"The New Market Wizards" by Jack Schwager is an awesome book. This book is with full of practical approaches. Traders who survived the markets with great success, expose their mind over markets in simple conversations. Will try to post the important Q&A from each trader's interview here.
Let's start with Bill Lipschutz, a veteran forex legend trader. Author describes him as "sultan of currencies". It's true as he made billions at his age of 35. He reveals his success as below.
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I believe in this scenario very strongly-but if the price action fails to confirm my expectations, will I be hugely long? No, I'm going to be flat and buying a little bit on the dips. You have to trade at a size such that if you're not exactly right in your timing, you won't be blown out of your position. My approach is to build to a larger size as the market is going my way. I don't put on a trade by saying, "My God, this is the level; the market is taking off right from here." I am definitely a scale-in type of trader. I do the same thing getting out of positions. I don't say, "Fine, I've made enough money. This is it. I'm out." Instead, I start to lighten up as I see the fundamentals or price action changing."
I think it has enabled me to stay with long-term winners much longer than I've seen most traders stay with their positions. I don't have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don't think you can consistently be a winning trader if you're banking on being right more than 50 percent of the time. You have to figure out how to make money being right only 20 to 30 percent of the time.
I think it's a combination of market experience and innate feel. Many currency traders operate under rules that if they lose a certain amount of money, they must liquidate the position. Those are not the type of decisions that are made rationally given the specific situation at a given moment; rather, they are general rules that have been established previously. How do you decide when that type of last-ditch selling is nearly exhausted? It's probably largely a matter of past experience that has suffused your subconscious. In this sense, what people describe as gut feel is probably better described as subconscious market experience.
Let me start with an analogy. When I was in college, my impression was that people who were really smart could do very well, even if they didn't work that hard, and people who really worked hard could also do very well, even if they weren't outstandingly bright. In contrast, in trading, I think you need both elements.The best traders I know are really quite brilliant, and they all work very hard-much harder than anyone else. By the way, when I talk about working hard, I mean commitment and focus; it has nothing to do with how many hours you spend in the office. These traders have tremendous commitment to the markets-to their craft, so to speak. They develop scenarios, reevaluate scenarios, collect information, and reevaluate that information. They constantly ask themselves: What am I doing right? What am I doing wrong? How can I do what I am doing better? How can I get more information? It's obsessive.
Courage. It's not enough to simply have the insight to see something apart from the rest of the crowd, you also need to have the courage to act on it and to stay with it. It's very difficult to be different from the rest of the crowd the majority of the time, which by definition is what you're doing if you're a successful
trader.
Many people think that trading can be reduced to a few rules. Always do this or always do that. To me, trading isn't about always at all; it is about each situation.So many people want the positive rewards of being a successful trader without being willing to go through the commitment and pain. And there's a lot of pain.
I like the game. I think it's a great challenge- It's also an easy game to keep score of.
It's tremendous fun! It's fascinating as hell because it's different every day.
Absolutely. Without question, I would do this for free. I'm thirty-six years old, and I almost feel like I have never worked. I sometimes can't believe I'm making all this money to essentially play an elaborate game. On the other hand, when you look at all the money I've produced over the years, I've been vastly underpaid.
Let's start with Bill Lipschutz, a veteran forex legend trader. Author describes him as "sultan of currencies". It's true as he made billions at his age of 35. He reveals his success as below.
-------------------------------x---------------------------x----------------------------------
For argument's sake, let's say that the fundamentals ostensibly don't change but the dollar starts going down. How would you decide that you're wrong? What would prevent you from taking an open ended loss?
I believe in this scenario very strongly-but if the price action fails to confirm my expectations, will I be hugely long? No, I'm going to be flat and buying a little bit on the dips. You have to trade at a size such that if you're not exactly right in your timing, you won't be blown out of your position. My approach is to build to a larger size as the market is going my way. I don't put on a trade by saying, "My God, this is the level; the market is taking off right from here." I am definitely a scale-in type of trader. I do the same thing getting out of positions. I don't say, "Fine, I've made enough money. This is it. I'm out." Instead, I start to lighten up as I see the fundamentals or price action changing."
Do you believe your scaling type of approach in entering and exiting positions is an essential element in your overall trading success?
I think it has enabled me to stay with long-term winners much longer than I've seen most traders stay with their positions. I don't have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don't think you can consistently be a winning trader if you're banking on being right more than 50 percent of the time. You have to figure out how to make money being right only 20 to 30 percent of the time.
How do you gauge when a panic has run its course?
I think it's a combination of market experience and innate feel. Many currency traders operate under rules that if they lose a certain amount of money, they must liquidate the position. Those are not the type of decisions that are made rationally given the specific situation at a given moment; rather, they are general rules that have been established previously. How do you decide when that type of last-ditch selling is nearly exhausted? It's probably largely a matter of past experience that has suffused your subconscious. In this sense, what people describe as gut feel is probably better described as subconscious market experience.
What do you believe are the characteristics of the truly superior traders?
Let me start with an analogy. When I was in college, my impression was that people who were really smart could do very well, even if they didn't work that hard, and people who really worked hard could also do very well, even if they weren't outstandingly bright. In contrast, in trading, I think you need both elements.The best traders I know are really quite brilliant, and they all work very hard-much harder than anyone else. By the way, when I talk about working hard, I mean commitment and focus; it has nothing to do with how many hours you spend in the office. These traders have tremendous commitment to the markets-to their craft, so to speak. They develop scenarios, reevaluate scenarios, collect information, and reevaluate that information. They constantly ask themselves: What am I doing right? What am I doing wrong? How can I do what I am doing better? How can I get more information? It's obsessive.
Besides intelligence and extreme commitment, are there any other qualities that you believe are important to excel as a trader?
Courage. It's not enough to simply have the insight to see something apart from the rest of the crowd, you also need to have the courage to act on it and to stay with it. It's very difficult to be different from the rest of the crowd the majority of the time, which by definition is what you're doing if you're a successful
trader.
Many people think that trading can be reduced to a few rules. Always do this or always do that. To me, trading isn't about always at all; it is about each situation.So many people want the positive rewards of being a successful trader without being willing to go through the commitment and pain. And there's a lot of pain.
Why do you trade?
I like the game. I think it's a great challenge- It's also an easy game to keep score of.
With trading consuming most of your day, not to mention night, is it still fun?
It's tremendous fun! It's fascinating as hell because it's different every day.
Would you still trade if there were no monetary remuneration?
Absolutely. Without question, I would do this for free. I'm thirty-six years old, and I almost feel like I have never worked. I sometimes can't believe I'm making all this money to essentially play an elaborate game. On the other hand, when you look at all the money I've produced over the years, I've been vastly underpaid.
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