Bill Lipschutz is considered one of the greatest if not the greatest, currency trader of all time and with good reason – during the 1980s, in his eight-year career with Salomon Brothers, he generated over half a billion dollars in profits trading currencies. Let’s take a look at his trading strategy in more detail and what you can learn from him.
Bill Lipschutz has had his fair share of losses but like all good traders he learned from them and like all the best traders he plays great defence and focuses on preserving equity first. He does not placing the entire trading capital into one single trade, or even into trades which have a tendancy to move together which are correlated.
He also puts great emphasis on looking at the risk / reward ratio at the time you look at it and not from the point in time when the trade was first taken – events change the risk reward and you need to see you. All the great traders know how to manage risk and many of the greatest traders have been taught by the pain of taking a big loss. If you want to win at Forex trading, strong money management is the foundation any successful strategy is based on.
“I don’t trade on dreams or rumours. I’m a fundamental trader. I try to assemble facts and decide what kind of scenario I think will unfold.” Bill Lipschutz, Market Wizards
Its the fundamentals which move markets, sure technicals can help you time your trades better and give an idea of historical value but supply and demand facts, generate long term trends. Bill initiates trades only when the fundamentals are favourable; this may sound simple but most traders don’t do it and never bother looking at the bigf picture.
The Art of Trend Following
Big trends last a long time and as Lipshutz says:
“It is well acknowledged that the most profitable market environment for FX [foreign exchange] trading is a trend – in particular a trend that unfolds over a medium-to long-term time horizon,”
Lipschutz identifies big trends and then tries to ride them to their conclusion, of course this is not easy but knowing the fundamentals and looking at charts, he can see over and under valuation better than most and when to get out and in. Also he doesn’t bother trading short term moves or day trading, most new traders try this but all their doing is trading the noise of the market and lose. If you want to win, trade the big long term trends, its as simple as that.
Bill Lipschutz still trades today and still has an outstanding track record of profits. His status in the trading industry was acknowledged by his induction into the Traders Hall of Fame – simply one of the greats and if you read more on his strategy, you will get some great tips on what it takes to win at currency trading.