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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.

A word from Bruce Kovner

  
  Education
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Bruce Kovner is one of the world’s most successful traders. The following below is extracted from his Market Wizardsinterview:

“A greedy trader always blows out. I know some really inspired traders who never managed to keep the money they made. One trader at Commodities Corporation – I don’t want to mention his name – always struck me as a brilliant trader. The ideas he came up with were wonderful; the markets he picked were often the right markets. Intellectually, he knew markets much better than I did, yet I was keeping money, and he was not.”

Q: So where was he going wrong?

“Position size. He traded much too big. For every one contract I traded, he traded ten. He would double his money on two different occasions each year, but still ended up flat”.

And, from further on in the interview:

“First, I would say that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half. My experience with novice traders is that they risk three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks.”

Prudent risk control, combined with the power of compounding, can lead you a long way in this game.

Active Traders-Must Read These 42 Points

  
  Education
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What if you could read the principles for success for some of the world’s greatest traders? Well you can, here is how author Jack Schwager summed up the the similarities of the ‘Market Wizards’ he spent years interviewing in his second book.

The following is an summarized excerpt from Jack D Schwager’s book, The New Market Wizards. I highly recommend this book for all active traders.

  1. First Things First
    You sure you really want to trade ? It is common for people who think they want to trade to discover that they really don’t.
  2. Examine Your Motives
    Why do you really want to trade ? Did you say excitement ? Then don’t waste your money in market, you might be better off riding a roller coaster or taking up hand gliding.
    The market is a stern master. You need to do almost everything right to win. If parts of you are pulling in opposite directions, the game is lost before you start.
  3. Match The Trading Method To Your Personality
    It is critical to choose a method that is consistent with your your own personality and conflict level.
  4. It Is Absolutely Necessary To Have An Edge
    You cant win without an edge, even with the world’s greatest discipline and money management skills. If you don’t have an edge, all that money management and discipline will do for you is to guarantee that you will gradually bleed to death. Incidentally, if you don’t know what your edge is, you don’t have one.
  5. Derive A Method
    To have an edge, you must have a method. The type of method is not important, but having one is critical-and, of course, the method must have an edge.
  6. Developing A Method Is Hard Work
    Shortcuts rarely lead to trading success. Developing your own approach requires research, observation, and thought. Expect the process to take lots of time and hard work. Expect many dead ends and multiple failures before you find a successful trading approach that is right for you. Remember that you are playing against tens of thousands of professionals. Why should you be any better ? If it were that easy, there would be a lot more millionaire traders.
  7. Skill Versus Hard Work
    The general rule is that exceptional performance requires both natural talent and hard work to realize its potential. If the innate skill is lacking, hard work may provide proficiency, but not excellence.
    Virtually anyone can become a net profitable trader, but only a few have the inborn talent to become supertraders ! For this reason, it may be possible to teach trading success, but only upto a point. Be realistic in your goals.
  8. Good Trading Should Be Effortless
    Hard work refers to the preparatory process – the research and observation necessary to become a good trader – not to the trading itself.
    “In trading, just as in archery, whenever there is effort, force, straining, struggling, or trying, it’s wrong. You’re out of sync; you’re out of harmony with the market. The perfect trade is one that requires no effort.”
  9. Money Management and Risk Control
    Money management is even more important than the trading method. 

(more…)

Great quote by Marty Schwartz which sums up where so many people go wrong in trading.

  
  Education
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“Most people think that they’re playing against the market, but the market doesn’t care. You’re really playing against yourself”. – Marty Schwartz.
 
The full quote is was from the following paragraph from Schwartz’z book – ‘The Pit Bull’s Guide To Successful Trading’. Schwartz himself was one of the original interviewees in the original ‘Market Wizards’ book.
 
– I’ve said it before, and I’m going to say it again, because it cannot be overemphasized: the most important change in my trading career occurred when I learned to divorce my ego from the trade. Trading is a psychological game. Most people think that they’re playing against the market, but the market doesn’t care. You’re really playing against yourself. You have to stop trying to will things to happen in order to prove that you’re right. Listen only to what the market is telling you now. Forget what you thought it was telling you five minutes ago. The sole objective of trading is not to prove you’re right, but to hear the cash register ring. (more…)

Excerpt from Winning Methods of the Market Wizards

  
  Education
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Chapter 2: Hard Work

I am sure that the theme of this chapter comes as no surprise to you. We all know, (or at least most of us do) that to get anywhere in this life, no matter what your field may be, it is going to require some hard work along the way. There can’t be a harvest if you haven’t worked in the fields. And no where is this concept of hard work more evident than in the professional traders I have come to know over the years.

What is striking to me about this group of super-traders, the Market Wizards, is how almost every single one of them is a genuine workaholic. For these people, the level of commitment and dedication to trading is absolutely amazing, and it has engendered in them a performance level so intense and so consistent, it almost boggles the mind. When you look at these individuals, you find the kind of hard work that is almost inconceivable for most people to maintain even for one day, never mind as a lifestyle. But it is this difference in personality and commitment that makes the Market Wizards who they are, and accounts for much of their high levels of achievement.

In order for you to get a real sense of the kind of hard work we are talking about here, I think I should describe for you a couple of individuals and how they work. This will give you a good idea as to how intensely passionate they are about their pursuits.

 

David Shaw

David is a private, almost secretive individual, who has been running a very successful hedge fund for many years now. Basically, his fund is a very sophisticated form of arbitrage. Over the years, it has posted excellent results. (more…)

Controlling your Emotions

  
  Education
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Emotions-controlThe fact is, the majority of traders lose because they cannot control their emotions – and their emotions cause them to make irrational trades and lose.

Trading psychology is one of the keys to investment success, but its impact is not understood by many investors, who simply think they need a good trading method, but this is only part of the equation for winning at Stock market  trading.

The influence Of Hope and Fear

In trading psychology, two emotions that are constantly present are:

Hope and fear. One of the traders who recognized this was the legendary trader W D Gann. (more…)

The Virtue of Patience

  
  Education
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patienceWaiting for the right opportunity increases the probability of success. You don’t always have to be in the market. As Edwin Lefevre put it in his classic Reminiscences of a Stock Operator, “There is the plain fool who does the wrong thing at all times anywhere, but there is the Wall Street fool who thinks he must trade all the time.”
One of the more colorful descriptions of patience in trading was offered by Jim Rogers in Market Wizards: “I just wait until there is money lying in the comer, and all I have to do is go over there and pick it up.” In other words, until he is so sure of a trade that it seems as easy as picking money off the floor, he does nothing.

Does Failure Motivate you ?

  
  Education
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MOTIVATEI’ve been reading a wondeful book by Jerry Stocking titled Laighing with God.In that book the following dilemma is broght up ,and I’m going to rewrite the conversation a little to make it pertinent to trading/investing.

God :Do you want to win without losing ?

Trader :Of course.

God :If you win ,you must lose as well.But you weren’t honest with me.Your saud that you’d like to just win.If that were the case ,you’d win much  more often.

The possibility of failure motivates you much more than the possibility of success.your whole society thrices on failure  or at least the fear of lossing.If there were not the possibility of losing you could not take any credit for success.Making money in the markets would seen meaningless for you. (more…)

The Great Trades Are Obvious

  
  Education
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The great trades don’t require predictions. The Soros trade of going short the pound in 1992 was based on something that had already happened — an ongoing deep recession that made it inevitable that the U.K. would not maintain the high interest rates required by remaining in the E.R.M. Afterward, everyone said, “That was incredibly obvious.”

“Most of the great trades are incredibly obvious. It was the same in late 2007. In my mind, it was clear that the financial system was imploding and that most market participants hadn’t noticed.”

– Colm O’ Shea, Hedge Fund Market Wizards

Do you agree that the great trades are obvious? Why do so many market participants miss what is unfolding right before their eyes?

What are the elements in your process for observing, keeping tabs on, and exploiting major macro trends?

Bill Lipschutz Quotes

  
  Education
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 Sultan of Currencies in the New Market Wizards and at the time Salomon Brothers largest and most successful forex trader for 8 years. 

 

”Missing an opportunity is as bad as being on the wrong side of a trade. Some people say (after they have the opportunity to realize a profit) ‘I was only playing with the market’s money’. That’s the most ridiculous thing I ever heard.”

”When you’re in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading size helps achieve that goal.”
”I don’t have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don’t think you can consistently be a winner trading if you’re banking on being right more than 50 percent of the time. You have to figure out how to make money by being right only 20 to 30 percent of the time.”
”Successful traders constantly ask themselves: What am I doing right? What am I doing wrong? How can I do what I am doing better? How can I get more information? Courage is a quality important to excel as a trader. It’s not enough to simply have the insight to see something apart from the rest of the crowd, you also need to have the courage to act on it and stay with it.”
”It’s very difficult to be different from the rest of the crowd the majority of the time, which by definition is what you’re doing if you’re a successful trader.”
”So many people want the positive rewards of being a successful trader without being willing to go through the commitment and pain. And there’s a lot of pain.”
”Avoid the temptation of wanting to be completely right.”  

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