ForexSpirit

While foreign exchange trading has only been accessible to the average Joe trader for a few years now, it is still a market with enough history to have spawned its own legends and giants of the game.

Knowing about such people can be a source of inspiration to the aspiring trader as well as a lodestone pointing towards success. As in just about any other field of human endevour, a groundwork for success has been laid down; there is no need for us to reinvent the wheel. All you have to do is stand on the shoulders of these giants to reach even greater things.

One such titan of the forex world is Bill Lipschutz.

Back in the 1980s he helped create one of the most powerful trading groups on earth: the Salomon Brothers FX department. Lipschutz was a key player in the currency-option market on the Philadelphia Stock Exchange. Often times he was the market, sometimes holding 80% of the open-interest.

When holding so much sway it is not surprising that in an article in Trader Monthly Lipschutz remarked:

“Underlying fundamentals often didn’t matter. It was about who blinked first.”

After leaving Soloman Brothers in the early 1990s, Lipschutz formed his own currency management company which was initially a subsidiary of Merrill Lynch. The company later evolved into a completely independent venture called Rowayton Capital Management. In 1995, Lipschutz left Rowayton to help form Hathersage Capital Management, where is still currently working.

Bill Lipschutz’s performance results over the past 15 years speak for themselves.

He has kept a low profile for much of his career, although he garnered a lot of attention after being interviewed for The New Market Wizards by Jack D. Schwager

In the interview Bill offers some valuable insight into his trading methodology. I found the following passage particularly interesting, especially given my view that forex markets are very random at short time frames, thus making it all but impossible to have pin-point entries and exits:

You have to trade at a size such that if you’re not exactly right in your timing, you won’t be blown out of your position. My approach is to build to a larger size as the market is going my way. I don’t put on a trade by saying, “My God, this is the level; the market is taking off right from here.” I am definitely a scale-in type of trader.

I do the same thing getting out of positions. I don’t say, “Fine, I’ve made enough money. This is it. I’m out.” Instead, I start to lighten up as I see the fundamentals or price action changing.

On the flip side, in his very next comment Bill describes how he very much in the ‘let your winners run’ camp, which I don’t really follow at all:

I don’t have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don’t think you can consistently be a winning trader if you’re banking on being right more than 50 percent of the time. You have to figure out how to make money being right only 20 to 30 percent of the time.

Of course, the winning percentage rate of your system does not solely determine if you’ll be profitable or not. To figure that out you need to calculate the expectancy of your trading system.

Bill Lipschutz is one of the world’s great currency traders, which is why he is richly deserving of being the first inductee into this website’s Hall of Fame.