Seven Trading Quotes to Help Your Trading Psychology
Trading psychology is very important topic to get your head around. In many cases, it is the ability to master trading psychology which separates the successful traders from the unsuccessful ones.
In order to help you deal with this aspect of trading, we have compiled a list of seven of our favourite trading quotes from some of the most successful investors and traders. We will look at what you can learn from these quotes and how they can help with your trading psychology – after all, who is better to learn from than people who have been there and done it themselves.
Trading Quotes to Help Your Trading Psychology
Being Successful Takes Time
“No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant.”
It would be almost criminal to compile a list of the best trading quotes and not include anything from arguably the most successful investor of all time. Therefore, we start our list of trading psychology quotes with a humorous quip from none other than the “Oracle of Omaha” - Warren Buffet.
Warren Buffet has a net worth of over $100 billion and is currently the CEO and Chairman of Berkshire Hathaway – a multinational conglomerate holding company through which Buffet has made investments since the 70s.
Berkshire Hathaway owns several companies outright - including GEICO (The Government Employees Insurance Company), Duracell and Fruit of the Loom – and holds significant minority positions in many listed companies, including Kraft Heinz Company, The Coca-Cola Company, Bank of America, American Express and Apple.
Since 1965, Berkshire Hathaway has averaged an annual growth in book value of around 19%. At the time of writing, its Class A shares are trading in excess of $430,000 per share.
Although clearly light hearted in nature, there is a serious point which we can take away from Buffet’s quote above and it is an important lesson for budding traders to learn before they get started.
Many beginner traders are guilty of starting their trading career with dreams of being an instant success and becoming rich overnight. It should go without saying that these types of dreams are just that, dreams. In reality, it is incredibly unlikely that you are going to start trading and be successful straight away.
Successful traders and investors are successful because they have spent time learning, practicing, analysing and perfecting their approach to the financial markets. In order for you to become successful, you need to accept that, not only will it take hard work and dedication, but also time.
Be Patient and Don't Overtrade
“If most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money.”
This trading quote comes from Bill Lipschutz, a man who enjoys almost legendary status amongst aspiring and experienced Forex traders.
The lesson we can take away from Lipschutz’s quote is the importance of the art of patience. A very common mistake for beginner traders, eager to make a quick profit, is to overtrade. This, inevitably, always leads to increased losses.
Instead of jumping into the Forex market at every opportunity, devise a trading strategy and stick to it. Be patient and disciplined and only enter trades where your predetermined conditions have been met. In this way, you can be sure to avoid many unnecessary losses.
Bill Lipschutz, unfortunately, learned this lesson the hard way. He began his trading career as a student, after receiving an inheritance of stocks with a value of $12,000. He liquidated these stocks, began trading with the resultant funds and managed to turn them into $250,000.
However, in a cruel twist of fate, a poor trading decision caused him to lose it all! But, and here we can take another lesson from Lipschutz, he did not give up, continued trading and, upon graduation, he joined the Foreign Exchange Department at Salomon Brothers, where he went on to earn an average of $300 million a year for the firm. He is now the Director of Portfolio Management at Heathersage Capital Management, which he co-founded.
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Take Regular Breaks
“There is a time to go long, a time to go short and a time to go fishing.”
Jesse Livermore, although dead for over 80 years, is still legendary in many investment circles and it is he who coined the witty quote above. Livermore is most well-known for profiting around $100 million in 1929 from the Wall Street Crash, by entering huge short positions earlier in the year.
This trading quote reminds us that it is important to take regular breaks from trading. We have already mentioned the perils of overtrading and here we will emphasise the importance of spending time away from your trading terminal from time to time.
It is natural for our emotions to get the better of us from time to time and, when trading, this usually translates into losses. Taking a break from trading is a great way to stop this from happening, especially after a string of losses.
Livermore was a hugely successful trader, however, he may have been even more successful had he paid more attention to his quote above. He lost his fortune several times throughout his career and, at the time of his death, his liabilities exceeded his assets.
Learn How to Lose
“In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”
The third on our list of trading quotes to help with your trading psychology comes from Peter Lynch – an iconic mutual fund manager. Between 1977 and 1990, Lynch was responsible for managing the Magellan Fund at Fidelity, during which time he averaged an annual return of over 29% for his clients. To put that figure into context, the S&P 500 averaged annual growth of around 15% over the same time period.
When you start trading, one of the first things you need to accept, and quickly, is that losses happen. Not only do they happen, but they will happen regularly. What Lynch’s quote reminds us is that this is absolutely normal, not just for beginners, but for veteran investors such as Lynch himself.
When you lose a trade, don’t let yourself think that it is the end of the world. Look at the circumstances of your loss, see what lessons you can learn from it and then move on.
Losses are an integral part of trading and, once you accept this, it will do wonders for your trading psychology. As Lynch says, a successful trader is not someone who wins all the time. Nobody wins all the time. A successful trader is somebody who makes more profit when they are right than losses when they are wrong.
Don't Get Attached to Your Trades
“Markets can remain irrational longer than you can remain solvent.”
John Maynard Keynes revolutionised economics in the face of the Great Depression in the 1930s. The resultant school of thinking, Keynesian Economics, still provides the framework for how governments around the world respond in times of financial crises.
Keynes’ quote above warns us of the danger of mis-pricing in the financial markets.
In order to be a successful trader, you need to recognise that no matter how much analysis you have done, no matter how much you think the odds are in your favour or how strongly you feel you are right; there are many times when the markets will not behave in the way you expect them to.
Lots of money is lost by traders who hold onto losing positions in the hope that the market will turn around. But the reality is that, as Keynes said, you could lose your account balance long before the market agrees with you.
Never become emotionally attached to a trade. If it is not going your way, it is far better to cut your loss short than to risk losing everything. Good risk management is a crucial part of trading online, which includes using tools such as a stop loss.
Never Risk Too Much on One Trade
“That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?’”
Paul Tudor Jones, founder of Tudor Investment Corporation, is a billionaire hedge fund manager from the US. He gained acclaim in 1987 for correctly predicting Black Monday – a sudden and severe global stock market crash which took place on 19 October 1987. By amassing large short positions in the build-up to the crash, Jones is estimated to have earned $100 million.
However, his quote above is in reference to an event which took place eight years prior to Black Monday. Jones found himself on the wrong side of a cotton trade, which resulted in massive losses and made him reconsider his future as an investor.
You should never risk too much on any one trade, no matter how confident you feel about it. Whilst there is no set rule for how much you should risk per trade, it is generally accepted that the figure lies somewhere between 1-2% of your total account balance. Having a risk level of this size means that you can afford to go on a run of losses without your account balance being depleted too quickly.
Control Your Emotions
“You need to know very well when to move away, or give up the loss, and not allow the anxiety to trick you into trying again.”
We round off our article back where we started, with a quote from Warren Buffet.
We can take two points away from this trading quote. Firstly, it is important to know when to cut your losses short. As we mentioned earlier, losses are an unavoidable consequence of trading, which happen to everyone and should not be taken personally.
Secondly, after a loss, you need to remain in control of your emotions and not let them dictate your next move. It is a common error, particularly amongst beginner traders, to feel as if the money which has just been lost needs to be regained as quickly as possible. This thinking leads to rash trades, which will almost always result in further losses.
Don’t let losses change the way in which you approach the financial markets. Your approach should always be rational, unemotional and with caution.
Hopefully reading through our list of trading quotes has provided you with some insight on how to deal with the psychological side of trading. If you are interested in learning more about this subject, you might want to read our other article: “Top Trading Psychology Tips for Beginners”.
Of course, you will not be able to learn how to master your trading psychology or become a successful trader simply from reading trading psychology quotes. The best thing to help you develop your skills as a trader is to practice, and the best place for a beginner to practice is with a risk-free demo trading account.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.