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Bruce Kovner: Market Wizard Trend Follower

Bruce Kovner was written about in the original Market Wizards book. There are some comments from Bruce Kovner that every trend follower and stock trader should internalize. I reread through market wizards over the weekend and want to highlight some interesting points for trend followers.

Quoting Kovner,

“You have to be willing to make mistakes regularly; there is nothing wrong with it.”

There are those who try to avoid draw downs or losing trades. It is impossible.

The first rule of trading is that don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand.

I stay rational and disciplined under pressure.

Successful trainees are strong, independent, and contrary in the extreme. They are able to take positions others are unwilling to take. They are disciplined enough to take the right size positions. A greedy trader always blows out.

I sometimes put on a trade because “I’ve seen this pattern before, and it is often a forerunner of a market advance.” I usually go with breakouts. Tight congestions in which a breakout occurs for reasons that nobody understands are usually good risk/reward trades.

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.

On emotional control. On any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade. I never had a lot of difficulty with the process of losing money, as long as losses were the outcome of sound trading techniques. But as a day-in, day-out process, taking losses does not bother me.

I had too many correlated trades in 1981 when I lost about 16%.From that point on, I paid strict attention to the correlations of all my positions. I measured my total risk in the market every day. I assume that the price for a market on any given day.

Advice: a. risk management is the most important thing to be well understood. B. undertrade, undertrade, undertrade. Whatever you think your position ought to be, cut it at least in half. C. don’t personalize the market. A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn’t care whether you make money or not. D. if you don’t work very hard, it is extremely unlikely that you will be a good trader.

Regardless of the approach used, once a strategy is selected, the trader should stick to his game plan and avoid impulsive trading decisions.

These axioms of Bruce Kovner are what I teach in my trend following mentor courses. These words by Bruce Kovner are more powerful than seeking a Holy Grail indicator or system. If you can internalize them you are on your way to succeeding overtime as a trend follower.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts, commodity options or forex can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

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