We all want to be successful traders, so it pays to look at those who have really made their mark in the forex market. If you want to find an example of a trader who has really hit it big, then look no further than Bill Lipschutz, founder of Heathersage Capital Management.
Like many traders, Lipschutz had an up-and-down start to his career. Starting with a $12,000 stake from an inheritance, he built his capital up to $250,000 and then blew it almost overnight. Undeterred, he decided to learn from the experience and built a $200 million forex trading company. He made it into the Trader Hall Of Fame in 2006.
So, exactly what pearls of wisdom can Lipschutz give the rest of us?
A Guest Post by FXTM
Pay attention to multiples
One of Lipschutz’s key messages is that you need to pay attention to risk-to-reward ratio. For short-term trades, Lipschutz looks for a 3-to-1 multiple of upside to downside. In other words, you should be looking at positions where the potential profit is at least three times the amount that you are risking on the trade. For more complicated trades where you are risking significant capital, Lipschutz says that ratio should be closer to 5 to 1 as a minimum.
The details are important
Lipschutz stresses the importance of structuring each trade to maximize your chances of success. Even if you have a winning prospect, it’s easy to lose money if you don’t get the details right. For example, getting your timing slightly wrong can lose you huge amounts of money, so it’s important to get the deal execution perfect. Do everything you can to increase your chance of winning, while limiting the risk in each trade.
Understand what the market is thinking
Lipschutz places a lot of emphasis on sentiment. Whether you are a pure technical trader or have a different approach, it is a mistake to ignore market perception. It doesn’t matter if that perception is based on the Aztec calendar – if traders think that something is going to happen based on their charts, then something is going to happen just because of the momentum in the market. Unless you understand this, you’re going to end up compromising your trading positions.
Work hard and the money will follow
According to Lipschutz, the best traders are both highly intelligent and willing to put in what it takes to be successful. It’s not enough to be a genius – successful forex trading takes hard work. It’s also a mistake to focus only on making money – truly successful traders look at money as simply a way of keeping score and get deep satisfaction out of the trading itself.
Further reading: 5 Most Predictable Currency Pairs – Q3 2014