Archives of “jack schwager” tag

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Avoiding Trading Mistakes

  
  Education
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In Jack Schwager’s New Market Wizards, William Eckhardt said that one mistake traders make is putting too much importance on any single trade. His suggestion was to remember that any one trade is just a small part of the bigger picture and needs to be treated dispassionately. When the individual trade becomes too important, we tend to do things to make the trade work, for example we take profits too quickly or we let losses go in hopes of a return to profitability.

A story of how honesty cost one trader his job.

  
  Education
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With the current climate surrounding the investment banking culture in the wake of the Barclay’s Libor scandal, it is interesting to read about the story of Steve Clark taken from his interview with Jack Schwager in the Hedge Fund Market wizards. 
 
Clark is a highly successful hedge fund manager, running the Omni Global fund which during the period since inception in 2001 has returned almost 20% per annum, with a maximum peak to trough drawdown of just 7% and not a single losing year. However during the 90s he tells a story of how he was forced out of a major investment bank purely for being honest. 
 
The excerpt from the interview goes as follows:
 
‘Nomura ended badly for me because there was a change in management. The new guy in charge wasn’t straight. He had a convertible book, and all he was doing was buying illiquid convertible bonds and every month pushing the price up. He was the market because he owned most of these issues. So all he had to do was buy a few hundred bonds every month to push the price up. (more…)

Top 10 Trading Influences

  
  Education
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If New Trader University had a campus this would be the professors:

Dan Zanger is a world record holding trader that taught me to use in the money stock options on the biggest monster stocks to amplify my returns with no added risk at key points. He is the king of chart patterns.

Alexander Elder taught me how the trader’s Mind, Method, and Money Management have to all work together for a trader to be successful.

Michael Covel showed me how the best trend following traders in the world win over the long term by simply following the trend. Finding the big trends is now my focus above all else.

Jesse Livermore knew how to make a fortune in bull and bear markets, in commodities or stocks. His only weakness was the management of the risk of ruin. He made some of the biggest fortunes in the history of trading and also blew up his account more times than other legends.

Nicolas Darvas showed me how to ride monster stocks 100 points farther than anyone else seemed to believe they could go. His lessons also showed me how to miss bear market draw downs.

Van Tharp‘s marble game on how to manage the risk of ruin was a game changer for me. Managing risk is really what determines a trader’s long term survival not stock picking.

William O’Neil showed me how to pick the real winning stocks based on historical models not opinions. He has studied what has really made money in the stock market historically better than anyone else I know. I get my stock watch list from his publication Investor’s Business Daily’s IBD 50.

Ed Seykota is truly a master trader and he has the returns to prove it. Mr. Seykota believes that a trader’s psychology determines a trader’s success more than any other factor.  I believe him.

Jack Schwager wrote “Market Wizards” and really got into the specific nuts and bolts of what makes them win.

Paul Tudor Jones I have picked up a lot of trading wisdom form his documentary, quotes, and interview. He is truly one of the greatest  traders of our time.

If you decide to study these great traders keep what actually makes you money in the long term and discard what does not.

The Secrets of The World’s Greatest Traders

  
  Education
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Traders and investors have made and lost some of the world’s most significant pools of wealth.  It’s no coincidence that many of the wealthiest individuals in the world today (and through history) have been successful investors.  Names like Warren Buffet, George Soros, John Paulson, David Einhorn, Bill Gross and Sir John Templeton have become synonymous with strategies that have created astonishing success, in many case creating a groundswell of books and analysts who study their lives with a toothcomb to understand “what” the magic formula was…

Even outside these heavyweights of the trading world, hundreds of thousands of individuals around the world attest to have ‘the best‘ strategy to generate consistent positive returns (in fact, Google alone reveals over 10.4 million results when searching for best trading strategies). At a macro-level, the long-standing efficient market hypothesiswould make it notionally impossible for any trading strategy to be effective (as it asserts a level of information efficiency in the market).  The past quarter century however, has seen a gradual move away from the efficient hypothesis to greater considerations of information asymmetry and behavioral biases driving inefficiencies (opportunities) in the market.  So faced with this complexity, how do some traders generate such astonishing success?

To learn more, I spoke with Jack Schwager who is perhaps best known for his “Market Wizards” book series in which he has interviewed a cross section of the most successful traders and investors in the world.  In May 2012 Jack released the latest book in this best-selling series, “Hedge Fund Market Wizards” (a behind-the-scenes look at the world of hedge funds, from fifteen traders who’ve consistently beaten the markets).

Jack Schwager is a recognized industry expert in futures and hedge funds and the author of a number of widely acclaimed financial books. He is currently the co-portfolio manager for the ADM Investor Services Diversified Strategies Fund, a portfolio of futures and FX managed accounts. He is also an advisor to Marketopper, an India-based quantitative trading firm, supervising a major project that will adapt their trading technology to trade a global futures portfolio.  Previously, Mr. Schwager was a partner in the Fortune Group, a London-based hedge fund advisory firm, which specialized in creating customized hedge fund portfolios for institutional clients.  His previous experience includes 22 years as Director of Futures research for some of Wall Street’s leading firms and ten years as the co-principal of a CTA.

Q: Is there a strategy or style which is most effective at generating return?

 [Jack Schwager] The diversity of strategies people use is truly remarkable, I saw people using completely different strategies to the degree that if I had set out to invent 15 different strategies for a fictional work…. I couldn’t have made the strategies more different to the ones I saw in real life!  This illustrates a point I have made in all my works insofar as there really is no ‘holy grail‘ or single style that is most effective.  Those people looking for a single unified strategy are not asking the right question.

It’s a matter of finding an approach that works for the individual.  A person has to know whether they are comfortable with fundamental or technical, long term or short term, certain types of markets, wider risk or less risk… You can go through a whole checklist of things and find it’s different for each individual.

Even when looking at differences between asset classes we see that every market can be traded using different strategies be they fundamental, technical, or a mixture.  If we take equity markets we see that traders can use strategies including fundamental, value, extreme long term, and day.   If you want a microcosm that proves diversity, there it is! (more…)

If you don’t learn from your losses who will?

  
  Education
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If you don’t try you don’t fail, if you don’t fail you don’t learn, if you don’t learn you don’t grow” – Om Malik

Failure is an inherent part of trading. No trader can get every trade correct. One of the lessons in the new Jack Schwager book, Hedge Fund Market Wizards, is that “Don’t try to be 100% right.” In fact the pursuit of perfection in trading will likely lead to catastrophic results. That is why some perspective on failure and loss is a key to staying in the trading game.

Atul Gawande, a surgeon and writer, has an interesting piece up at the New Yorker which is a transcript of a commencement speech he recently gave at Williams College.* Although he is discussing medicine his perspective on failure is worth contemplating. Here is a quote:

So you will take risks, and you will have failures. But it’s what happens afterward that is defining. A failure often does not have to be a failure at all. However, you have to be ready for it—will you admit when things go wrong? Will you take steps to set them right?—because the difference between triumph and defeat, you’ll find, isn’t about willingness to take risks. It’s about mastery of rescue.

It is a bit of cliche to say that your trading losses represent tuition paid. If you don’t learn from your own failures no one will. Those losses will then be not just a financial loss but a lost opportunity as well.

Recommended Books for Traders

  
  Education
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As Jesse Livermore said: “Trading is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or for the get-rich-quick adventurer.” In other words, to excel in the stock market, you have to work hard, have emotional control, and develop confidence in your strategy. I constantly get asked to recommend books that can help with these areas of trading. There are so many good ones out there, but here are a few that I suggest.
(If you click on the titles, you can get a more detailed description from Amazon.com).
How to Make Money in Stocks (4th Edition), William O’Neil
How to Trade in Stocks, Jesse Livermore
Reminiscences of a Stock Operator, Edwin Lefevre
The Disciplined Trader, Mark Douglas
Trading in the Zone, Mark Douglas
Trader Vic-Methods of a Wall Street Master, Victor Sperandeo
Trader Vic II-Principles of Professional Speculation, Victor Sperandeo
How I Made $2,000,000 in the Stock Market, Nicolas Darvas
The Battle for Investment Survival, Gerald Loeb
Confessions of a Street Addict, James Cramer
There are 3 Market Wizards books all written by Jack Schwager:
Market Wizards
The New Market Wizards
Stock Market Wizards
Confidence and emotional control are extremely important in order to become a successful trader. I believe the ideas taught in the following “self-help” books can help develop that “mental toughness” that’s needed. The concepts learned can also be applied to many areas of our lives:
Think and Grow Rich, Napoleon Hill
You’ll See It When You Believe It, Dr. Wayne Dyer
The Power of Positive Thinking, Norman Vincent Peale
The Magic of Thinking Big, David Schwartz
Awaken the Giant Within, Anthony Robbins

Best eBook s of 2011

  
  Education
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All of these titles can be found on Traderslibrary.com or Amazon Kindle, each only $9.99.

  1. Trend Trading Indicators: Secrets to Predicting Market Direction–John Person
  2. Simple Profits from Swing Trading: The Underground Trader Swing Trading System Explained–Jea Yu
  3. The Three Secrets to Trading Momentum Indicators–David Penn
  4. Volatility Indicators: Techniques for Profiting from the Market’s Moves–Jean Folger & Lee Leibfarth
  5. The Modern Trader: Wall Street Traders Reveal Their Formula for Success–T3 Live
  6. Iron Condor: Neutral Strategy for Uncommon Profit–Ernier Zerenner & Michael Phillips
  7. 21 Candlesticks Every Trader Should Know–Melvin Pasternak
  8. Simple Steps to Trading Discipline: Increasing Profits with Habits You Already Have–Toni Hansen
  9. Traders’ Guide to Increasing Retirement Income with Options–Ernie Zerenner
  10. Winning Methods of the Market Wizards–Jack Schwager

DISCIPLINE & PASSION

  
  Education
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Discipline – Majority of traders are not disciplined in their approach, else they would not be failing. These failed traders simply hate to hear the word Discipline! As Jack Schwager points out in his book, ‘The New Market Wizards’, “Discipline was probably the most frequent word used by the exceptional traders that I interviewed. Often it was mentioned in an almost apologetic tone: ‘I know you’ve heard this a million times before, but believe me, it’s really important’.”
Discipline allows you to more effectively plan your work (trades) and work (trade) your plan. Discipline – “Habit of Obedience” – yes the keyword being habit, i.e. have a Trading Plan and make a habit of following it. The golden rule should be No Signal – No Trade.
Passion – We may spend a third of our life working, so you deserve to feel fulfilled in what you do, you do it because you love to do it! – Yes the monetary rewards are the by-product of your success in doing things you love to do.
How can you be naturally successful at something, continue to fine-tune your trading skills, seek the services of a mentor, and stomach the ups and downs of the business and if you don’t know WHY you’re doing it? As Michael Jordan once said, “If you have a love for the game, your talent will eventually catch up to you.” So if you do not have the love for trading, will you succeed?
To sum-up this Mental skill set PAIR (Discipline / Passion): You must be disciplined AND remain emotionally detached from the market.

A few news books in Our Library

  
  Education
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● Market Sense and Nonsense: How the Markets Really Work (and How They Don’t)
By Jack Schwager
Excerpt via publisher, Wiley
Many investors seek guidance from the advice of financial experts available through both broadcast and print media. Is this advice beneficial? In this chapter, we have examined three cases of financial expert advice, ranging from the recommendation-based record of a popular financial program host to an index based on the directional calls of 10 market experts and finally to the financial newsletter industry. Although this limited sample does not rise to the level of a persuasive proof, the results are entirely consistent with the available academic research on the subject. The general conclusion appears to be that the advice of the financial experts may sometimes trigger an immediate price move as the public responds to their recommendations (a price move that is impossible to capture), but no longer-term net benefit. My advice to equity investors is either buy an index fund (but not after a period of extreme gains—see Chapter 3) or, if you have sufficient interest and motivation, devote the time and energy to develop your own investment or trading methodology. Neither of these approaches involves listening to the recommendations of the experts.

● Who’s the Fairest of Them All?: The Truth about Opportunity, Taxes, and Wealth in America
By Stephen Moore
Review via The Washington Times
Stephen Moore’s latest book, “Who’s the Fairest of Them All?: The Truth About Opportunity, Taxes, and Wealth in America,” fairly sets our liberal friends straight on the issue that seems to be confusing President Obama and the general American public a lot — economics and, in particular, tax policy. Mr. Moore, the senior economics writer for the Wall Street Journal’s editorial page, formerly president of the Club for Growth and a fellow of the Cato Institute and Heritage Foundation, has an encyclopedic knowledge of the tax fights of the 1980s. He condenses that nearly three decades in public policy in a slim 119-page volume that is an accessible and thorough guide to understanding economic growth. He understands that if we don’t learn the lessons of the past, we’re bound to repeat the follies, and so he has taken aim squarely at their chief originator, President Obama. While Mr. Obama may think of himself as Snow White — “the fairest of them all” — when it comes to taxing, he’s really Dopey, treating the world as if the Laffer Curve didn’t exist, as if food stamps and unemployment insurance actually grow the economy. (more…)

20 BOOKS EVERY TRADER SHOULD KNOW ABOUT.

  
  Education
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As with every list, there will be disagreements.  ”Why is that book on the list?”  ”Whyisn’t that book on the list?”  I picked 20 books that stood out for me as a trader, that were a #valueadd (or a #valueloss) for one reason or another.  That doesn’t even have to mean that they are about trading.  For example, the “General Interest” section is made up of books that I think appeal to a trader’s mindset.

With that in mind, feel free to add your picks to the “comments” section, along with a sentence or two as to why you liked (or hated) them.

By the way, I was too lazy to link all the books, but you can find them all at Amazon.

Old School:  

The Market Wizards Series – Jack Schwager:  Chances are you will find these books on the shelf of any serious trader.  They are without a doubt the most comprehensive collection of interviews with superstar traders ever published.  However, their dirty little secret is that although they capture perfectly a moment in time, they are extremely dated and will give you almost no insight into today’s markets or how to trade them. Their value now is in showing how even the greatest traders initially struggled and often blew up (repeatedly) before becoming successful.

Stan Weinstein’s Secrets For Profiting in Bull and Bear Markets – Stan Weinstein: This book was the first to quantify one of the most important concepts in trading; the four stages in which stocks move, which are the basing, advancing, topping, and declining stages.  Despite the fact that the cover of this book has not been updated since it was published in 1988, stage analysis is still relevant today.

How to Make Money In Stocks – O’Neil:  As an unnamed trader friend of mine recently said, all you need to do is review the charts in the first 150 pages of this book and you will be good to go.    These charts along with O’Neil’s annotations, give you a great foundation to understand the patterns stocks form before they go on massive runs. (more…)

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