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42 Ways To Trade Like A Market Wizard

  
  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 a 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 (more…)

Money Management

  
  Education
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The overwhelming reason that traders win or lose is not because of their entry method, but because of their money management skills.

By “money management” it simply mean keeping losses and drawdowns to an absolute minimum while making the most of opportunities for profit.Good Trader must keep his losses to a minimum to ensure his survival. If you keep your losses to a minimum on every trade, you will have 80 percent of the battle won.

Important‑if the market starts to move parabolically or has a rangeexpansion move, take profits on the entire position. This is very likely climax!
‘When the ducks quack, feed them.” In other words, when everybody wants something, that’s probably the perfect spot to sell it to them. The price has already been bid way up. Emotions drive the markets to extremes, and these extremes are the ideal spot to exit our trades.

Dealing With Losses

  
  Education
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A few quick caveats:

  1. There is no place for denial in successful investing.
  2. Don’t blame your losses on bad luck or outside manipulators.  Accept the responsibility yourself.
  3. Don’t be dependent upon trading for all your fulfillment and happiness.
  4. Focus on opportunities, not on regrets.
  5. Proper risk control and discipline is non-negotiable for every trade everyday.
  6. Revenge trading – trying to make back a loss – carries with it far too much emotion and is always costly.
  7. Poor money management skills are the number one reason that novice traders wash out.
  8. Learn to recognize your impulsive state of mind and take action to stop it.

Even the best traders in the world book small losses on a regular basis.  If you manage your emotions with consistency and if you strive for a disciplined trading mindset, then you should have no problem surviving a string of bad trades and showing profits at the end of the year.

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