This guest blog post is written by Vlad Gubernat. He is a full-time trader based in Romania who shares his thoughts on his blog, JLTrader.
Stanley Kroll was a legendary commodity trader. After ten years as a broker, he decided to become a money manager for his and a few partners’ accounts in the early 1970s. He then succeeded in having a few years with triple and even four-digit annualized returns before taking a five-year sabbatical to travel around the world. Kroll shared with us the thought processes and trading techniques used to achieve such outstanding results in an excellent book called ‘The Professional Commodity Trader’. Following is a summary of what Stanley Kroll considered it took a trader to get into and stay in the winner’s circle:
– Make a realistic appraisal of your objectives in trading. Is it to engage in an exciting and dangerous game
or to make lots of money? If the former, you’re better off taking up sky diving or going on a trip around the world as both are much more exciting than trading. If the latter, be aware that you’ll have to work long, hard and seriously at it.
– Develop and practice patience, objectivity and determination.
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– Isolate and identify the major and minor price trends of the market and concentrate only on the major moves. Selectivity is the name of the game and you should restrict your trades to those situations which lie in the direction of the major market trend, because that’s where the big money is.
– When you do initiate a position, assume that you’re aboard for a major move. Don’t close trades because of boredom or impatience.
– When the market is moving favorably, go for the big score and don’t settle for a minor profit. You do this by staying with the trade – letting the profits run – and by adding to the position (pyramiding). On the other hand, when you have a losing position which is contrary to the major market trend, close it out to minimize the loss.
– Trading in the direction of the trend, you should initiate a position on either a significant breakout from the previous or sideways trend, or on a reaction to the ongoing major trend. In other words, in a major downtrend you should sell on minor rallies into overhead resistance or on a 45-55% rally from the recent reaction bottom. In a major uptrend, you should buy on technical reactions into support or on a 45-55% reaction from the recent rally high.
– If you make money on less than half of your trades, you should work to improve your percentage: trade less and be more patient and discriminating in choosing positions.
– Keep things simple: that applies to every aspect of the trading business, from market and research approach to timing and price objective studies.