Trading Forex the Bill Lipschutz Way

As a forex trader, you need to learn from other traders who have succeeded in a big way. And, if you are looking for a true success story, then Bill Lipschutz may be one of the best examples you will find.

Lipschutz started out with a relatively small stake – $12,000 – and managed to parlay it into a $250,000 bankroll. This was back in the late 1970s, and $250,000 was a lot of money. However, he lost all of his capital on one bad decision made in punishing market conditions. Many of us would swear off investing after that, but Lipschutz was different – he regarded it as a learning experience that he would profit from in the future.

After graduating from Cornell in 1982, he joined Salomon Brothers. Here, he quickly moved into the investment bank’s newly formed forex department. He soon became one of the top traders there, generating more than $300 million the year in profits by 1985. He continued his success at Salomon Brothers until 1990, when he left to engage in a number of other ventures. He then founded Hathersage in 2005. In 2006, he was inducted into the Trader Hall Of Fame.

So, what does Lipschutz have to say about successful trading practices?

Pay attention to market sentiment

Lipschutz believes that sentiment moves markets – you ignore it at your peril. Even if the market perception is based on shaky or nonexistent facts, it is still going to have a huge impact. If traders believe something, then they will drive market momentum and create a self-fulfilling prophecy.

Risk/reward ratios are key

Not every forex trade is going to be a winning one – in fact, most traders lose more trades than they win. Lipschutz stresses the importance of looking for opportunities with good risk/reward ratios because of this. He looks for a minimum of 3 to 1 for any deal – he won’t open any position were the potential profits are less than 3 times the amount of money he is risking. Not only that, if a trade is complicated, he looks for a higher ratio of around 5 to 1.

Get the details right

For Lipschutz, identifying a high-percentage opportunity is not enough. He believes that the mechanics around each trade are as important as the initial opportunity identification. He stresses that you need to structure your trade to maximize your potential profits. For instance, you may leave large amounts of money on the table – or even lose – if you get your timing wrong or put your stops too close, even if the deal turns out to be a winner in principle.

Hard work trumps genius

Lipschutz says that you need to be intelligent to succeed in the forex market, but that isn’t enough. To win consistently, you have to be prepared to do whatever it takes – this is what sets successful traders apart from the “also rans”. He also says it is a mistake to focus just on making money – you need to find trading itself a source of deep satisfaction, and look at money as an outcome of that.

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