Review the previous article: Forex advanced tutorial: Lesson 2
Lesson 3: Talking about the master's experience
Compared with the stock and futures markets, the foreign exchange market has a short history, but several trading masters have emerged in recent years. In terms of investment theory and experience may be slightly inferior to the stock market veterans, but they are even better at profitability. Their annual income is calculated at 100 million. The several foreign exchange experts introduced in this article include the heads of the foreign exchange department of large companies, large fund owners, and single-handed accounts. They are naturally little known in China, and they are not well-known outside of the American financial world. But in the foreign exchange and futures industry, people immediately stand in awe as long as these people are mentioned. It's not that these people are outstanding in appearance, but that they rely on genius and hard work to make a lot of wealth from the market, and this wealth is what many investors want and seem to be able to earn.
Bill Lipschutz is just 36 years old this year. He has been in charge of the foreign exchange department of Salomon Brothers for nearly ten years and has earned enormous profits of US$5.6 billion for the company. This young man in his early thirties is called the "Sultan of Foreign Exchange" by Wall Street. The scale of his orders is staggering. It is commonplace to purchase hundreds of millions of dollars at a time or even billions of dollars. Thanks to his outstanding achievements, supplemented by Solomon's financial resources, the foreign exchange department he presided over has a total of 80 billion US dollars of credit lines in hundreds of banks around the world and earns hundreds of millions of dollars in profits from the foreign exchange market every year.
Interestingly, Lipschutz had almost zero knowledge of the foreign exchange market when he first started doing a foreign exchange. With no one to guide him, he took advantage of the company's reputation and strength on Wall Street to break new ground within a few years. Lipschutz originally studied architecture but became interested in stock options when he was a graduate student. He simply took an MBA degree at the same time and was hired by Solomon after graduation. The company is well managed, appoints people on their merits, and often selects talents out of the box. In 1982, the Philadelphia Exchange opened a new foreign exchange option transaction. At that time, only Lipschutz had done options in the foreign exchange department, so he was appointed to be responsible for this business. Lipschutz established a network of relationships with the assistance of colleagues. He believes that foreign exchange mainly depends on well-informed information, and the banking industry accepts those who make big money. The movements of big players affect the market, and some critical news can make money early. Of course, most of the report is public, and the key is how to analyze it. The use of information must be flexible, depending on the market's response. Lipschutz believes that the influence of German unification on the foreign exchange market is the most illustrative of the problem. When the Berlin Wall fell, the sentiment in the market was that everyone was going to invest money in East Germany, so the Mark was going to rise sharply. After a while, the market realized that it would take some time for Germany to absorb East Germany after the reunification of Germany, so it was unwise to invest money in it. How did the market change its perception? It was nothing more than a speech by German Chancellor Kohl, a comment by US Secretary of State Baker, the high unemployment rate in East Germany, the high expectations of East Germans on West Germany, and so on. The investment community is beginning to realize how easy it is to rebuild Eastern Europe. After this idea prevailed, Mark began to plummet. Some people have held this view for a long time, but the market trend often depends on the market's focus at a particular moment. This requires ventilating with market participants. Not everyone thinks in one place, but everyone's attention can be noticed. For example, one day, the market pays attention to the interest rate differential, and the next day it emphasizes economic growth.
There is a concrete example that shows how well Lipschutz handles interpersonal relationships. He is never merciful when his opponent intercedes for negligence when making options, and he must execute the contract. But there was one exception. On that day, he discovered that a foreign exchange trading commissioner's quote on the Philadelphia Exchange was significantly lower than the market price by 100 points. He went to inquire, and the other party offered the same price. He immediately bought 50 contracts. Then he asked the other party to quote again, and the result was the same. He politely asked the other party to verify it again, and the answer was as usual. He ate another 250 sheets in a row. Another big company also bought hundreds of copies after discovering this error. After a while, Lipschutz asked the price again, but the careless commissioner still didn't notice. Lipschutz asked him if he could sell 1,000 orders.
At this moment, the other party was terrified, only to find out that he was finished. At this time, Lipschutz's men were merciful and told him that in addition to the first 50 orders, all the other orders were written off, and the other party was grateful. Lipschutz explained afterward that he was entirely out of long-term interests. At that time, the Philadelphia Stock Exchange had just launched foreign exchange options trading. If the commissioner was killed, this new market might also die. At that time, Solomon had no good. Years later, that man became the chief live trader of a large family and provided a lot of convenience to Solomon. However, another company that took advantage of the fire and robbed it afterward insisted that the other party cash it out, and it often ran into trouble on the Philadelphia Exchange many years later. In the spot market, there are often incorrect prices. As long as you ask the other party to verify that the other party still reports the error, you can't repent.
Lipschutz's most memorable transaction was in September 1985. Seven developed countries held a summit meeting and decided on policies to weaken the U.S. dollar. At that time, he was on vacation in Sardinia, Italy, and knew nothing about the seven-nation summit.
In the past, when the U.S. dollar strengthened all the way, the central banks of various countries intervened many times, but they were in vain. So this time, it didn't cause much response at first. Lipschutz called the company and learned the news when his assistant Andy was sick at home. He quickly called Andy. As soon as the New Zealand market (open every day) opened, Andy entered the market and threw $60 million. This was not a small amount for the New Zealand market at the time. Many banks are not sure about the impact of the summit meeting. There is almost no transaction volume in the market. The bid-ask spread reaches 200 points (about 10 points under normal circumstances). Andy has made it right, and the market price has reached 600 after the US$60 million was sold. Click away. Lipschutz simply connected to a 24-hour telephone line, directly contacted Andy and the exchange, and made many foreign exchange options. On that day, the foreign exchange department of Solomon had a bumper harvest, with a net profit of 5 million US dollars, equivalent to 25% of the annual income of the foreign exchange department.
Lipschutz almost capsized once. In the autumn of 1988, the foreign exchange market was calm. Suddenly, one-day Soviet leader Gorbachev visited the UN Conference to discuss disarmament issues. The market understood that the United States could also reduce its armaments and deficit, which was beneficial to the US dollar. The dollar began to rise in New York and soon rose by 1%. At this time, Solomon had a $3 billion selling order in hand, and the situation was critical. A 1% increase is equivalent to a loss of US$30 million. It happened to be Friday that day, the market trading volume was not significant, and it was tough for him to cut orders. He decided to toss another 300 million U.S. dollars in an attempt to suppress the U.S. dollar's gains and waited until the Japanese market opened on Monday before closing the order. Unexpectedly, foreign exchange is still rising sharply, and Solomon's losses soon reached US$90 million. Lipschutz quickly reported to the president. After inquiring about the situation, the president encouraged him to remain calm and follow the plan. The Japanese market opened on Monday, and the U.S. dollar began to fall. He waited patiently until the European market was closed and finally escaped, losing only 18 million U.S. dollars. After the incident, Lipschutz deeply reflected and believed that he had miscalculated the liquidity of the New York market and made the situation out of control. Fortunately, it was handled properly, and even more, significant losses were avoided.
Lipschutz himself had a private account, an inheritance left by his grandmother, totaling $12,000. He earned 250,000 in 4 years of options, but he lost all of it by accident. It was September 1982. He had made many profits by using the stock market's fall to collapse the pyramid, but he caught up with the bottom of the stock market on September 23 and then rebounded sharply. Due to a large number of orders, he was wiped out within three days. That lesson first made him realize the importance of risk control. It made him distinguish between public and private and concentrate on making money for the company, which led him to later achievements.
Regarding the interbank market (foreign exchange spot), Lipschutz has unique insights.
He believes that banks mainly rely on buying and selling spreads to make money. Citibank of the United States is the most successful in foreign exchange, earning approximately US$300 to 400 million a year. If you only eat the difference and don't buy the order yourself, you can make $600 million. Citibank itself does not admit this estimate. Banks also have a way to make money: every time a large customer enters an order, it will follow and profit immediately. This is illegal in the futures industry, but it is allowed in the spot market.
Lipschutz believes that master traders must be both smart and hardworking. In other trades, intelligent people may speculate, and stupid people can be clumsy, but foreign exchange requires talent and hard work. Some people often ask him when he should go to work and leave work when he comes to the company. Lipschutz has a TV monitor at the head of his bed so that he can observe prices and understand the market at any time. In addition, his intuition is also significant. Lipschutz never forgets the foreign exchange market in his dreams. Once, he dreamed that the trade deficit figure announced the next day was favorable to the U.S. dollar, and the U.S. dollar rose sharply. He first dreamed of the new foreign trade figures, then the revised figures last month, and then dreamed that he entered the market to buy US dollars, and the price continued to rise. After one step, he purchased another batch, and then he bought another one. After breaking the third pass, he was going to play but decided to buy another set. The next day the foreign trade figures came out the same as in his dream. Later, the trend of the foreign exchange market was the same as he dreamed. The only difference is that he didn't make a single entry. Afterward, he explained that the natural feeling is based on market analysis, and it is unreliable to rely on dreams.
Randy Mack is little known on Wall Street, but his record in the foreign exchange futures market in the past 20 years is rarely matched by anyone. He started with US$2,000 and earned 70,000 in the first year, and his profits will exceed that of the first year. In the 1980s, Mike's annual income was more than one million US dollars. In addition to making money on his own, Mike also made foreign exchange on behalf of his family and friends. The first two accounts started from 10,000 US dollars in 1982 and exceeded one million 10 years later.
Mike became obsessed with bridge, playing cards day and night, but failed six subjects in his second year of college. Mike dropped out of school to join the army and was sent to the battlefield in Vietnam. There, Mike underwent strict discipline training and learned survival protection. He also became a pacifist. After returning to China in 1970, Mike continued his studies. His brother found him a temporary job on the Chicago Board of Trade, and he started to get in touch with futures. Mike was originally going to be a psychologist. Still, before graduation, he was catching up with the Chicago Board of Trade to open a new exchange to engage in foreign exchange futures trading. At that time, a seat on the Chicago Board of Trade was worth 100,000 U.S. dollars, but to attract investors, the foreign exchange trading hall’s center was only sold for 10,000 U.S. dollars, and each existing exchange member was given a free seat.
Mike's brother transferred his free seat to his younger brother and loaned him US$5,000. Mike deposited US$3,000 in the bank for living expenses and used the other US$2,000 for foreign exchange futures. At that time, Mike had minimal knowledge of foreign exchange. When he saw others buying marks, he followed to buy Swiss francs and played chess when he was fine. In this way, he made 70,000 US dollars in the first year.
Mike took a big step in 1976. The British government was worried that the appreciation of the pound would increase imports too much, so it announced that it would not allow the pound to rise above US$1.72. At that time, the pound was initially hovering between 1.6 U.S. dollars but unexpectedly soared to 1.72 U.S. dollars after hearing the news. In the future, every time I reach this point, I will bounce, but the more I reflect, the less. Most people are calculating that the British government will not allow the British pound to exceed $1.72, so there should be no risk in shorting at this point. Mike has another plan: Since the British government's attitude cannot suppress the pound's rise, no matter how clear it is, it shows that the internal demand is robust and the market is a daily limit. This may be a once-in-a-lifetime opportunity. Before this, Mike had only made 30 or 40 orders at most, but he made two hundred bills this time. Although he was very confident in his heart, he was also scared to death because so many orders would be ruined if they were reversed. Mike restlessly went to bed for several days and got up at 5 a.m. to ask the bank for a quote. One morning, he heard the bank quote: British pounds 1.7250 US dollars. He thought the other party had reported a mistake and was ecstatic after rechecking it. Not only did he buy some pound contracts himself, but he also encouraged his relatives and friends to buy them together and then comfortably watched the pound rise to 1.90 US dollars. Three months later, he tied the game and dropped a few hundred contracts at 1.90. As a result, he also made money. This time Mike made a net profit of 1.3 million U.S. dollars.
Another proud work of Mike was the short-selling of the Canadian dollar in the early 1980s, from 85 cents to 67 US dollars, which lasted for five years, with 1,500 orders purchased and millions of dollars in profit. Over the past few years, although the Canadian government has repeatedly intervened to support the Canadian dollar, it was always half-hearted until one day, Canadian Prime Minister Mulroney said angrily: We cannot allow Chicago speculators to determine the value of our currency. The market has since reversed, and Mike has appeared in time.
Mike also has time to go to Matching. When Carter announced his plan to save the U.S. dollar in November 1978, Mike happened to have many foreign currency bills on hand. But in the first two days, he saw from the strength of the market that the upswing was declining, so he flattened all the Mark orders, leaving only the British pound. On the second day after learning the news, foreign currencies fell sharply as soon as the market opened, and futures soon reached their limit. Mike hurried to the spot market to close the order, with a loss of 1,800 points and 1.5 million U.S. dollars. There was also a more significant loss in Canadian dollars. At the end of the 1980s, the Canadian dollar rose all the way, and Mike followed the trend and entered the order, consuming a total of 2,500 buy orders, which initially made 2 million US dollars. At the Canadian election, the current prime minister, who was already far ahead, suffered a significant loss during a debate. The polls suddenly plummeted by 16 points. As a result, the Canadian dollar fell sharply. When Mike couldn't stand the pressure to cut the order, he lost a total of 7 million. US dollars.
Mike has unique insights in analyzing the market. On the one hand, he is a technical analyst and believes that the best way to make money is to follow the trend, especially in the middle period. On the other hand, he believes that fundamental analysis is instrumental and is the basis for strategic decision-making. He thinks that the beginning of momentum is difficult to do because you are not sure about the direction of the rate. The ending is also tricky because many people start to profit, and the market fluctuates wildly back and forth. He thinks that the middle part is best to grasp, and it is futile to find the bottom and the top. For fundamental analysis, Mike is not superstitious in economic theory. He mainly judges the market trend by observing the market's reaction to various news. For example, bad news does not fall but rises, indicating that the internal factors of the market are very optimistic.
Mike felt that the market itself was also changing. The market in the 1970s was relatively easy to do, and it was unsatisfactory to break through the barriers and follow up. Each wave of ups or downs was more apparent, and the intermediate setbacks were more minor. Mike thinks this is related to a large number of public investors at that time. Nowadays, the market is becoming more and more professional, there are more and more fake breaches, and there is less fanaticism than before, so it is more challenging to make money. In the past, as long as the direction was right, it didn't matter how the order was made. Nowadays, the market is much more complicated; the focus is correct, the timing of the order entry is wrong, and no money can be made. Mike believes that judgment accounted for 90% in the past, and execution accounted for only 10%. Today, review accounts for only 25%, and performance accounts for 75%.
Although Mike has remained undefeated for 20 years, he still has a strong sense of risk control. He believes that if you find that the market is unfavorable for you, you must quickly cut the order, no matter how significant the loss is. To save your life, no matter how many injuries are involved! Mike's advice to his colleagues is: don't let the compensation slip out of control. Make sure to keep a portion of your capital even if you make mistakes twenty or thirty times in a row. He usually takes 5-10% of the account's risk when he enters the order. If he loses, he will only bear 4% of the threat the next time. If he loses, it will be reduced to 2%. Mike can reduce the number of orders from 3,000 to 10 when they are not smooth and then resume the charge when it is smooth.
Mike believes that successful traders can have different personalities, but there is one thing in common: they have all found a strategy that suits their personalities. His brother is calm and never wants to take too much risk, so he has specialized in hedging for many years and has achieved good results. On the one hand, he likes to take risks. He uses his courage to enter orders. On the other hand, he uses this for risk control because of the traditional conservative family education and being very cautious. Some people go against their personalities and adapt trading strategies that are inconsistent with them. For example, some people are good at system trading, but they arbitrarily veto the suggestions provided by their trading system when making orders. Some people tend to take the long-term, but they always go short-term because they lack patience or feel uncomfortable not entering the market. Some people are initially suitable to be live traders but want to be mediocre investment managers. Some people have spent a lot of energy researching some feasible low-risk arbitrage trading strategies but finally decided to do high-risk strategic trading. In short, maximizing the strengths and avoiding weaknesses in Mike's view is the key to victory.
Michael Marcos has a research background. But he was more interested in practical operations. At first, he worked sneakily, and then he simply resigned from the position of the high-paying researcher to engage in foreign exchange and futures trading full-time. He worked as a trader in a futures company, and for a few years, he made more money than all other traders in the company. In 10 years, his company account has increased by 2,500 times! There are many factors to Marcos's success: First, it is personal effort. For some time, he was almost 24 hours of non-stop rotation. The second is the guidance of Master Yuming, from darkness to light. For most master traders, early failures seem to be commonplace. Marcos is no exception; he never made a profit in the first few transactions. What's more, he was wiped out more than once. This shows a truth, early defeat shows that you must have done something wrong, but it does not necessarily prove that you will fail in the future.
Q: How were you interested in doing futures?
Answer: I originally wanted to learn. He graduated from Johns Hopkins University in 1969 with excellent grades and is at the top of his class. Clark University offered me a Ph.D. scholarship in psychology, and I was supposed to be a professor safely. At that time, I met a man named John. He declared that he could help me invest, and he promised to double it every two weeks. I was said to be moved. I had never invested before, so I didn't have any doubts. I didn't even ask him how he could make it so fast. I immediately hired him as an investment consultant with a weekly salary of 30 US dollars. I put out my savings of $1,000 for futures.
The first time I went to a futures company with John, I saw various quotations and didn't understand what was happening. Someone on the company's megaphone suggested buying soybean futures. I asked John if he should buy it and found that he knew nothing. But we still got a buy order. It is strange that as soon as we entered the market, the price of soybeans began to fall as if the market waited for me to enter the market and then went back. But my instinct seemed pretty good at the time. We immediately cut the order and lost only 100 US dollars. The next one was corn, and the result was similar to the first one. The third deal was wheat, and the result was still a loss. It took us three days to lose all our money. At that time, we measured our success by losing light in a few days. A thousand yuan was lost, and I fired John. He said that I made the biggest mistake of my life. He wanted to go to Bermuda to wash dishes to earn capital, do futures, and retire after becoming a millionaire. I haven't heard his urgency since then. Later, I saved another 500 dollars and made a little cash, but I still lost everything. All of my first eight transactions lost money.
Q: Have you ever thought that maybe you are not suitable for futures trading?
Answer: I never thought about it. I always get good grades in school, so I guess it's just a matter of experience. My father died when I was 15 years old. He left an insurance premium of 3,000 US dollars. I disregarded my mother's objection and cashed out the money. This time I learned well. I first read a book on wheat and soybeans and then bought a wheat contract following the advice of an investment consultant and made two hundred yuan. I was so excited that I bought another one when the price fell back and made another profit. The next step was pure luck: I purchased three December corn contracts in the summer of 1970, just in time for the big insect plague that year. I then bought some contracts for wheat and soybeans. After one summer, I made a total of US$30,000. In the spring of the second year, there was a widely accepted theory on the market: locusts will endanger the crops again after the heat has passed the severe winter.
I borrowed 20,000 yuan from my mother and invested my 30,000 yuan in wheat and corn futures. After I entered the market, the market was neither up nor down. One day the "Wall Street Journal" published an article entitled "There are more locusts on the Chicago Stock Exchange than in the cornfield."
Corn futures began to fall and soon reached the limit of loss. I was stunned for a moment and wanted to go out but just watched it stupidly, hoping that the market would reverse. I watched, managed, and I couldn't get out of the field by the time the limit fell. I thought about it all night and had no choice but to cut a single to play. I closed all the orders early the following day. As soon as I settled my 30,000 yuan, my mother also lost 12,000. I was so angry; I decided to find a job.
When I work as an analyst at a securities company, I feel itchy when I see others doing orders on the wall. That company forbids analysts to do orders, but I don't care about that much, borrowed some money from my mother, brother, and girlfriend, and started quietly. To keep it secret, my agent and I agreed on some personal words. "The sun is out" means one thing, and "the sky is overcast" means another. I still lose money after doing this. Lost and borrowed, borrowed and then lost, the same cycle is repeated again and again.
Question: Did you know what you did wrong at the time?
Answer: Good question. At that time, I didn't have the principle of making orders, and I did everything wrong. In October 1971, I ran into Ed Sicotta in the agent's office, and I owed all my success to him. He had just graduated and studied a computer technology trading system. He asked me to do research together with him and do orders at the same time. He is very knowledgeable about the market, and he is also very successful in trading. He takes advantage of the trend to take orders. He taught me how to cut charges and how to make a profit. Although I have Ed's guidance, I continue to lose money, mainly because I am not patient enough and have lousy timing.
In the summer of 1972, the Nixon administration began to relax the price freeze. I made a lot of money in the plywood market, from 700 to 12,000. When the price of plywood more than doubled, the timber market hardly moved. I squeezed all the money back like the last time I made corn. At this time, just in time for the government to come forward and issue a series of statements, saying that it was going to crack down on speculators in the timber market, the futures plummeted suddenly, and I was once again in desperation. I have been on the verge of being wiped out for two weeks. I hate myself for making the same mistake again, and since then, I have never dared to do too many orders.
Fortunately, the government failed to control prices after all. After two weeks, the market began to reverse. I turned my losses into profits, and I made a double when I came out. By 1973, I had increased my account to $64,000.
Marcos later worked as a trader at the New York Cotton Exchange for several years. On-site trading cultivated his keen sense of the market. In August 1974, he applied to a futures company as a trader, starting from 30,000 U.S. dollars and rolling into 800,000 after ten years. During the period, the company only increased his principal by 100,000, and for the rest of the year, he withdrew 30% of his account every year. In the past ten years, his average annual income exceeded 100%, and his achievements in 1979 were even more impressive. Gold rose from US$400 to US$900 an ounce, and Marcos went in and out and made significant profits. On the day of the Soviet invasion of Afghanistan, he first saw the rush on TV. He called Hong Kong and found that the price of gold had not moved. He immediately bought 200,000 ounces. After a few minutes, the news spread, and the cost of gold rose sharply. He made thousands of dollars at once. Ten thousand U.S. dollars. So far, when Marcos visited Hong Kong, he did not dare to see the gold exchange. Anyone who suffered a loss that time still remembers him.
Marcos has a more profound understanding of the foreign exchange market. He said: For a while, I did a lot of foreign exchange. For example, in the years after Reagan was elected president, the U.S. dollar was firm, and I often shorted hundreds of millions of marks. Such large orders were rare at the time. Since the foreign exchange market operates 24 hours a day, it is very tiring. When I sleep, I always get up every two hours to watch the market. The Australian, Hong Kong, Zurich, and London markets are all evenings. I watched every set, and the marriage broke down.
Question: When you wake up to look at other markets at night, are you afraid that you will turn the other way when the New York market opens?
Answer: Yes. Although it doesn't happen very often, you should always be vigilant. This can prevent the loss of eating gaps. I remember one time, around the end of 1978 when the U.S. dollar was killed in a mess. I worked closely with Kovner and talked about the trend of the dollar every day. One day we noticed that the U.S. dollar was strengthening inexplicably, and there was no news to explain the price movement. We hurriedly closed all foreign currency purchase orders. That weekend, President Carter announced his plan to support the US dollar. If we waited until the New York market opened, we would be dead. That incident proved one of our ideas: big players, including the government, always have gossip. If we find unexpected price fluctuations that are unreasonable, we always go out first and then investigate the cause. I mean, out of courtesy, the US government informs the European Central Bank of the news in advance, and they often take action before the US policy is announced. Therefore, the price always moves first in the European market, even though our side proposes the new policy. If the Europeans initiated it, then the price would naturally move first in the European market. I think the best trading time is often the European market.
Question: In addition to losing money early, what other lessons did you fail?
Answer: The worst was the case when the German Central Bank interfered in the market. I did an excellent job at the time and bought a lot of marks. The German Central Bank suddenly decided to enter the market to punish speculators. I called and learned that I had lost 2.5 million in 5 minutes, so I hurried to cut the order to play instead of waiting for a loss of 2.5 million to become 10 million. But all that fell after half an hour rose back.
Question: Did you follow up again?
Answer: No. By then, I had no fighting spirit.
Question: In hindsight, do you think it was right to cut the order at that time?
Answer: That's right. But afterward, all walked back, constantly feeling uncomfortable.
Question: Do you think being a master is an inherent skill?
Answer: I think that to become a top master does require inner skills-talent.
This is like a great violinist. But being a competitive moneymaker is a skill that can be learned.
Q: After experiencing the turning of defeat into victory, what advice do you have for beginners or traders losing money?
Answer: First of all, the risk of each order entry must not exceed 5% of the principal so that you can make 20 mistakes. Second, there must be a stop-loss order and an actual entry.
Q: When you enter the order, do you also give the exit order to the agent?
Answer: Yes. One more thing, if you feel bad after entering the order, don't be afraid to be embarrassed. If you don't step in your heart, go out first and get a good night's sleep. I often do that, and it becomes clear the next day.
Q: Do you sometimes enter the arena soon after you play?
Answer: Yes, it is usually the second day. You can't think after you enter the field. You can think clearly after you play.
Q: What advice do you have for newbies?
Answer: Perhaps the essential principle is to hold the winning order and cut off the losing order. Both are equally important. If you don't have the winning charge, you can't afford to lose.
Make orders according to your judgment. Many of my friends are talented masters. I often remind myself that I will lose money if I blindly follow them. Some of them guarded the wins well, but they might have protected the loses too long; some of them cut the orders very quickly, but they also went fast when they won. You stick to your style; you may be both good and bad. If you are stunned to learn other people's styles, you may catch up with the shortcomings on both sides.
Question: What concept is most likely to be fooled?
Answer: You think the expert's advice must be reliable. If you are an expert, you can help. For example, if you are the barber of Paul Jones and he happens to be talking to you about the market, you might as well listen to it. Generally speaking, the so-called "experts" do not make orders by themselves. The average broker can never be a master trader.
It's easiest to lose money if you believe the broker. Making orders requires personal hard work, and you have to do your homework.
Question: Are there any other illusions?
Answer: There is a stupid idea: the market is full of conspiracies. I know many big traders in the world. It can be said that in 99% of cases, the market is more significant than anyone else, and sooner or later, it will go where it wants to go. There are exceptions, but they last for a while.
Q: How important is an intuition for making orders?
Answer: Critical. The masters are very intuitive. Courage is also essential: you have to dare to try, dare to fail, dare to win, and be able to stand up when things go wrong.
Q: What should you do when you encounter consecutive losses?
Answer: I have tried to increase the order in the past, but it didn't work. Later, I tried to reduce the number of orders as much as possible, and if it were too bad, I would simply stop doing it. But it is often not so bad.
Question: Few people are as successful as you. What makes you different?
Answer: I am very open-minded. I don't care whether I can accept it emotionally or not, as long as I think the information is correct in my mind.
Question: Do you record your actual capital every day?
Answer: I used to keep records. This is very useful. If your capital has a downward trend, it is a signal to reduce the number of re-evaluating orders. Or if you find that you lose faster than you earn, that is also a warning.
Q: How much does the market have in common with the demand? For example, can you do foreign exchange and bonds like you do corn?
Answer: I think it's a pass, Belden. The principles are the same. Ordering is a kind of emotion, popular psychology: greed and fear. It's the same thing in any case.
Bruce Kuffner has been engaged in foreign exchange trading for more than ten years and has a fantastic record, nearly doubling his average annual income. In 1978, he invested 1,000 U.S. dollars in his operation. By 1991, it had become a million U.S. dollars.
Kovner was a scholar. After graduating from Harvard, he taught political science at Harvard and the University of Pennsylvania. He likes to lead but has not had much enthusiasm for a career as a scholar. In the early 1970s, he began to enter politics, first helping others to run for elections, and planned to run for himself in the future. Due to lack of funds, he was unwilling to start from the committee and slowly climb up, so he finally abandoned his political plan. Kovner looked around for his career direction and finally decided that his political and economic background was suitable for the financial market. Once the goal was clear, Kovner buried himself in the financial literature and read all the books he could find. He is particularly interested in interest rates, and his hard work in this area will be of great help to his future foreign exchange transactions.
Kovner's first transaction was based on changes in the interest rate differential, and as expected, he made a small amount of money. He did the same and made a price difference between the two markets, but he quickly entered the market and lost a little. The two transactions have a slight surplus. What got him started was the third deal. In 1977 he discovered that there would be a shortage of soybean supply. The recent futures have begun to rise, but the forward lots have not kept up with the beat. He used this difference to make hedging transactions, starting from a pair of contracts. After gaining a profit, he inverted the pyramid to increase the weight and soon added 15 teams of contracts, with a floating profit of more than 40,000 US dollars. At this time, he misunderstood the broker's advice and unilaterally closed the recent agreement to greet more profits. As a result, the broker called and told him 15 minutes later that something was not good, and the market began to fall back quickly, reaching the limit. He yelled to close the order soon. Even if he walked in time, he left the market smoothly during the short period of the rebound of the limit, leaving only half of the original profit of 40,000 US dollars. Although his account has been doubled several times, Kovner still feels distressed for the mistake he made at the last minute and can't eat for a few days.
He has two profound experiences. First, the risks of futures trading are as significant as the returns, and the money earned will be lost quickly if you are not careful. Second, always stay sensible, and don't take careless actions by believing others.
Kovner resumed trading a month later and soon increased his account to 40,000 US dollars. He went to a company to apply for the position of trading assistant. A few weeks after the interview, the examiner Michael Marcos summoned him to the company: "I have both good news and bad news. The bad news is that the position of assistant cannot be given to you. Good. The news is that we want to hire you directly as a trader." Marcos later became Kovner's teacher. Kovner admitted that he learned a lot of essential things from him. First of all, he allowed Kovner to build his confidence. As long as he handles it correctly, he enters and goes out of the game by principles, and it is not difficult to make one million dollars. He also made Koffner realize that he must be brave enough to admit his mistakes; as long as he judges wisely, it doesn't matter if he is wrong; he makes a new judgment, makes another mistake, another judgment, and then doubles his profit.
Kovner is mainly engaged in foreign exchange transactions, both futures, and spot. No matter which currency, he enters the market whenever he has the opportunity, often with hundreds of millions of dollars in and out of daily transactions. His profound political and economic foundation has given him a thorough and unique insight into the foreign exchange market. He has chosen and traded off technical analysis, neither relying on it nor discarding it. Kovner's broad and profound insights into the market can be glimpsed in a special interview. The following is an excerpt of part of his conversation with the interviewer.
Q: You are one of the most successful traders in the world, and few can match you. What makes you different?
Answer: I find it difficult to clearly explain why some people do and some people can't. I think there are two critical factors: First, I have the imagination for the world's future, and I can see the difference between the future and reality. For example, I think the dollar can fall to 100 against the yen (1 to 150 yen when he said this). Second, I can stay sensible and follow principles under pressure.
Q: Are trading skills taught well?
Answer: There are certain limits. Over the years, I have trained about thirty people, but only four or five have become good players.
Question: What happened to the other 25 people?
Answer: All changed. This has nothing to do with intelligence.
Q: What are the apparent differences between successful and failed apprentices?
Answer: Winners are strong, independent, and have different ideas. They act boldly when others are unwilling to enter the arena. They are strict in self-discipline, and the scale of entry is moderate. People who are too greedy always hit the pot. Some very aura people make money and can't keep it up. I have a very clever colleague who has a great idea and has a good market selection. He is more knowledgeable than me, but I can keep it when I make money, and he always fails.
Question: What is wrong with him?
Answer: The scale of entry is too large. I make one sheet, and he makes ten sheets. He always doubled his principal twice a year, but he was still tied in one year.
Q: Do you always rely on fundamental analysis when making entry decisions?
Answer: I always make orders based on market judgments, not just technical analysis. I often use technical analysis as a guide, but if I can’t figure out why the market moves, I don’t enter the market.
Question: Does it mean that a primary reason must back every order?
Answer: You can say so. Let me add that technical analysis often makes fundamental analysis clearer. Let me give you an example: In the past six months, I think there have been many reasons for the Canadian dollar’s rise and many reasons for its fall. I don’t know which explanation is correct. If someone takes a gun to force me to make a statement, I may choose to "fall."
Then the US-Canada trade agreement was announced, and the market broke through. The Canadian dollar was already rising towards the end of the negotiations. At this time, I fully understand that the market chooses up instead of down. Before the agreement was announced, I felt that the Canadian dollar had reached the top of a mountain, and I didn't know if it was going to fall or continue to climb. From a fundamental analysis perspective, the US-Canada trade agreement has positive and negative aspects to the Canadian dollar. From a technical analysis point of view, the Canadian dollar has made a breakthrough. In other words, more people in the market believe that the positive is greater than the negative, so they buy Canadian dollars.
Question: Does this example show that when a significant event occurs or a specific essential factor takes shape, the market's initial reaction indicates a long-term trend?
Answer: Exactly. The market always leads because someone knows better than you.
For example, the Soviets are good. Q: What kind of business? Answer: For foreign exchange, grain futures are also suitable.
Question: Is this a bit contradictory? The Soviet economy was messed up, but the foreign exchange was doing great. Why?
Answer: Just kidding, they might peek at our letters. But their intelligence is swift. They have the most developed spy system in the world and often eavesdrop on business communications. Therefore, some large traders often use anti-eavesdropping devices when discussing sensitive issues on the phone. I mean that many elusive mechanisms will guide the market, often before the average person knows it.
Question: Isn't that the basic principle of technical analysis?
Answer: I think some technical analysis is very reasonable, while some are misleading. Some claim that technical analysis can predict the future is a bit flashy. Technical analysis tracks the past but does not predict the future. You have to use your brain to draw conclusions and see if the activities of specific traders in the past can reveal the movements of other traders in the future.
I think technical analysis is like a thermometer. Those elementary analysts who never look at pictures are like a doctor saying that he doesn't take the patient's temperature. If you take a serious and responsible attitude towards the market, you should understand the market's status quo, whether it is hot or cold, dynamic or stagnant. The technical analysis reflects the voting of the whole market, so strange phenomena will appear. By definition, the appearance of any new graphics is unusual. Therefore, it is essential to study detailed changes in prices. Looking at pictures can alert me to abnormalities and explore potential changes.
Q: What do you do when the market goes against you? How to distinguish between small rebounds and wrong orders?
A: As soon as I enter the market, I always set a stop loss position in advance; only then can I sleep. I knew where to play before I came in. The scale of entry depends on the stop loss level, which is determined by technical analysis. For example, if the market moves within a price range, the stop-loss level cannot be set within the price range, as it is easy to come across. I always place the stop loss after a certain technical obstacle point (resistance or support). If the location is chosen well, it is generally not easy to come across.
Question: Speaking of stop-loss, because your trading volume is enormous, so I guess your stop-loss order is just a good idea, right?
A: Let's put it this way: I arrange my life correctly so that the stop-loss order can always be executed in time. They do not enter the disk, but they are not a psychological stop loss, and they must be executed when they are in place.
Question: Your order volume is much larger than before. Does this add extra difficulty?
Answer: There are far fewer markets with sufficient liquidity for me to utilize fully. For example, I like copper futures, but the market is too small, and liquidity is insufficient. I also did things like the coffee market and made millions last year. But a few million are no longer necessary to me, and on the contrary, it consumes a lot of energy. So I mainly do foreign exchange.
Q: You are probably responsible for more operations than any other trader in the world. If you keep losing money for a while, how do you cope with the psychological pressure?
Answer: The psychological burden is indeed huge. I may lose millions of dollars any day. If you take the loss too seriously, you can't do it anymore. My only concern is the poor operation of funds. Every once in a while, I will lose too much in a particular transaction. But I have never had a problem with losing money itself, as long as the loss is apparent and the trading skills are thoroughly followed. I learned to control risk from experience. But the daily gains and losses do not affect my mood.
Q: Have you ever lost money?
Answer: Yes, I lost 16% in 1981.
Question: Are you doing foreign exchange by spot or futures?
Answer: I only do spot, unless sometimes the arbitrage takes advantage of the price difference between spot and futures.
The interbank market (spot) liquidity is much better, the transaction fee is also much lower, and it is a 24-hour transaction. This is very important to us because we do it 24 hours a day. We do all foreign exchange, all European currencies. Including Nordic currencies, all major currencies in Asia and the Middle East. Cross-trading is also easy to do on the spot. It is troublesome to do cross calculations for futures because the contract amount is fixed. In the spot market, the whole world is priced in dollars; across-tradingding is no exception.
Q: Do you do a lot of transactions outside of the U.S. market?
Answer: Yes, first of all, there are monitoring screens everywhere I go, homes, country houses, and everywhere. Secondly, my staff is on duty 24 hours a day. They called me immediately when something big happened. Each of our currencies has a calling price. I have an assistant who is responsible for handling the phone calls for me. We joked that he could only wake me up from home twice a year. He may receive three or four phone calls every night. He can deal with it on his own because he has a plan in advance.
I usually limit my trading hours to 8 in the morning to 6 or 7 in the evening. The Far East market is significant. The market opens at 8 pm, and Tokyo from morning to midnight.
If the transaction is active, I will do it too. Sleep for a few hours afternoon, and then get up to catch the next opening. This is the case during periods of market turmoil. I have relationships in various markets around the world, so I’m well informed. This is a fascinating game. Regardless of making money aside from trading, one of the main reasons I did this business is because I am very fascinated by analyzing the world's political and economic situation.
Question: From what you said, it seems that the whole process is like playing a game, not doing work.
Answer: It does not feel like work unless you lose; it feels very hard. To me, market analysis is like a diversified chessboard, in which the fun is purely spiritual.
Question: You talked about the importance of controlling risks and the confidence in holding orders. How much trouble do you generally take in one transaction?
Answer: First of all, I try to ensure that the risk of any transaction does not exceed 1% of my account. Secondly, we check every day whether the orders we make are relevant. If there are eight types of lists that are highly correlated, although they are divided into eight classes, they are one type, but the risk is eight times greater.
Question: Does this mean that if you are optimistic about both the Mark and the Swiss franc, you only choose to buy one.
Answer: It is true. But more importantly, while doing long positions in a market, try to choose a market that can do short jobs as much as possible. For example, even though I lack the U.S. dollar, I still lack the Mark when long in the yen.
Question: Is the mark B yen cross-trade like you did? Is it slower than doing a separate currency?
Answer: Not necessarily. Sometimes you can still make a lot of money.
Q: Your trading style is a combination of fundamental analysis and technical analysis. If you are forced to choose, which one do you prefer?
Answer: This is like asking the doctor whether he prefers to see a doctor by diagnosis or observation.
No one can be less. It was easier to make money from technical analysis in the 1970s. At that time, there were far fewer false clearances. Nowadays, everyone is an image school, and there is a flood of technical trading systems. I think this is not good for the technical school.
Question: Do you think there are any unique talents for single masters?
Answer: There should be very few super masters.
Question: What proportion of the talent and effort to make a successful order?
Answer: It is rare to become a master without hard work. Some people may succeed in the short term, but they won't work if they grow up. I recently heard that someone made 27 million in copper futures last year, but they all lost it back soon.
Q: What advice do you have for newbies?
Answer: First of all, we must realize the importance of risk management. The second piece of advice is, do less, do less, and do less. No matter how many orders you think, you should make, cut it by half first. In addition, novices tend to humanize the market. The most common mistake is to see the market as a personal adversary. The market is wholly detached; it doesn't matter whether you win or lose. If a trader says subjectively: "I hope" or "hope," then he cannot concentrate on analyzing the market, which is harmful and unhelpful.