3 Remarkably Valuable Lessons From The World’s Richest Traders

In the Market Wizards book series, author and fund manager Jack D. Schwager profiles dozens of top day traders from multiple industries.

He draws on his extensive interviews to explain ways many traders believe the markets reward people financially — or teach valuable life lessons.

Schwager proposes lessons from the market apply to business and life in general. He even recounts how a church minister used trading principles to build a congregation.

“Now, it is hard to get further from trading than the ministry, yet the same key elements seemed to apply. I suspect there are some common principles of success, and I have simply discovered them through the perspective of great traders.”

Even if you’re not interested in day trading, you can learn from successful traders to become more productive at work or to scale your business.

Manage Your Risks

“First, if you never bet your lifestyle, from a trading standpoint, nothing bad will ever happen to you. Second, if you know what the worst possible outcome is, it gives you tremendous freedom.” — Larry Hite, hedge fund manager

In Market Wizards, Hite describes to Schwager a time when a top coffee distributor invited Hite to his house in London to chat about a business idea. The distributor asked him about trading coffee, explaining he knew almost everything about the industry.

Hite’s advice was simple: Manage the risks involved.

Three months later, Hite discovered this distributor turned coffee trader had lost more than $100 million.

Hite explained to Schwager the new trader failed to manage risks and had over invested in coffee. Unlike this struggling coffee trader, Hite never risks more than 1% of total equity on any trade. This approach prevents him from losing money as quickly as this coffee trader.

Building up a side business is an effective way to manage the risks of being fired. Similarly, learning a new skill unrelated to your day job will help manage the risks of being replaced by technology.

Know When To Get Out

“I instinctively trade smaller, and sometimes I just take a break. It is a good habit to wipe the slate clean and start fresh.” — Brian Gelber, broker turned trader

Successful market traders know when to get out of a risky trade because they don’t want to lose all of their stake or their clients’ investments.

In other words, they avoid becoming emotional about breaking past commitments. Knowing when to get out applies to business too.

For example, let’s say you spent dozens of hours creating an online course you believe will solve problems for your customers.

However, despite your best marketing efforts, only a handful of leads buy the course and certainly not enough to justify the time and money you’ve invested in it.

Instead of doubling down and trying to improve the quality of the course, you could get out altogether and create a new offer, for example, a coaching program.

Similarly, you might have invested a year or two of your career in a company that isn’t doing well. Rather than clinging to the time you’ve already sunk into this business, prepare a plan for moving on before circumstances intervene.

Diversify

“I’m extremely well diversified. My thought process is that if I screw up in one place, I’ll always have a life preserver someplace else.” — Marty Schwartz, champion trader

Successful traders avoid financial ruin through diversification. Many of them avoid going all in on one trade or one asset class. Instead, they typically allocate no more than 5% of capital to a particular trade.

Consider your profession as a single asset. It might offer valuable returns come payday, but can you diversify?

If you’re a copywriter, you could learn other skills such as how to create Facebook advertisements. If you’re a graphic designer, you could learn how to design or develop websites.

If you run your own business, multiple products represent diversification too. For example, Ramit Sethi, a personal finance advisor and entrepreneur, offers courses in topics ranging from personal financial management to productivity to starting an online business.

Finding Success Like A Top Trader

Day traders typically have one goal: To generate a return on investment for themselves or their clients.

Even if the price of gold or Bitcoin doesn’t keep you up at night, you can draw upon the mindsets of successful traders to find success at home or in work.