Market Wizards: Steve Cohen

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.

I always tell my traders, "If you think you're wrong, of it the market is moving against you and you don't know why, take in half. You can always put it on again." If you do that twice, you've taken in three-quarters of your position. then what's left is no longer a big deal. I find that too many traders just stand there and let the truck roll over them. A common mistake traders make in shorting is that they take on too big of a position relative to their portfolio. Then when the stock moves against them, the pain becomes too great to handle and they end up panicking or freezing.

[Another mistake people make is that] They make trades without a good reason. They step in front of freight trains. They short stocks because they are up, as if that were a reason. They'll say, "I can't believe the stock is so high," and that's their total research. That makes no sense to me. My response is: "You have to do better than that." I have friends who get emotional about the market. They fight it. Why put yourself in that position.

You trade your theory and then let the market tell you whether you are right.

I felt that the inability of some traders to achieve success was usually due to personal flaws rather than a consequence of bad ideas versus good ideas. All traders have something holding them back.