In this blog entry, I will share with you what I learned during Jack Schwager’s Market Wizards seminar, that was held in Singapore recently.
For all the trading fanatics out there, I am sure you know who Jack Schwager is.
For the benefits of those who do not know him, Jack Schwager is the best-selling author of the ‘Market Wizards’ series of trading books, which have sold over a million copies worldwide.
In his books, he conducted one-to-one interviews with many of the top traders and fund managers of our lifetime, before transcribing their conversations into the Market Wizards series of books.
Besides the transcriptions, he also tried to decipher and share his personal views of what are the key reasons that made those market wizards such proficient and profitable traders.
It was indeed a great experience listening to the man himself, sharing the 15 key learning points he had gathered after having interviewed many of the world’s top traders over the years.
I hope these points will benefit you as you embarked on your trading journey.
As this is quite a lengthy entry, I have thus broken it down to two blog posts.
Note: The content below is part what I managed to note down during the seminar itself and part what I interpreted from his explanations. It is not a complete representation of what he actually shared during the seminar. I also did not include some of the stories that he side-tracked during the seminar.
1) There is no single true path to becoming market wizards
From his interviews with the market wizards, Jack said he realized that there is no single way to become a proficient trader or investor.
To prove his point, he talked about two extreme traders whom he interviewed, namely Jim Rogers and Marty Schwartz.
Jim Rogers is a billionaire fundamentalist investor who co-founded Quantum Fund with George Soros many years back, while Marty Schwartz is a trading wizard who had an audited trading record of consistently averaging 25% profit EVERY MONTH for many years.
Jim Rogers had commented in his interview with Jack, that he only sees technicians making a living selling ideas but he has never personally met a rich technician before who made his fortune from trading.
Subsequently, this was what Marty Schwartz said in response to Jim Rogers’ comments during his interview with Jack,
“I always laugh at people who say, I’ve never met a rich technician. I love that! It is such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician.”
The truth is that both of them are proven traders / investors in their own rights and extreme of these two personalities, with totally different methodologies, trading with different horizons.
Just this occurrence alone proved that there are many different paths to trading success.
And from here, Jack went on to his next point, which was:
2) Use a strategy that suits your personality.
Jack’s point here was that there are many strategies that worked for different traders with different personalities.
If you try to use any “black box” method that does not fit your personality, chances is that you will second guess the trading signals you get from the system that you adopted.
You will end up cherry picking the signals you get and as such, result in inconsistent returns even thou that strategy is profitable in the long run.
3) Use a trading strategy that has a positive edge
From his interviews with the market wizards, Jack realized that every single one of these top traders uses a strategy that has an edge.
The edge is what helped them remain profitable over the long run and over many trades done.
One example he gave to illustrate a strategy without an edge.
Someone who bets his money on the roulette, in the casino, do not have an edge.
If you only bet on a single colour at any point in time on the roulette, you have only a 47.5% probability of being right because of the additional 0 and 00 slots that do not belong to either colours.
Meanwhile, the casino has a 52.5% probability of winning in any single bets.
In the short run, you might be lucky to win a few initial rounds betting on a single color.
But over the long run and over many bets, you will DEFINITELY lose money on the roulette table because your betting strategy has a negative edge.
Since the payout is just 1 to 1, you will never make money when you bet your money with a negative edge such as this, guaranteed.
4) Hard work is necessary
Jack said that one common trait he noticed in all the top traders interviewed is that they are all very hard working.
They embrace the effort they need to put in order to become a proficient trader.
In some extreme cases, a few of the market wizards even spend 20 hours a day trading and honing their trading skills.
5) The Paradox: a surgeon versus a trader
Jack posed this question to the audience on the floor,
“Have you ever met someone who goes to a bookstore on a Friday, buys a book on surgery, read it over the weekend and attempt to go into the operating theater on Monday and start to operate like a real surgeon?”
Every single one of the audience agreed there is a zero chance that this man could perform a successful surgery just by reading a surgery textbook over the weekend.
However, Jack went on to ask the next question,
“Have you ever met someone who goes to a bookstore on a Friday, buys a book on trading, read it over the weekend and attempts to head into the market on Monday and start to trade like he is a professional trader?”
The audience giggled upon Jack’s second question, which probably suggested that this example of a aspiring trader is a common occurence.
The fact, as Jack explained, is that anyone with zero experience in surgery will almost definitely fail in his first duty as a surgeon.
But someone who has zero experience in trading could still potentially make money (sometimes a lot) on his initial trades!
This paradox gives people a general false feeling that trading is and can be very easy for any newbie.
According to Jack, the truth is that in order to be a profitable trader in the long run, you will have to put in effort in honing your trading skills.
The effort will be as much as a trainee surgeon who spend years of his life learning how to become a proficient surgeon.
When a newbie trader’s beginners luck runs out, he will start losing a lot of money, usually much more than the amount he made during his lucky winning streak.
So, if you are a amateur trade and if you want to become a proficient trader over the long run, there is simply no short cut way for you.
You will have to spend years honing your trading skills until you become one of those market wizards.
6) Good trading is effortless
According to Jack, trading should be effortless for a proficient trader.
The reason is that all top traders should have worked out a trading plan and strategy even before they put on any trade based on the circumstances that arises.
And if you have your trading plan in place and you are disciplined enough to follow through, putting on trades and taking off trades should be an effortless endeavor.
If you struggle physically, mentally or emotionally when opening a trade or closing a trade, you need to head back to the drawing board to refine your trading plan into one that you can follow with ease.
7) Risk management is more important than methodologies
“Always know where you will get out even before you get in a trade.”
This was the opening statement Jack made to bring his point across on the concept of risk management.
To put it more simply, this means that even before you enter a trade, you must first decide where and when to cut your loss should you make a wrong judgement.
If you do not decide your exit plan before you enter, your emotions will usually throw your objectivity and rationale out of the window once you money is in the trade.
And that to him, is the worse form of risk management.
Also, Jack emphasized that it is extremely important for a trader to risk NOT more than a certain percentage (eg. 0.5% to 2% max) of his capital on any single trade.
This ensures that if something unforeseeable result in a huge price plunge in any of your stock, you will not get wiped out by a single catastrophic trade.
These were the first 7 points which he discussed during his seminar. To see the final 8 points he touched on, please click here for the second part.
Meanwhile, please share this article with your friends, so that they can benefit from Jack and the market wizards’ wisdom as well!
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