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Market Wizards, Updated: Interviews With Top Traders Paperback – January 17, 2012
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Q & A with Jack D. Schwager, author of Market Wizards: Interviews with Top Traders
More than twenty years have passed since the first edition of this book was released. Is it as relevant today as it was then?
Absolutely. Markets may change and the specific techniques or systems that work best may change, but the underlying core principles that lead to trading success stay the same. And there is a good reason for that. Through all periods, market price moves reflect some combination of underlying fundamentals and human behavior. Since human nature doesn't change, the market's basic behavioral patterns don't change either. I believe that every conclusion I reached about the factors important to trading success in the first edition remains equally valid today. Perhaps the best testament to the continued relevance of Market Wizards in today's markets is that so many of the managers I meet who read the original edition early in their careers make it required reading for new traders in their organization.
Has trading fundamentally changed with the rise of the quants and algorithmic traders?
The growing role of algorithmic trading may have eliminated some market inefficiencies as sources of profitable strategies, and it may even have impacted the efficacy of some trading systems, but I don't believe it has changed fundamental market behavior. The same basic concepts that are critical to trading success remain as valid now as they were a generation ago when computerized trading was in its infancy.
What are these basic concepts?
Well that's what this book is all about. But to offer one example, I believe that developing a trading methodology that fits your personality, as opposed to seeking someone else's approach, is an absolutely critical element to succeeding as a trader.
Why do most traders fail?
There are many reasons. They seek easy answers. They listen to "experts" and chase trading fads instead of doing the hard work of developing their own methodology. They focus almost all their energy on determining trade entry points and all but ignore the more critical questions of trade exit and risk management. They listen to other people. These are a few of the reasons. Readers will find a lot more in the book.
Which trader interview in the book has been the most popular?
Readers will often tell me that a certain chapter was their favorite and by far the most important in improving their own trading. The interesting thing is that they always seem to mention a different trader. There is no consensus. Different readers will find different things in the book important. They will relate to different traders. It all goes back to the importance of finding your own approach in the market.
Have the interviews you did for Market Wizards been important to your own trading?
The interview and writing process has helped solidify in my own mind the principles that are important to trading success. At times, it has also had a very specific influence. A great example occurred last summer. At the time, the stock market was approaching the high end of a long-term trading range, and for a variety of reasons, I expected the rally to fail and was positioned on the short side of stock index futures. Then the government released an extremely bearish employment report. It was so negative that commentators couldn't even cite one offsetting bullish consideration, as they usually do. The market initially sold off sharply in response--"perfect," I thought of my trade--but by the end of the day, it nearly recovered the entire loss, ending the week near the recent high. From the perspective of a short, this was terrible price action. I thought I was in trouble. I was prepared to cover most of my position when the market opened on Sunday night. On Sunday night, however, the market opened lower. I immediately thought of Marty Schwartz's advice in this book: "If you're very nervous about a position overnight, and especially over the weekend, and you're able to get out at a much better price than you thought when the market trades, you're usually better off staying with the position." I did, and Schwartz's insight saved me a lot of money, as the market proceeded to move sharply lower in the ensuing weeks.
"One of the most fascinating books ever written about Wall Street." -- --Martin W. Zweig, Market Forecaster --This text refers to the Audio CD edition.
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Top customer reviews
Not only does this book cover a wide variety of trading techniques, it also covers a wide variety of markets as well (treasuries, futures, commodities etc.). The book also sheds light on the personal traits and characteristics of successful traders. By reading the different interviews one starts to see the commonalities but also the differentiators between them. It is very intriguing to read one very successful trader present opposite techniques than the next trader being interviewed.
A must read for any serious investor. This book is filled with wisdom from start to finish - for both novice and advanced traders. One will also find that much of this wisdom applies to any career.
Below are excerpts from this book that I found particularly insightful:
1- "You also have to follow your own light. Because I have so many friends who are talented traders, I often have to remind myself that if I try to trade their way, or on their ideas, I am going to lose. Every trader has strengths and weaknesses...As long as you stick to your own style, you get the good and bad in your own approach. When you try to incorporate someone else's style, you often wind up with the worst of both styles. I've done that a lot."
2- "Don't ever feel that you are very good. The second you do, you are dead."
3- "What are the traits of a successful trader? The most important is discipline - I am sure everyone tells you that. Second, you have to have patience; if you have a good trade on, you have to be able to stay with it. Third, you need courage to go into the market, and courage comes from adequate capitalization. Fourth, you must have a willingness to lose; that is also related to adequate capitalization. Fifth, you need a strong desire to win."
4- "I have two basic rules about winning in trading as well as in life: (1) If you don't bet, you can't win. (2) If you lose all your chips, you can't bet."
5- "The stock market is neither efficient nor random. It is not efficient because there are too many poorly conceived opinions; it is not random because strong investor emotions can create trends."
6- "I don't see how you can invest in American steel without understanding what is going on in Malaysian palm oil. As I explained before, it is all part of a big, three-dimensional puzzle that is always changing."
7- "Although the styles of the traders are very different, many common denominators were evident:
1- All those interviewed has a driving desire to become successful traders - in many cases, overcoming significant obstacles to reach their goals.
2- All reflected confidence that they could continue to win over the long run. Almost invariably, they considered their own trading as the best and safest investment for their money.
3- Each trader had found a methodology that worked for him and remained true to that approach. It is significant that discipline was the word most frequently mentioned.
4- The top traders take their trading very seriously; most devote a substantial amount of their waking hours to market analysis and trading strategy.
5- Rigid risk control is one of the key elements in the trading strategy of virtually all those interviewed.
6- In a variety of ways, many of the traders stressed the importance of having the patience to wait for the right trading opportunity to present itself.
7- The importance of acting independent of the crowd was a frequently emphasized point.
8- All top traders understand that losing is part of the game.
9- They all love what they are doing."
To get the full benefit, it is necessary to read from beginning to end. What strikes me most is both the depth and breadth covered by the interviews. The book is divided into several segments, covering futures, equities, investors who follow economy-wide trends, and a little bit of psychological analysis. The key to learning from this book is linking the ideas from all the separate interviews together.
By the end, you will see subtle differences in the thinking behind futures, equities, and even stock option trading. Despite the various traders having a wide range of opinions and philosophies, you will find many commonalities in each interview. Though each trader used radically different methods, they all had a standardized set of rules that were followed and led to success. Most of these rules involved some benchmark for cutting losses.
Interestingly enough, this book is not written or condensed in anyway. It consists of outright transcripts of interviews Schwager conducted with the actual traders. I believe this style kept each page exciting because it actually felt as if I was present during the interview.
This is one of the essential reads for any young or old person wanting to engage the trading field, whether as a part time endeavor or as a career. Study Market Wizards, and use the wisdom of its pages to your money-making advantage!