| 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. |
Archives of “market wizards” tag
rss20 BOOKS EVERY TRADER SHOULD KNOW ABOUT.
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…)
Importance of money management
In Jack Schwager’s book Market Wizards, Schwager interviewed some of the world’s top traders and investors, nearly all of whom emphasised the importance of money management. Here are a few of my favourite excerpts:
‘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. ’-Bruce Kovner
‘Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to any individual trade. Keeping your risk small and constant is absolutely critical.’ –Larry Hite
‘You have to minimize your losses and try to preserve capital for those very few instances where you can make a lot in a very short period of time. What you can’t afford to do is throw away your capital on suboptimal trades.’ –Richard Dennis
The Legendary Turtle Traders
Have you ever heard of the legendary Turtle traders? Millionaire trader Richard Dennis set off to find out if traders were just born to trade, or if they could be trained to be successful in the markets from scratch. The answer? If they could follow rules they could be successful.
“I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.” –Richard Dennis: Founder of the ‘Turtle Traders’ quoted from the book Market Wizards:
The Turtle system proved that the traders that followed the rules went on to be millionaires and to manage money professionally.
Markets – What to buy or sell
- The Turtles traded all major futures contracts, metals, currencies, and commodities.
- The turtles traded multiple markets to diversify risk.
Position Sizing – How much to buy or sell
- Turtle position sizing was based on a markets volatility using the 20 day exponential moving average of the true range.
- The Turtles were taught to trade in increments of 1% of total account equity,
Entries – When to buy or sell (more…)
Larry Hite Insights and Wisdom
Larry Hite, who was profiled in Jack Schwager’s Market Wizards’ series, spoke recently to a group of students. An excerpt:
I believe I had to get into this business because it was simple. There are just a few questions you got to ask yourself. It’s like a checklist that you have to go through. I’m going to go through those questions, discuss them with you, and they can save you a lot of grief. I don’t know that they will make you a lot of money, but mostly they do. I mean, making money in the markets is more simple than it’s not. The trouble is that sometimes you get in the way, or if you’re working for a firm, they get in the way, because there are a lot of social implications. First I’m going to tell you a little about math. I have a guy that works for me, [who] graduated from Wharton, magna cum laude, and we were sitting around one day and we were, I don’t remember what we were doing but we had to figure out the compounded rates of return, and instead of using a calculator we were just looking at the numbers and doing it in our heads. He was young and just out of college, and he kind of felt puffed up about it. You know, it made us feel smart, which is a rare feeling for me. Then I said to him, “You know Michael, the problem with this is anybody can do this with six dollar calculator. You don’t have to be a phi beta kappa. Anybody can do this.”
Larry Hite
Later he continued:
One of the great things about the market is, the markets don’t care about you. The market doesn’t care what color you are. The markets don’t care if you are short or tall. They don’t care about anything. They don’t care whether you leave or stay…I met the guy who wrote this best seller now called, Bringing Down the House, it’s about these MIT guys who beat the blackjack tables. And part of the problem, if you’re going to be a blackjack counter is that the casinos don’t like you. They actively don’t like you. And they come and tell you in rather strong things to take your business away. Well, the beautiful thing about the markets, they don’t like you, they don’t dislike you, they just don’t care. They are there everyday. You want to play, you can play. You don’t want to play, don’t play. And you can choose. You sit, there is no penalty. You know, when you stand you know…I don’t know how many of you play baseball…when your at bat if something comes through the strike[zone], if you don’t swing you still get a strike against you. But the markets are a no penalty game. You can stand there and wait. You can go home and wait. It doesn’t matter. And that’s really a terrific thing.
Larry Hite
Many people lose sight of the main goal of trading the markets. Instead of worrying about making money, they worry about how much they are trading. Keep Hite’s words close, and don’t forget the main goal.
20 Principles That Make Market Wizards Successful
- They have the resilience to come back from early losses and account blow ups.
- They focus on what really matters in trading success.
- They have developed a trading method that fits their own personality.
- They trade with an edge.
- The harder they work at trading the luckier they get.
- They do the homework to develop a methodology through researching ideas.
- The principles they use in their trading models are simple.
- They have mental and emotional control is key while winning or losing.
- They manage the risk to avoid failure and pain.
- They have the discipline to follow their trading plan.
- Market wizards have confidence and independence in themselves as traders
- They are patient with winning trades and impatient with losing trades.
- Emotions are dangerous masters to the trader; they know how to manage their own emotions.
- Market wizards evolve as a trader to avoid eventually failing in a method that has lost its edge over time.
- It is not the news but how the market reacts to that news is what they watch for.
- The fully understand the right way to position size for their goals of returns and drawdowns based on their risk/reward and winning percentage.
- Market wizards understand comfortable trades are usually losing trades while the more uncomfortable trades are usually the winners.
- They are good losers. Cutting losses when proven wrong and even reversing the direction of their trades when the price action dictates it.
- The best traders are always learning through their own mistakes.
- Passion for trading was the fuel for their eventual success.
The Virtue of Patience
Waiting 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.
Mark Weinstein (also interviewed in Market Wizards) provided the following apt analogy: “Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for Just the right moment. It will wait for a baby antelope, and not Just any baby antelope, but preferably one that is also sick or lame. Only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of professional trading.” (more…)
The best pieces of trading advice
Here is some great trading advice I have gathered around the web. These were either answers from real traders to the question “What is the best trading advice you ever received?” Or it was advice given be successful traders when asked “What one piece of advice would you give to traders?” There are some gems in here.
Don’t treat trades like their actual cash, separate the thought of money lost and focus on the next gain.
Always use stop losses.
Don’t trade with funds you can’t afford to lose.
Don’t be obsessed by indicators .
Always, always, put in a trailing stop and take your profit.
Decide what kind of trader you wish to be. Do you want to be a day-trader, a short term trader, or a longer term trader?
The Holy Grail of investing/trading is risk management. If you don’t have an exit strategy or proper position sizing, you are gambling. I recommend all traders spend 90% of their time perfecting risk management, and success will come with time. -Damien Hoffman
Cut losses, cut losses, cut losses. If I followed my own advice, my email would be unlisted or a Hawaii address. -Howard Lindzon (more…)
Hedge Fund Market Wizards: Covel Interviews Schwager
Jack Schwager wrote the original Market Wizards books, two of the must read, seminal books for investors and traders.
His latest is Hedge Fund Market Wizards — it is a behind-the-scenes look at the world of hedge funds, from fifteen traders who’ve consistently outperformed.
Schwager explores the differences between great traders and everyone else who thinks they can trade. Rare insights into the trading philosophy and methods employed by some of the most profitable individuals in the hedge fund business.
Mike Covel interviews Schwager, and its very interesting:
Jack Schwager:
“Five Market Wizard Lessons”
Hedge Fund Market Wizards is ultimately a search for insights to be drawn from the most successful market practitioners. The last chapter distills the wisdom of the 15 skilled traders interviewed into 40 key market lessons. A sampling is provided below: (more…)
Jack Schwager – Winning Methods of the Market Wizards