Welcome to Trading With Larry Benedict

If this is your first time reading Trading With Larry Benedict, thanks for joining us. You can catch up on all previous issues right here.

During this two-month series, you’ll hear from one of the world’s very best traders and hedge fund managers… Larry Benedict. He’ll detail everything from the trading methodology that’s made him a fortune over the years, to stories from the trading pit that you won’t hear anywhere else.

Any questions or feedback? Shoot us a note anytime at [email protected].

Daina’s note: Daina Schnese here, managing editor of Trading With Larry Benedict. If you’re just joining us, we’re happy to have you on board. 

On Monday, Larry gave readers a glimpse of his early trading career… and what it was like getting fired on the trading floor for eight months straight. 

Today, Larry dives into the importance of taking profits as a trader. He shows us why no profit is too small to take, and introduces us to the No.1 pitfall new traders fall into… 

Daina Schnese: I’ve heard you say trading is more about money management than anything else. What do you mean by that? 

Larry Benedict: Trading is a business. And like any business, you have to have a goal of what you want to make, and execute it. When I was running my hedge fund, that was how I did business. Clients would just write down a number on a piece of paper and that’s what I had to make for them. 

Similar to those clients, anyone who’s serious about trading should have a goal of what they want to make. A number on a piece of paper that they’re going to make in one month… two months… or whatever timeframe it may be. 

But that can’t happen if you don’t have consistency and proper money management. 

You want a positive P&L [profit and loss] on paper. You should always look to put a P [profit] on the page. It doesn’t matter if the profit is small – if you have it, you take it. And if you keep doing that, over and over again, you accumulate more and more money and can afford higher levels of risk… which tends to lead to bigger rewards. 

If you’re trading to make sure your winners outweigh your losers, you won’t be beat. 

Daina: Would you say it’s about managing your misses then?

Larry: Yeah, managing your misses is important. You want your losers to be much smaller than your winners. But what’s more important is to change your position size, and your risk tolerance, depending on how well you’re doing. 

So, if you’re not trading well, you take on less risk and pare down your positions. But if you are trading well, you can take on more risk. 

Daina: That sounds very simple. Just put profits on paper. So where do traders go wrong here?

Larry: It seems obvious and easy to follow, but most new traders don’t think that way…

First, it’s because they get attached to their losers. They sit on a losing position, hoping it will eventually become profitable… and sometimes it never does. 

And second, they never take a profit unless it’s a grand slam. They’ll keep pressing, even when they’re losing money. They think that’s the only way to be successful.

But that’s the wrong line of thinking… and it’s the number one pitfall new traders tend to fall into. They don’t understand how to size their positions according to how they’re trading. They don’t earn their risk. And understanding how to do that is the most important thing in trading.

Daina: How did you learn that earning your risk was important? Did you have to make mistakes or learn from others?

Larry: All of the above. For example, in 1984, I started out on the floor of the Chicago Board Options Exchange, with $10,000 of my own money.

Larry (right) on the floor of the Chicago Board Options Exchange in the mid-1980s

I had a buddy named Andy who was making money every day. But I couldn’t figure it out. 

I called my mom and told her Andy was making so much money and I was losing all of mine. She said, “Just do what he’s doing.” 

Daina: And what was Andy doing that made him so profitable?

Larry: He was letting profits slowly trickle in. He wasn’t going for the grand slam. He was building capital. 

I couldn’t just “do what he was doing,” though, because I hadn’t learned yet. I chewed through all of my money, probably two or three times, by making silly mistakes. Things like being too impulsive, going for the home run, or holding onto losers too long… All the basic “no-nos” of trading.

But, each time I chewed through all of my own capital, I learned something. I got closer to learning how to let go of losers and avoid impulsive trades. Then, I got picked up by another firm and they gave me some money to trade and a shot. And over time, I began to figure out proper money management.

But, it takes both practicing on your own and learning from others. I was lucky because I made all my mistakes early on in my career, and was willing and able to bounce back. 

The whole takeaway from this is you can start small and become a big-time trader. And it all starts with learning how to slowly put profits on the page until you earn your risk. 

Daina: That’s all we have time for today. Next time, we’ll talk more about the number one pitfall new traders fall into… not earning their risk. Thanks for chatting, Larry. 

Larry: No problem, my pleasure. 

Daina’s note: During our next conversation, Larry will do a deeper dive into the number one pitfall novice traders fall into… what he calls “not earning your risk.” He’ll also share one of the biggest positions he ever took on a trade. Keep an eye on your inbox for your next issue of Trading With Larry Benedict on Monday at 9 a.m. ET.

About Larry Benedict…

Larry is a former hedge fund manager with over 30 years of investing experience. He’s also known as one of the world’s best traders… and for good reason.

From 1990 to 2010 – when he was actively running hedge funds – Larry never had a single losing year.

Larry’s market commentary is frequently featured in Bloomberg, Barron’s, and The Wall Street Journal, among other major news outlets.

That’s why we’re publishing this limited-edition interview series over the next couple months. When we saw what Larry could offer to everyday investors, we knew we had to share everything we could with you.

If you have any comments, questions, or suggestions about this free e-letter, please drop us a line at [email protected].

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