The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time they don’t.
It’s just that simple.Charlie Munger
The edge on a trade can vary significantly from trade to trade. As a trader you need to adjust your bet size to match your confidence in the outcome of the trade.
From time to time the markets will offer up opportunities where the odds are heavily skewed in your favour. When you find a trade where you feel the odds are in your favour and the trade is within your circle of competence then that’s when you have to go for the jugular. Because that is when you really get paid. Having a successful trading career is about maximising the really high probability trades.
If you’ve been trading a long time you will know that the best opportunities don’t come around that often and when they do they are very short lived. The markets are so efficient that they disappear as soon as they are identified.
Most people get chopped up in the middle. They take themselves out of the game so that when the big opportunities really come along they can’t take advantage of it.
Betting Big Takes Courage
Betting big takes balls. It is easy to plan for the big trade, but when they come around it takes a certain level of courage to go for it. The ability to trade big size when the opportunity presents itself is one of the keys to superior returns. As Stan Druckenmiller likes to put it:
The first thing I heard when I got in the business….was bulls make money, bears make money, and pigs get slaughtered. I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig.
The way to build (superior) long term returns is through preservation of capital and home runs.
When you have tremendous conviction on a trade, you have to go for the jugular.
It takes courage to be a pig.Stanley Druckenmiller
Trading starts with identifying and preparing for high probability trades. It goes without saying that the better you are at identifying high probability trades the better trader you will be. The markets always favour those who are most prepared.
The decision to bet big is never made in the heat of the moment. It is carefully planned out over a long period of time. If I see this, then I will do this. Concentrated bets only make sense to those who possess the skill and knowledge to exploit bets that others do not see.
Luck is what happens when preparation meets opportunity.Seneca
It can take a long time to develop the skills necessary to start betting big. It requires that you see a large sample of trades and see the pattern very quickly.
Great Traders Bet Big
Stan Druckenmiller is a guy who knows how to bet big. In 1992 he was already an established hedge fund manager. But when he met George Soros he found out what betting big really was. Soros pushed him to bet bigger, much bigger.
What you described is an incredible one-way bet. We should have 200 percent of our net worth in this trade, not 100 percent. Do you know how often something like this comes around?George Soros in conversation with Stan Druckenmiller before they broke the bank of England
Soros was the one who truly was willing to bet big and pushed Stan Druckenmiller to bet bigger. The result of this trade was they broke the bank of England. Soros frequently talks about one-way bets. Where the downside is capped and the upside is huge. These are the times when you really need to bet big.
It is worth your time to revise your trading plan to see if you’ve really got the most out of your best setups. You’ll be surprised at just how fruitful an exercise it can be. Markets can frequently handle more size than you think.