Market Wiz(ar)dom

Source: The New Market Wizards by Jack D Schwager

Jack D. Schwager, after interviewing great traders, summarized his observations regarding success in trading as follows:

1. First Things First - be sure whether you really want to trade or not.
2. Examine Your Motives - examine your motives very carefully for any conflicts. The market is a stem 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 - the approach you use must be right for you; it must feel comfortable.
4. It is Absolutely Necessary To Have An Edge - if you don't have an edge, all that money management and discipline will do for you is to guarantee that you will bleed to death.
5. Derive a Method - to have an edge, you must have a method.
6. Developing a Method is Hard Work - developing your own approach requires research, observation and thought. Remember that you are playing against tens of thousands of professionals. If it were that easy, there would be a lot more millionaire traders.
7. Skill vs. Hard Work - if the innate skill is lacking, hard work may provide proficiency but not excellence.
8. Good Trading Should Be Effortless
9. Money Management and Risk Control - you don't have to be a mathematician or understand portfolio theory to manage risk. Risk control can be easy as:
  • Never risk more than 1-2% of your capital on any trade. (Depending on your approach, a modestly higher number might still be reasonable)
  • Predetermine your exit point before you get into a trade.
  • Analyze what went wrong if you lose a certain amount and wait until you feel confident and have a high probability idea before you begin trading again.
10. The Trading Plan - a trading plan simply requires a personal trading method with specific money management and trade entry rules.
11. Discipline - there are two basic reasons why discipline is critical. First, it is a prerequisite for maintaining effective risk control. Second, you need discipline to apply your method without second-guessing and choosing which trades to take.
12. Understand That You Are Responsible - whether you win or lose, you are responsible for your own results even if you lost on your broker's tip or recommendation.
13. The Need For Independence - you need to do your own thinking.

14. Confidence - as Dr. Van Tharp claims that one of the basic traits of winning traders is that they believe 'they've won the game before the start.'
15. Losing is Part of the Game - if you can't stand taking losses, you will either end up taking large losses or missing great trading opportunities.
16. Lack of Confidence and Time-outs - trade only when you feel confident and optimistic.
17. The Urge To Seek Advice - as Linda Raschke said, "If you ever find yourself tempted to seek out someone else's opinion on a trade, that's usually a sign that you should get out of your position."
18. The Virtue of Patience - you don't always have to be in the market.Guard particularly against being over-eager to trade in order to win back prior losses. Vengeance trading is a sure recipe for failure.
19. The Importance of Sitting - patience is important not only in waiting for the right trades, but also in staying with trades that are working.
20. Developing A Low-Risk Idea - taking the time to think through low-risk strategies is a useful exercise for all traders.
21. The Importance of Varying Bet Size - winnings are maximized by adjusting the bet size in accordance with the perceived chance for a successful outcome.
22. Scaling In and Out of Trades - a scaling approach means that some portions of a trade will be entered or exited at worse prices than other portions.You don't have to get in or out of a position all at once.
23. Being Right is More Important Than Being A Genius - forget trying to judge trading success by how close you can come to picking major tops and bottoms, but rather by how well you can pick individual trades with merit based on favorable risk/return situations and a good percentage of winners. Go for consistency on a trade-to-trade basis, not perfect trades.
24. Don't Worry About Looking Stupid 
25. Sometimes Action is More Important Than Prudence - waiting for a price correction to enter the market may sound prudent, but it is often the wrong thing to do.
26. Catching Part of the Move is Just Fine 
27. Maximize Gains, Not the Number of Wins - Eckhardt explains that human nature does not operate to maximize gain but rather the chance of a again.
28. Learn To Be Disloyal -  never have loyalty to a position.
29. Pull Out Partial Profits - pull a portion of winnings out of the market to prevent trading discipline from deteriorating into complacency.
30. Hope is a Four-Letter Word - hope is a dirty word for a trader, not only in regards to procrastinating in a losing position, hoping the market will come back, but also in terms of hoping for a reaction that will allow for a better entry in a missed trade.
31. Don't Do the Comfortable Thing - do what is right, not what it feels comfortable.
32. You Can't Win If You Have to Win - if you are risking money you can't afford to lose, all the emotional pitfalls of trading will be magnified.
33. Think Twice When the Market Lets You Off the Hook Easily - don't be too eager to get out of a position you have been worried at if the market allows you to exit at a much better price than anticipated.
34. A Mind is A Terrible Thing to Close - open mindedness seems to be a common trait among those who excel in trading.
35. The Markets are an Expensive Place to Look For Excitement
36. The Calm State of A Trader - if there is an emotional state associated with successful trading, it is the antithesis of excitement.
37. Identify and Eliminate Stress - stress is trading is a sign that something is wrong.
38. Pay Attention To Intuition - the trick is to differentiate between what you want to happen and what you know will happen.
39. Life's Mission and Love of the Endeavor - throughout my interviews, I was struck by the exuberance and love the market wizards had for trading.
40. The Elements of Achievement - 
  • using both 'Toward' and 'Away From' motivation
  • having a goal of full capability plus with anything less being unacceptable
  • breaking down potentially overwhelming goals into chunks with satisfaction garnered from the completion of each individual step
  • keeping full concentration on the present moment
  • being personally involved in achieving goals
  • making self-to-self comparisons to measure progress
41. Prices are Non-random
42. Keep Trading In Perspective - there is more to life than trading.

I recommend reading the book to understand more about the above observations and how these great traders developed their own methods.

#Happy Investing Kabayan!

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