open the spirit technologies about the
best forex trading strategies for success that which are the best
strategies that actually work which would be the best one view in terms of
your personality and your investment aims well in today's tutorial I've got an hour long seminar which was
held by Jack's raigarh to discuss the techniques of the world's best traders
and trigger if you have heard vent wrote the classic books the market wizards the
new market wizards and hedge fund market wizards with he discussed with the top
traders themselves have they made money not just in terms of your method and
strategy but also in terms of their mindset and their psychology now what
you learn coming up is there is actually no best strategy yet stands about any
other there's plenty of different ways of making money your personality will
have a lot to do with strategy that you pick and you'll also learn that forex
trading is really a psychology game and it is anyone can learn to trade Forex
but very few people to get the right psychology and wait now getting the
right psychology the right mindset is actually just a choice and you know when
you've seen this seminar you'll see why forex trading is actually very simple to
learn why so few people actually end up making money and how you can trade
successfully if you do your homework and you adopt the right mindset so without
any more introduction for me here is a check Schrager discussing the best
stretchy techniques and psychology tips from the world's top traders and i hope
you enjoy it thank you it's great to be in front of a crowd would almost pure
traders a2i first thing I want to stay even though most of your traders I
assume probably a lot of people here do something else in there for the regular
profession also probably some spouses got dragged along and willingly so to
make this talk relevant I can assure you that all the point i'm going to talk about really all the
points apply not only to success in trading but the success in general so
that's the person now we'll start out with what's not important because people
think that trading has to do with some sort of secret formula some magic but
it's at elliott organic or anybody else you find the formula and you'll get rich
and that's what that's what success in the market is about and I think it's
really a very wrong way of looking at it may be illustrated by giving you a
couple of examples to make it absolutely clear will take some individuals first
we'll start with jim rogers most of you I assume no Jim Rogers that all the boat
I used to work with george soros running the quantum fun back in the seventies
was the most successful funding time he quit because he got tired of the
management aspect he's been investing his own money for the past couple of
decades very successfully brilliant guy died when you read my interview with him
back which is done now about 13 years ago all of his projections exactly right
he was talking about the top of the Japanese stock market right before top
to talk about going down the nikkei going down from 30,000 plus time he said
it would go down to 10,000 exact time incredible projection you talk about
gold at the time going down for the next ten years every projection look at he
was exactly on ok so he's basically a fundamental
analyst but I ask them Jim you have a look at charts he says
you know like he's committing a sin he says you mean if I just look at it just
to see what the markets but yeah i'll look at it but i believe in any of his
head and shoulders mumbo-jumbo garbage know it's all it's all nonsense and he
says you know I i I've never met a rich technician and then he pauses to be cute he says unless you count the ones that
sell their services so i don't think a more cynical I don't know if you get more cynical
about technical analysis and Jim Rogers at the gym and short-term traders like
two years okay that's one side other side of the
fence take Marty Schwartz was a stock stock index trades i interviewed
Schwartz I it happen to be coincidentally just the time is putting
together a track record my love these traders they trade their own money kind
of you don't actually get the luxury of having the track record for say in this
case he was thinking matching public money so he had to have a in order to
track to put together she gave me his tenure track when I was doing you know
before the interview and over their 10-year period Marty had compiled an average return of
25% now I can we usually say that the audience doesn't seem to be very
impressed so let me clarify the twenty-five
percent per month now I've got your interest okay now now some of the
quantitatively oriented people the order to go with him a 25-cent the month how
come you don't have us GNP right that's that really compounds well money's
father went through the depression and instilled in us on a great fear of
things going wrong somani even though in this even go back
and look at ease with doing is trading contest with real money not these
hypothetical contest he's putting in four thousand dollars turning into 1.2
million four months going back putting the prophets and he was going back to
warrant the next 10 years he kept going 400 up to over a million back down to
400 and kept on putting the money into people's because yet he had this fear of
something going wrong so that's why he still made a lot of money but it didn't
compound to God knows how much anyway money talking about technical analysis
is paraphrasing people are like jim rogers and he says I never met ray
technician you know what is stupid arrogant type of attitude so I spent ten
years on Wall Street is a fundamental analyst I lost money every year my god
riches the technician so you really can't get much not much more different
than that i'll get another another plant like Marty Schwartz and this is a fellow
by name that's Dakota who would be totally unknown were not for my first
book i had never heard of him the way i found that sokoto was there was a fellow
but they also not a well-known not completely unknown person not one
woman Michael Markus is a very private individual trader who I happen to know
actually just by again by coincidence my first job in wall street as a research
analyst happened to be this job slot he was vacating and so we met we became
friends we kept in touch and so years later when I was doing the book of I is
to do the interview why they asked me to do the interview
because well he went off to be a traitor he went to commodity scorpy they gave
him 30 thousand dollar count ten years later was 80 million dollars so that's
why i asked them to do the interview now my so that's a pretty impressive record
and and he was really reluctant to do the interview and finally was able to
convince them to do it and I went to out the California that you spent the day is
house we really interview all day long and after dinner kind of pushes back his
chair and he says you know this really wasn't bad you know it's kind of a
composite experience because you know you should interview you should
interview at dakota and who is it covered who's that psicologa well it's an ed is
the best trader I know that if you're doing a book on traders and some fellow
who's turned thirty thousand eighty million is telling you about the best
trainer he knows obviously you're interested I said welcome it can I speak them says well you know sure
so he calls he calls it and talks there and give me the phone I supposed to head back to New York but
you know a degrees through the interview so I I said well I'll change my plans
like Wyatt into that and my original intention was to actually get back the
same day but it turns out it's a the spending the night there and just
talking to more leaving but in any case as Dakota and I kind of see chubby you
know every number of years we end up in the same place and back about five years
ago we were both in chicago the same time we had dinner together and he was
telling me tongue-in-cheek about at dinner he had the previous evening with
a fundamental analyst says they were they want to one of the Chicago
steakhouses you know the ones of the big stakes and Yujin eyes and the
fundamental hours that's coming is cutting a steak and cutting it
aggressively apparently and the steak knife slips out of his head whirls in a
year and and they're both watching atlantis shoe and it turns to the
guidances why did you move your foot and the fundamentalist looks back and
says well i thought i was going back up ok you get you get the idea of cynicism
right so what I'm trying to try to get people here who are phenomenally
successful using pure fundamental analysis on one hand and complete the
stain protection analysis and people who have been enormously successful using
pure technical analysis and complete cynicism about fundamental analysis
right so you got the he can get free report it's got to tell you one thing it's got
to tell you there's no single way there's no single road is no single
message if you're looking for that you haven't even got the right question let
alone the right answer so I i'm going to put my style called myself very often
but I go to one-time incident is talk and one of my books I used one but i
think it applies to this and I said there's a million ways to make money in
the market their unfortunate all very difficult fine but there are many many
ways so the first thing to realize is you have to find a path and not to find
deep ok that leads us to the first principle and the first and if you take
nothing else out of this talk if you just take this out of it you will be
worthwhile charity and that is every trader I ever interviewed I could say
this about they found a method that fit their
personality now some may say where does anybody do
that seems logical would you trade you don't know you really wouldn't i think
about it those are traders you probably think of the examples right off the bat
but I've mostly traders who may have been they may have had to say a good
knack analytically and could have done really well put together some
systematize approach and traded but no too boring or no they have to second
guess it would know they have to be more involved or too slow or whatever or you
have traders who really good on the floor they got the real instinct but
they get tired of all these the fellows up in the office training 10 times as
much as they are all these markets they want to be one of those guys up in the
fancy officer and so on and they go do that they become a mediocre trader off
the floor you constantly have people doing things
which are not getting their personality now let me illustrate what i mean by
trading to fit your personality again let's take specific example specific
people first we'll take quality jobs all one of
the great future traders you know uh of our time arm and particularly his
initial years when he's managing some small amounts of money that's incredible
but decade for 10-15 years of incredible performance when I interviewed him he
said come to my office at two o'clock you know and I said I knew he's an
active traders I say well Paul you know I cannot come after market close no
problem is now come to clocks 5k come to his office big office screens to all the
way across the walls he's got speakerphones that directly
connected the floors he got regular phones you got people bringing messages
he's yelling out cell 300 much S&P by five and older entries be selling buying
the people at phones ringing and everything is going on here looking at
the screen and he's doing the interview okay so I kind of say like watching Paul
Paul trade is sort of like watching the professional tennis player on speed or
something like that is just like really active and aggressive that's cool that's
his that's his style that works Bill let's take another picture killed Blake
killed Blake is a mutual fun time or when I interviewed him he had a 12 year
track record average returns of about forty-five percent per year very steady
is worst years like + 35 is I'm is worse with 30-plus 35 is best without + 55
never lost more than five percent from a peak to valley very very consistent
traitor what did he do he actually way
interesting when he got into the into the markets he was that he was a
financial officer for a firm knew nothing about trading or investing and a
friend of his came in one day and said look kill I found this I've been timing mutual funds and I've
got this no pattern down and it's works and Gil says nonsense you know not that
simple as going to work give it to me and so I took the numbers we went over
it you know it into work you can't find anything was really wrong with it and
that got him entry then he started really looking at more clothes that he
came up with patterns that were really much more
effective and it became so convinced that there was something there that he
quit his job in the cabbage he became a trainer which led to the performance
record I told you about he would go to LA he didn't even use a computer to do
his work he would go to library go to look for micro fish looked for all these
mutual fund prices and look for patterns and just spend weeks in the library just
flipping through these price patterns now that was then you go back and be
trading out of his one out of his bedroom at home and that was the style
no other people no other phones no computers nothing that's kill Blake now
could you picture could you picture guild lake and fall to the Joneses
office could you picture Paul Tudor Jones and guilty i'm going to the
microfiche I mean it just it's such a contrast and evil one tried to do the
other they would absolutely fail so you have to find the method fits your
personality that message by the way also leads to an interesting and general
observation and it's why most people will be doomed to fail of trading system
they born and if their vendors here systems I apologize but it's a reality now why is that true I don't know what
percent of trading systems are profitable maybe I'll grant let's say
even more than fifty percent are let's just take that as an assumption the trouble is this every trading system
i don't care what it is is going to hit periods where it's not going to do well
now if you buy a system particularly was a total black box and you don't know
what's in it you didn't develop it has nothing to do
with your personality the first time that hits a bad . you're not going to
think you're going to lose the Cure drop it that's why invariably most people who
buy systems end up losing because they will stop using it when it goes through
a bad period it won't be there when he recovers you get it has to do training
what feel what matches your personality there is a Wall Street adage that goes
something along the line even a poor trading system could make money with
good money management have you heard that before you got that
if you have that to get it because it's really one of the stupidest things that
have been said if you've been outside the whole straight that if you believe
that then i invite you to go to Las Vegas and go over to a roulette wheel
and and use your best money management system and see how far you get and in fact if you would ask a hundred
mathematicians the following question i'm going to play roulette what betting
strategy what money management strategy is going to be optimized my results they
all should give you the same answer you know the answer is you have to save a
thousand dollars you walk over to roulette wheel pick red or black put it
all down at once will lose walk away those are your highest thoughts now yes
they're less than fifty-fifty but only a little bit but the longer you play the
more your your odds go down so if you don't have and here's the point we don't
have the edge good money management is actually the epitome of bad money
management you actually better all at once because anything else you lose you
have a higher and higher probability of losing so it's not enough to have money
management you actually do have to have an edge and having edged means that you
have a method no traitor i ever interviewed when i asked them how do you
do what you do they all some explainin actually very very explicitly some more
generally but they all have some specific type of approach no trader ever
said well you know I wake up and look at the screen and the bonds look good to me
i'll just buy them and nobody had a Cavalier shoot-from-the-hip approach
they all had specific methodology that's essential to to a winning approach the
next thing we come to is the concept of hard work it is amazing how textile how
workaholic like these people are as a group I can give you lots of examples in
fact most people would fall into the category i think one example out of the
most recent book and that's a David short very secret of a fellow who runs
this hedge fund which is a fiscal arbitrage i guess to put into a category
but they're doing essentially he's been running this one have about 13 years
through excellent excellent results and what they what they do is they trade
literally about 10 different world all the major world markets that they're
monitoring all the equities all the derivatives and they running about
probably 20 different mathematical models simultaneously and looking for
tiny mispricing and it's all working interrelated with tremendous computer
power he hires see if I scores of the best phd's in mathematical physicist and
computer science working for him it's an incredibly complex sophisticated
approach I mean extraordinarily so you would think that monitoring this and
supervising this and working on this would be enough but no David show over
the years has also been developing companies probably one of the better I
mean quite a number of them which is then spins off itself is probably the
best-known was jus know which is the website which he sold off and he sold
another one off to Maryland for their computer are trading up for a department
and and so on and if that's not enough he's got a hobby which is applying
computer science to talk about 22 development of of drugs and so he's got
two companies was involved heavily in that he's reading all the periodicals in
that in that industry and if that weren't enough when Clinton was
president he was advisor to the Clinton ran he used the chair of the Committee
on education and science they think was in a vacation he says well not really
does he gets after three hours yes to go back to work you just that's that's
that's favorite or least he's really kind of typical the person who could
forget that is really successful and I said was literally lots of types of
there another give you another example John bender was an option straight I
viewed the last book he would be trading options both in the US markets and it
and the Japanese markets and he would be up and trading and watching both of
those markets so again they're completely different your 12 hours apart
they're so hope you know you figure out when he sleeps and there's anything else ok so that gives you kind of a play but
I mean by hard work now the irony here is why do most people get
involved or the general public why the general public attracted to markets and
training because it seems like an easy way to make a lot of money and the irony is that people are really
successful or are tremendously hard workers and people are attracted to the
market because they want to make money easy that leads us to the following
paradox you'll grant me that no sane person would think of going into a
bookstore going to the medical book section finding a book titled how to
perform brain surgery studying it and going in monday morning and believed
that they could perform successful brain surgery no stats say no sane person
would think that way granted however how many people do you know who
would think absolutely nothing unusual about going to a bookstore walking to
the business book section buying a book called how I'm a two-million-dollar the
stock market last year and think that after the weekend of reading this book
know on monday morning and be professionals we've been doing to get
all their lives for all the support and all the experiences right i mean it's
really the same thing but yet get most people have no see nothing odd about the
second second the approach why such a contrast what you know what's the answer
and there is an answer the paradox of the answer is this training is probably
the only world's profession with a rank amateur the person that knows absolutely
nothing has a 50-50 chance of being right in the beginning why because it's only two things you can
do you could buy or you can sell and some people are just going to get it
right by probability at least a few times the beginning and that beguiles
people that think the trainings a lot easier than it is because it is possible
to get short-term success by pure luck and that fools people absolutely foolish
people can happen any other profession you you never trained as a surgeon yu-er
you're getting up and doing brain surgery successfully 20 you never played
the violin the odds are getting up in front of the New York Palm lamonica
playing a successful solo 10 any profession you take the odds of even
short-term success r0 it just so happens trading has this
work to it that you could be successful with short-term about knowing anything and again it fools people
that's that's that's the whole point of talking about trading being a lot of
hard work now i'm going to tell you something that sounds contradictory good
trading should be effortless right so kind of what was the guy talking about
first because hard work now I'm telling you after this ok here's the difference
the process that the preparation is where the hard work comes the process
should be effortless i'll give you a running analogy let's say you picture picture two
runners here they think we're not to run for two people on one hand picture
someone who's completely out of shape try-try never has been any exercise
trying to run one mile in 10 minutes they have that image and picture on the
other hand a world-class runner running one mile after the other easiest can be
five minute miles ok who's doing more hard work who's more
successful well clearly the outer shape guys doing more hard work clearly the world class was more
successful but the thing is the world-class runner didn't get there just
by getting off the couch one day he's been training all his life so his hard
work came to preparation when he's performing successfully however the
process the the actual process that has to be effortless and when he's doing
best will run his best races what he's really running effortlessly when
somebody's when you're riding or when you're an artist or anything that's
creative when you're doing it best it's almost flowing it in fact is that a term
flow is really actually return to come to be used even a name of a book which
is a book actually worth reading so and it's true that is true of training as
well if it's not going right you can't force it's right by more
working harder your training is just not working if you're in a bit bad . trying
harder it will probably make it worse you can try hard he can't work on that
you can work harder in doing more research you can work hard and trying to
figure out what's going wrong but you can't work harder training you have been
probably that . just ease back just just maybe not trade they betrayed less cause
it's not effortless and if when you're trading well it's not work it's
effortless get difference between preparation and process and i'll give
you are an interview with us came up with this exact . and i have you make
people wonder how i get some of these interviews and it's not an easy sell but
one thing I usually have to do is I have to tell people look I i know there's
nothing to you but if you do the interview i will show you the interview
i'm not going to use it I'm not gonna write anything that's
untrue i'm not going to sensationalize anything that if you don't believe what
i do then you know we can't company we can't agree how to modify the interview
then we won't use it and this kind of blows up in my face usually one time for
book you know usually I'll have one interview and I end up at practice
happened it's actually happened in all three market with books has been wanting
to do that i could use exactly that reason and so this pertains to one of
those interviews I'm not conventionally names but I finally put those one thing
in that interview that I really wanted to use my stead said that trend
continues what he's trading your background at least about what the
interest about it was a very odd interview this trader was into some
unusual things so in the interview we got into dreams and trading precognition
and trading zen and trading some pretty off-the-wall stuff but it was an
interesting interview and I wrote it up and I thought it's pretty good i sent
him a couple weeks later I get a call at least as I read the interview I so ha
and he said it was interested yeah that you can use it and one now turns out he decided to also go into
advising corporations on currency hedging he had hired a business manager
his business manager read the interview is measure all stuff about dreams and
trading penetrating and whatever not the corporate image business managers that
no he said no and I was stuck so I said look do you think just let me use this
one little section and will call a traitor X and he said ok so that's what
I have that to page section one of the books and it goes competition goes
something like this he says to me have you ever read then in the auto
trading and I said I'm friend mr. one and he says no I'm really serious he's
just like in archery whenever an unrecorded word for work with a trading
in the announcement trading and archery whenever there's any effort force
straining struggling for trying it's wrong and if you trade you know
those words are true word for word yet good trading after the effortless ok now we come to the concept which this
one is not going to be new to you but it certainly has to be it's really
important and that is of course money match with the risk control so I'm just
like a couple of slabs of how the traders look at it the best way I think
the best summarization of it is modish what he talks about training and and
money management he says you have to know your uncle . i don't know that
uncle . still late uncle that term is still used I know when I was a kid we
thought you know one kids the other kids arm behind his back and yell uncle I
don't have kids do that i don't think it's the anymore today but whatever but
that's what he asked you have nowhere you yell uncle to the market that's this
point Bruce cover who at the time actually
still a huge trader one of the most successful courage currency traders ever
taught and takes us from huge positions and when I was the evil my interview was
trading about a billion dollars that nobody trades now probably multiples of
that so he takes such large positions he says whenever I take a position i know
where i'm getting out before i get it and it otherwise I couldn't you know I
couldn't sleep at the key point there is by knowing where you get out before you
get it you make that decision when you have objectivity because once you're in
the position you lose that objectivity and and he basically the sides where
should the market not go if he's right and he decides that before with solid
position i think it's a very good way to operate now money management doesn't
have to be really complex i know has been books written out there might just
have money management and then sometimes multiple values of money management but
you know what a simple rule I Chris no more than one percent on a
trade will get you ninety percent of the way there most of money management is
just doing it just having the discipline to do it's not the complexity there's
nothing really there's no rocket science that's required here it's just that you
have to have the discipline to do which I'll get to in a minute now as far as money management goes
there's some other plants i guess it worth mentioning of steep cone of who's
probably the world's best traders and you also hires other traders and I were
interviewing me is like 50 other traders there and so he's also not only training
himself is monitoring arbitrators he told me like the best trader that he has
the highest per win ratio was sixty-three percent sixty-three percent
that's the highest one and it says the point is that most people go even good
traders lose a large percentage of the time and you have to be prepared for it
because if you're in a position and you're not sure what to do and it's
going against you is that cut it in half and it's still not sure cut in half
again and all of a sudden you're you know you're down so for the position and
and the large part of problems going the point is just just cut in half we'll
get you out of a lot of trouble in the situation in the crisis situation like
that right now money management also in this idea of
volatility and risk control its you know we all hear some of us are traders and
some of us investors I guess we probably all investors in some role and that it's
very important very important thing here which relates to the investor side and
that is a lot of people think about volatility when they're investigating
whether you know they take high-risk investments work with a manager work
with individual equity or whatever it may be and I'll say oh well you know I'm
willing to take the higher volatility because I get a higher return and I can
take it I'm top I don't mind the thirty forty
percent drawdown if i can get that fifty or sixty percent return I'll live to the
thirty forty percent right well you know what they won't i've been there i mean i
work for brokerage firms for over 20 years of my life and I played some times
in a row love looking at managed accounts and analyzing what happens and
i can tell you at one time and I did the study at one brokerage firm when I was
kind of working towards a picking different cts for the firm and
monitoring them i did a study where we looked at at the results there was a statistical
was reported which was the percent of of investors who closed out their accounts
at a profit and I remember quite clearly and seeing a number of times that these
CBS had less than fifty percent of their accounts closed profitably even when
they had all winning years you know think about that that's because you know
what did they do one of the investors doing that going after the CPS a good
run and then they're dumping it on a drawing that people people who say they
can stay in thirty percent drawdown start sweating bullets at ten percent
that's the reality and you have to be aware of it and the importance of that
is that you won't be around that investors are not around to get even if
the manager comes back or even if the investment comes back they're not there
to realize the game so that fifty percent return at sixty percent return
won't be there because what happens is people get out during the drawdown phase
and instead of a fifty sixty percent return they end up actually with the net
loss in many cases so that is the real danger of volatility i'll give you a
story that relates to that concerns a hedge fund manager who unfortunately
passed away and the story starts with a with a minister who precedes them and
the minister finds himself at the gates of heaven and met by st. Peter and st.
Peter greet somebody says name and he says the Reverend charles smith and
looks at opposite haha ok so you want to sit there and look softer side mrs.
wooden bench is not be confused is expected to go right in these are all
right and wanders over and sit down the bench and sit there for a few hours up comes another man st. Peter's his
name guys is robert Wilkinson robert Wilkinson I yes I see here that New York
heart surgeon sure we've been expecting you please come right in and the doctor
goes in a few hours passed and this is watching along comes another guide st.
Peter says name and fellow says michael murphy michael murphy you're the you're the
farmer from Iowa yeah we were expecting you hope you
enjoy this day we're delighted the happy please come right in and the farmer goes
in $OPERAND minutes is watching doesn't say anything but growing growing
implementation here a few hours more pissed up comes another fellow and st.
Peter says name of a person says david stevens David Stevens are yes the hedge
fund manager from New York sure I'm glad you're here please comment all right at this point the minister's
patients with God walked up the same ok ok the doctor i got that he say flies he
goes that sure I understand makes all the sense in the world the farmer all
right honorable profession hard worker help speed people i can understand that
he goes in but the hedge fund manager how come he waltzes then I get to sit on
a hard bench st. Peter says you know I was trying to be tactful here didn't
want to say anything but the truth is when you gave your sermons your
congregation slip up here we go by results when he traded his investors
prate so you'll remember you remember the
importance of avoiding volatility ok next next next theme is independence
should come as no surprise that these people who are very successful as
traders are independent Michael market says it very well he says every trader
has to follow their own life he said you take the world's two best traders and
put it together and they got the worst of both traders and he's actually
thinking of him he was talking to Tracy and Bruce copper work together for a
while and they were indeed two worlds best traders and he said no matter how
good the trader is if you if you try to combine replicate methodology or try to
combine opinions you'll get will get much worse results and i can tell you
from my own experience i'll tell you actually a true story that relates to
this and it's absolutely true because it sounds when I tell you this I I know you
don't think that maybe tweak it a little bit to make it fit because it fits so
perfectly but tell you all the events are exactly as they occurred and this is
back quite a number of years ago was training mon commodity account and I've
done okay but I've known last few months i had to actually had a poor . i was
down money and i'd kinda cut back my position that had maybe one major
position left and there was one of the traders they interviewed that would call
me periodically and he calls me that day and the convention name to it is but
whatever reason would want to ipis with technical analysis as well and he would
like my things the market maybe he's much better trade and I was maybe is
fading me I don't know but he just called me from my opinion so we go over
the markets and he gets to the Japanese yet and that happen to be the one trade
i had on that had any confidence it and he said well what you think about
Japanese and he said yeah well I said well I said you know it had this real
sharp decline and it's going into this tiny no consolidation and my experiences
when you have that combine pattern the market usually goes down again because
now you're wrong and he gives me 80 reasons of why this oscillator is over
that this was overdone and the this is that you know this technically
because what because we always reason why everyone i say you know what you're
probably right but it's just an opinion so hang up the phone now I'll tell you
even back then this is like 10 years ago I still I was
I knew enough not to listen to anybody's opinion but here's the thing i had a
trip out i had to leave the washington DC that have to do and I was gonna be
gone for a couple of days i knew i couldn't watch the markets that's my mother so here comes my
rationalization so I said okay I i did not been doing so great lately I've got
one significant position left so I really want i'm not gonna be here to
watch it that's that's the whole head is rubber I was not going to watch that
gave me my out so i really want to fade one of the world's best trade so after
hours markets closed already clay didn't get out if I spoke but I afterwards I
said well maybe I should get out so I walk over to the after-hours desk i put
in your eye liquidate my position ok sure it's not gonna be any surprise
to anybody in this room I come back a couple of days the ends down to other
points i mean i'm sure you expected me to tell you that and that's what
happened but here's where we have to believe me that's exactly what happened turns out he calls again that day and I
wasn't gonna be so so huh ghost let's say ask him directly well
what about again I'm so we're talking and he's going he has the markets I
don't raise the end all that he says the talks about the NIS i said i play
doubles no yes the end then that are you still long and he explains over the
phone long and short I didn't tell you is these short-term trader I mean the
hammer long-term trade might be your day and for me a short-term trade might be
four weeks so when he talked to me he indeed was bullish he was looking for a
balanced market probably didn't act within that right decided he was on the
wrong side took us five . profits one short makes you wonder . i was right all
along got nothing the point is if you listen to anybody's
opinion no matter how good they are going but how smart i guarantee you it's
gonna blow up in your face you just cannot get ahead by listening to other
people's opinions you have to generate your own ideas okay our next the question of confidence I one thing about
doing interviews i know you are to watch interview shows but I want these people
sometimes I sweet and kind of squiggly my chair because they don't ask the most
obvious question and if you have that feeling but I do I mean there's some
exceptions i think that cop was terrific and Charlie Rose yes right questions but
you have a situation where we're doing the interview like I'm doing these books
i'm gonna ask what i think is the most obvious question if you were in my shoes
what would be the most obvious question that you might ask these traders and I
don't know what would be to you but for me the most obvious question is it made
all this money why risk it why not just bang it put in
the bills retire go home call it a day and it doesn't seem to make any sense to
keep on doing it and the answer i get in one form or another are well the West
let me give you just a one answer to this will be Paul Tudor Jones he said
well I i keep eighty-five percent of my money in my own funds why why because
it's the safest place for this is from a futures trader so in his mind keeping
money in his own funds as a safe and people i know are safe as peoples what
does that tell you tells you the guy is a lot of confidence and monroe trout
this goes in one variable it's 95 sent to the other money and now that I'm
running I'm running fund of funds and a lot of managers i'm interviewing a
hundred percent of the money maybe someone guy had like two hundred percent
plus home equity and I mean these people have which is always good to know you
know that but these people have a lot of confidence in what they're doing it's an edit and which comes from me are
they successful because of the confidence with a compliment success was
kind of audience question answer but i can tell you this that that the one way
to gauge it is is what you can be successful is whether you really have
confidence and often speak speak the traders and and they are you trying to
find a methodology or they're unsure but I could tell them if you don't have you
don't know that you have the confidence if you're not sure or just about show
you win then you're not there yet and you have to be where you have to go much
more slowly and only the part only you as a as the individual can decide all
know when you have officer I can tell you the traders are
really good they exuded confidence you just know it ok related to confidence is this idea
and this is a little bit less does not so common this is one of those ideas
that you know you don't really hear it's very important to understand and that is
that losing is part of the game now let me illustrate that with a
comment by linda raschke lose some little probably a lot of people in this
room or people in this room will know the rascal think that most audiences I
speak to linda Ashby's when we started out as a as an options trader on the
floor she had a horse riding accident and then ended up having trade from the
office and she became quite successful trading from an office and she's done
both both of them quite quite well Linda said to me it never bothers me to lose
because i know i will always make it back never bothers me to lose clean i
will always make it right back now does that doesn't that sound like an arrogant
comment and egotistical common but if you know window she's a very modest person she's very
soft-spoken she doesn't make anything about what she does that's not her at all all she's saying
is this I've got a methodology it's going to win in the long run along the
way they're gonna be some losses as long as I stick with the methodology keep
them what I'm doing I'm gonna come out ahead i lose now i'll be when about it
when subsequently and i will come out ahead so that's all she's saying she's
saying that losing is part of the process and we have to understand that
dr. van tharp who I interviewed my first book and spent his career interview
traders and councils traders and that's it that's it he's kind of doing a
preferred threat freshly what I did in my books he had this comment about the
traders he found most successfully said all successful traders that he did here
to view the best ones no they won the game before they start
now if you know you won the game before you start there's no problem taking a
loss because you understand that that's just part of the way of getting to the
ultimate game Marty Schwartz had a really interesting
way of putting this whole this whole concept about Lou being part of the game he said what is
the rallying cry of losing trader I'll get out when I'm even okay think about
it why is getting out even so important because if you get out even you could
say I wasn't wrong I didn't mistake I didn't make a mistake
and that need not to be wrong that need to fulfill the ego to be right or not
have made mistake is exactly why people lose the irony is people lose because
they don't want to lose so they don't want to take a loss and the real and
professional traders understand that to win they've got to take losses that's
part of the process so I states and very important concepts they're losing is
part of part of the game is part of the process of there's a wall street is a
book written about trading probably most famous book ever written about trading
called reminiscences of a stock operator which many of you probably have read
some people mistakenly think it's about just living more and it's written so
realistically it's written in an autobiographical toad that most people
believe that they just a little favor who was the author was really just a was
really had one favor was really just a little more as a pseudonym up but in
fact there was at bed with people who was a journalist who wrote this book and
it wasn't just a little more he just did such a good job that people think was
just a little more but in that book there is a line that goes something like
this are it basically says that I at the of there is the fool who does wrong and
all times but then there is the wall street school who thinks he must trade
at all times so it's probably paraphrasing and the idea is that you
have to really wait for the opportunities you just can't try to
trade all the time Jim Rogers has a good way of putting it
he says I just wait until his money lying there in the corner of the floor
and all i have to do is walk up and pick it up off the floor in other words until
something is so obvious until the trade is so obvious it's like taking money off
the floor he does nothing what does that say it says patience
patience is a show 2 good trading another trader had
the head this way of putting talk about patience he said he's an animal analogy
says the first the world's fastest animals cheated and and what was she to
do it won't just go chase after any envelope will wait in the bush for a
week until it sees a baby antelope and probably a lame baby antelope and
general strike and he says that's the epitome of a professional trader so it's
again waiting for the right opportunity now closely related to patients and
getting into a trade is the idea of patients and is staying in the trade and
it's what is going back again reminiscent of stock upgrader he has
another quote he says it was never my thinking that made me the money it was my city got that my city what he
was saying was look it's not that I was a genius was able to figure out all
these great trades but what I was good at is when i was in the right trade i
stayed with it and stayed with it and stayed with it and that's why that's
where the prophets came from that's what was essential that's what i call the the importance of
city go to a fellow named black heart and
talked about this the subject hard may not be that familiar names richard that
everybody knows Richard that is echoed was Richard that is his partner and we
read about the turtles and and the turtles being trained and so forth it was both Dennis and Eckhart who
trained the turtles it wasn't just Dennis and icons the phd mathematicians
done quite well as a CPA over the years and he talks about this this this
concept he says this is a decision was Wall Street adage that you never go
broke taking a small profit you probably heard that one he said that's a really long headed
approach amateurs he says go broke taking large losses professionals go
broke taking small profits the message is whatever your methodology is whatever
represents longer shorts we have to allow the good trades to work to their
reasonable fruition if you want to pay for losing trades so again the important
patient spoken getting in and getting out next we come to the subject of loyalty
no loyalty is a good trade right i mean if you want loyalty and friends family
pets nice straight as a trader it's exactly the opposite of what you want
you don't want loyalty is a traitor the best example I can give you concerns
Stanley Druckenmiller fairly drunk mellow and the date of this example I'll
give you exact date the exact date of this example in October sixteenth 1987
October sixteenth 1987 for those who are scrambling i'll give you a hint it's a
friday ok on that day Stanley Druckenmiller
used at the time I stanley by the way uh probably know Stanley but he managed to
he worked for yourselves for many years and for many years random quantum fun
even though people associated one from his sorrows for large part time source
was spending most of his time in East Europe in the Soviet Union trying to get
those countries over to capitalism and so forth and the person was really had
his hands on a patrol day in day out of stanley druckenmiller he's also got his
own front for 20 years and done a terrific and before he was drunk and he was he was
running multiple fronts for drivers and this is where at that time he was a
driver so he came in that day and he was net-short nice position to be in October
1697 unfortunately if you remember what people think about the market growth to
get that the market was breaking sharply prior to that day prior to the Monday
and particular friday friday suppose a also very ugly day the market was down a
lot and he decided you know what it's kind of getting down 2200 think with
levels coming down to I think you said that said that's enough marketing their
support so he took his profits but not only did he take his profits he decided
to go next short i'm saying that law that long now used to ask audiences
anybody here ever make a worse mistake then going from short to long on October
sixteenth 1987 in the US stock market ok I the reason I stopped asking that
question that I realized I couldn't make up the worst example I don't think you
can make up for example know the amazing thing is we look at his record for that
month it will be about break even how is that possible well first of all
first half of the month was short so we made money now here's the thing after
you put on a position on friday during the weekend he decided he had made a
mistake he decided he was wrong why is this won't get into its not important
you want you know you read in the book if you want to lie but he was sure he
was wrong so he decided he was gonna get out monday morning unfortunately monday
morning comes around and the dow opens over 20 points down to begin with but
when he did that that monday morning wasn't at first our trading he covered
his entire position and get this he went back short now think of the amazing
flexibility and then we'll talk about fellow managing i guess probably over a
billion dollars at the time to be able to we vs position again after after the
market is going down that much overnight that's a tremendous flexibility
tremendous lack of loyalty it's a classic example of a professional trader
so as a you want to be a good trader you can't have loyalty position there's no
hoping there's no there's no anything you've got to be able to react immediately you can't have loyalty to
your position there's that will come down with a
couple last points before you finish this we're just about done lat 01 ever .
i would like to make which is a point that go back hard and has to do about
people's human nature human nature trading and black on as a has an
interesting comment he says that people are sort of so poorly attuned to trading
that they will do worse than random now you know the academic comments in the
academic now you'll see the academic stay well you can make a monkey and
giving darts and put up a page or the wall street journal at the monkey throw
. the monkey goes well as the professional money managers okay you've
all heard something like that i'm sure now bill dexhart so there's no confusion
here building code is not saying that he's not saying the monkeys good as well
as professional money managers he's saying the monkeys gonna do that's an important distinction and why
is the money why is the monkey going to do better the monkeys going to do better because
humans have evolved in such a way that they are particularly poorly attuned to
Trey human seek comfort whether its food or shelter or sex or whatever its
comfort and you know what markets don't pay off for being comfortable his point is markets pay you offer being
uncomfortable for taking the uncomfortable position and most people
don't do that they seek comfort into in their training as well and that's why he
says they're going to do worse than random that you would literally the most
people would literally make better choices they threw darts and what
examples examples of the easy to find look if you're in the position it's
going against you let's say and and and LOL out i'll get out but i'll give it
another three days yeah oh good i got another chance feels
good it's usually the wrong decision or or you're gonna buy some stock or
whatever its and you're beautiful you're buying it will say that up the lowest
point has been in the last six months kinda feels good because you're smarter
than everybody else who bought that stock in the last six months so if your
boy Archie smart you got the best buy in the last six months feels comfortable so
a lot of these trades that done which come out of the emotion of seeking
comfort would get right down to it are going to end up being wrong it's also by the way we would in those
involving training systems this leaves a lot of people to go wrong
in developing training systems with what people do trading systems they they will
optimize and optimize and optimize until you get a really smooth curve now
doesn't that feel good to trade boy you've got a curve here that's never
lost any given month and it feels a lot better trade then some trading system
that has some Wiggles to it and the more you optimize will you get it but going
to optimize the greater the chances the system work at all but again it's part
of human nature seeking comfort so we'll finish off this by just i mean i always
well as the one last point and then one last story last point is look at the
language of traders they talk about her description of talking about trading as
a three-dimensional this came as Bruce covers line Jim
Rogers talks about 10,000 it's like a jigsaw puzzle 10,000 pieces and they're
always throwing into pieces taking out some pieces falling to pieces never
tried to talk about training being like a charges chart booking passage art book
is like a treasure hunt says every week I go through this and look for new
treasure it and one of those are all game like analogies and that tells you
something that tells you that to them it training is almost like a game it's
something that's fun and something they love to do and that's the essence of it
whether it's trading or anything else I guarantee you look around people in your
life who are successful and one thing I'm sure of is they love what they're
doing it's true trading is true of anything
unless you have that that love and passion you're not going to be
successful and it's essential to be to be successful so we finish up by I
control the last story which is just a personal thing which I have given this
talk i really have given us talk a lot of times i usually have talked a lot of
different stop even fundamental announced at one point and certainly a
lot of stuff and technical analysis and computer trading and all that stuff but
basically now almost all the time of giving talks on on market wizards in
this particular theme we just discussed and there's a story which i like to talk
about which is about an economist who is in a similar situation as i am and he's
being driven to give a talk to an international audience and he's being
driven by a chauffeur and he's in the back of the car and he kind of sits
there and moans and the show Preston sure what's wrong and the economist said
you know I can't stand to get this talk again i must have given this talk two
hundred times i'm just bored definitely and the sheriff says you know what the
problem was are going to talk to you and and the constable happy to get this blog
highly technical sophisticated talk and the oranges still have always PhD
economist he says boys I've heard you give us talk to other times I no word
for word trust me anything is what I got to lose a switch he would start the shop is uniform shop
puts on his suit sure gets up in front of the audience to the economist and
gives the talk for an hour delivers it perfectly but then he gets carried away and he finishes talking and any
questions and he gets a question he actually manages and yet another
question does ok then he gets a question hello hmm I was very intrigued about
your theory of synthesizing classical Keynesianism with monitor istic theory my question is this if you put it into
the standard econometrica framework to treat the monetary variables as
exogenously or endogenous for the model shoka scratches head uses you know I've
given us talk two hundred times and that has got to be the single stupidest
dumbest most ridiculous question I've ever heard in fact it is so dumb about
my chauffeur answered