What if you could read the principles for
success from some of the world’s greatest traders? Well you can, thanks to Jack Schwagers
remarkable book – The Market Wizards. The book is a series of interviews with some
of the greatest traders from the last 40 years. This is the first of many videos in Autochartist’s
new series: Trading Lessons from the Market Wizards. Each video will discuss a different key lesson
taken from the interviews with the top traders. If you implement these lessons into your trading,
you will become a better trader. Here’s the first Lesson – Match Your Trading
Method to your Personality. Every successful trader follows a distinct
path to financial success. No one understands this better than renowned futures and hedge
funds trader and author, Jack Schwager. In writing his Market Wizard Series, Schwager
interviewed dozens of the world’s most successful traders. In each of his interviews, Schwager
made it a point to include detailed transcription of the trader’s own words and history, painting
a picture of the their personalities and background. Why dedicate so much print space to personalities
and histories in a book about trading the market? Schwager, in concluding his book,
Market Wizards: Interviews With Top Traders, Schwager, explained,… “There is no single true path to trading
success. … Aspiring traders need to understand that the quest is not a matter of finding
one approach that unlocks the secrets of market success, but, rather, of finding an approach
that fits their personality. All the Market Wizards found an approach that worked for
them because it fit their personality.” But isnt this obvious, you would think naturally
everybody would find a way to trade based on their personality. , but take Marty Schwartz
as an example. Take a look at an outspoken, solitary, intense,
routine driven trader, for example. Marty Schwartz, known popularly as “Buzzy,”
made a complete turnaround, from a soured, fundamental analyst to a self-made technical
trader of stocks, futures, and options. Schwartz took his first job as a fundamentalist
securities analyst at Kuhn Loeb and continued working as an analyst elsewhere until 1978.
He described to Schwager how he had spent a decade losing money and his employee spirit:
“I lost the spirit to write bullish reports, because if stock prices are going down, who
cares how many widgets are being sold… It was all so ridiculous!” During nearly a decade as a fundamental analyst,
he had developed an interest in technical analysis. Encouraged by his new wife to follow
a path closer to his own heart, he became particularly interested in Terry Laundry’s
“unorthodox approach called the Magic T Forecast,” which focused on market oscillation
amplitude. Less than two years after his marriage, Schwartz,
who “traded like crazy” turned $5,000 into $140,000. He took $600,000 in his second
year, and after 1981 “never earned less than seven figures.” Schwartz had discovered
that technical trading fit his personality. He went from being broke in the 1970s, despite
bringing in $70,000 as an analyst, to turning $40,000 into “about $20 million with never
more than a 3 percent drawdown.” When Schwager asked him if he had made “a
complete transition from fundamental to technical analysis, Schwartz replied, “Absolutely.
I always laugh at people who say, ‘I’ve never met a rich technician.’” He added,
“I love that! It is such an arrogant, nonsensical response. I used fundamentals for nine years
and got rich as a technician.” While Schwartz looked back at fundamental
trading as the bane of his past, investor James Rodgers, as a pure fundamentalist, in
1970 went to work for George Soros at Arnhold and S. Bleichroeder, where their complementary
skills, as analyst and trader, spurred them, less than three years later, to start their
own firm. They became well-known on Wallstreet, and
Michael Covel, the author of the Turtle Trading and trend-following books, wrote, in the StreetStories.com
blog, Their Quantum Fund earned “38% over 11 years, and the Soros Fund chalked up a
gain of 3,365% while the S&P advanced about 47%.” Their fund also became one of the first
in the U.S. to delve in overseas investment. That’s how two successful traders, Schwartz
and Rodgers, with two different personalities became Market Wizards. Technical trader, Schwartz,
“traded like crazy,” while Rodgers, the fundamentalist, said that “one of the best
rules … is to do nothing, absolutely nothing, unless there is something to do.” Another trader, Colm O’Shea, fell somewhere
in the middle of Rodgers and Schwartz’ spectrum. One of the Schwager’s Hedge Fund Wizards
interviewed by Schwager, O’Shea used both fundamental and technical data in his discretionary
trading strategy. Profiling O’Shea, Schwager wrote,… “Traders must find a methodology that fits
their own beliefs and talents. A sound methodology that is very successful for one trader can
be a poor fit and a losing strategy for another trader. Colm O’Shea, one of the global macro
managers I interviewed, lucidly expressed this concept in answer to the question of
whether trading skill could be taught: ‘If I try to teach you what I do, you will
fail because you are not me. If you hang around me, you will observe what I do, and you may
pick up some good habits. But there are a lot of things you will want to do differently.
A good friend of mine, who sat next to me for several years, is now managing lots of
money at another hedge fund and doing very well. But he is not the same as me. What he
learned was not to become me. He became something else. He became him.’” Jack Schwager’s series points out example
after example of why buying systems don’t work. Aspiring investors looking for an investing
system will find it hard to identify a trustworthy one, and even profitable systems will unlikely
to fit your personality. As you seek your system’s strategy, or refine
it, it’s critical that you find a method that’s consistent with your personality.
If you’re impatient, a profitable long term trend strategy won’t work for you if you
can’t sit through the ups and downs of the market. On the other hand, if hours in front
of a screen all week, waiting for a set-up don’t appeal to you, you might not want
to throw your effort into day trading. The perfect strategy, over both the long-
and short term will fit your personality. You’ll know it once you slide into the seat,
just like you do when you find that automobile that’s the one for you. Listen and learn
to what other traders have to say, but in the long run, you’ll feel which system is
the most comfortable for your ride. Ride that system, and you’ll see Schwager’s
formula for trading success works as well for you as it has for others.