Lessons for forex traders from Bill Lipschutz

When it comes to forex trading, there are not that many traders who are adored and respected. Among the very few, Bill Lipschutz is a name that is the most familiar among the traders.

Why is that so? You might ask.

The reason is simple. Bill Lipschutz is a forex trader who now successfully manages his forex asset management firm. From humble beginnings, Lipschutz made a name for himself in the trading circles. He did not have any background in trading or finance and was a self taught individual.

Of course, his big break came when he joined Salomon brothers. One of the top investment firms of its times. From there on, Lipschutz began to make consistent profits regularly which eventually led him to leave the firm and start off on his own.

This is a something that many traders dream of, to make it big and to probably manage a large asset management fund as well. But the story of Lipschutz isn’t one that made him a millionaire or a billionaire overnight.

It is a story of perseverance and learning from mistakes. One of the things that many traders can relate to the story is that Lipschutz also lost money. But the way he bounced back from the loss is something that is very inspiring.

In this article, we cover the story of Bill Lipschutz from his humble days to the current day where he is now a renowned trader in the forex circles.

Who is Bill Lipschutz?

Bill Lipschutz is one of the most widely followed trader when it comes to the trading community. He was first featured in Jack Schwagger’s Market Wizard series of books. The book is basically a compilation of some of the best minds in trading.

Interestingly, the story of Bill Lipschutz is something that wouldn’t have found a mention if not for his section in the Market Wizards book. It was from here that he shot to fame. The book Market Wizards compiles the trading experiences from many different traders. If you haven’t yet read the book, it is worth your time and effort.

There are lots of trading examples and stories that the average forex trader can relate to. Whether it is hope that you are seeking or a validation of your efforts, you can find that in the book, Market Wizards.

But this is about Bill Lipschutz, so let’s get inspired by his story of rags to riches.

The story of Lipschutz is one of humble beginnings. After pursuing his Bachelor’s degree from the University of Cornell, he got $12,000 as an inheritance after his grandmother’s demise.

He quickly used this money to invest in stocks and diversified across 100 stocks. However, he unwinded his positions in the equity markets. Caught up with the trading bug and seeking quicker returns he started researching about the markets at the University’s library.

Soon, he managed to turn his $12,000 into $250,000 by trading. This was no mean feat. But a bad decision led him to lose the entire $250,000 that he made. Faced with humungous losses, he learned some valuable trading truths the hard way; the importance of risk management.

He continued trading and managed to improve his capital back. After graduating from the Cornell University, Lipschutz joined Salomon brothers as part of their trading program. Upon completion, Lipschutz joined their newly opened foreign exchange department.

Within a few years, he managed to make a steady $300 million for the firm. This was in 1984. A few years later, he quit the firm and started various other ventures such as the North Tower Group and the Rowayton Capital management firms.

At a later stage, along with a few of his classmates from Cornell, he founded the Hatersage Capital Management in 1995.

Gaining on his experience with the forex markets at Salomon brothers, his new firm focused on the trading of the G10 currencies. The firm is still operational to this day. According to the website, the company manages assets for pension funds, private banks, endowments, family offices and other funds. Their primary focus is of course the forex markets.

You can see why Lipschutz is so popular among the forex trading community.

What lessons can we learn from Bill Lipschutz?

There are many lessons that one can learn from the story of Bill Lipschutz.

For one, he shows that it is possible to make money trading forex. His life experience of taking $12,000 to $250,000 is itself a remarkable achievement.

Many advanced to experienced traders today trade with this same amount of capital. But not many have managed to increase their capital tenfold and more. However, the fact that Lipschutz lost most of the $250,000 he made has another story for all of us.

If you do not manage your risk well, there is a good chance that you could end up giving back the profits you made. This is something that traders struggle with on a day to day basis. While it is possible to profit from the forex markets, the trick is in keeping those profits.

Capital preservation is one of the most important things when it comes trading, not just forex but any type of financial markets.

Another thing of interest from the story of Lipschutz is that you do not need to trade all the time.

One of the famous quotes from Bill Lipschutz is that traders can make money simply by sitting on their hands 50% of the time.

What Lipschutz is saying here is that timing plays an important role in the markets. Many traders end up trading one trade after another. This is mostly because of the psychological aspect that one would miss the lucrative trading opportunity.

But as Lipschutz proves, this is not the case. You do not need to make x number of trades every day to grow your capital. You can bide your time and wait for the perfect set up before you pull the trigger.

A typical example for this would be the forex markets where at times you can expect the market to trade flat or sideways. Such markets are not conducive for making proper profits. Still, traders tend to make these trades despite the risks.

Instead of simply jumping into the markets, if one could wait out for more clear signals, this would be a better approach to trading.

Recovering from taking a big hit is something else that one can’t miss about the story of Bill Lipschutz. Many traders tend to grapple with the psychological downside of taking a loss. It can dent your confidence and it will make you fear the markets.

Under these conditions, traders end up either trading with small positions, or some just give up. One of the factors to be successful in forex trading is to be persistent in your efforts. Losses are a part and parcel of trading.

Despite taking a big hit, Lipschutz went on to become a successful trader, to the point that he now manages his own asset fund management company. How cool is that? Imagine if Lipschutz simply gave up and walked away? It would be a different story.

Principles of trading from Bill Lipschutz

So far we spoke about the story of Bill Lipschutz and the lessons that we can learn from his story. But now its time to understand some of the key principles of Bill Lipschutz which is something that you can apply to your day to day trading.

One of the important principles for Lipschutz trading style is the risk to reward set up.

We all know that an acceptable risk to reward ratio in forex is 1:2. But Lipschutz takes it to a next level of 1:3.

This means that for everyone dollar of risk he takes, he aims for a three-dollar return.

Such set ups are not easy to come by (which is why his famous quote about making money by sitting on your hands) but they are not impossible. With a 1:3 risk reward set up, you can give yourself some more room for error. Even if you take a big loss, by simply following the set up you would be able to continue improving your capital.

Another thing that Lipschutz stresses upon are the details. He says that details are very important as they could be the difference between a winning and a losing trading. Minor details such as setting your target profit level and your stop losses, or even the timing of the trade matters a lot.

A small miscalculation is all it takes to turn a potentially winning trade into a losing trade. Forex traders don’t pay much attention to the details and focus only the bigger picture of the trading signal. But when you start paying attention to the details, you can see your trading turning around.

Whether you are a pure technical analysis-based trader or not, Lipschutz stresses the importance of understanding what the market is thinking. This means is that the fundamental analysis plays an important role in the markets.

Many day traders or scalpers prefer not to be bogged down by the additional information such as analyzing the markets on a fundamental level. But this is something that Lipschutz says will help traders in the long run.

Knowing what the market is thinking and acting upon it can help to not only increase your confidence as a trader but also to understand the risks that comes with this. You can see that this closely ties into the previous points that we discussed.

Last but not the least, Lipschutz says that working hard is essential to gaining success in the forex markets. Many traders come to forex trading in hopes of getting rich quickly. Well, that is possible as Lipschutz story proves.

But it is no easy task. To gain such tremendous success in the markets, one needs to put in a lot of effort. Many traders miss this point and come to trade forex thinking that it is easy, which is not the case.

Last but not the least, Lipschutz points out that the focus of many traders is to make money. This is good, but this focus alone should not be the motivating or the decision-making factor. He stresses that it is important to focus on the trading and the set ups and the risk management. Lipschutz concludes that the end result of this would be a successful trade.

When a trade is successful, the profits or the money will follow at some point.

Bill Lipschutz – The conclusion

If ever you need someone to be inspired by, then it is Bill Lipschutz. His story is very fascinating but the one that resonates the most among traders is his ability to recover from a loss and continue further.

This is what primarily brought him success. Many traders might think that it is attributed to his proprietary trading strategy or some other piece of information that the general public is not privy to.

But this wasn’t the case. Lipschutz is an average person. The only difference is that he spent a lot of time understanding the markets. In the process, he also honed the skills to be a disciplined trader too.

Trading is not about making money one trade after another. It is all about analyzing the markets, knowing what the market is doing and then waiting for the right set up to come your way.

Overtrading is something that plagues many traders today. Psychology in trading is also something that many do not pay attention to. But Lipschutz’s story is something that should inspire you into paying more attention to the psychology of trading rather than focusing too much on the trading strategies and the technical of trading.

A combined approach of both technical analysis and fundamental analysis is needed, coupled with the ability to remain calm and wait for the right set ups to come your way. Once the environment is ripe you then aim for the 1:3 risk reward set up to slowly but steadily build your trading capital.


About Me

I'm Mike Semlitsch the owner of PerfectTrendSystem.com. My trading career started in 2007. Since 2013 I have helped thousands of traders to take their trading to the next level. Many of them are now constantly profitable traders. 

The following performance was achieved by me while trading live in front of hundreds of my clients:

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