Steve Cohen: The Trading Room

In the seven years of money management till 2001, Steve Cohen has established an average compounded annual return of 45%, with only three losing months. The worst being a tiny 2% decline.

He has a real sense of where the market is headed. This real sense or gut feel is the filtration of experiences and lessons learnt from thousands of trades.

Cohen asserts that all traders make mistakes but they limit the damage. A common mistake made by traders is that they go short with a very big position compared to their portfolio. Hence when the stock goes up, it becomes difficult to handle and they end up panicking. To develop risk control skills, one may take years of experience. 

For novice traders, Cohen advises that it is important that one’s style of trading should match his personality. The trader should know whether he is a day trader or an investor. If he is a day trader, then he should better not try to behave like an investor and vice versa. This is because the market cannot be controlled but their reactions can be. Hence, it is necessary to choose an approach that is comfortable.

Another important piece of advice he offers is that if the market is moving against you or trade is going wrong, and you have no idea of the reason, then it's better to square off half the position.

He believes that a single style or approach cannot provide profitable results over a very long period of time. To become successful, traders will have to learn and adapt continuously. Cohen himself tries to constantly learn about the markets. This helps him to master confining stocks, sectors and trading styles. For him, trading is an evolutionary process.