Full Jack Schwager Video

hey guys this is Nick here at the super trader I've got something really great for you today Jack Swagger he's famous for interviewing the best traders in the world he was the author of all the market wizard series he's done it again and this extremely rare footage Jack Swagger reveals some of the greatest insights that he gained while he was interviewing some of the top traders in the world including one who took his personal account from $30,000 to a staggering 80 million dollars and another famous hedge fund manager who averaged 25 percent per month for decades this exclusive footage has been said to be one of the most important videos about trading you could ever watch and I've got to agree with that I just want to let you know that this footage is about 50 minutes in duration I know that that's not something that everybody has 50 minutes right now to watch it but if you don't bookmark this page right now and watch it later today okay don't let 24 hours go by without watching this incredible training and after you've watched the training I'd really appreciate if you just share at least one insight that you personally gained in the comments section below the video that will help all of us learn from one another and you may pick up something that somebody else doesn't and and that really helps us all to learn from each other and become better as traders together and now without further ado enjoy this incredible training until next time trade super Jack Swagger renowned market Wizards author and traders Hall of Fame Award winner presents the winning methods of the market wizard a powerful workshop highlighting the most common traits and techniques of the super traders thank you it's great to be in front of a crowd which almost pure traders I've assumed first thing I want to say 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 unwillingly so to make this talk relevant I can assure you that all the points I'm going to talk about really all the points apply not only the success in trading but the success in general so that's the first thing 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 or if it's Elliott org an or anybody else you find a formula and you'll get rich and that's what that's what success in the markets is about and I think it's really a very wrong way of looking at it let me illustrate it by giving you a couple of examples to make it absolutely clear we'll take some individuals first we'll talk with Jim Rogers most of you I assume know Jim Rogers develop the boat I used to work with George Soros running the Quantum Fund back in the 70s it was the most successful fund at the 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 guys if you read my interview with him back which was 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 he talked about it going down the Nikkei going down from 30,000 plus time he said it would go down to 10,000 exactly I'm an incredible projection he talked about gold at the time going down for the next ten years every projection you look at he was exactly on ok so he's basically a fundamental analyst but I asked him Jim you have a look at charts he says you know a like he's admitting his sin he says you mean if I just look at it just to see what the markets fed yeah I'll look at it but do I believe in any of this head-and-shoulders mumbo-jumbo garbage no it's all it's all nonsense and he says you know 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 know if you can get more cynical I don't know if you can get more cynical about technical analysis than Jim Rogers at the gym a short-term trades like two years okay that's one side other side the stents take Marty Schwartz was the stock stock index trader I interviewed Schwartz it happened to be coincidentally just the time he's putting together a track record a lot of these traders they trade their own money kind of you don't actually get the luxury of having the track record per se in this case he was thinking matching public money so he had to have an order to track record together she gave me a ten year track record when I was doing you know before the interview and over that ten-year period Marty had compiled an average return of 25% now I usually say that the audience doesn't seem to be very impressed so let me clarify that 25% per month now now I've got your interest okay now now some of the quantitatively oriented people the orders to go with them wait 25 cents a month how come he didn't own half the u.s. JMP right that's that really compounds well Monte's father went through the depression and instilled in his found a great fear of things going wrong so Marni even though and this you can go back you look at he's doing these trading contests with real money not these hypothetical contests he's putting in for $2,000 turning it into 1.2 million in four months going back putting the prophets and he bills going back the board and he kept to do that for 10 years he kept been going from 400 up to over a million and back down to 400 and kept on putting the money in people's because he 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 like Jim Rogers and he says I never met a retro technician you know what a stupid arrogant type of attitude is I spent 10 years on Wall Street as a fundamental analyst I lost money every year and I got rich as a technician so you really can't get much not much more different in that I'll give you another another slant like ma T Schwartz and this is a fella by the name of ed sakoda who would be totally unknown word not for my first book I mean I had never heard of him the way I found that sue Cota was there was a fellow but I'm also not a well-known for not a completely unknown first not what woman Michael Marcus 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 vacated and so we met we became friends we kept in touch and so years later when I was doing the book I I asked him do the interview why'd I ask him to do the interview because well he went off to be a trader he went the commodity scorpy they gave him a thirty thousand dollar count ten years later was eighty million dollars so that's why I asked me to do the interview now that's a pretty impressive record and and he was really reluctant to do the interview and finally he was able to convince him to do it and I went I flew out the Californian interview who spent the day his house we really interviewed all day long and after dinner kind of he pushes back his chair and he says you know this really wasn't bad you know it's kind of a cathartic experience he says you know you should interview you should interview at Sokoto and who is the color who whose Ed's Dakota well he said Edie is the best trader I know now if you're doing a book on traders and some fellow who's turned thirty thousand to 80 million is telling you about the best trader he knows obviously you're interested so I said well kidding can I speak them so he says well you know sure so he calls he calls ahead and talks to Ed and gives me the phone I supposed to head back to New York but you know ed the Greece through the interview so I I said well I'll change my plans like why attend to that and my original intention was to actually get back the same day but it turns out he decided to spending the night there and just talking to mole evening but in any case as Dakota and I kind of see each other every you know every number of years we end up in the same place and back about five years ago we were both in Chicago at the same time we had dinner together and he was telling me tongue-in-cheek about a dinner he had the previous evening with a fundamental analyst and he says they were they went to one of those Chicago steak houses you know the ones with the big fakes and huge knives and the fundamental analyst is cunning is cutting a steak cutting a little too aggressively apparently and the snake knife flips out of his head twirls in the air and and they're both watching and lands in his shoe and that turns to the gynesis why didn't you move your foot and the fundamentalist looks back in this as well I thought I was going back up okay you guys you got the idea of cynicism right so so what I'm trying to have trying to give you people here who are phenomenally successful using pure fundamental analysis on one hand and complete the stain for technical analysis and people who have been normally successful using pure technical analysis and complete cynicism about fundamental analysis right so you got the you can't get further apart it's got to tell you one thing it's got to tell you there's no single way there's no single road there's 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 quote mice I don't hope myself very often but I will for one time in this business talk and in one of my books I use the line because I think it applies to this and as I said there's a million ways to make money in the market there unfortunately all very difficult to find but there are many many ways so the first thing to realize is you have to find a path and not to find the path okay 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 I guarantee and that is every trader I ever interviewed I could say this about they found a method that fit their personality now some of you may say well yeah oh doesn't already do that and seems logical would you trade your own well no you really wouldn't think about it those are your traders you probably could think of examples right off the bat but Ivan Australia traders who may have been they may have had to say a good knack analytically and could have done really well putting together some systematized approach and traded it but no too boring or no they'd have to second guess it or would know they'd have to be more involved or too slow or whatever or you have traders who really good on the floor they got the real instincts but they get tired of all these fellows up in the office trading ten times as much as they aren't all these markets so they want to be one of those guys up in the fancy office and so on and they go do that and they become a mediocre trader off the floor you constantly have people doing things which are not fitting to their personality now let me illustrate what I mean by trading to fit your personality again take specific example specific people first we'll take Paul Tudor Jones Paul one of the great future traders you know of our time and particularly there's initial years when he's managing super small amounts of money just had some incredible but decade fifteen fifteen years of incredible performance when I interview them 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 can come after Mark closed no problem he said now come two o'clock is fine okay come to his office big office screens all the way across the walls he's got speaker phones that directly connect with the floors he got regular phones he got people bringing me messages he's yelling out cell 300 March S&P by 500 all the deities selling and buying the people and phones are ringing and everything's going on he's looking at the screens and he's doing the interview okay so I kind of stayed like watching Paul Paul trade is sort of like watching a professional tennis player on speed or something like that it means just like really active and aggressive that's Paul that's his that's his that's a style that works Phil let's take another picture Gil Blake Gil Blake is a mutual fund timer when I interview them he had a 12 year track record average returns of about 45% per year very steady his worst years like plus 35 is worse was 30 plus 35 is best was about plus 55 never lost more than 5% from a peak to a valley very very consistent trader what did he do he actually weighed interesting when he got into the into the markets he was at he was the financial officer for a firm knew nothing about trading or investing and a friend of his came in one day and said look Gil I found this I've been timing mutual funds and I've got the snow pattern that I found and it works and Gill says nonsense you know nothing that temples could have work give it to me and so he took the numbers and he went over it you know and it worked he couldn't find anything that was really wrong with it and that got him in treating then he started really looking at him more closely he came up with patterns that were really much more effective and he became so convinced that there was something there that he quit his job in the cabbage he became a trader which led to the performance record I told you about he would go to the line he didn't even use a computer to do his work he would go to the library go to look through microfiche look for all these mutual fund prices and look for patterns and just spend weeks in the library just flipping through these price tatters now that was and you go back and he'd be trading out of his one out of his bedroom at home and that was this style no other people no other phones no computers nothing that's Gil Blake now could you picture could you picture Gil Blake in fall two two Jones's office could you picture Paul Tudor Jones and guilty I'm going through the microfiche I mean it just is such a contrast and if either one tried to do the other they would absolutely fail so you have to find a method if it's your personality that message by the way also leads to an interesting tangential observation and it's why most people will be doomed to fail of trading a system they bought and if their vendors your 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 50% 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 if it's a total black box and you don't know what's in it you didn't develop it it has nothing to do with your personality the first time that it hits a bad period you're not going to date you're going to lose it you're gonna 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 it recovers again it has to do trading what field 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 okay if you have that to get it because it's really wanted a stupidest thing that has ever been said if you out shall illustrate that if you believe that then I invite you to go to Las Vegas and go over to a roulette wheel and use your best money management system and see how far you get and in fact if you were to ask 100 mathematicians the following question I'm going to play roulette what betting strategy what money management strategy is going to be optimize my results they all should give you the same answer you know what the answer is you have to save $1,000 you walk over to the roulette wheel pick red or black put it all down bet once where to lose walk away those are your highest odds now yes they're less than 50/50 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 the if you 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 edge means that you have a method no trader I ever interviewed when I asked them how do you do what you do they all some explained it 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 I look at the screen and the bonds look good to me I'll just buy them I mean nobody had a cavalier shoot-from-the-hip approach they all had specific methodologies that's essential to to a winning approach the next thing we come to is the concept of hard work it is amazing how about how workaholic like these people are as a group now I can give you lots of examples in fact most people would fall into the category I'll take one example out of the most recent book and that's David Shore a very secretive fellow who runs this hedge fund which is a fiscal arbitrage I guess to put into a category what they're doing essentially he's been running this fund now about 13 years true excellent excellent results and what they what they do is they trade literally about ten 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 hire CSI scores of the best PhDs in mathematics and 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 Shaw over the years has also been developing companies probably one of the better I mean quite a number of them which he's then spins off and sells probably the best known one is Juno which is the website which he sold off and he sold another one off to Merrill Lynch for their computer trading department and and so on and if that's not enough he's got a hobby which is applying computer science to to to development of drugs and so he's got two companies ways 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 Clinton in Iran he chaired a committee on education and science they think widows in I asked everything occasion he says well not really anything does he gets after three hours he has to go back to work he just that's that's that's David Shaw I mean he's really kind of typical the person was dead forget that is really successful and I said there's really lots of types of thing another I'll 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 in the Japanese markets and he would be up and trading and watching both of those markets so and they're completely different they're twelve hours apart there's so you know you figure out when he sleeps and doesn't anything else okay so that gives you kind of a flavor what I mean by hard work now the irony here is why do most people get involved or the general public why is the general public attracted to markets and trading because it seems like an easy way to make a lot of money and the irony is that people are really successful are tremendously hard workers and people are attracted to the markets 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 book store 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 say I said 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 book store walking to the business book section buying a book called how I made two million dollars in the stock market last year and think that after the weekend of reading this book they go in Monday morning and beat the professionals who've been doing it all their lives with all the support and all the experience they have right I mean it's really the same thing but yet yet most people have nope see nothing odd about the second second the approach why such a contrast what's the answer and there is an answer to the paradox the answer is this trading 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 there's only two things you can do you could buy or you could sell and some people are just going to get it right by probability at least a few times in the beginning and that the Geils people to think the trading is a lot easier than it is because it is possible to get short-term success by pure luck and that fools people it absolutely fools people can't happen any other profession you've never trained as a surgeon you the author you're getting up and doing brain surgery successfully a zero you never played the violin the odds of you getting up in front of the New York Film Philharmonic and playing a successful solo is zero any profession you take the odds of even short-term success are zero it just so happens trading has this quirk to it that you could be successful sure with a short-term bout knowing anything and again it fools people that's that's that's the whole point of talked 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 whatever wasn't the guy talking about first it says hard work now I'm telling effortless okay 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 fix picture two runners here they take or not two runners with two people on one hand picture someone who's completely out of shape try-try never has done any exercise trying to run one mile in ten minutes okay 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 okay who's doing more hard work who's more successful well clearly the out-of-shape guys doing more hard work clearly the world class but is more successful but 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 into preparation when he's performing successfully however the process the actual process that has to be effortless and when he's doing best when I'll run his best race is what he's really running effortlessly when when somebody's when you're writing or when you're an artist or what anything that's creative when you're doing it best it's almost flowing it's in fact it is that term flow is really actually a return this company uses even the name of a book which is a book actually worth reading so so and that's true that is true of training as well if it's not going right you can't force this right by more working harder if your training is just not working if you're in a bad period trying harder it'll probably make it worse you can't try harder you can't work harder you can work harder and doing more research you can work hard and trying to figure out what's going wrong but you can't work harder at training you have then probably that point just ease back just just maybe not trade they betrayed less because 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 an interview where this came up with this exact point 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 usual to do is I have to tell people look I I know there's nothing in it for you but if you do the interview I will show you the interview I'm not going to use it I'm not going to write anything that's untrue I'm not going to sensationalize anything and if you don't brief what I do then you know we can't come in and 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 a book you know usually I'll have one interview and I end up at half packed that's happened it's actually happened in all three market wizard books has been one interview that I could use for exactly that reason and so this participates to one of those interviews I'm not gonna mention any names but I finally if there's one thing in that interview that I really wanted to use I said said that the TV was one of these trade let me give you the background at least about what the entry was about it was a very odd interview this this trader was into some unusual things so in the interview we we got into dreams and trading precognition and trading zen and trading you know 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 it to him and a couple weeks later I get a call at least as I read the interview I saw huh and he said it was interested I said yeah but you can use it and why not well turns out he had decided to also go into advising corporations on currency hedging he had hired a business manager his business manager read the interview business manager had all stuff about the dreams and trading and then and trading and whatever not the corporate image his business manager said no he said no and I was stuck so I said look do me a favor just let me use this one little section and we'll call a trader X and he said ok so that's what I have that two-page section one of the books and it goes conversation goes something like this he says to me have you ever read zen in the auto trading and I say well I'm afraid I missed that one and he says no I'm really serious he says just like in archery whenever and I'm quoting word-for-word when trading in the annoucer between trading in archery whenever there's any effort force straining struggling or trying it's wrong and if you trade you know those words are true word for word yeah good trading has to be effortless okay now we come to the concept which this one is not going to be new to you but it certainly has to be certainly important and that is of course money management the risk control so I'm just tell you a couple of slants of how the traders look at it the best wave I think the best summarization of it is Monte Schwartz what he talks about trading and need for money management he says you have to know your uncle point I don't know if that uncle point is still a uncle that term is still used I know when I was a kid and we thought you know one kid bends the other kids arm behind his back and yell uncle I don't know if kids do that I don't think you do that anymore today but whatever but that's what he has you have no where you yell uncle to the markets that's this point Bruce governor who at the time actually still a huge trader one of the most successful current currency traders ever taught and takes use from huge positions I mean when I was an even I interview him he's trading about a billion dollars I don't know what he 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 in and if otherwise I couldn't you know I couldn't sleep and the key point there is by knowing where you get out before you get in you make that decision when you have objectivity because once you're in the position you lose that objectivity and and he basically decides where should the market not go if he's right and he decides that equally posada position I think it's a very good way to operate now money management doesn't have to be really complex I notice been books written out there and I just have money management and sometimes multiple volumes of money management but you know what a simple rule like risk no more than 1% on a trade will get you 90% of the way there most of money management is just doing it just having to discipline to do it 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 slant I guess the work mentioning a steep cone of who's probably one of the world's best traders and he also hires other traders and interviewed me is like 50 other traders there and so he's also not only trading himself he's monitoring arbitrators he told me like the best trader that he has the highest win ratio was 63% 63% that's the highest one and 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 he says if you're in a position and you're not sure what to do and it's going against you he said cut it in half and if you're still not sure cut it in half again and all of a sudden you're you know you're down so quarter the position and and the large quarter problems go on the point is just just cut it in half we'll get you out of a lot of trouble in the situation in the crisis situation like that all right now money management also and this idea of volatility and risk control it's you know we all here as some of us are traders and some of us are investors I guess we probably all are investors in some role and in that it's very important it's a very important theme here which relates to the investor side and that is a lot of people think about volatility when they're investing whether you know they take higher risk investments whether it's with a manager or an individual equity or whatever it may be and they'll say oh well you know I'm willing to take the higher volatility because I'll get that higher return and I can take it I'm tough I don't mind the 30-40 percent drawdown if I can get that fifty or sixty percent return I'll live through the 30 40 percent drop out well you know what they won't I've been there I mean I've worked for brokerage firms for over 20 years in my life and I sometimes in a role of looking at managed accounts and analyzing what happens and I can tell you at one time when I did the study at one brokerage firm when I was kind of working towards picking different CTAs for the firm and monitoring them I did a study where I looked at the results there was a statistic that was reported which was the percent of of investors who closed out their accounts at a profit and I remember quite clearly seeing a number of times that the the CTA's had less than 50 percent of their accounts closed profitably even when they had all winning years you know think about that that's because you know what do they do one of the investors doing that going in after the CC has a good run and then they're dumping it on the drawdown people people who say they can stay in the 30% drawdown start sweating bullets at 10% 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 Vespers 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 50% return at 60% to return you won't be there because what happens is people get out during the drawdown phase and instead of a 50 60 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 passes 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 Saint Peter and Saint Peter greets 7 he says name and he says uh revansch all smith and looks it up nieces aha hmm okay tell you what don't you sit there and the minister looks off to the side mrs. wooden bench he's a little bit confused he's expecting to go right in he's because all right wanders over to sit down the bench and he sits there for a few hours up comes another man st. Peter says name and guys there's Robert Wilkinson Robert Wilkinson ah yes I see here that New York heart surgeon sure we've been expecting you please come right in and the doctor goes in few hours past and ministers watching along up comes another guy st. Peter says name and fellow says Michael Murphy mmm Michael Murphy you're the you're the farmer from Iowa yeah we were expecting you hope you enjoy your stay we're delighted to have you please come right in and the farmer goes in ministers watching doesn't say anything but scrolling growing impatient here few hours more pissed up comes another fellow and st. Peter says name in person says David Stevenson David Stevens ah yes the hedge fund manager from New York sure I'm glad you're here please come in alright at this point the minister's patience with God walked up the same thesis okay the doctor I got that he stays lies he goes that sure I understand makes all the sense in the world the farmer all right honorable profession hard worker helps feed 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 slept up here we go by results when he traded his investors prayed so you'll remember you'll remember the importance of avoiding volatility okay next next next theme is independence should come as no surprise that these people who are very successful as traders are independent Michael Marcus says it very well he says every trader has to follow their own light he said you could take the world's two best traders and put up together and they get the worst of both traders and he's actually thinking of him he was thinking of two trades he and Bruce Kovner worked together for a while and they were indeed to the world's best traders and he's saying no matter how good the trader is if you if you try to combine methodology or try to combine opinions you'll get will get much worse results and I can tell you 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 think that I may be tweaking it a little bit to make it fit because it fits so perfectly but I tell you all the events are exactly as they occurred and this was back quite a number of years ago I was trading monochrome on commodity count and I had done okay but in the last few months I had to actually had a poor period I was down money and I'd kind of cut back my positions I had maybe one major position left and there was one of the trades that I interviewed that would call me periodically and he calls me that day and like I mention names who it is but whatever reasonings want to know I paint I use with technology and he would like to know my things the market maybe he's much better trader than I was maybe who's fading me I don't know but he just calls me for my opinion so we go over the markets and he gets to the Japanese yen and that happened to be the one trade I had on that I had any confidence did and he says well what do you think about Japanese yen he said you know well I said well I said you know it's had this real sharp decline and it's going into this tiny little consolidation and my experience is when you have that combined pattern the market usually goes down again he says no no you're wrong and he gives me 80 reasons of why this oscillator is over Dada this one's over done and this is a you know this technical indicators way gives me always reasons why I'm low on nice day you know what you're probably right but it's just an opinion so hang up the phone no I'll tell you even back then this is like 10 years ago I still I was I knew in the not to listen to anybody's opinion but here's the thing I had a trip out I had to leap to Washington DC that afternoon and I was going to be gone for a couple of days that I knew I couldn't watch the markets that's why I remember so here comes my rationalizations I said okay I've been not been doing so great lately I've got one significant position left so I really want I'm not going to be here to watch it that's that's the whole thing here's the rub I was not going to here to watch that gave me my out do I really want to fade one of the world's best traders so after hours the markets closed already because I didn't get out if I spoke them but I afterwards I said well maybe I should get out I walk over to the after-hours desk I put into your die liquidate my position okay sure it's not gonna be any surprise to anybody in this room I come back a couple of days in the ends down 200 points I mean I'm sure you expected me to tell you that and that's what happened but here's where you have to believe me this is exactly as it happened turns out he calls again that day and I wasn't going to be so so go let's say asked him directly well what about the N so we talking and he's gone he has different markets I don't raise the N at all then he says he talks about together ah yes I said I play dumbest oh yes the yetee Endon that are you still long and he explains over the phone long I'm sure my in tell you is he's a short-term trader I mean for him a long-term trade might be a day and for me a short-term trade might be for weeks so when he talked to me he indeed was bullish he was looking for a bounce market probably didn't act when they didn't act right decided he was on the wrong side took his five-point profits went short made two other points I was right all along got nothing the point is if you listen to anybody's opinion no matter how good they are now but how smart they I guarantee you it's going to blow up in your face you just cannot get ahead by listening to other people's opinion you have to generate your own ideas okay next up question of confidence i one thing about doing interviews I know how you are to watch interview shows but I'm on these people sometimes I squeak I kind of swivel in my chair because they don't ask the most obvious question and if you ever have that feeling but I do I mean there's some exceptions I think Ted Koppel is terrific and Charlie Rose there you have the right questions but you have a situation where where you're doing the interview like I'm doing these books I'm going to ask what I think is the most obvious question if you are my shoes what would be the most obvious question that you might ask these traders now I don't know what it would be to you but for me the most obvious question is it made all this money why risk it why not just bank it put in the bills retire go home call it a day I mean doesn't seem to make any sense to keep on doing it and the answer I get in one form or another well the West's best let me give you just a one answer to this would be Paul Tudor Jones he said well I I keep 85% of my money in my own funds why why because it's the safest place for it this is from a futures trader so in his mind keeping money in his own funds as a safer daddy both I know are safest people's what does that tell you it tells you the guy has a lot of confidence and Munro trout this goes in one Betty puts ninety-five percent to the other money and now that I'm running I'm running fund of funds and a lot of managers that I'm interviewing they have a hundred percent of the money I mean some and one guy had like 100 percent plus his home equity I mean these people have which is always good to know each other these people have a lot of confidence in what they're doing it's and which comes from I mean are they successful because at a confidence where they conflict is accessible it's kind of a hard answer for question to answer but I can tell you this that that the one way to gauge it is is what you have to be successful is whether you really have confidence and often I'll peak speak the traders and and they you know trying to find a methodology or they're unsure but I could tell them if you don't have if you don't know did you have the confidence if you're not sure or just about sure you're gonna win then you're not there yet and you have to be word you have to go much more slowly and only the per only you as the individual can decide all know when you have the confident I can tell you the traders are really good they exude that confidence and you just know it okay related to confidence is this idea and this is a little bit less this is not so common this is one of those ideas that you know you don't really hear and it's very important to understand and that is that losing is part of the game now let me illustrate that with comment by Linda Raschke who's probably a lot of people in this room or people in this room will know Linda Rashi I think that most audiences I speak to but linda Rashmi's but it was started out 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 good I know I will always make it right back now doesn't that sound like an arrogant comment an egotistical comment but if you know Linda 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 there going to be some losses as long as I stick with the methodology and keep them when I'm doing I'm going to come out ahead I lose now I'll be when 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 you have to understand that dr. Van Tharp who I interviewed my first book and spent his career interviewing traders and counsels traders and that's it that's he's kind of doing a professionally what I did in my books he had this comment about the traders he found most success he says all successful traders that he that he interviewed the best ones know they've won the game before they start now if you know you won the game before you start then there's no problem taking a loss because you understand that that's just part of the way of getting to the ultimate game money she was had a really interesting way of putting this whole this whole concept about losing being part of the game he said what is the rallying cry of the 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 that need to fulfill the ego to be right or not that made a mistake is exactly why people lose so 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 the professional traders understand that to win they've got to take losses that's part of the process so as I say it's a very important concept instead losing is part of the part of the game is part of the process there's a wall street there's a book written about trading call the most famous book ever written about trading called reminiscences of stock operator which many of you probably have read some people mistakenly think it's about Jesse Livermore and it's written so realistically and it's written in an autobiographical toad that most people believe that the Jesse Lefevre who was the author was really just a was really Edwin Faber was really Jesse Livermore as a pseudonym but in fact there was a Ted oneof paper who was a journalist who wrote this book and it wasn't just Jesse Livermore he just did such a good job that people think was Jesse Livermore but in that book there is a line that goes something like this it basically says that the there is the fool who does wrong at all times but then there is the Wall Street fool who thinks he must trade at all times or it's roughly paraphrasing it and the idea is that 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 you know in other words until something is so obvious until the trade is so obvious that's like taking money off the floor he does nothing what does that say it says patience patience is essential to good trading another trader had the had this way of putting talking about patience he said he's an animal analogy he says the first the world's fastest animals are cheetah and below the cheetah do it won't just go chase after any antelope it'll wait in the bush for a week until it sees a baby antelope and preferably a lame baby antelope and then it'll 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 patience and staying in the trade and it's what going back again to reminiscence of a stock operator 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 and 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 profits came from that's what was essential so it's what I call the the importance of city then go to a fellow named Bill Lockhart and it talks about this the subject Eckhart may not be that familiar name he was Richard that everybody knows Richard Dennis Eckhart 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 Ed cards the PhD mathematician he's done quite well as a CPA over the years and he talks about this this uh this concept he says this is a de jure all Street adage that you never go broke taking a small profit you know probably heard that one he says that's a really wrongheaded approach amateurs he says go broke taking large losses professionals go broke taking small profits the message is whatever your methodology is and whatever represents long or short you have to allow the good trades to work to their reasonable fruition if you want to pay for the losing trades so again the important patient spoken getting in and getting out next we come to the subject of loyalty now loyalty is a good trait right I mean it's you want loyalty and friends family pets nice trait as a trader it's exactly the opposite of what you want you don't want loyalty as a trader best example I can give you concerns Stanley Druckenmiller Stanley Druckenmiller oh and the date of this example I'll give you the exact date the exact date of this example is October 16th 1987 October 16th 1987 for those who are scrambling I'll give you a hint it's a Friday on that day Stanley Druckenmiller used at the time Stanley by the way probably know Stanley but he managed to he worked for ourselves for many years and for many years ran the Quantum Fund even though people associated upon phone were Soros large part of that time Soros was spending most of his time in East Europe and the Soviet Union trying to get those countries over to capitalism and so forth and the person who's really had his hands on a patrol day-in day-out with Stanley Druckenmiller he's also run his own front for twenty years and done terrific and before he went to drop until he was running multiple funds for drivers and this is at that time he was a driver so he came in that day and he was net short nice position to be in October 16th 1987 unfortunately if you remember a lot of people think of where the market broke that to get that the market was breaking sharply prior to that day prior to the Monday and particularly on Friday Friday was a also a very ugly day the market was down a lot and he decided you know what it's kind of getting down 20200 I think was levels coming down to I think he said that that's enough marks could be near support so he took his profits but not only did he take his profits he decided to go net short I'm sorry net long net long now I used to ask audiences anybody here ever make a worst mistake than going from short to long on October 16th 1987 in the US stock market okay the reason I stopped asking that question that's that I realized I couldn't make up the worst example I don't think you can make up a worse example the amazing thing is we look at his record for that month it'll be about breakeven how is that possible well first of all first half of the month he was short so he 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 it's not important you know you can read in the book if you want know why but he was sure he was wrong so he decided he's going to get out of Monday morning unfortunately Monday morning comes around and the Dow opens over 200 points down to begin with but what he did that that Monday morning was in that first hour trading he covered his entire position and get this he went back short now think of the amazing flexibility and then we're talking about fellow managing I guess probably over a billion dollars at the time to be able to reverse his position again after after the market has gone down that much overnight that's a tremendous flexibility tremendous lack of loyalty it's a classic example of a professional trader so as if you want to be a good trader you can't have loyalty to 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 what will come down with a couple last points before you finish this was just about done Latta one other point I would like to make which which is a point that going back neck hard and has to do without people's human nature human nature and trading and Bill Eckert has an interesting comment he says that people are so poorly attuned to trading that they will do worse than random now you know the academic comments you know the academic now you'll see the academics say well you can take a monkey and give them darts and put up a page of The Wall Street Journal at the monkey throw dots and the monkey will do as well the professional money managers okay you've all heard something like that I'm sure now bill Eckert so there's no confusion here bill Eckert is not saying that he's not saying the monkeys good too as well as a professional money managers he's saying the monkeys going to do better that's an important distinction now 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 trade humans seek comfort whether its food or shelter or sex for whatever it's comfort and you know what markets don't pay off for being comfortable his point is markets pay you offered me uncomfortable for taking the uncomfortable position and most people don't do that they seek comfort in the in their trading as well and that's why he says they're going to do worse than random that you were literally for most people would literally make better choices they threw darts and what examples examples of the easy to find look if you're in a position that's going against you let's say and and you say well 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 going to buy some stock or whatever and it's uh and you're buying it'll say at a lowest point that's been in the last six months kind of feels good because you're smarter than everybody else who bought that stock in the last six months so if ya boy aren't you smart you've got the best buy in the last six months feels comfortable so a lot of these trades that are done which come out of the the motion of seeking comfort would get right down to it are going to end up being wrong it's also by the way with it for those of you involved with training systems this leads a lot of people to go wrong in developing training systems with what do 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 in any given month and that feels a lot better to trade then some trading system that has some Wiggles to it and the more you optimize this move you get it but the more you optimize the greater the chance is the system won't work at all but again it's part as human nature seeking comfort so we'll finish off this by just I I mean I always well one last point and one last story the last point is look at the language of traders they talk about our description of talking about trading as a three-dimensional chess game and as Bruce covers line Jim Rogers talks about ten thousand it's like a jigsaw puzzle ten thousand pieces and they're always throwing in new pieces taking out some pieces and throwing in new pieces another traitor talked about trading being like a chart his chart book you pass the chart book it is like a treasure hunt because every week I go through this and I look for new treasure and what are those those are all game-like analogies and that tells you something it tells you that to them trading is almost like a game it's something that's fun and it's 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 the 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 dead love and passion you're not going to be successful and it's essential to be to be successful so we finish off by I finish off the last story which is just a personal thing which I have given this talk I really have given this talk a lot of times I usually have talks a lot different stuff even fundamental analysis 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 I'm giving talks on on market Wizards and this particular theme we just discussed and as 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 he moans and the chauffeur asked him sure what's wrong and the economist says you know I can't stand to give this talk again I must have given this talk 200 times I'm just bored to death of it and the chauffeur says you know what no problem was I'll give a talk for you and the Economist says well how could you give this folks is a highly technical sophisticated talk and the orange is filled with all these PhD economists he says boss I've heard you give this talk to other times I know word-for-word trust me anything is what I got to lose a switch he put saw the chauffeurs uniform the chauffeur puts on his suit chauffeur gets up in front of this audience of economists and he gives the talk for an hour he delivers it perfectly but then he gets carried away and he finishes his talk he said any questions and he gets a question and he actually manages and he has another question he does ok then he gets a question that fellow is very intrigued about your theory of synthesised in classical Keynesianism with monitor istic theory my question is this if you put it into the standard Econometrica framework do you treat the monetary variables as exogenously endogenous for the model the chauffeur scratches his head he says you know I've given this 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 I'm buck my chauffeur answer

Channel: Super Trader Partners

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Keywords: market wizards, stock market, hedge fund, trading, jack schwager, trading video, trading psycology, successful trading, options, call options, put options, super trader

Id: L34PEEIuRgo

Length: 55min 26sec (3326 seconds)

Published: Thu Jan 28 2016