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LEARN FROM MARKET WIZARDS – PART 6
Lex van Dam is a highly successful Dutch trader. He was a student while in Holland. He was attracted to trading because he thought it was a level playing field. He might’ve gone to university but he was still competing against lots of people who didn’t have a degree, yet were really very clever. In 1992, he started working as a trader for Goldman Sachs in London. In early 2009, Lex started a BBC TV show, titled: Million Dollar Traders. According to one website, the series was based on the premise that he could teach a group of people who had never traded before how to trade in a very short time period. He put his money where his mouth was and gave them $1 million to trade for a period of eight weeks. The result was amazing: the group as a whole did better than the professionals over that period.
Later in the same year, he launched a book titled: How to Make Money Trading, so as to explain further the trading strategies used in the TV series. In November 2010, he founded the famous Lex van Dam Trading Academy. Lex himself says this about the Trading Academy: “… The message of my Trading Academy is that you have to be smart about what you do with your money because money is a scarce commodity. Protect what you have, be clever about it and be responsible… Many courses are taught by people who don’t trade for a living but teach for a living. They promise to make you rich, normally by focusing on technical analysis of stocks or a few simple rules. I wish I could offer you the same, but unfortunately all I can offer you is a methodology that will work if you have a talent for trading. Luckily a wide variety of people have this talent: the winner of Million Dollar Traders was a full-time mother.” An interviewed with him was published on Trade2win.com in November 26, 2010 (Trade2win.com), and some quotes at the end this article were taken from that interview. You can learn more about Lex and his products and services at Lexvandam.com. We’re grateful to Lex for all his contributions to the world of trading.
Lesson
There are many simple but powerful secrets that can be learned from Lex. Some of them are mentioned here:
A). Your university degree can’t help you become a successful trader. There are many traders who don’t have degrees, yet they’re far smarter than you when it comes to the game of speculation. Fortunately, the kind of skills you need can be learned: it also comes naturally after years of experience in the markets.
B). If you want to learn about trading you’ll need to master 5 areas of trading. They’re trading and idea generation, company analysis, chart analysis, trading psychology and risk management. Each of these topics is a distinct issue in trading; and once you master them, you’re on your way to financial freedom.
C). Trading for a living is a possible endeavor (though hard). There are many people like Lex who trade for a living. It’s therefore better to take lessons from those who practise what they preach; not from those who preach but have no track record to prove their own expertise.
D). It’s very important that you start building your own track record. That’s the only way to prove to people that you’re good at trading. It’s your gains in the markets that’ll prove that you’re an expert, not your books, articles or knowledge. According to Lex, if you want to trade other people’s money, it’s really important that you start generating your own track record, which means making 1% steadily per month, over long periods. If you can do that every month, then you’ll be rich. It is not about making 10 to 20% in a month, the risk you need to take to be able to achieve that is way too high.
E). Money management (position sizing) plays a crucial role in trading success. Aiming for high returns will ultimately lead to high losses when the markets turn unfavorable to you. If you trade your own portfolio, you’re responsible to yourself. But if you trade other people’s money, you’re responsible to them. Your investors won’t appreciate huge drawdowns. They know that trading is risky, but they’d be glad to suffer small losses, not huge ones. Small losses are easy to recover, whereas huge losses are never easy to recover. Conservative risk control measures and rock-solid discipline are key in permanent survival in the markets (even if your annual profit is small).
Conclusion: Being able to manage your own portfolios successfully is great. Private ownership has long brought about many revolutionary innovations to the world of trading, and this has made indelible footprints on the financial markets. The emergence of cutting-edge technologies in trading has led to many intriguing developments – even as ever.
I’d like to end this article with more quotes from Lex:
1. “I trade for a living and I’ve done so for almost 20 years. I’m a risk averse guy. I just want to make sure that what I have I’m not going to lose. Of course I am unlikely to ever double my money in a single year but I have to be careful and smart about what I do as if I don’t, my career will finish prematurely. I think for people who trade more as a hobby, it’s probably not that different. You have to take it really seriously.”
2. “…It always goes back to that because everybody goes through great periods and if you have a great year you’ll make a lot of money anyway. It’s just making sure that when you have that bad period that you just stay in the game. Rule one is stay in the game. Always be able to get back to your trading screen the next day, no matter how bad the previous few months have been; you should still be around so when the market starts going your way you can profit from it.”
3. “If you do want to get into [trading] at all you have to be prepared and work hard and work smart. Also if you do any courses you have to be very careful about which ones you choose and which people you listen to. There are some very high quality honest educators out there who want you to be successful but there are many other people out there who think they can make a quick buck by pretending to be successful themselves and promising to teach you their ‘secret’ insights. I think the investment and trading education market should be properly regulated.”
