Bill Lipschutz Market Wizard
In , he started working on the trading floors as a clerk. You never know where you will end up in the end.
Only the truth about forex
The time it takes for a 1-hour swing trade to play out is typically one to two sessions. Well, that depends on the circumstance, but assuming the event calendar is clear of major obstacles, the odds are pretty slim. The chances of the event calendar being clear for both the Euro and U.
The bottom line is that time is a risk factor too. The longer a position sits open, the more likely it is to be affected by the news, both scheduled and unscheduled. A good rule of thumb for a short-term trade — 48 hours or less — is a ratio of three to one. For the longer-term trades, especially when multiple leg option structures are involved and some capital may have to be employed, I look for a profit to loss ratio of at least five to one.
This is a principle that I employ every day. I never take a trade without first considering the time factor in relation to the profit to loss reward to risk. Bill Lipschutz is the epitome of a Forex rags to riches story. Still, anyone who manages a record like his deserves recognition.
That money was spread across more than different stocks. Like any 20 something year old, he became a bit overconfident and lost it all on one mistake. But instead of giving up he persevered and eventually built the account back up to its former size. By the time he turned 28, he was hired by Salomon Brothers.
The year was , and their Foreign Exchange Department was brand new. The road to success in the Forex market is paved with obstacles, many of which will test every fiber of your being. Learning about and remembering success stories such as this will keep you thinking positive when you need it the most. So the next time someone says that only the rich succeed in the Forex market, be sure to share the story of Bill Lipschutz. I love this one. I have been from day one.
Even at the age of 14 — before I could legally trade — I was giving my mom money to invest in penny stocks on my behalf. Bill Lipschutz is another guy who is obsessed with trading.
The name of the game is perfecting the process. Bill Lipschutz embodies the kind of passion necessary to succeed. Heck, he even has one in the bathroom so he can check up on his positions while he — well, you know.
If a trader is motivated by the money, then it is the wrong reason. A truly successful trader has got to be involved and into the trading, the money is the side issue… The principal motivation is not the trappings of success. One thing I often tell my students is to forget about the money. Stop trying to make money and instead focus on perfecting the process.
All successful traders have one thing in common — their passion and child-like fascination for the game keeps them motivated; the profit is just the byproduct. Anyone can make a few bucks on a single trade.
Some may even get lucky and win a few in a row or perhaps have an entire winning month or two. But the real test of any trader comes when losses begin to stack up. This is especially true when those losses are consecutive. You lose your nerve and ability to see things clearly. Contrary to what you may think, the best traders feel the pain of a loss. When you go through a losing streak all the self-doubts come out and you do get very reluctant to pull the trigger.
There is nothing you can do that is right. Just every single thing you do is wrong. That is something you just have to learn to control. You really have to learn how to control that fear.
You have to feel the pain of a bad trade, or a wrong trade. You see, the moment you become numb to a loss, you start to gamble. While feeling the pain of a loss can be healthy, the fear of a loss can be equally harmful as being numb to it. When you begin to not only feel pain but fear it, you also start to doubt your abilities. You become afraid to pull the trigger even when a favorable trade setup is staring back at you.
If the market were to drop 50 pips over the next 24 hours, which scenario above would cause you the most stress? Remember that your stop loss is pips from your entry, so the market has not taken you out of the trade just yet.
One of the easiest and quickest ways to prevent the fear of loss is to risk less on each trade. The less capital you have at stake, the less likely you are to panic and make an emotional decision should the market test your nerves. Trading is a business, plain and simple. Now, for many families, having two or three TVs nowadays might be normal.
Instead of having a couple of TVs for, well, watching TV, he used them to keep an eye on the markets. He even had one next to his bed so he could roll over in the middle of the night to check on his positions. It would also likely do you more harm than good and not just to your relationship. Take it from me that watching every market tick leads to meddling in perfectly good trades.
That includes things like using weekends to study the markets and spending every spare moment reading about those who have achieved phenomenal success.
Bill Lipschutz is a fundamental trader to his core. His passions lie with studying macroeconomic and political events, past, present, and future that could affect a given currency. However, he does make himself aware of technical levels. Like most fundamental traders, he utilizes them to assist with his entries and exits. I, on the other hand, am not a fundamental trader.
I stay as far away from fundamental analysis as I possibly can. Everything I do and teach is on the chart — no indicators required. They can help fuel established trends or reverse them just as quickly.
I never trade in front of them nor do I let the outcome influence my decisions. For me, knowing when these events are to occur is enough, because everything I need to put on or take off trades is on the chart. Instead, he uses broader fundamental themes to form his ideas. Whether you rely on technicals, fundamentals or a combination of the two, being aware of outside forces and considering the potential impact on the market is always a good idea.
Perhaps he knew that the small change in fundamental value from the finance ministers comments was going to be met with some bargain hunters stepping in to buy Australian dollars. If he day trades the market heavily, then he can get a feel for how the good and bad news affects the markets.
In this case he was hoping that the people taking profit on Australian dollars or going short due to the finance ministers comments would provide him liquidity. He thought the market was overextending to the downside. Now it is also possible for some stops to have gotten tripped to the downside and for the market to be even more overextended because of those stops.
Also, he was probably keeping a mental note of what the fundamental value of each currency pair that he trades in is. He keeps that number in his head as he takes into account all the various information and determines how various market participants respond to this information. Many of the great traders have a certain feel for the market and know when it is out of sync and stretched too far.
I generally disagree with him. Missing an opportunity can feel bad at first. So long as you have an order flow edge in the markets, and know you have developed the skills to be able to find and place those good trades. Bill Lipschutz seems to like to trade using limit orders. He hates using market orders. I personally have no problem using a market order and paying the spread. If I have been waiting patiently for a big move to occur in the forex markets, and have the market timing down, then I will pay the spread no problem.
If the market is going to make a pip move, I am not going to be trying to get an extra pip or two better price. I will pay the spread. Then the interview goes into his background. Bill Lipschutz started off studying architecture, but wounded up a trader.
A lot of highly successful traders have stories like this. Bill Lipschutz started off studying architecture. Bruce Kovner used to be a taxi cab driver. Lipschutz spent a lot of time studying annual company reports when he started off trading stock options. He read a lot of financial periodicals. Sounds like he was increasing his conscious and subconscious market understanding. He points out that he never remembered making a conscious decision to be a trader. Bill states that it was a gradual process.
And that is how trading is, especially order flow trading. It is a gradual order flow transformation. Eventually Bill Lipschutz talks about how Salomon Brothers just decided to start a foreign exchange department. Bill says that they just got a whole bunch of bright people together, traded the product and see if they can make some money.
They have no written business plan. They just did it on the fly. They just got a few traders together with RAW trading talent. That was how the gunslinger traders did it back in the days. Go in guns blazing, take a few positions, get a feel for the market, the order flow and information flow and figure out how to trade it.
Lipschutz states that they went to dinner with different international bankers a few times per week. Looks like he was trying to get plugged into the information flow. Then Bill Lipschutz gives us a little bit of old trader wisdom, which still stands fairly true today:. Your ability to find good liquidity, your ability to be plugged into the information flow-it all depends on relationships.
Bill then talks about how he was the first person to have a trading screen at his house. His friends thought he was nuts, but Lipschutz told them the forex market is 24 hours. It is there all night and it can move. Bill Lipschutz wants to be plugged into the information flow. He wants to know what is going on in the world. He wants to know what the global macro environment looks like. He wants to hear rumors of big players entering and exiting the market. He wants to get a feel for how the market is positioned.
Is everyone starting the day fully long or short? Or is there a mixture of positions? Bill Lipschutz then gives us some more trading wisdom: I would add in order flow into that mix as well.
So forex trading is all about trading off order flow and information flow. This is the formula for all financial markets. Bill then gives an example of information flow, sentiment and market expectations. The market thought that these large capital inflows to rebuild East Germany and get it up to par with the rest of the world would result in the Deutsche Mark appreciating in value. That was the market sentiment, that was the market expectation and there were probably billions of dollars riding on that scenario playing out.
The sentiment starts to shift as new data releases, and new speeches start to cause market participants to come to the realization that the rebuilding and integration of East Germany would be difficult.
Eventually people start unwinding those bets being long Deutsche Marks. That causes bearish order flow for the Deutsche Mark. There may also be some speculators not just reducing their exposure to zero, but also going short the Deutsche Mark as well.
That results in more bearish order flow. If you combine two economies together lets say West Germany and East Germany, with the west portion being strong economically, but the east being weak economically coupled with a difficult rebuilding and integration process, then that can hurt the currency because the German Central Bank — the Bundesbank , now needs to take into consideration this weaker economy that just entered Germany and may hold off raising interest rates.
Lipschutz then talks about stop hunting. He then gives an interesting trade example about where the floor traders hunting stops which were ticks below the market, even though the closest stops were only 50 ticks above the market. The floor traders knew that everyone was long in anticipation for the market running the stops higher.