Becoming a Good Trader: How to Learn from the Best
If you want to achieve the best results with your trading, you need to understand how to act like the best. You can have access to a gold price chart, an economic calendar and the best software possible but it’s only by analysing this correctly that you can turn this knowledge into rewards.
It pays, therefore, to listen to those who know what they’re doing. By listening to the very best traders, you can tap into a level of expertise that can help you to unlock a successful strategy.
Here are some top tips from the best to bear in mind…
Invest in businesses, not in data points
Investing legend Warren Buffett – one of the richest men in the world – still has a thing or two to teach us all even now that he’s in his late 80s.
Buffett, CEO of Berkshire Hathaway, recently told shareholders: “I view the stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their ‘chart’ patterns, the ‘target’ prices of analysts or the opinions of media pundits.”
He added: “We simply believe that if the businesses of the investees are successful (as we believe most will be) our investments will be successful as well.”
Know when to get out – and when to stick around
Hedge fund billionaire Paul Tudor Jones stresses the importance of cutting your losses and quickly side stepping badly performing trades, as well as giving winning trades enough space to run so that you can reap the rewards.
The Balance flags up this key piece of advice: “If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: get out, because you can always get back in.”
The key here is to ensure your average losses are much less than your average wins.
Accept that you won’t always be right
Similarly, forex trading guru Bill Lipschutz stresses that, try as they might, traders are not going to get things right all of the time. That’s why it’s important to cash in when you can.
He said: “I don’t think you can consistently be a winning trader if you’re banking on being right more than 50 percent of the time. You have to figure out how to make money being right only 20 to 30 percent of the time.”
Learn from the past
History serves as a lesson to us all, not least since investors can see what has and hasn’t worked in the past.
Sir John Templeton, founder of The Templeton Mutual Funds, said: “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.”
Be bold and go for a home run
Hedge fund manager Stanley Druckenmiller is used to big results. Between 1986 and 2010 – when his fund closed to investors – he delivered incredible returns of 30 per cent a year.
Famed for helping to ‘short the Pound’ in 1992, he’s recently been casting his eye over gold price charts and investing in the precious metal in great numbers. Then, dramatically, he sold his gold holdings the night before the election of Donald Trump to US President before returning to a bullish view just a couple of months later and reinvesting in an asset seen by many as a safe haven investment.
Druckenmiller’s attitude to gold – and trading as a whole – is to go for a ‘home run’ when he’s really excited by an asset and his track record shows he’s clearly not afraid to take big, bold and dramatic decisions.
He said: “The way to build long-term returns is through preservation of capital and home runs. Grind it out until you’re up 30 to 40 percent, and then if you have the convictions, go for a 100-percent year.”
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