ZF Capital

Before I began my trading career, I played a lot of poker. I read every book I could find on the subject and learned that poker isn’t a game of luck, but one of both risk and odds management. Leaving bluffs aside, if you bet or call only when the odds are in your favor and plan your bets so that you stay at the table, you will make money over time. That doesn’t mean you’ll win every hand, far from it. But if you always keep the odds in your favor and scale your bets accordingly, you will come out a winner in the long run.

– Victor Sperandeo, Trader Vic II: Principles of Professional Speculation

Dieting provides an apt analogy for trading. Most people have the necessary knowledge to lose weight– that is, they know that in order to lose weight you have to exercise and cut your intake of fats. However, despite this widespread knowledge, the vast majority of people who attempt to lose weight are unsuccessful. Why? Because they lack the emotional discipline.

– Victor Sperandeo, The New Market Wizards by Jack Schwager

What are the personality traits of a successful trader? In outward style, there seem to be two opposites. One is quiet, reserved, and not normally noticed at a gathering. The other is an extrovert, flamboyant, fun-loving eccentric: something of a renegade. But inwardly, they are alike.

In college both types spent a lot of time at extracurricular interests, and both had irregular grades – A’s in some subjects, and C’s in others. Usually they are neither loved nor hated., and they adapt to new people and events with ease. They are extremely determined and extremely individual, never asking for favors or help. They may ask your opinion and read many forecasters’ views, but rarely act on anything but their own decisions.

They are honest to the bone, living by their own wits and courage. Some are vocal and curse at losses or themselves, and sometimes yell and scream at executions; but generally, this is just an outlet for tension. All view profits and losses as their own responsibility, not anyone else’s problem. The best ones are usually internal; they hold hurts within and force a smile when taking losses. Most pros talk about their losses, not their profits. They brag not about their winners, but how they lost.

– Victor Sperandeo, Principles of Professional Speculation

The market is, by its nature, a most merciless judge. Every day, the efficiency of your judgment goes on trial, and when the gavel comes down with the closing bell, your sentence is automatically reflected on your ledger sheets. If your judgment is good, then you’ll consistently make money. But if your judgment is bad, then your survival depends on lady luck who, at best, will usually serve you for only a little while.

Being under such relentless and continual pressure can be an enormous psychological and emotional burden. The constant stress and tension of trading can take a tremendous toll on you, both physically and emotionally. But only if you let it. To avoid paying the price of mental and/or physical exhaustion requires an exceptional level of integrity in thought, emotions, and actions.

– Victor Sperandeo, Trader Vic II: Principles of Professional Speculation

The most important reason to analyze your mistakes is that mistakes and failures are always the best teachers; they reinforce the fact that you should always follow the rules. If you can truly and honestly identify the reasons you make a mistake, then your chances of making it again are much less.

Most often, mistakes are rooted not in ignorance, but fear: fear of being wrong, fear of feeling humiliated, and so forth. To trade well, you have to conquer fear; and to conquer fear, you first have to admit having it, which means admitting your mistakes and analyzing them.

– Victor Sperandeo, Trader Vic – Methods of a Wall Street Master

The principle of preservation of capital implies that before you consider any potential market involvement, risk should be the prime concern. Only within the context of the potential risk should the potential reward become the determining factor in taking a position. This is the true meaning of risk/reward analysis. Properly applied, it sets the standard for evaluating not only whether to be involved in a trade or investment, but also to what degree. Thus, preservation of capital– “Don’t lose any”– becomes the basis for prudent money management.

Approaching market participation with risk as your prime concern forces you to look at performance from an absolute standpoint rather than a relative one. For many investors and money managers, this is not the case. Their goal is to “outperform the averages.” If the market is down 15 percent, but their portfolio is down only 10 percent, they think they are a success. Not only is this approach a poor excuse for bad performance, it distorts the money manager’s ability to engage in appropriate risk management.

In terms of performance, there is only one valid question: “Have I made money, or not?” If so, then it is appropriate to increase the percentage of capital at risk. If not, then it is time to cut back. Any other approach will ultimately lead to capital consumption.

– Victor Sperandeo, Trader Vic II: Principles of Professional Speculation

There is no freedom from risk. There is no freedom from fear. There is no freedom from pain. There is no freedom from the possibility of failure. But there is freedom in acceptance of all of these as part of life, and moreover, as the least important part of life.

– Victor Sperandeo, Trader Vic — Methods of a Wall Street Master