MESSAGE FROM TRADERJANIE
This week we continue our “book review” of Jack Schwager’s excellent book, Market Wizards and will highlight Schwager’s interview with Bruce Kovner.
Described as secretive even by family and friends, Bruce Kovner is perhaps one of the least known New York City billionaires outside of professional circles. New York magazine refers to Bruce Kovner as the most powerful New Yorker you’ve never heard of. His interview in Market Wizards was one of the more insightful interviews in the book and is a must read for traders.
In his early years, Kovner borrowed $3,000 on his MasterCard and began trading on his own and made $1,000 on his first two trades. Kovner says his earlier trading experience were the most memorable. The first time he lost control of the trading process was in the soybean market. It was seared into his memory. A shortage developed in soybeans, running his $4,000 position up to $45,000 in six weeks. In a moment of insanity, he discarded a hedge limiting losses if prices turned down, which, of course, they did. In a panic, he liquidated his position, escaping with a loss of $23,000. Although he still had $22,000, five times what he started with, losing half his profit in an hour made him physically sick for a week. In retrospect that was a very good thing, reflects Kovner, “It helped me understand risk and create structures to control risk.”
The Brooklyn-born Kovner retired in 2011 from running his macro hedge fund firm, Caxton Associates, to manage his own money. He retains an ownership stake in the firm, which he founded in 1983.
Most major macro hedge funds struggled in 2014 and Caxton Associates was no exception. Its main hedge fund lost 1.3% in 2014.
1. I was influenced by Michael Marcus, who told me “you have to be willing to make mistakes regularly; there is nothing wrong with it.”
2. I stay rational and disciplined under pressure.
3. In a bear market, you have to use sharp countertrend rallies to sell.
4. To make money, you have hold a position with conviction.
5. Technical analysis reflects the vote of the entire marketplace and therefore, does pick up unusual behavior. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes.
6. On any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade. I never had a lot of difficulty with the process of losing money, as long as losses were the outcome of sound trading techniques.
7. Fundamentalists who say they are not going to pay any attention to the charts are like doctors who says they’re not going to take a patient’s temperature.
8. Bear markets have different characteristics than bull markets. The principal characteristics of a bear market is very sharp down movements followed by quick retracements. I can hardly wait!
10. Don’t personalize the market. A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn’t care whether you make money or not. Whenever a trader says, “I wish,” or “I hope,” he is engaging in a destructive way of thinking because it takes attention away from the diagnostic process.
11. If you don’t work very hard, it is extremely unlikely that you will be a good trader.
12. One of the most important qualities of a trader is ego strength, the self-confidence that allows a person to acknowledge his mistakes and not fall in love with his ideas. “The biggest risk in trading is hubris.” This is because being wrong is actually an integral part of success. A successful futures trader makes many more losing trades than winning ones. The key is to recognize and concede the mistakes.
13. Regardless of the approach used, once a strategy is selected, the trader should stick to his game plan and avoid impulsive trading decisions.
Email from potential member
I am interested in signing up for your service, but I would like to find out if it is suitable for me. I live in Australia, and so I am asleep when the US market is open. As a result, I am not able to place trades during US market hours. Do your alerts require the trades to be placed immediately after you send them out, or is it possible to place limit orders outside US market hours? I have tried a few other US trading services, but none of them have worked for me because placing my trades end of day meant that I always missed the correct entry and exit prices.” David
QiT would be perfect for you. My signals (we do not call them alerts) are usually posted around 6:00 – 7:00 PM EDT and are to be placed (we do not use overnight markets) before the next trading day opens at 9:30 AM EDT, and that is all you do. This gives you approximately 14 hours to place the trades then, once the orders are placed, you walk away and do not come back until the next set of signals are posted the next day. You let the market do all the work.
As a matter of fact, I highly encourage my members to NOT even watch the market during the day because they can get emotional and make rash decisions.
All entries are LIMIT orders with a fill rate of only 30 – 40% depending on the portfolio.
It is important, however, that you read how to exit positions since we exit most trades with a limit order and, although it is the most elegant way to exit, it does have some drawbacks for which we have to accommodate.
If you have any more questions please do not hesitate to ask.
AND IN CONCLUSION
The Pessimist sees the glass as half empty. The Optimist sees the glass half full. The Stock Market Day Trader JUST ADDS WHISKEY .
Remember, plan your trade and trade your plan.