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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…)

Cut your losses short, no questions asked

  
  Education
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The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.”

William O’Neil

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo

Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.

William O’Neil

When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”

Marty Schwartz

Cut your losses short, no questions asked

  
  Education
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The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.”

William O’Neil

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo

Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.

William O’Neil

When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”

Marty Schwartz

Ten Anecdotal/Historical Book Ideas for Investors

  
  Education
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About a month or so ago, I finally got around to reading Marty Schwartz’s classic, Pit Bull, which I can best describe as a colorful autobiography that uses the 1980s options world as a palette for many amusing anecdotes that are expertly conveyed. The book was such a fun read that I went through the whole thing in no more than 2-3 days, cobbling together bits and pieces of ‘free time’ in order to do so.

 

Schwartz’s book is pure entertainment and touches only briefly on methodologies and techniques, yet I was able to pull quite a few investment-related nuggets from it in a short period of time, with the added benefit that the learning process was all fun and no pain. The process got me thinking that perhaps the fastest way to effortlessly bombard the brain with useful investment ideas are those easy reads that provide a personal historical window into the markets.

 I am contrasting this process with the process I went through in trying to read and digest the ideas in Alan Farley’s The Master Swing Trader, which, despite the many interesting ideas, is about as fun to trudge through as Hegel.

 With this in mind, I offer the following ten books as relatively effortless ways to cross-pollinate your investment thinking with that of some of the better minds in the field, both past and present.

 Roughly in order of how quick and easy they are to read:

  • How I Made $2,000,000 in the Stock Market (Nicolas Darvas) – You can probably read this book in a little over an hour. There are only a few salient ideas, but these are destined to stick with you long after you have read the book. I also found that the path Darvas took along the way to developing his system bears a strong resemblance to my own.
  • Pit Bull (Marty Schwartz) – A fast-moving and superbly written account of a champion options trader. A great companion for a cross-country plane trip.
  • Reminiscences of a Stock Operator (Edwin Lefevre) – This is on almost everyone’s reading list, so I will say little about it, other than to point out that it is chock full of insight, yet still reads like a novel.
  • A Journey Through Economic Time (John Kenneth Galbraith) – A very different book from the others on this list, this is certainly one of the easiest economics reads out there, yet the survey of the economic landscape from WWI to after the fall of the Berlin Wall will give the reader a lot to think about.
  • My Life as a Quant (Emanuel Derman) – Another physicist who writes extremely well, Derman provides a thoughtful accounting of his personal journey through the (then) unlikely intersection of theoretical physics, finance and risk.
  • Investment Biker (Jim Rogers) and Adventure Capitalist (Jim Rogers) – These two books are probably best read back to back, in chronological order, starting with the Investment Biker’s 1990-1992 world tour, then using the 1999-2001 Adventure Capitalist jaunt to see how the world had changed over the course of a decade. This is first-person global macro analysis at its best, though you may not have the stamina to do your own world tour in one sitting…
  • Market Wizards (Jack Schwager), The New Market Wizards (Jack Schwager), and Stock Market Wizards (Jack Schwager) – I never thought I’d willingly place the Schwager wizards trilogy at the bottom of any list, but they end up here because they are more densely packed than the other books. Like the Jim Rogers duo, these are best consumed in small bites, on an empty stomach, leaving ample time for proper chewing and digestion. Schwager’s interview style and editing is such that he is able to deliver an astonishing amount of information in an easy to read fashion. The best news of all is that while the books are a great place for beginners to start, they somehow manage to improve with repeated reading.

Marty Schwartz Interview (1999)

  
  Education
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Day Trader Marty Schwartz spent a number of years in what he felt was a dead-end job as a financial analyst. Finally he quit the comfort of the corporate cotton wool and accumulated $100,000 of which he spent $90,000 to buy his seat on the American Stock Exchange in 1979.

Left with just $10,000 of trading capital, he made over $8,000 on his first trade and in his second year of trading he made $600,000 and $1.2 million in his 3rd year.

It’s interesting to note that he never made money trading until he made a plan, which only happened when his wife Audrey told him to make one.

When asked; “what is the most money you have made in one day?” he replied; “several million”. At one point in the early 1980’s, he was making $70,000 per day trading the S&P’s.

Click here to listen to Marty Schwartz being interviewed in 1999 by Dave Allman on Wall Street Uncut.

NOTE: This audio file will only open if you have RealPlayer installed. You can get it free here

Read Marty’s book: “Pit Bull: Lessons from Wall Street’s Champion Day Trader”

 

Trading Wisdoms

  
  Education
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“Never let the fear of striking out get in your way” – Babe Ruth

“If you can’t take a small loss, sooner or later you will have to take the mother of all losses” – Ed Seykota

“Don’t think about what the market is going to do. You have absosutely no control over that. Think about what you are going to do if it gets there.” – William Eckhardt

“I turned from a loser to a winner when I was able to separate my ego needs from making money. When I was able to accept being wrong. Before that, admitting I was wrong was more upsetting than losing money” – Marty Schwartz

“The worst mistake a trader can make is to miss a major profit opportunity. 95% of the profits come from only 5% of the trades” – Richard Dennis

Trading Wisdom by Larry Hite & Marty Schwartz

  
  Education
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Larry Hite

While the speculator doesn’t have the product knowledge or speed, he does have the advantage of not having to play. The speculator can choose to only bet when the odds are in his favor. That is an important positional advantage.

In the above quote, Larry is referring to the fact that smaller retail traders have the advantage of being able to sit out an wait patiently for the best opportunities. Bigger institutional traders have to trade more and whilst they might have a speed advantage, the retail trader has to use his advantage of being able to trade like a sniper to its fullest.

Frankly, I don’t see markets; I see risks, rewards, and money.

The above quote stresses the importance of seeing each trade as a risk reward ratio, rather than just a potential profit opportunity. Pro traders calculate their risk first and then their reward, if the risk reward ratio of a trade doesn’t make sense then they don’t trade.

Marty Schwartz

 I always laugh at people who say, “I’ve never met a rich technician.” I love that! It’s such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician. (more…)

Cut your losses short, no questions asked

  
  Education
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The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.”

William O’Neil

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo

Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.

William O’Neil

When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”

Marty Schwartz

Trading Without Ego

  
  Education
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Make no mistake about it. A trader’s self concept has to be separate from the trading. Who you are as a person began before you ever thought of trading and who you will be as a person will extend beyond your trading. When personal self-worth entwines with trading, it not only damages self esteem, it sabotages the trading.

You hear about it. You read about it. Don’t be misled. Traders tell stories. They write stories. They tell how great they are. Big trades. Big numbers. Big egos. Hubris. And sooner or later, big downfalls. It goes with the territory.

Consider the outsized egos of certain traders who brought themselves and those associated with them to ruin. Nicholas Leeson brought down the Barings Bank. Victor Niederhoffer ran his fund into deficit. John Merriweather threatened the health of our banking system by betting more than fifty times his capital that his strategies were certain to work, that he could forecast with impunity the direction of various bond markets. There’s a pattern here of seeming or real success for a while and then collapse for themselves and for those caught up in blindly following them. (more…)

5 Trading Wisdom

  
  Education
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“Never let the fear of striking out get in your way” – Babe Ruth

“If you can’t take a small loss, sooner or later you will have to take the mother of all losses” – Ed Seykota

“Don’t think about what the market is going to do. You have absosutely no control over that. Think about what you are going to do if it gets there.” – William Eckhardt

“I turned from a loser to a winner when I was able to separate my ego needs from making money. When I was able to accept being wrong. Before that, admitting I was wrong was more upsetting than losing money” – Marty Schwartz

“The worst mistake a trader can make is to miss a major profit opportunity. 95% of the profits come from only 5% of the trades” – Richard Dennis

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