Wall Street Adages

Educational use only. Never intended as advice.

Everybody has their favorite songs, books, and movies. Traders need to have some favorite 'quotes', small reminders that might help keep us from making errors. Many here will have heard some or all of these, but keeping them in mind can make us or break us.

1. "A small loss is a professional loss." I think I read somewhere that Steve Cohen's best trader had a 63 percent win rate. So the best guy of the best guy is wrong almost forty percent. We're wrong, practically every day, so it pays to be wrong small.

2. "When the ducks quack, feed them." If the market hands us a windfall, then we should take some exposure off and be thankful.

3. "Discipline is more important than conviction." Setting entries, exits, and targets gives us a chance to win the 'losers' game'.

4. "Life is about the management of risk." Jesse Livermore, the famous Boy Plunger of Wall Street, made and lost fortunes multiple times, but ultimately took his own life. That's the ultimate in bad risk management.

5. "Think about who is on the other side of the trade." Wall Street attracts some of the sharpest minds around. They might just know something that we don't.

6. "I learned how to win when I learned how to lose." Marty Schwartz in Pit Bull.

7. Strong markets show strength end of the day and end of the week. Weak markets do the opposite.

8. Markets that are strong or weak throughout the session tend to close that way. I guess that most of us aren't capable of turning our opinion around abruptly. One trader commented on the genius of George Soros being his ability to change his opinion abruptly.

9. "Buy low, sell high." Because a lot of what I do involves 'mean reversion', this is an attractive strategy. That may be why certain types of approaches, like those advocated by Tom DeMark hold so much appeal to my trading approach.

10. "Markets will do the most obvious thing, in the least obvious way." Dave Landry attributes this to Linda Raschke. If a market hasn't done anything wrong, then do we have cause to exit?

Common themes remain, always centering around risk management. We just can't know too much or think too much about controlling risk.