Generally, there are 2 approaches used by a trader. Some traders use the Fundamental approach and others technical. But few use both of them and make it big. Bruce Kovner is one of those traders.
Bruce Kovner was one of the biggest traders in the world in the interbank currency and futures markets during his career according to author Jack Schwager. He is the founder and chairman of Caxton Associates, a global macro hedge fund. Kovner retired from the hedge fund in 2011 after managing it for over 30 years with a net worth of $5.3 billion dollar.
Past
When he moved back to the United States in 1974, Kovner used to teach politics during the day and began to study financial markets at night. And by 1977, made his first tentative steps into financial markets, the financial world had already begun its remarkable transformation.
In 1977, young Kovner bought his first soybean futures contract worth $3000 and quickly realized a gain of $40,000. But greed got the better of him: refusing to take the profit he watched his contract fall $17,000 before finally pushing the sell button. Although he earned $20,000 profit on the trade. the $17,000 loss from his unwillingness to lock the gains led him to take an ultra-conservative approach to risk management in his future career.
Risk management
For Kovner risk management is the most important thing to be well understood. Whenever he used to enter a position, he predetermined stop. The position size on trade was determined by the stop, and the stop was determined on a technical basis.
When asked what he thinks about Technical Analysis
“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. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is — whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge.” said Bruce.
He considers technical analysis like a thermometer. The technical analysis reflects the voice of the entire marketplace and, therefore, does pick up unusual behavior. By definition, anything that creates a new chart pattern is something unusual. It is very important to study the details of price action to see if one can observe something about how everybody is voting. Studying the charts is a critical stance and alerts to existing disequilibria and potential changes.
Bruce Kovner was also heavily influenced by Michael Marcus
Michael taught him one incredibly important thing. He taught that you could make a million dollars. He showed that if you applied yourself, great things could happen. It is very easy to miss the point that you really can do it. He showed that if you take a position and use discipline, you can make it.
Bruce said in his interview that one of the jobs of a good trader is to imagine alternative scenarios. Try to form many different mental pictures of what the world should be like and wait for one of them to be confirmed. You keep trying them on one at a time. Inevitably, most of these pictures will turn out to be wrong and only a few elements of the picture may prove correct. But then, all of a sudden, you will find that in one picture, nine out of ten elements click. That scenario then becomes your image of the world’s reality.
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