Trading Wisdom of William Eckhardt
interview with legendary trader William Eckhardt.
Although I remember reading the interview many years ago, I so much
enjoyed it again. His perspectives about trading are unique and offer
wisdom that you won’t find anywhere else.
Here are just a few quotes that I think you’ll enjoy:
"If a betting game among a certain number of
participants is played long enough, eventually one player will have all
the money. If there is any skill involved, it will accelerate the
process of concentrating all the stakes in a few hands. Something like
this happens in the market. There is a persistent overall tendency for
equity to flow from the many to the few. In the long run, the majority
loses. The implication for the trader is that to win you have to act
like the minority. If you bring normal human habits and tendencies to
trading, you'll gravitate toward the majority and inevitably lose." -
William Eckhardt
"It's much easier to learn what you should do in trading
than to do it. Good systems tend to violate normal human tendencies." -
William Eckhardt
"One common adage on this subject that is completely
wrongheaded is: you can't go broke taking profits. That's precisely how
many traders do go broke. While amateurs go broke by taking large
losses, professionals go broke by taking small profits. The problem in
a nutshell is that human nature does not operate to maximize gain but
rather to maximize the chance of gain. The desire to maximize the
number of winning trades (or minimize the number of losing trades)
works against the trader. The success rate of trades is the least
important performance statistic and may even be inversely related to
performance." - William Eckhardt
"The people who survive avoid snowball scenarios in which
bad trades cause them to become emotionally destabilized and make more
bad trades. They are also able to feel the pain of losing. If you don't
feel the pain of a loss, then you're in the same position as those
unfortunate people who have no pain sensors. If they leave their hand
on a hot stove, it will burn off. There is no way to survive in the
world without pain. Similarly, in the markets, if the losses don't
hurt, your financial survival is tenuous." - William Eckhardt
"I know of a few multimillionaires who started trading with
inherited wealth. In each case, they lost it all because they didn't
feel the pain when they were losing. In those formative first few years
of trading, they felt they could afford to lose. You're much better off
going into the market on a shoestring, feeling that you can't afford to
lose. I'd rather bet on somebody starting out with a few thousand
dollars than on somebody who came in with millions." - William Eckhardt
"In many ways, large profits are even more insidious than
large losses in terms of emotional destabilization. I think it's
important not to be emotionally attached to large profits. I've
certainly made some of my worst trades after long periods of winning.
When you're on a big winning streak, there's a temptation to think that
you're doing something special, which will allow you to continue to
propel yourself upward. You start to think that you can afford to make
shoddy decisions. You can imagine what happens next. As a general rule,
losses make you strong and profits make you weak." - William Eckhardt
"If you're playing for emotional satisfaction, you're bound
to lose, because what feels good is often the wrong thing to do.
Richard Dennis used to say, somewhat facetiously, "If it feels good,
don't do it." In fact, one rule we taught the Turtles was: When all the
criteria are in balance, do the thing you least want to do. You have to
decide early on whether you're playing for the fun or for the success.
Whether you measure it in money or in some other way, to win at trading
you have to be playing for the success." - William Eckhardt
"Trading is also highly addictive. When behavioral
psychologists have compared the relative addictiveness of various
reinforcement schedules, they found that intermittent reinforcement -
positive and negative dispensed randomly (for example, the rat doesn't
know whether it will get pleasure or pain when it hits the bar) - is
the most addictive alternative of all, more addictive than positive
reinforcement only. Intermittent reinforcement describes the experience
of the compulsive gambler as well as the future trader. The difference
is that, just perhaps, the trader can make money." However, as with
most affective aspects of trading, its addictiveness constantly
threatens ruin. Addictiveness is the reason why so many players who
make fortunes leave the game broke." - William Eckhardt
"Don't think about what the market's going to do; you have
absolutely no control over that. Think about what you're going to do if
it gets there. In particular, you should spend no time at all thinking
about those rosy scenarios in which the market goes your way, since in
those situations, there's nothing more for you to do. Focus instead on
those things you want least to happen and on what your response will
be." - William Eckhardt
If you don't think these principles are true, you haven't been trading very long. Print these out and refer to them often. |