How do some traders turn small amounts of funds into millions?
Are they simply lucky, lying or masters of a priceless witchcraft that allows only a few players to become fantastically wealthy? What are the secrets of their unheard-of success?
Jack D. Schwager decided to find the answer by interviewing top traders, traders who had attained the pinnacle – consistently successful. What he found was
an interesting mix of method and mental posture was largely responsible for their success.
Fortunately for us, he compiled all the interviews into an excellent book, Market Wizards. A book that gives the reader a glimpse into the minds of some of the most remarkable traders.
A book that allows us to look inside the minds of these consistently successful traders and see what it took to make them successful.
The interviewees trading vehicle of choice span multiple asset classes (futures, currencies, stocks, and bonds) as well as multiple strategies (value investing, scalping, momentum trading, as well as some quantitative-based trading)
In 1972, Michael Marcus, a graduate of Johns Hopkins, met a man who claimed he could double his money every two weeks. Within the next few months, Marcus lost all his money on the man’s commodity tips. However, he decided that with more time and practice, he too could trade successfully.
Drawing funds from family, friends, and his own resources, Marcus followed another market letter writer’s advice and made his first profit on a wheat trade. Over a summer, he put on various commodity trades, parlaying his initial capital into $30,000.
Instead of going back to school, Marcus decided to take a leap of faith and became a full-time commodities trader. Following a market rumor that blight was going to strike crops, Marcus bought in, only to find out that blight never struck. Instead of selling out as fast as possible, Marcus felt paralyzed as he watched his entire stake disappear once again.
With no money left, Michael Marcus took a research analyst job at Reynolds Securities for commodities. Borrowing money from friends and family, he still consistently lost because he had no grasp of trading/investment rules. In October 1971, he met Ed Seykota, started trading his own money, and started to learn what it takes to be a prosperous trader,
In the next few years, Marcus made a small fortune turning an initial stake of $30,000 into $80 million.
Here are some of Michael Marcus’ trading nuggets:
- I believe that the era of trend following is over unless there is a particular imbalance in a market that overrides everything else. Another exception would be if we were to enter a major inflationary or deflationary environment. One reason we don’t have many good trends anymore is that the central banks are preventing currency moves from getting out of hand by taking the other side the trend.
- I don’t trade the Dow Stocks. I prefer the little ones, because they are not dominated by the big professional traders who are like sharks eating each other.
- I try to avoid the currencies, because I feel it is a totally political situation; you have to determine what the central banks are going to do.
- I think to be in the upper echelon of successful traders requires an innate skill, a gift. But to be a competent trader and make money is a skill you can learn. Isn’t this what Douglas called the Mechanical Stage?
- Being a successful trader also takes courage;
the courage to try,
the courage to fail,
the courage to succeed,
and the courage to keep on going when the going gets tough.If trading is your life, it is a tortuous kind of excitement. But if you are keeping your life in balance, then it is fun. All the successful traders have a balanced life; they have fun outside of trading.
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