade."

— Gil Blake, Inventor of mutual fund timing strategies

True cost of learning: Model implementation

How much trading capital is enough?

 

"My weakness has always been being a bit premature on entering positions. I’ve learned to think to myself, 'Patience, patience, patience.' I try to wait until things set up just right before I take a trade. Then, when I am ready to take the trade, I slowly count to ten before I pick up the phone. It’s better to have the wrong idea and good timing than the right idea and bad timing."

— Linda Bradford Raschke, President of LBRGroup, Inc.

Linda Raschke: Fix mistakes immediately

Linda Raschke: Setting up your workstation"Risk control is the essence of my trading style and success. I never think what I might make on a given trade, but only what I could lose. I mentally mark each of my positions to market. No matter how large a profit I may have in a position, in my mind my entry price is always the previous night’s close. This approach allows me not to get complacent about my positions."

— Paul Tudor Jones, Founder of Tudor Investment Corporation

Diversification for a brave new world"A peak performance trader is totally committed to being the best and doing whatever it takes to be the best. He feels totally responsible for whatever happens and thus can learn from mistakes. These people typically have a working business plan for trading because they treat trading as a business"

— Van K Tharp, Founder of the Van Tharp Institute

Guide to trading system development

System building from the ground up“What sets successful traders apart?... Most people think that winning in the markets has something to do with finding the secret formula. The truth is that any common denominator among the traders I interviewed had more to do with attitude than approach.”

— Jack Schwager, Author of "Market Wizards" series

Jack Schwager: Chronicling trading excellence"The best fertilizer is the farmer's shadow. This adage applies equally well to trading as it does to farming. Trading profits are cultivated in the rich soil of market discipline, strict money management and consistent adherance to a proven trading strategy."

— Howard Abell, Author of "The Day Trader's Advantage"

Simple money management wins over time

System development final step: Money management, Monte Carlo and a review

“The broker said the stock was 'poised to move.' Silly me, I thought he meant up.”

― Randy Thurman, CEO Forbes

Trading stocks with pivot points

Analyze your equity curve

About the Author

Michael McFarlin joined Futures in 2010 after graduating summa cum laude from Trinity International University, where he majored in English/Communication.