Bill Lipschutz’s name will appear in Google’s top 10 Forex traders. Lipschutz worked for Solomon Brothers as Global Head of Foreign Exchange from 1981 to 1990. He is Hathersage Capital Management’s co-founder and Director of Portfolio Management. He played a vital role in developing the exchange-traded and over-the-counter foreign exchange options market. He held several elected and appointed positions in the foreign exchange company.
Bill Lipschutz was born in Farmingdale, New York. While attending Cornell University, he also started his trading career. He graduated from fine arts and, in 1982, completed his MBA. His success in the forex market can be attributed to his rich educational background.
His interest in stocks arose when he inherited $12,000 worth of stocks after his grandmother’s death. After hours of research, he turned his inheritance into $250,000. He did, however, have his fair share of ups and downs in his investing career. One of the striking examples is when he made the mistake of not using an appropriate risk-management strategy. Due to this, he lost an entire portfolio balance on a single bad trade. Instead of walking out from this major setback, he was fueled with an interest in trading and learning from his mistakes. As a result, he had formed his own company, Hathersage Capital Management, in 1995.
Many books have featured Bill Lipschutz. In 1992 Jack D Schwager in his book The New Market Wizards: Conversation with America’s Top Traders featured Bill Lipschutz. Then in another book
The Mind of a Trader: Lessons in Trading Strategy from The World’s Leading Traders, by Alpesh B. Patel in 1998 also featured him. In October 2006, he was also inducted into the Traders Monthly Hall of Fame.
Strategy for Trading:
Bill Lipschutz focuses primarily on a thumb rule on a return of three dollars for every one dollar risk. Along with this thumb rule, it is crucial to know the difference between a winning trade and a losing trade, the timing of the trades, the stop loss- take profit set, and the size of trades.
In an interview with Jack D Schwager, Bill Lipschutz said that making a mistake in calculating the trading size and winning or losing trade ends up paying the price with trading capital. The crucial element of price action trading is understanding the big picture of the market.
He advises investors to understand the market well, whether based on technical or fundamental analysis. Many traders do not focus on fundamentals. It is imperative to understand the essential function of fundamental analysis as it provides the logic and reasoning behind the market movements, in short, to know how the market thinks and hedge the risks involved.
Many traders join and start to trade thinking that a market is a money-making machine that is not advisable, he continues.
In the interview with Jack D. Schwager in “The New Market Wizards: Conversation with America’s Top Traders.” Bill Lipschutz has revealed many important tips for successful forex trading. Let us dive into and look at some of these tips.
Paying attention to the risk-reward ratio.
Bill Lipschutz said that attention needs to be paid to the Reward-To-Risk ratio. In a normal scenario, the reward should be three times the risk. He said to look for a three-to-one multiple of upside to the downside for a short-term trade. Short-term trade should be 48 hours or less in a ratio of three is to one should be implemented.
This ratio should be five to one for a long-term trade for a profit to loss ratio, continues Bill Lipschutz.
Understanding the market sentiments.
Bill Lipschutz says that it is important to understand the market sentiments. He says that each trader has a different approach to the market. They may or may not be purely technical traders. But if they feel that something will happen in the market according to their charts, then the chances of being confirmed are real. Otherwise, you might as well compromise your trading position.
Hard Work pays off.
Bill Lipschutz says that best traders are highly intelligent and ready to do anything to achieve success. But just being intelligent is not enough to be successful in forex trade. Instead, they look at money as keeping a score and derive satisfaction out of trading itself.
Total focus:
According to Bill Lipschutz, a successful trader is totally focused and involved in trading. It is not like some game. While making money is a criterion, it should not be the only criterion. Not many investors are prepared to pay the price of phenomenal success—however, those who do have virtually no price to pay since they enjoy what they are doing.
Options should not be considered to be an insurance policy.
Bill Lipschutz says professional traders should not consider options as insurance policies. However, if there is not much liquidity or the prices are often discontinuous, options could be regarded as insurance.
Pain of loss must be felt.
The best traders are never numb to the pain of loss because if they do, then that is the end of the game, explains Bill Lipschutz. Once the trader goes numb, they start to gamble and pump more money when they lose. To recover the lost wealth, they don’t take educated guesses but rely on their feelings and lose badly.
Bill Lipschutz is the best example of determination when it comes to trading. Even though he initially lost a lot, he still made it big despite it. So even though the investor has a rough start does not mean that they cannot become one of the best traders out there.