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“There is another old saying: “you can never go broke taking a profit.” The Turtles would not agree with this statement. Getting out of winning positions too early, i.e. “taking a profit” too early, is one of the most common mistakes when trading trend following systems. Prices never go straight up; therefore it is necessary to let the prices go against you if you are going to ride a trend. Early in a trend this can often mean watching decent profits of 10% to 30% fade to a small loss. In the middle of a trend, it might mean watching a profit of 80% to 100% drop by 30% to 40%. The temptation to lighten the position to “lock in profits” can be very great.” Good investing is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake. -Michael Steinhardt I advise you to always use stops. I mean actually put them in, because that commits you to get out at a certain point. Another thing is that if a position doesn't feel right as soon as you put it on, don't be embarrassed to change your mind and get right out. -Michael Marcus I think the leading cause of financial disablement is the belief that you can rely on the experts to help you. Investing requires an intense personal involvement. -Michael Marcus Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he‘s not going to take a patient‘s temperature. -Bruce Kovner In a bear market, you have to use sharp countertrend rallies to sell. -Bruce Kovner Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined primarily by the maximum dollar amount you are willing to lose. -Bruce Kovner The most important rule of investing is to play great defense, not great offense. Every day I assume every position I have is wrong. Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead. Always maintain your sense of confidence, but keep it in check. -Paul Tudor Jones You need discipline, patience, and courage. You must have a willingness to lose, but a strong desire to win. -Gary Biefeldt Investing is like poker. You should only play the good hands, and drop out of the poor hands, forfeiting the ante. -Gary Biefeldt Fundamentals that you read about are typically useless as the market has already discounted the price. -I call them "funny-mentals." However, if you catch on early, before others believe, then you might have valuable "surprise-a-mentals"‖ -Ed Seykota Pride is a great banana peel—as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions. -Ed Seykota I tend to cut bad trades as soon as possible, forget them, and then move on to new opportunities. The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you follow these three rules, you may have a chance. -Ed Seykota I have a cousin who turned $5,000 into $100,000 in the option market. One day I asked him, ―How did you do it?‖ He answered, ―It is very easy. I buy an option and if it goes up, I stay in, but if it goes down, I don't get out until I am at least even.‖ I told him, "Look, I trade for a living, and I can tell you that strategy is just not going to work in the long run." In his next trade he put his money in Merrill Lynch options, only this time, it goes down, and down, and down. It wiped him out. -Larry Hite If you want to know where a market is going, all you have to do is this. (He threw his charts on the floor and jumped up on his desk.) Look at it, it will tell you! -Jack Boyd as told by Larry Hite If you diversify, control your risk, and go with the trend, it just has to work. -Larry Hite I used to try to will things to happen. My attitude was that I figured it out, therefore it can't be wrong. What is the ultimate rationalization of an investor in a losing position? "I‘ll get out when I'm even." I became a winner when I was able to say, "To hell with my ego, making money is more important." -Marty Schwartz My Marine training helps in investing. They teach you never to freeze when you are under attack. -Marty Schwartz Generals always fight the last war. Portfolio managers always invest in the last bull market. -James B. Rogers, Jr. I have lived through or studied hundreds, possibly even thousands, of bull and bear markets. In every bull market, whether IBM or oats, the bulls always seem to come up with reasons why it must go on, and on, and on. It‘s always the same cycle. My mother calls me up and says, ―Buy me XYZ stock.‖ I ask her, ―Why?‖ ―Because the stock has tripled.‖ The whole process repeats itself on the downside. -James B. Rogers, Jr. The biggest public fallacy is that the market is always right. The market is nearly always wrong. I can assure you of that. -James B. Rogers, Jr. Be aware of change. Buy change. You should be willing to buy or sell anything. So many people say, ―I could never buy that kind of stock.‖ -James B. Rogers, Jr. If you make 50% two years in a row and then lose 50% in the third year, you would actually be worse off than if you just put your money in a money market fund. Wait for something to come along that you know is right. Then take your profit, put it back in the money fund, and just wait again. You will come out way ahead of everybody else. -James B. Rogers, Jr. The biggest mistake I made was having a specific target of what I wanted out of an investment. The target should be determined by market analysis, not by the amount of money you want to make. -Mark Weinstein I don‘t lose much on trades, because I wait for the exact right moment. -Mark Weinstein Your strategy has to be flexible enough to change when the environment changes. The mistake most people make is they keep the same strategy all the time. They say, ―Damn, the market didn‘t behave the way I thought it would.‖ Why should it? Life and the markets just don‘t work that way. -Mark Weinstein I learned that an opinion isn‘t worth that much. It is more important to listen to the market. -Brian Gelber Most traders who fail have large egos and can‘t admit that they are wrong. Even those who are willing to admit that they are wrong early in their career can‘t admit it later on! Also, some traders fail because they are too worried about losing. I‘m not afraid to lose. When you start being afraid to lose, you‘re finished. -Brian Gelber The psychological factor for investing has 5 areas. These include a well-rounded personal life, a positive attitude, the motivation to make money, lack of conflict [such as psychological hang ups about success], and responsibility for results. -Dr. Van K. Tharp (a psychologist specializing in working with traders) The composite of a losing trader would be someone who is highly stressed and has little protection from stress, has a negative outlook on life and expects the worst, has a lot of conflict in her/her personality, and blames others when things go wrong. Such a person would not have a set of rules to guide their behavior and would be more likely to be a crowd follower. In addition, losing traders tend to be disorganized and impatient. -Dr. Van K. Tharp Many people actually want to lose on a subconscious level. -Dr. Van K. Tharp The realization that you are responsible for your results is the key to successful investing. Winners know they are responsible for their results; losers think they are not. -Dr. Van K. Tharp “How do you lose money? It is either bad day trading or a losing position. If it’s a bad position that is the problem, then you should just get out of it.” ……Tony Shiba This is by far one of the most inspirational and insightful articles I‘ve written since I started writing back in 2008. I have immensely enjoyed producing it and I must humbly thank my good friend Larry for his assistance with research as well as Jack Schwager and the numerous traders he interviewed, who are of course the true inspiration behind this article. Enjoy… Nial Fuller – Australia. ————————————————————————————————————— ———————————————————— Today‘s article was inspired by the Market Wizards Book Series by Jack D. Schwager; one of my favorite authors. In the Market Wizards books, Schwager interviews various pro traders and picks their brains about how they became successful. One of the most intriguing aspects of the books that Schwager discusses at the end of The New Market Wizards book is that despite having vastly different trading styles, there are ―certain principles that held true‖ for all the traders he interviewed. We will discuss some of these principles and more from the Market Wizards books in today‘s lesson.

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