In The New Market Wizards, successful traders relate the financial strategies that have rocketed them to success. Asking questions that readers with an interest or involvement in the financial markets would love to pose to the financial superstars, Jack D. Schwager encourages these financial wizards to share their insights. Entertaining, informative, and invaluable, The New Market Wizards is destined to become another Schwager classic.
In these absorbing interviews with star performers in the financial markets, Schwager ( Market Wizards ) humanizes the mechanics and psychology behind billion-dollar daily world trading in such sophisticated instruments as currencies, stock options, commodity futures, and mutual-fund accounts by individuals, investment firms and group-trading computerized "money machines." One trader focuses on market response to news events, another calculates mathematical probabilities--one even cocks an ear to the noise level on the exchange floor. All rank assiduous research, self-confidence, a specific plan and the courage to cut losses among essentials to success. Few consider their work gambling, but Schwager entertainingly argues that a successful trader needs many of the qualities of a good poker player. Though the subject matter is esoteric, there is much here to attract the general reader, and Schwager appends a "primer" of technical basics.
Copyright 1992 Reed Business Information, Inc. -- PUBLISHERS WEEKLY.
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December 10, 1993
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Excerpt from The New Market Wizards by Jack D. Schwager
Misadventures in Trading
On the lecture tour following the completion of this book's predecessor, Market Wizards, certain questions came up with reliable frequency. One common question was: "Has your own trading improved dramatically now that you've just finished interviewing some of the world's best traders?" Although I had the advantage of having plenty of room for dramatic improvement in my trading, my response was a bit of a cop-out. "Well," I would answer, "I don't know. You see, at the moment, I'm not trading."
While it may seem a bit heretical for the author of Market Wizards not to be trading, there was a perfectly good reason for my inaction. One of the cardinal rules about trading is (or should be): Don't trade when you can't afford to lose. In fact, there are few more certain ways of guaranteeing that you will lose than by trading money you can't afford to lose. If your trading capital is too important, you will be doomed to a number of fatal errors. You will miss out on some of the best trading opportunities because these are often the most risky. You will jump out of perfectly good positions prematurely on the first sign of adverse price movement only to then see the market go in the anticipated direction. You will be too quick to take the first bit of profit because of concern that the market will take it away from you. Ironically, overconcern about losing may even lead to staying with losing trades as fear triggers indecisiveness, much like a deer frozen in the glare of a car's headlights. In short, trading with "scared money" will lead to a host of negative emotions that will cloud decision making and virtually guarantee failure.
The completion of Market Wizards coincided with my having a house built. Perhaps somewhere out in this great country, there is someone who has actually built a house for what they thought it would cost. But I doubt it. When financing the building of a house, you find yourself repeatedly uttering that seemingly innocuous phrase, "Oh, it's only another $2,000." All those $2,000s add up, not to mention the much larger sums. One of our extravagances was an indoor swimming pool, and to help pay for this item I liquidated my commodity account--in the truest sense of the word. It was my sincerest intention not to resume trading until I felt I had adequate risk capital available, and an unending stream of improvements on the house kept pushing that date further into the future. In addition, working at a demanding full-time job and simultaneously writing a book is a draining experience. Trading requires energy, and I felt I needed time to recuperate without any additional strains. In short, I didn't want to trade.
This was the situation one day when, in reviewing my charts in the afternoon, I found myself with the firm conviction that the British pound was about to collapse. In the previous two weeks, the pound had moved straight down without even a hint of a technical rebound. After this sharp break, in the most recent week, the pound had settled into a narrow, sideways pattern. In my experience, this type of combined price action often leads to another price decline. Markets will often do whatever confounds the most traders. In this type of situation, many traders who have been long realize they have been wrong and are reconciled to liquidating a bad position--not right away, of course, but on the first rebound. Other traders who have been waiting to go short realize that the train may have left without them. They too are waiting for any minor rebound as an opportunity to sell. The simple truth is that most traders cannot stand the thought of selling near a recent low, especially soon after a sharp break. Consequently, with everyone waiting to sell the first rally, the market never rallies.