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So if you are young and you get a period like 2008, or any period after the market sells off substantially, and that’s when you buy–when everybody hates stocks–and then you hold for the long term, that will probably work out just fine. I too was quite surprised when Ed said it, and I remember asking him, “Do you literally mean that people who lose, want to lose? ” And, Ed answered by repeating the quote, “Everyone gets what they want out of market.” And, indeed he meant that, at some level, losing traders were fulfilling some other need. I will give you a personal example that while not about trading is nonetheless a perfect illustration of Ed’s basic premise.
He also traded around news to orientate himself on “the right side of the market”. Plus, he was inexperienced and didn’t have the fear that cripples people who’ve been in the business for a long time. Return alone can be a very misleading measure because, very simplistically, anybody can double returns by just doubling exposure. If you take twice as much risk, you will make twice the return, but that doesn’t mean you are twice as smart or twice as good. You are exactly where you were before because your risk is now doubling as well.
Part Three: Equity Traders
The best performers during such periods are often the most imprudent rather than the most skilled managers. Martin Taylor, the portfolio manager of the Nevsky Fund, underperformed in 1999 because he thought it was ridiculous to buy tech stocks at their inflated price levels. This same investment decision, however, was instrumental to his large outperformance in subsequent years when these stocks witnessed a prolonged, massive decline. In this sense, past performance can sometimes even be an inverse indicator. Schwager explores the differences between great traders and everyone else who thinks they can trade. Rare insights into the trading philosophy and methods employed by some of the most profitable individuals in the hedge fund business.
In fact, I think I have myself quote lines from that book. Here Woodriff talks about his direction recognition approach which stands in contrast to the typical trend following or mean-reversion 11 Business Books You Must Read CTA strategies. I was a little suprised that all he uses are OHLC bars. I know several successful traders who only use these datapoints and thus I know how much information is conveyed in them.
Related Books & Audiobooks
One useful feature is the 40 key trader lessons compiled in the last chapter. This is a shortcut to some of the key elements of successful traders. Interestingly, each of the interviewees has a different trading approach, style and timeframe, but they all are highly successful and adapt their trading to market conditions. They all realize that changing market conditions require adjustments; otherwise the results could be disastrous. Schwager follows the same format in all of his books.
Maybe one of the most underrated aspects of Buffett’s success over the long haul has been his ability to stick to his process for 5-6 decades. There seems to be far too much money, pressure, and competition to give world-famous investors the ability to pull that off anymore. Jack Schwager wrote the original Market Wizards Hedge Fund Market Wizards books, two of the must read, seminal books for investors and traders. A cognitive disconnect exists, however, between the wizards’ view that markets are inefficient and their belief that prices provide a great deal of information. Their take on price efficiency is that if the market moves against you, then you were wrong.
About The Author
One of the traders interviewed in the new book, Ed Thorp, actually began trading before many of the traders in the original Market Wizards, and he could just as easily have been included in the original book. JS- The original Market Wizards was written nearly 25 years ago. Certainly, the markets have undergone many changes since then.
Trading too large can result in good trades being liquidated at a loss because of fear. On the other hand, trading larger than normal when the profit potential appears to be much greater than the risk is one of the key ways in which many of the Market Wizards achieve superior returns. Even the best trading processes will lose a certain percentage of the time. There is no way of knowing a priori which individual trade will make money. As long as a trade adhered to a process with a positive edge, it is a good trade, regardless of whether it wins or loses because if similar trades are repeated multiple times, they will come out ahead. Conversely, a trade that is taken as a gamble is a bad trade regardless of whether it wins or loses because over time such trades will lose money.
Book: Hedge Fund Market Wizards
A trader’s view of the markets and emerging financial trends. Sharing actionable trading ideas, insights on trending stocks and sectors, and timeless trading/investing wisdom. Educational info is presented here, no personalized investment advice is offered.
It’s been beneficial to my own trading, just talking to these people. Even though trading is not the only thing I’ve done. When I was writing this I was going to do the whole book in a similar style, but my goal was hey I’m reading this book 60 years later my goal was I wanted to do a book that 60 years later traders would still be reading. Here we are, almost 25 years later, and it’s still very widely read. A lot of people for awhile I remember back when I read it some people thought that it was a pseudonym but there really was an Edwin Lefevre.
Hedge Fund Market Wizards: How Winning Traders Win
Jack D. Schwager is the author of several books on investing, including Market Wizards, New Market Wizards, Stock Market Wizards, Getting Started in Technical Analysis, A Complete Guide to the Futures Markets, and Hedge Fund Market Wizards. In the Wizard book series, the author interviews other highly successful traders, including William Eckhardt, Richard Dennis, and Paul Tudor Jones. Low volatility does not imply low risk and high volatility does not imply high risk. Investments subject to sporadic large risks may exhibit low volatility if a risk event is not present in the existing track record.
Had you gone short NASDAQ, there’s an excellent chance you would have been stopped out at trade because, again here’s something that people don’t tend to realize or remember is that the NASDAQ didn’t just go down slowly. One of Colm O’Shea’s points was that how you put on the trade, how you execute your trade idea, is actually more important than the trade idea itself. There’s a great example that comes up there in the discussion of bubbles and so forth. The other big plus is, when you’re buying options, you can only lose a certain amount. On one level, it’s true, which is why people get fooled by it.
After seeding a small fund on a shoestring using his own money, he wound up closing shop and went back to work for others. Thus began a hard road which led to some contentious litigation and Clark’s disillusionment with The City. Eventually he bounced back and over time developed contacts with trusted brokers. He used their order flow info to gauge near-term market sentiment on news events.
For trading wisdom, the “Market Wizards” series continues to be one of the best out there. This book provides another set of successful traders who are willing to talk about their approach. The book’s friendly conversational style makes it feel like you are sitting in the room with each trader. The traders state that risk management is critical to success because failures are expected to occur often. Their rules for risk management remove the emotion of dealing with losses.
He wrote this book among others and he wrote a number on the financial community. The thing that impressed me was here I am Hedge Fund Market Wizards reading this book 60 years later and it’s still very, very pertinent. There were lines in there that I could just pull out.
- The other big plus is, when you’re buying options, you can only lose a certain amount.
- Identifying and learning from mistakes is a key theme.
- In contrast, the long bond position, which he had implemented instead of going short the equity index, witnessed a fairly smooth uptrend.
- Correlations between say, stocks and bonds, are not static, but are changing in response to “drivers” that can cause assets to move together or inversely.
- The experience taught him the importance of risk management – “I never wanted to experience that pain again”.
Balodimas is a highly unconventional trader who breaks virtually all the trading rules. As I caution in my conclusion to his chapter, it would be inadvisable and dangerous for most people to adopt a similar trading style. Yet there are aspects of what Balodimas does that have more general applicability.
Jesse Livermore: How To Trade In Stocks (1940 Ed E
I know people that trader intraday only use the last 3-10 years so it all depends on the timeframe you are trading. For daily bars i’d say more is better, but you also have to consider the quality of the data you have. It captured the mood of the time; the late 1980s was the time of the ‘Liar’s Poker’, the Stock Market Crash and Tom Wolfe’s ‘Bonfire of the Vanities’. The traders of the day were regarded as aloof untouchable ‘Masters of the Universe’ who seemed to have the midas touch, they were people who seemed different and distant from the rest of us.
Posted by: Coryanne Hicks
