Steven Cohen: "This is not a perfect game [...] you’re going to be wrong a lot"

So, yesterday I was re-reading the Stock Market Wizards book, specially the Steven Cohen interview, and I found a piece of information that deeply caught my attention:

Mr. Schwager Question:
When you put on a trade and it goes against you, how do you decide when you’re wrong? (The question actually relates to him and his traders)"

Mr. Cohen Answer:
“This is not a perfect game. I compile statistics on my traders. My best trader makes money only 63% of the time. Most traders make money only in the 50 to 55 percent range. That means you’re going to be wrong a lot. If that’s the case, you better make sure your losses are as small as they can be, and that your winners are bigger"

It is simply amazing that a guy with a track record of + ~40% anually after 50% of perfomance fees said something like this. He is either bluffing or money mangement is really what makes the difference between the tiny percentage of sucesfull traders and the rest. Since it is suposedly very hard to foretell the future, even for the legends, it is how you handle the winning and the losing positions that is the determinant factor of your bottom line.

I like this theory.

 

What is so amazing about his statement?

 

I didn't know cohen did an interview with schwager? First book or second?

Edit: Never mind, I'm thinking of 'Market Wizards' not 'Stock Market Wizards'

 

The Cohen interview starts on page #266 in Stock Market Wizard's "Interviews with America's Top Traders"

http://www.amazon.com/Stock-Market-Wizards-Interviews-Americas/dp/1592803369/ref=pd_sim_b_2

 

I would say that it is without a doubt, that latter. It's all about money management - - - keeping the losers small with cold, hard, discipline and allowing the winners to run.

That is why it is so incredibly hard to believe that there are traders out there that claim to be successful (one such person comes to mind here on ET) that DO NOT USE STOPS and consistently AVERAGE down into "trades" even though their initial opening position has gone terribly against them in percentage terms.

 

That's what many hedge funds do until they finally catch a bullet in the back of the head. What's the risk when you are using opm?

 

I have strategies that don't use stops and/or average into losers. There's many many ways to trade, there are no hard rules.

As for the Cohen comment, anyone with even a little trading experience wouldn't find that remarkable at all.

 

This is something everyone has heard before, but is hands down the hardest and most important aspect to being successful.

 

So who wants to post the entire interview for those of us who don't have the book?

 

Funny , but I guess he compares it to sports betting. To break even you need 52 % of wins . If you beat this number you are
good , you can translate this to daytrading .