Bruce Kovner is one of the worlds greatest traders of all time and in this article, we will look at his trading techniques and some great tips for profit, from some of his best quotes.
Bruce Kovner went to Harvard univeristy in 1966 but left the Kennedy School before he finished his Ph.D and decided to become a commodity trader. Kovner invested $3,000 Master Card from his credit card in 1977 and made profits of $1,000 on his first two trades and then from just $4,000 he increased his account to $45,000 in six weeks but lost just under half of it. While he still had a big gain on investment, like many traders who went on to become great, the loss actually helped him achieve huge success:
“I had a huge gain but lost half before getting out? I lost half the profit in an hour. I closed out the trade and was physically sick for a week. In retrospect that was a very good thing says Kovner. It helped me understand risk and create structures to control risk."
In 1983 Bruce Kovner set up Caxton his investment fund and the fund, has returned 28% annually since the fund started. In 2001 Kovner is believed to have made around $500 million personally so how does he trade and what trading tips does he have, for us to use in our trading strategy?
He is known for seeing the big picture and how different markets interact and has a deep understanding of the fundamentals but also checks charts and has a great insight into market sentiment. He compiles sentiment reports daily to check for bullish and bearish extremes. He tries to imagine a world different from today (known as alternative scenarios) and has a strong conviction in his view which enables him to trade against the crowd with discipline and conviction. Below, find some quotes from him which give us some great tips for profit.
Quotes and Comments
“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.”
He studies the fundamentals in great depth but like many of the great traders combines this with a technical view to gain a trading edge.
“To make money, you have hold a position with conviction. It is hard to do so when you are following someone elses”
It's one of the best tips any novice trader should learn which is to develop a strategy your comfortable with and never, try and follow anyone else.
“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I'm getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. I never think about other people who may be using the same stop, because the market shouldn't go there if I am right”
“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” His early losses means like all the top traders, he has strong money management to preserve equity and also makes a point which is totally correct: “If you personalize losses, you can't trade.”
How many traders take losses personally? Most and all this does is it undermines the disicpline, to follow a trading system unemotionally. The market will give you losses its nothing personal and doesn't mean your a failure. Just take them, keep them small and wait for the market, to reward you with bigger winning trades.
“The Heisenberg principle - If something is closely observed, the odds are it is going to be altered in the process. The more a price pattern is observed by speculators the more prone you have false signals; the more the market is a product of nonspeculative activity, the greater the significance of technical breakout”
This is a great quote and if the trade is unexpected and you feel nervous doing it – then its probably going to be a great trading signal to take.
He is a hard working trader and has trading screens in his Park Avenue apartment and his country house and has his employees keep him informed of market news 24 hours a day – he is known for his attention to detail, his work rate and also his consistent track record of results which makes him one fo the top traders of all time.