From Humble Beginnings
Bruce Kovner is a renowned forex trader who, like Bill Lipschitz, was born in New York and rose from a meager start to amass a fortune. As founder of the famous fund Caxton Associates, Bruce Kovner is now worth over $5.5 billion, leading the company from its origin in 1983 through to 2011.
Like Lipschutz, Kovner did not start trading with a fortune. Instead, Kovner’s first trade was famously a $3000 soybean futures trade, placed in 1977, which he borrowed against his Mastercard.
This first trade was to be an important experience for the young investor who watched profits rise to $40,000 before then dropping sharply back to $23,000 at which point he exited the trade.
Of the trade, Kovner says that this first transaction was nerve racking and instilled in him the importance of utilizing proper risk management. Kovner said
“I had a huge gain but lost half before getting out! I lost half the profit in an hour. I closed out the trade and was physically sick for a week. In retrospect that was a very good thing… It helped me understand risk and create structures to control risk.”
Kovner Joins Commodities Corp
After leaving University Kovner became a trader at Commodities Corporation (which later became part of investment banking giant Godman Sachs) and reportedly gained a prestigious reputation on Wall Street as he amassed millions of dollars in profits for the company through his trading.
After rising to success with Commodities Corp, Kovner left to set up his own shop, Caxton Associates, which went on to manage $14 billion at its peak. The fund was a massive success story, averaging annual returns of 28% and has been closed to new investors since 1992.
In terms of his strategies and trading methods, Kovner is known to mix both fundamental and technical analysis saying that:
“Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he’s not going to take a patient’s temperature.”
Combing fundamentals and technical is a fantastic way to analyze the market and is a method that many new traders would benefit from.
Like many great traders, one of Kovner’s greatest strengths was his conviction in his ideas and his belief in his own ability, saying:
“To make money, you have to hold a position with conviction. It is hard to do so when you are following someone else’s”.
Many new traders often struggle with holding their trades open preferring to simply try and bank some profit as soon as it is showing up.
However, as all great traders know, the serious profits come from holding trades open to maximise winning positions.
This is typically a strength that is developed with experience and is certainly a practice which new traders should focus on developing.
The Importance of Risk Management
Kovner is a big believer in the importance of sound risk management, stemming from his very first trading experience which we discussed earlier. Referring to his risk management practises, Kovner says:
“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. I never think about other people who may be using the same stop, because the market shouldn’t go there if I am right.”
Placing a stop-loss is one of the most important elements of trading that new traders need to get to grips with on a daily basis. Entering a stop loss means that you are in control of your loss, you can determine the level at which you are willing to exit a losing position, it allows you to size your trades properly to know what you are risking and it also protects you against any unseen and adverse moves in the market.
By James Harte, Orbex
With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.