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Assorted Quotes — The New Market Wizards by Jack D Schwager

  
  Education

Don’t trade when you can’t afford to lose. In fact there are few more certain ways of guaranteeing that you will lose than by trading money you can’t afford to lose. If your trading capital is too important, you will be doomed to a number of fatal errors.

Over concern about losing may even lead to staying with losing trades as fear triggers indecisiveness, much like a deer frozen in the glare of a car’s headlights.

Our natural instincts will mislead us in trading. Therefore, the first step in succeeding as a trader is reprogramming behaviour to do what is correct rather than what feels comfortable.

Combine your enthusiasm, energy, focus, devotion, and discipline to becoming the best trader you can be, but once you have done that, there is no point in agonizing over the details.

My current goals are to make a 30 percent return each year, with no peak-to-valley draw downs greater than 10 percent.

During and After the Trade

  
  Education
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1. What’s your game plan if it goes against you and threatens your survival?

2. Will you be able to get out? Did you take that into account in your workout?

3. More typically, what will you do if it goes way against you and then meanders back to give you a breakeven? Or if it immediately goes for you or aginst you?

4. Would you be willing to take a ½% profit if you get it in the first 10 minutes?

5. Did you test whether taking small opportunistic profits turns a winning system into a bad one?

6. How will unexpected cardinal events affect you like the “regrettably,” or the pre-annnouncement of something you expected for the next open? And what happens if you’re trading an individual stock and the market goes up or down a few percent during the day, or what’s the impact of a related move in oil or interest rates?

7. Are you sure that you have to monitor the trade during the day? If you’re using stops, then you probably don’t have to but then your position size would have to be reduced so much that your chances of a reasonable profit taking account of vig are close to zero. If you’re using 10% of your capital on a trade, they you’ll have to monitor it for survival. But, but, but. Are you sure you won’t be called away by phone calls, or the others?

8. Are you at equilibrium in your personal life? You’re not as talented as Tiger Woods, and you probably won’t be able to handle distressed calls for money or leaks on the home front. Are you sure that if you’re losing you won’t get hit on the head with a 7-iron, or berated until you have to give up at the worst possible time?

9. After the trade did you learn anything from the trade?

10. Are you organized sufficiently to have a record of all your trades for your accounting and learning?

11. Should you modify your existing systems based on it?

12. How does recency and frequency and value affect your future?

13. Did you fit your after activities to your mojo?

14. If you made a good profit, did you take some capital out of the fray for a rainy day?

15. Have you learned to say “fair” whenevever anyone asks you how you’re doing and are you sure that you don’t spend a fortune after a good trade, and dissipate your profits with non-economic activities?

16. Is there a better use for your time than monitoring the ticks or the market every minute of the day if you do, and if you don’t, do those who do so and have much faster and better equipment than you have an insurmountable advantage against you?

Be Imperfect

  
  Education
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imperfectAs a trader – or an investor – you will not be right all of the time. If you can accept your imperfection, and work within it, you will be much more successful:

 

If you have a perfectionist mentality when trading, you are setting yourself up for failure, because it is a “given” that you will experience losses along the way. You must begin to think of trading as a game of probability. Your losses ( that you hope will return to breakeven) will kill you. If you cannot take a loss when it is small ( because of the need to be perfect), then you will watch that small loss grow into a larger loss and so on into a vicious cycle of more and more pain for the perfectionist. Trading on hope does not work. The markets can remain irrational for a lot longer than you can remain solvent.

The object should be excellence in trading, not perfection. Moreover, it is essential to strive for excellence over a sustained period, as opposed to judging that each trade must be excellent. This is a marathon…not a sprint.

The greatest traders know how to take cut losses and let winning positions run. Perfectionists often do exactly the opposite. They get in at the wrong time, stay in too long and then get out the wrong time. Perfectionists are always striving and never arriving. The market will find the flaw in a perfectionistic trader and exploit it day after day.

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