Market Wizards' Jack Schwager interview | Lessons from the worlds greatest traders

chat with traders episode 27 the biggest secret of the best traders in the world is that they're just like everyone else however they've worked hard to learn the markets and discover what works and what doesn't but how can you hear about these journeys and get in on the strategies and tactics they use you can do it by listening to chat with traders here's your hosts air in five fields [Music] hey what's up everybody welcome back to a brand new episode of the chat with traders podcast this is episode number 27 and I have a very special guest lined up for this episode a chances are you already very familiar with who he is and if you're not then I'll probably have to presume and use the realm of Trading Jack Swagger is the author of a number of widely acclaimed financial books including the timeless market wizard series commonly referred to as all-time favorites by many of the guests which have appeared on the show in the past as well as the best-selling author Jack is widely recognized as an industry expert on markets hedge funds and tradin advice he's also the co-founder of fun cedar a platform designed to find undiscovered trading talent and connect successful traders with capital from investors during our interview we discussed Jack's lifetime involvement with markets some of the key lessons he's learned firsthand from interviewing many of the world's greatest traders and so much more I hope you enjoy this interview as much as I enjoyed hosting it because it was an absolute honor to speak with Jack for almost 90 minutes all right guys here it is I'm Aaron Fifield the host of chat with traders and here is this week's guest Jack Swagger hey Jack welcome to the podcast how's it going oh great thanks awesome well I must point out first of all that I'm not doing quite so great because I woke up this morning with a damn cold so I'm dealing with a bit of a croaky voice here which is annoying but the show goes on so Jack an absolute honor to be speaking with you today thanks so much for making the time to come on the show thanks so a few of the topics I'm keen to speak with you about today would of course be how you originally got involved with the markets like what and also what inspires you become an author and some of the key lessons you've picked up from interviewing so many super successful traders and I'm also keen to find out more about what you're working on these days with fun cedar and other various projects so how does that sound it sounds good all right great so I mean many people recognize you as an author and aside from your books may not fully understand your deep involvement with markets so winding back time what was your very first introduction to markets oh well other ever then as a kid I just had my you know do a bit involvement in stocks a very minor thought another grade it's my father you know bought some stocks I'm tired and but really trivial I mean that's really that was there's no real interest I wasn't one of these people like I like the marker was I interviewed many times really had a passion for market starting in high school that that was not me uh my real my real introduction to markets really came because I was out of graduate school looking for a job I had a master's in in economics and a minor in math and I you know from a good university and I figured I should have an easy time finding a job Oh actually wasn't hard but I kind of expect to have a job the first day it looked it ended up taking two weeks but the way I actually found my own job because I got discouraged with dealing with climate agencies so I put an ad at the time there was a the New York Times had a not actually was the sort of let's edit the opposite of the Help Wanted they had help water but it was a small section where you could post an ad if you were looking for a job and I did that and I just put in a two line the cheapest that I could put in cost me about fifteen bucks and basically said something like you know Bajor I mean an econ a minor math looking for an analytical job does pretty much it and I had about sixteen seventeen calls of those all but one were really the types of calls where they try to make you think that there's a position but what they're really trying to do is get you involved in a pyramid selling scheme or some other exploitative thing and I guess they used those type of ads to find people who they hope will be patsies so but there was one legitimate one legitimate the response and I call back on that one and they ended up being the job that I end up getting which was phenomenal analyst position with in the futures research department and that was my actually and I knew nothing about futures at the time I knew almost nothing about markets you know economics degrees particularly no even even today I guess well might be today's may be a bit different but still probably don't prepare you very much for anything to do markets but back in my day they did I you know markets were not even on the curriculum so I really knew nothing and that that's how but I got into the jaw because the research and the research director a fellow by name of our own Cisco was was the writer of a commodity column for more barons and he was looking to replace his analyst who was leaving his a Dustin was leaving how it was by the way Michael Marcus who is chapter one of the first Wizards book that's why I met more Michael anyway he was looking for a replacement then since he had this column he thought it was a good idea to kill two birds with one stone and he'll all the serious candidates that he got or or I guess he narrowed down to four serious candidates um he had each of us write a column and I got you know to a market that he had to write did he had to write a column on anyway and I got assigned copper so not knowing anything I basically went to I lived in Brooklyn at the time and there's this huge library in Brooklyn called kin agronomy Plaza and this is way way pre well it's pre pre pcs let alone pre-google so you don't have that type of luxury so I had to like go and I had to go to a really big library to find stuff and they had these periodicals there was one dews of merit there was an American metals market I think a daily there was a daily newspaper on metals and then there was a mcgraw-hill had a week weekly or bi-weekly on metals and then I found some additional articles and so I basically did a crash course education I went back several years worth reading all reading articles and right II I just read the background on as I could and the rota wrote a an analytical article or the copper market which basically is what got me the job so you could say writing really got me my first journal you boy could say I would make it a definitive statement writing did get me my first job like I brought it well that's a really interesting sort of intro into the market so even though after you began writing books you know a bit later on you were still involved with other firms so could you run us through some of the other firms you've worked with over the years and what was perhaps well for a number of major brokerage firms so some of the early wants of perversion to that existence but the most read the last when I when I left voluntarily about 20 years ago was Prudential securities and then for almost all that gold my career except for the first two years I basically when I was working for brokerage firms worked as a director of futures research um and so there was there was that before that it was a pain Webber and before that smith party those those were the last three major firms that I that I worked for a subsequent to that I spent a few years starting my own little hedge fund and that led to getting approached by a London hedge fund advisory group which asked me to join as a partner which I did I spent about ten years with them until we got bought out by a London merchant bank called close brothers and after that I took some more time wrote a few but I booked a road books all along my career but after leaving that I I spent I spent two years where I mainly wrote books I wrote three books tour that period and then I got involved in the startup fund sedar.com which I guess will probably talk as a separate topic later on and I also do one-off topics you know as they are tasks that come up and one was a syndicated project I did for trade shark so that's the that's a 40-year career in two minutes they can make yeah that's excellent just before we move on just one more point I'd like to touch on there and your sort of research positions what sort of tasks or what sort of things we working on on a day to day kind of basis oh you mean now or previous and your sort of research roles when you're working with these when I was away when I was research director basically oh yeah I was involved in both fundamental and technical analysis I started out as a fundamental analyst I was my first job oh I didn't uh I didn't believe in technical analysis at all until what a detective now has worked for me by name is Stephen chrono it's and I noticed that he was doing he did pretty well in his calls actually if all the Alice he was one of the best and it may be not like to believe that I'm not a close minded person sort of you know say okay you know you know tell me tell me about you know what you're doing and how you know how you do it and sort of I got you better understand what the rationale behind techno house is that it's not it's not just a matter of triangle you know look at pictures and and it's not a it's not a black magic audits it's really I mean two philosophical concept on technical analysis nothing more then prices reflect the reflect the behavior for all the participants and and so the influences on the market so therefore there is a logical reason to believe that charts might have be helpful in any case uh he was he was my influence and after spending up to that point maybe five six seven years purely as a fundamental analyst and discovering that fundamental analysis while it works for some people never worked well for me because even when you got the evil one even what is helpful and gave you the basic idea of oversaw polar bear market it did nothing for timing I mean that's one problem five minute tells you nothing about timing and the other problem is fundamentals sort of have a sword I which I best put this a almost pathological relationship with risk management in that if you have a fundamental of pain in and the facts that the fundamentals don't change the more wrong you are the more the more the fundamentals dictate that you should increase your position which is exactly tempis of what you should do from risk management whereas because that explained that no more let's say if I decide that that weed is a good buy at five bucks if it goes down to four bucks then it's a better buy you know so if nothing has changed right so I should buy more so the trouble for the mental Alice's it has no risk management inherited it and on the contrary it has the opposite of risk management it it causes it would cause you to increase your position when you're losing Oh so but technical analysis by its very nature if the market goes against you unless you're unless you're one of those rare technical technical people who are using a counter trend approach but with that exception for the most part virtually any methodology using technical analysis if you could the mark is going to go against you I you know in a methodology itself would dictate you're getting out so that was a big advantage as far as training goes that when I became a technical analysis I basically abandoned fundamental analysis as a way of trying to trade and any training I subsequently that was always technical oriented whether it was discretionary chart reading or whether it was systematic but it was always technical rather than fundamental sure okay thanks for expanding on that Jack now you've read in over ten books in the timeframe of about thirty years so it's clear you have an undeniable passion and a fascination for markets but what was it that sparked this and more so what is it that continues to intrigue you about markets usually being an interest to markets basically essentially yeah well ah you know what I when I got out of graduate school I was basically looking for that an analytical job that was not repetitive and I guess you really can't get into anything more not repetitive that markets because it's always changing and and so it was an interesting way to combine analysis and had a subject of study that was always challenging and always changing so I think that's that's what's interesting about it it's also it's also a place where your opinions are you get your grades pretty instantaneously oh I I should be clear though I know your your podcast is really a trading podcast I got to be on have it even though I am probably considering what are the experts certainly in terms of picking the minds of traders and trading advice and and I I do think that what I've written in terms of trading advice is very sad stuff and I've had so many people tell me it's helped that I I kind of believe that it's true but having said that I myself do not really consider myself a trader I'm not particularly talented as a trader I don't think we have any grand emotion or passion for trading itself I do it sometimes I don't you know it's on and all things sometimes I do it sometimes I don't I don't particularly like the emotionalism of trainings which is one of the reasons I don't do it all the time and also it's a time eater you know if you're trading that it keeps you up doing other things and so for time reasons many many times I don't I don't trade but for large parts of my adult life I have traded but it's never been a main thing I've never considered myself a great trader uh you know I could buy basically the best peg the most I'll say about myself is up there profitable but I don't consider myself a particularly good trader although that has nothing to do with the stuff I write about which comes from traders who are exceptional and whose advice I think is very sound sure yeah well I mean that makes sense so I mean let's talk a little bit about some of the books you've authored and some of the things you've learned and and been able to extract from the minds of these insanely successful traders so I mean first of all what inspired you or where the idea come from to write your very first book a complete guide to the few his markets I mean what was it about it's very key you wanted rare interviewers that finishes that question with a complete guide to the futures markets usually the question is finished with market whizzes that I have to back step and say that really wasn't my first book so the complete guide to the futures markets oh it's gonna sound egotistical when I say this but oh you know when I got into the you know futures research I kind of was impressed with the lack of quality stuff out there and I didn't particularly think that I was great but I thought that I could do better than anything that was out there so I didn't find what I considered a really good book on on the futures markets and I thought that I could write a better one and circumstance worked out that I had was leaving a job and rapid and I would have had no problem going and just finding another job but I decided well you know I've wanted to write this book out why not take the time now so I took a sabbatical and so I was trying to write was a comprehensive text on futures sort of visa the definitive text on futures at least for that time all and it was a serious works I mean if bribe runs over 700 pages it covers all sorts of stuff and fundamental analysis it covers statistical stuff it covers covers all sorts of classical chart analysis of covers technical indicators it covers trading systems testing trading systems trading it's pretty comprehensive so so that's the book I and I did that again pre PC days pre-computer I was literally for those who do stats I can appreciate this maybe but I was had to resort to doing multiple regressions using a calculator which is just a great time and time you know waster but it would have been a lot easier to do the book in modern times and it was when I did it and it was only because I was so enormous ly focused at that I um that I was able to even do it in a year I also have to hand can do the charts everything there was no Excel there was no way maybe I don't know was Excel a word or any of those things existed but you know this is this is 83 84 um if it existed I didn't know about it I didn't have a PC and I don't I guess pcs was still probably in their infancy at that point so any case said that was a really a book that required manual labor and that was the first book that I did now having done that I I really didn't have a great eagerness to do another book quickly but I did along the way as I was involved in training and I knew some great traders like Michael Marcus and and some other you know people you know food I was at Technologies Corp actually for a year and I knew Brooks governor and I knew some other people you know who are great traders I thought gee you know it would be an interesting book to to write going to interview like these great traders now you know find out what they do and what do they do that's different and why do they excel where somebody fail but I had a full-time job as a direct more than full-time job as if directors of futures research had sort of I wasn't eager to sort of work nights and weekends additionally on a book so I never I didn't do anything for a couple of years even though I had the idea then one day I got invited by a publisher to have lunch and they said basically the pitch was you know that we you know I think your complete guide is a great book we'd like you to write we had this idea for a whole series of analytical books you know we want to do one on each market you know and we need a chief editor chief we want you to head up the project and sort of having done one of those very very in-depth analytical books which by the way you only do because you're trying to prove something here you're trying to prove that you can do a really good book or just for ego almost or for self-satisfaction or to demonstrate the words or just achieve wrong putting out a really good book but you certainly don't care or you certainly not focused on selling because and I use this I say this only semi facetiously it really is true as well that the amount of books you sell are inversely proportional to the number of equations you put in a book and by virtue and I knew I put more equations in then I should put into that book if I wanted to sell a lot of copies so maximizing sales was never that you know that my goal on the complete card whose basically the to the book best book I could that was serious and analytical and and could be read by a serious layman it I think you don't require it doesn't require really a college degree in math for science necessarily to understand but if you have to be serious um dad I only want to do once and the last thing I wanted to do was to do it again so I said I'm not really interested in that project but you know cuz I don't want to do a bunch of books that sell very few copies and require a lot of in-depth work so I said I have this idea which is more of a viewed mores of math mass audience book and more of a book that you know could reach you know just broader audience and be more entertaining to read and so forth and I told him about the marker wizard concept and they really liked it so I wasn't intending to do the book but they came back with an offer and sort of that was the catalyst and that's how market whizzes got written the first time okay that's really interesting it's good to sort of know where that idea for that book came from I'd like to quote the opening line from the Newmarket Wizards which is the second one in the series where you said the markets are not random and you made it very clear that this is a statement that you truly believe but to what extent other markets not random well to the extent that they're not random in a couple of ways and this goes into the whole like a you know whole controversy or which has been going on for decades between those who believe in the efficient market hypothesis and and those who don't oh the latter being you know at least in serious academia being behavioural economists oh but of course originally a Niva and now as well the whole whole sorts of people in a trading community now how I felt in the beginning that that concept was wrong for for many reasons but two big conceptual reasons one is I just knew too many people who had obvious trading skill and it wasn't just they were lucky they just did too many trades for too long and had results there were too lopsided to be explained in a probabilistic sense that if you have enough traders some will get those results no I don't care how many you can have you can have 10 billion traders you're not going to get those results you know so clearly something is going on here where people are getting types of track records that from a simple probability calculation would be impossible if the markets were random and that's one of the audience I always have against the efficient market hypothesis the second thing is and the speak switch and both of these are big areas and this is kind of sub parts to them but the second big concept of why I think it people are wrong when they believe the markets are efficient is because prices very often there's circumstances where clearly the market price is not right I mean there's just tons of examples where where you could show that to be the case and this is by no stretch of the imagination can you say the market price is right so I'll give you said I'll give you in fact I wrote a book by Chism I'll in my next last book and there was none it was y'all it was a non market with a book called market sense and nonsense and in market sense and nonsense which I go through a whole bunch of each chapter deals with a different set of you know different subject of misconceptions one long chapter probably the longest chapter in the book is debunking the efficient market hypothesis and one of the things I do in there is I give a number of examples of just just come on in no sane world could this and if the mark is revision and there's a lot of examples so let's just go let me take one I mean to so many it's let's say take something like like countrywide a countrywide if you had to pick a company that was the worst of the worst I mean I don't know why were picking on this whole to a 2008 financial meltdown and and companies that participated they do in my mind HGTV the heads of these companies should have ended up in jail but they walked away for hundreds of millions of dollars unfortunately but no one was worse than countrywide and countrywide literally approved everything you could not you know their people were instructed to give mortgages you know if they Dave if they turned out a mortgage for any reason like just because a person didn't have a job or income or anything else and was asking for large amounts of money they would be told to find a way to do it now is because countrywide then sold off there they don't have to keep it they didn't have to worry about people repaying they sold it off to Wall Street who didn't care because they repackaged them and sold them off to investors who didn't know any better or I should say not we didn't know any better who are relying on the rating agencies who were either themselves incredibly dumb or compromised and looked the other way and therefore guilty in that sense but they could only plead Eeva stupidity or or Malfi or malfeasance there's really no other way of explaining it but any case going back to the origin type of company the ones who produce these really truly terrible mortgages that just had a very very poor chance of being repaid and did so knowingly and had a corporate culture where where negligence was encouraged nobody I think could be worse than the countrywide and that now you I met I just try to get people a sense of how bad this company was so now a company like countrywide was depending totally on this housing bubble going on because as long as the housing bubble goes on prices are going up in no matter how incapable people are paying back a mortgage you give the mortgage to as long as the Marta's housing prices go up more than they have to pay back it kind of sort of self-sustained yeah yet if that stops you know company like countrywide it's going to heat up a whole bunch of trouble right not only did it stop but you can look at something like delinquencies and delinquencies were sort of during the housing bubble we're very low at about 5% and then they start going up and and they go up and and go up and they they went from 5% to 10% so delinquencies mortgage delinquencies actually double that this should have been like mortgage delinquencies going up is a type of thing that should be a screaming cautionary note if you know for for countrywide being subject to collapse and if you look at the chart this is why I say if you tell me the market price is right you gotta be just blind and I'm just mentioning what going through detail one one example but there's tons of cases like this so what a countrywide stock do as delinquencies went got double from five to ten percent it actually went up to a new record high the record high occurred after the Linkwood sees a double and about a month after that the record high the stock collapsed the den stopped collapsing until it was one out yeah till the company went out of business so how could you you can't explain that by the market price being right no what was going on was there was a bubble people were just buying people were buying without real insight and there was enough of double money that was willing to go into the stock because was making new highs even though it was completely rotten to the core and the thing that was vulnerable was already blasted out because these were knowns these are reported statistics how mortgage delinquencies are reported the data so it's no big surprise and so the market to collapse of stock occurred about a year year-and-a-half after it should have and it occurred right after it made a new high so that's a one kind of example so my point here is that market prices are not always right and if market prices can be dead wrong and you can show many examples where they are then the idea that that underlies the the Marc hypothesis that that market prices are always right and all new information is immediately discounted doesn't doesn't hold water because because if market prices are not right the whole theory falls apart the one place the efficient market hypothesis is correct and the reason why there is an illusion that it's correct is because one of the conclusions that come how do the efficient market hypothesis is that the markets would be very difficult to beat and that is true the markets are indeed very difficult to beat but not because the markets are efficient they're very difficult to beat because what moves markets are both fundamentals and human emotion and human emotion is very difficult to gauge I mean how far does a bubble go when does the bubble break these things are very hard to predict them very hard to trade so it's not because the markets are efficient that the markets are difficult to beat it's because there's such a big influence of upin human emotion that can't really be programmed is it precisely and it's very difficult to gauge and so there is this there's this conclusion by people who look at the market say oh you know the mutual fund managers always you know usually you lose to the indexes and and marks are really difficult to beat therefore the market are efficient well no that's not why they're efficient yes marks are difficult to beat but that does not mean they're efficient in fact I'll just one of the things I put into market sense a nonsense was that line of thinking actually it violates a basic rule of logic so there's a rule of logic that says the the converse of a true statement is not necessarily true so let me explain that of a simple analogy a true statement is all polar bears are white mammals that's a true statement all polar bears are white mammals however flip it around all white mammals are not polar bears the converse is not true like you could have a snow shoe here so the thinking that because something is true if a is true then B is true then going to say that B is true therefore a is true that's a flaw in logic and it's done all the time by many people who are arguing the efficient market hypothesis it's just a straight-out Florin logic um and and so what they're saying is if the markets are efficient then the market will be difficult to beat and then give you all these examples of how the markets are difficult to beat which I totally agree yes the markets are extremely difficult to beat and then they jump from that back to the market are efficient it's a floor logic and I can go on and on but I think I've killed it all you know this one I got a throw out one which which is it's one example which is so beautiful it's a reason when I came across and I went to see Richard Thaler who's one of the pioneers and maybe the pioneer behavioural economist and a longtime you know this believer in the efficient market hypothesis and he threw out this one example which I just thought was brilliant there's a closed-end mutual fund that has the ticker symbol see you BA Cuba now what it does is it has a portfolio of stocks that are invested in Latin America South America not Cuba by the way but but it does add that because I guess it's a catchy symbol see you ba so that's what the mutual that's where the close that mutual fund is and like most closed-end mutual funds it was trading at about he was trying to get a discount in this case it was trading at about a 15% discount I say but which means that if you since closed and fund you can't quite can't do it but if you took if you were able to liquidate the entire portfolio the portfolio you're paying 85 cents on the dollar for you know for what the portfolio is worth that was on on as of a given day the next day it goes from a one five percent discount to a seven zero percent premium okay in one day this is like unbelievable so what happened what happened is President Obama indicated is normalize relationships with Cuba now the wonderful thing about this example is they did not hold first of all Beal illegal to hold any Cuban stocks and they didn't hold any Cuban stock or I mean companies or stocks or whatever um and and secondly there was nothing in Cuba to own he didn't even exist I mean you know Cuba is a is a true communist country and is really Garneau stock stock so despite the fact there was no nothing nothing cubed in the in the poll portfolio it went from a 15 percent discount to a 70 percent premium in one day because President Obama nor law took steps to normalize relations with Cuba I mean you can't make this stuff up and yet there are people who argue the marks are efficient you know which I would say give me a break all right well thanks a lot for going into so much depth with that answer Jack that's that's really good so I'd like to sort of pull this back a little bit to maybe some of the some of the really key lessons and things that you've learned over the years from speaking to the traders that you've interviewed for market was it so let me ask you in the first to market wizard books is there a noticeable change in trading styles of those featured in hedge fund market Wizards oh no I actually I don't think that's really much there's not much of a distinction in that a hedge fund market Wizards came I guess well at least 12 almost 25 years I should say after maybe the first market Wizards book so they came much later but it does include people who were around from much earlier for exact it includes of all the market wizard books the fellow with the longest track record in the earliest the may be the earliest trader of anybody a interviewed uh was that Thorpe and he was not in market Wizards a hedge fund Markowitz is so although for some of the people if they're younger in hedge fund market was then they are starting in a lady era but I don't think the it was really that much of a difference the only difference is perhaps that in mark the very first market Wizards book and maybe noted in a second there is a larger preponderance of futures traders perhaps because and I mean by straight-out sort of futures traders are as opposed to people using futures for more complex strategies oh and that's simply because back in doubt in that day those were the traders that really excel then and there are great opportunities in futures and and things like trend-following work much better back in those days before people started using the approach a lot and the early the early practitioners of assists system trading like Etsy Kota had these spectacular type of results which which I don't think you could do nowadays so that's I guess one-one difference between the early books in the latter books but I can go both of the early books in a lot of books you had fundamental traders fewer technical traders you have people who did boeuf you you had system traders you had discretionary traders and you also had a large variety of approaches in any of the books so I don't think there's a big demarcation really that one can draw from the early books versus the let the later books I should add on that one point when I when it came up when the 25th year anniversary came up on more the original market was it's the publisher asked me to we would want to do a new edition so I what I did is I actually wrote an additional chapter so the the volume that came out I think was the market Wizards that was released in 2012 has an extra chapter and in that extra chapter would I basically do is I go back and and I say you know what do I believe now about markets and I have one shaft about all the key points and I deliberately did not reread the original market whizzes when I did it but the point was that I thought that really that my views or my conclusions about what are the important elements of trading success really didn't change from when the first book was written so that chapter really was probably more intended to make the point that not much has changed when you get down to the important facts I cut show and just to elaborate on that and you can't attached on it there as we're now in 2015 t believe that the same opportunity still exists in today's markets as it did for traders featured in the original market Wizards like besides their trade an approach is there the same opportunity provided by the markets or has it become much harder to succeed at trading I you know I would say from a logical standpoint and of course one would have to do one would have to give you a correct or absolute answer you would need data from from back then and data from now neither of which I have oh and I don't know I don't know of any studies that have ever been done on that and I I assume it in all cases the majority people oh by definition majority people lose but whoever the majority was larger is larger now that then I don't know already that'd that took wouldn't he that could allow that to be answered however from a logical standpoint I would say I would be surprised if it was not more difficult today than I was there for the simple reason that you have many many more professionals in the market that you did that and I think there's a certain amount of opportunity in the markets and and the fewer the smaller proportion of professionals and by professionals it doesn't have to mean people working for Wall Street firms it simply means people who who are dedicated to trading and are really good at it and make a living from it but the larger the percentage and of course those are the people who have skilled in the markets obviously by definition but the larger the proportion of those people versus the whole population of traders they're more difficult to become citrate in fact I I'm sure I have a line somewhere one of my books that over beware or maybe I just use it the talks I don't know but the line is something like you could take two hundred best trainers in the world whoever they might be and you could say okay you could have this thought exercise and say if those hundred traders were the only traders that were allowed to trade the markets the one prediction I could make is that eighty percent of them will lose you know roughly speaking and that's simply because if they were the only ones of trading we know that the certain transaction costs about the trading so the percent so the amount of money has to be that's one has to be less than the amount of money that's lost so if you Eve only the professional traders or course Kilburn or the most skilled traders in a world could trade by definition a majority that would have to lose and that just makes the point very starkly so it's obvious that if you go from a small proportion of traders as part of the trading population to a larger proportion you get to a point where it becomes almost inevitable that even be the professional traders so therefore it is safe to conclude that the greater that proportion the more difficult it is to beat the markets and I certainly think is a much larger percentage of professional traders are today than there was say 30 years ago yeah okay I mean that's a really interesting concept and way of looking at it so thanks for sharing that with us I'd like to bring up the topic of failure because this seems to be a common theme amongst many of the traders you've interviewed where they have experienced failure in one way or another and in some cases multiple times before actually sort of making it so to say so what's perhaps one of the most extreme cases of failure and recovery that comes to mind Wow there's this quite a few of them probably well there's a number of traders who who blew up or nearly blew up some herb loop multiple times in and amarka was a books I'm glad you picked that up because that is that is a common occurrence and from which I draw the conclusion I draw two conclusions before I go to some examples but let me give you the listeners of two conclusions that I get out of that one is that that early failure were even terrible failure is not necessarily predictive of future outcome it doesn't mean you fail you can succeed either but but it does but it does mean that if you have enough confidence and just because you fail doesn't mean you're doomed to fail there's plenty people that I've interviewed who are disastrous in the early years and turned out incredible oh that's point one and the second point is well they they did ultimately succeed because they didn't give up so that is an element of of excelling is is this spirit or the self-confidence that just doesn't give up now as for examples of I could give quite a number but let's just take one michael marcus who I mentioned earlier who's who was the trader whose job I took what he left to become a trader and who became a phenomenal trader but his early experience in the markets he he sort of lost like you know he had a very little money to start out lost at that cashed and his father's the life assures us far away it would I'd an early age at left was supposed much like three thousand dollars whatever but he lost that and then he started trading and some more money and then he kind of hid it and he built he built up the small few thousand dollars take into thirty thousand and I go through a whole story in the book I won't go through here but he then borrow some more money from his mother who was you know of not not a very good means you know barely got by it but he was so he got so caught that he actually then lost all the money at bay plus a part of her money so that was his experience you know and very few people would have kept on going beyond that he did though and the way that story ends is he eventually he did learn how to trade he did get extremely extremely good he was talented had he ended up going to commodities Corp they gave him a thirty thousand dollar account as a historic portfolio and he eventually built that $30,000 account at eighty billion over a dozen years and he did that while they were taking out twenty percent of his profits a joint for expenses so well appointed it probably most successful traders stuff of for all time and he and hard to find anybody who had a more disastrous beginning yeah that's an incredible story that's um that's really really impressive so let me ask you this t believe that perhaps some of the traders you interviewed almost had some type of natural talent for train I mean I don't thats the right word well would you say that it really is an even playing field and anyone could reach these insanely high levels of success with enough hard work and the right people around them yeah I know I could I would say with fairly strong confidence that not everyone could for the same reason is not everyone should be able to I don't care how hard you trade you know you're not going to run now you're not going to run a a professional Valentine you know you know push you because most people don't have the body type that will make it possible now can people run a marathon if they've never train before yeah if you get a few to train hard enough you can eventually run a marathon successfully maybe even at a decent time but but only a tiny percentage of people will ever run today at a world-class time and that's just that's just the way most people's breathe most people's bodies or not are not constructed to make that possible or can most people become so Louis with the New York Philharmonic go if they if they take up the violin and practice a lot no I don't care how much they practice they may become competent they may even become you know good but but very very few people will will will become world-class violinist just because it requires some sort of innate skill besides just dedication but in all those cases people can achieve proficiency and success but not necessarily exceptional success and that's what I'm saying and I think the same mr. Joshi trading be any different so I think people can become that profitable maybe even decent traders you know if they have enough devotion and if they have some skill board and decent traders but only a small percentage of people I believe have the innate make up whatever that may be to become a true Li exceptional and I don't think training is different than any other profession in that regard I can I sure that's that's really good point you make so um I mean it's obvious that all the traders you've interviewed over the years we're doing extremely well but even still did you find they were constantly looking for ways to improve their trading or did any of them ever strike you as having felt like that perhaps mastered the market a Moute really comfortable with their approach um well I think I think they were comfortable their approach but I think most would always be looking or realistic about if if things stopped working to change and there are some people who are exceptional at going from one strategy to the other ed Thorpe is a great example who you know started out by actually he is background is a well he had a PhD we didn't get the PhD physics with he never finished his thesis but he's needed finish because he went he decided to know enough math and then ended up with a PhD in math and then never wrote his thesis of physics so he was a real quad cut he got involved eventually markets these famous is his fame in the world by the way is not markets as famous to the world because he wrote this book beat that the Hillary figured out mathematically how you could win a blackjack and he wrote this book that sold millions of copies and and actually is the person who's responsible for casinos changing the way the they handle blackjack multiple tax Rick reshuffling all of that due to his book but he did that sort of the tangent to go back to the markets he decided the real place to make money was the markets and he was the first one to figure out the mathematical equivalent that the black Scholes model which he did quite a few years before the black and Scholes uh published their paid their famous paper so for a number of years he was trading options very successfully probably the only personal world ago to pry step so he he was making massive massive amount the money was very very you know all the snow no drawer doubts um then he went out but as the efficiency went out of that he became involved in statistical arbitrage he developed that he developed a vertical arbitrage he he developed various strategies going from one to the other as each strategy start to lose lose its edge as more people became familiar with the approach so he's a perfect example of somebody who starts out with one strategy and goes through completely different strategies by adapting to the changing market conditions even within a single strategy like statistical arbitrage I'm not going to go into the details cause it's too too specific for this type of broadcast but even within that strategy he changed the way that strategy worked through several iterations as the markets were changing each time making the strategy again have an edge and that kind of that's it the the interview I don't wanna I don't think it's done I don't think it's too detailed to go over to win at this podcast how we did that yeah and I mean that's kind of that kind of raises a point which I've heard you talk about numerous times and that is that most traders tend to come unstuck due to a lack of flexibility is that what you gain that here yeah I mean that's that's a that's a trait that probably the majority traders don't have and it is a trait that is essential for great traders that is the ability to be flexible in every way and one example would be to be able to hey this has been a great method but it's just stopping working and I've got to figure out what does work and why this is not working and change if it's not working so that's a bet that's a way of being flexible another way being flexible is a one you know like what as far as I have in the hedge fund market Wizards a fella by name but Jamie Mae who's who goes into a tray goes into one trade idea this is a guy does very very deep fundamental research and could spend months researching an ID and making sure he's got it all right but he had this idea say a few years ago where China was going for being a net exporter of coal - a net importer after years you know whole history of being just a net exporter and he saw this grow for China could see that those could be a tremendous amount of shipping increasing increases going on because of China's demand and so he had this bright idea of getting long shipping stocks but when he did the research he discovered that that shipping had actually gone through a boom couple of years earlier because of a commodity price boom and there was a whole slew of ships that were coming on stream tremendous bulging in supply those coming on stream so once it became a big where that he realized that the trade was not buying shipping companies but being short he doesn't actually go short because he's always tried to have asymmetric return risks so he did that by buying long term puts on shipping companies and ironically this big idea that he had which he put on exactly to reverse fashion ended up being his best trait for the year again flexibility and of course maybe the most important way of being flexible is when you're in a position and you decide that you're wrong it's the ability to to get out and if you're really convinced you're wrong great traders will not only get out but will be have no problem flipping their position completely around yeah okay and I think that's this is probably a good segue into my next question which is are there any traders you've interviewed and that stand out whoo-hoo pretty much just broke all the rules and just did the complete opposite of what your quote-unquote supposed to yeah when it comes to jointer while you can think all the traders I ever viewed and did to my life you know successful traders I do to my life in any of the books that including ones I interviewed that didn't go into the books but only one stance completely alone completely removed from the whole crowd of other traders and there is a just use a cliche the exception that proves the role I don't know but the fellows a is a prop trader a stock trader by name of Jimmy Bala Dimas he is the last chapter of hedge fund market wizards now I should explain how I found how well let me tell you what pal Debus does you remember like a couple years ago where we had certain commodities going sort of vertical like silver which one had going straight up and then they got to 30 or 40 s and even though 50s but if you think about if you remember what that move was when it was almost like oak straight up vertically in those higher price levels well who is selling silver in that type of a market Jimmy Val Venis or cotton which had gone which had gone multiples of its prior record highs with the ending the last days of the rally being straight up like a cliff type of huge huge price moves who's selling that market you know in that vertical said that's Jimmy baladeva so he's taking trains where the markets are going berserk the other way and he's stepping in at going short that's the type of trading he does oh now I I kind of say my first line of that chapter was Jimmy balantine this breaks all the rules and my first or one of my first lines in a concluding paragraph I cannot completely paragraph concluding summary of that chapter is some some variation of don't try this at home I mean by boy I really don't want people to read that chapter and try to trade like palutena said I do draw some some aspects of his training that do have applicability but it's actually one particular aspect but I want to make clear that I really don't want people to by any stretch of imagination think that this is something they should try because the 999 out of a thousand people will go broke doing this I'll do by the way if I was listening to this myself and I heard something saying when I was I said not I could thank you no that can't be right I just I couldn't be successful to it at ease you know what you know these numbers can't be right and he's gonna blow up oh I don't know hey I guess II theoretically could blow up but as far as not being right he's been sort of one of the best traders at his firm now for many you know if I don't know 15 years plus oh and a way I know he makes millions every year or you know I guess I you know maybe in a bad year he he he comes close to breaking even but he's made it he's made a large amount the money are trading this way and for those who are skeptical wonder how how can I believe this is true particularly for a prop trader and people who are familiar proverbs no you can't get track records from a prop firm they just there's just no way of doing it oh because that's they just won't give out their numbers so how do I know that this is for real and he wasn't like pulling a fast one on me my son got a job as this trading assistant and one day speaking of he said dad you would believe this guy of rq-4 and of course be in the company knowing of his rep datian he knew what he also he he entered all his trades that he knew his numbers that so he knew he was for real and and that's the only reason I was able to put that chapter in the book cause otherwise I would have been too I woulda said nah this can't be right this guy asked does this this can't be true I would not have believed it myself but if I didn't have my own son for verification I would not believe that either so what but for those who are wondering how I could power that could possibly be true that's the answer yeah and I guess that kind of even though you said don't try this at home obviously for good reasons I guess it kind of highlights a point of her Jamaican sort of given talks and other interviews about how it's so important to find your own trading method and not necessarily try and mimic exactly what someone else is doing absolutely yeah and that's actually what I give talks myself if there's any point I emphasize probably more than anything else is what you just said you know that don't look for the trading seeker there is no trading secret look for the trading method that's right for you and it's not going to be the same for everybody so that's absolutely children that Bal Dimas approach would be wrong for almost everybody almost everybody it's right for him because his nature is he just is not happy unless he's going against the crowd he just always wants to be against the crowd and if he tried trading another way he probably wouldn't succeed because it so gets his nature it's not a good way he actually could and any interview people have people read that together to you they'll see I'm trying to say hey you know the by the way the reason he makes money our trading against the markets that way is not because he you necessary is great at picking tops and bottoms it's because he's constantly trading against his position so he's going for it the market comes back a little bit he's buying it back he's buying up you know he would do like three four or five hundred trades a day and he could be short like 500 stocks but something that whatever they did you know he's sure that they if they dip a bit he'll take partial or total profits and then put it back on so he's constantly taking profits out that way so that's what's really making his money and he succeeds even though he's against go to major trends it seemed clear to me that if he did the exact same thing just trading against the positions but went with the trend instead of against the trend he would be a lot he would be a lot better off but and I explicitly mention he he never really argued it or or could give any reason why that would be true but it was just against his nature he just had to be opposite the the wave of the market if there was a if there was a veining of any sort he had to be against it okay sure so i mean while we're on the topic of trading methods I mean you often hear people say keep it simple don't over complicate things you know simple works best so my question is did you notice amongst any of the traders you've spoken with and who were doing extremely well in the scheme of things that for the most part they do have a very simple approach or is there an aspect of complexity to their success I've seen both you know that's that's a type of trade or a factor that doesn't really there is no there is no proper one for this is a you know successful successful traders use simpler approaches successfully as use complicated but you know I've seen both but it's yet again going something like thorpey with all his approaches were highly quantitative hardly complex and it was their complexity I believe that not just complexity for the sake of complexity but complexity that was necessarily wolves so let me say that again complexity though is necessary to tease out the edge of the edge that he found or people like these show I get extra extremely complex approach I mean you're talking about trading virtually every market in the world the all sorts of derivatives outright markets all sorts of options thousands and thousands of instruments trading them all against each other with scores of models with teams of hundreds of PhDs yeah he knew you really can't get much more complicated oh and it's the complexity he's teasing out small well he's not actually actively true participate anymore he went off to pursue other endeavors particularly computational biochemistry but he he does he designed this whole process and and he was basically finding a lot of very very small ledges or that's what the approach does and it would not succeed without complexity so you have that as clear you have those examples for clear situations where you couldn't really be successful about that necessary complexity on the other hand you have other traders who who are not doing anything much more complicated than then reading charts but are particularly good at it and and use risk management and basically combine chart pattern recognition with risk management doesn't require PhD it does require some it does require a skill to be able to tell which patterns are more likely to result in a booth one way the other and it does require the skill to use the appropriate risk management but having those two properties it can be executed without really any great complexity so I think it ranges arranges across the board yeah and I mean I guess that just sort of comes back again and highlights your point about finding a training method that that meshes with your personality now something that is forever embedded into my memory after reading especially the new market Wizards was the necessity of having an edge so I'm interested to get your take on this what exactly is an edge like how do you define it and how do you know if you have one so first of all there are people who who was who misleadingly think that an edge is not absolutely necessary have a good good enough money management there's a fact as a famous Wall Street saying that goes something like even a poor system could make money with good money management now that's absolutely one of those ridiculous things that has ever been said besides not being true just absolutely stupid and the reasons it's stupid is for the same reason it would be stupid to think that you could go to Las Vegas and play roulette with a money management scheme and come out ahead no you can't come out ahead because the house has the edge you have a negative edge all you're going to do if you try to apply money management is is to guarantee that you lose in fact actually mud imagine the situation like that would be better all your money one time because that's that's your highest probability of winning so that the the best money management scheme is real betting it all at once which is really the opposite of money management so you can't be salvaged by money management now it says the money management is absolutely essential maybe more important than methodology but it's not enough you need have an edge so this gets down to okay so how do you know if you have an edge well it's not one of those things you can you can look up or find a rule or prove absolutely it's I guess you could see it in your equity if you show some consistency of making money without unduly large draw downs then over time you can begin to conclude that you have an edge if you are good at the markets people who are good at the markets another trait that does typify really good traders is they have a high level of confidence and that high level of confidence is impossible to have unless you're delusional unless you do have an edge so it's a type of thing you have to sort of feel and leave on your own it's not something that's definitively provable or anything like that it's just that if you're in that groove and if you're kind of making money with some consistencies and have control of your losses you get to the point where you feel that you have an edge and your equity your equity confirms that I mean you could feel that you have an edge and you're losing money that you don't think you're in solution all you know so but but if your equity curve is is reinforcing your what you're feeling and seeing and executing your approach then you can jump to the conclusion that you do have an edge but you need to have an action had an edge does not exist without a methodology I've never met anybody who has an edge that doesn't have a very specific manner for the holiday yeah that's really well said Jack and just four were on the subject talk to us about one of your pet peeves which you've labeled the well-chosen example I really liked what you sort of said about this in one of your books so would you mind explaining what is the well-chosen example and why should traders be aware yeah okay that goes back the very first time I wrote about that was back complete guide to the futures market so which was that in 84 and basically what I was seeing in the industry when I got into it was all you'd have all these ads for trading systems right and they would show you this trading sit then they have a chart and they would all that was like a perfect example would be like you would have a charge and I was a maybe a euro dollar market or something like that and and the the market would be you'd show all these cells and buys and the cells would be all the other highs and the bars will be all there the lows and it looks like oh I don't what an incredible system and it could actually be an actual system that gave us results but in that particular case would be a counter trend system that you kind of you you know there is a market that kept on having false breakouts of both sides and basically if you use a system that that sort of sold the breakouts Isetta boredom you did extremely well during that particular period of time so you have a system that looks like it's really performing very well puppet that particular example use the same approach in a trending market and you'd code you'd completely wipe out your Mar your account and actually you know the way that I recall now that you mention it I remember the thing that really drove this whole it was one day you know we had been working on trading systems I had a partner I was working with how and we develop these systems and spent some time on it or whatever and I would say they were complicated they weren't complex but they were not super simple systems and had some sophistication to it and then I read this article and it showed an example of I think was a Swiss franc it was and it showed it over a year to time and it made like thirty seven thousand dollars at very small draw downs and the signals were just great and then I ran our system and we didn't nowhere near as well yeah our system made money during that period but but no way there as well and I was kind of like this courage I did had the system that was described by the way whether it was a per magazine article right it was a very simple system that combined two moving averages that it sort of took something like a 20-day moving average and a 16 moving average and when they were both long you were long and whenever both short you were you were short that they disagreed you're neutral and I kind of you know knew that well I am we a test that said we know one of the early things things we did was test moving averages over you know different time periods just as a basic very simple approach and I knew that you know 20-day moving average load oh six stable the averages didn't work did not work well so how could how could the two of them work together where each one didn't work on its own I do that so we we ran the analysis the exact same system on a portfolio of maybe 30 markets and here's what we found no surprise the one marketed work best thought was the Swiss franc and no surprise the single year it work best on was the year an example so the author kind of found that one market for the one year with this particular approach work best now if you did the approach on the whole on our on our diversified portfolio if I recall correctly I think it's lost money about the one to one example look phenomenal and this this has happens all the time people write books they'll write books on charts and technical analysis all this stuff and I'll show you examples of how it worked when I did the complete guide and when I did the follow-up years later the the Schwager on future series I went out of my way to choose examples where things didn't work in fact that Oh a big section of the book where I took trades I was recommending as a you know in a subtractive futures research up and I took a whole segment of trades I'd recommend that as they were and some winners and some or losers that you know I face I didn't cherry-pick I just took them and I didn't try to make the winners more or losers I was just kind of demonstrating what what were the right choices what were the wrong choices and I went out of my way to show things that the work I went out of my way to actually point out when I did classical chart analysis that that these patterns will they have it's good to know that but it's good to know how they they work more often than not or how people expect them to work or how you could theoretically use them but also be clear that there's lots of times that they don't work out well and in fact what I call the most important rule and technical analysis is is it is actually a failure rule it's basically that when a chart pattern fails that is a signal in itself and it's a more important signal than when you get a chart pattern that seems to be confirmed so I always spent a lot of time making trying to make sure that people understood that don't just think anything because this example works don't jump to any conclusions you always have to test everything on a broad portfolio over a broad number of years and and but-but-but almost all books almost all articles don't do that they just take things that work and they allow the reader to jump to the conclusion that this thing is really the best thing invented and when it's really not yeah I'm really glad you'd sort of went into that and so much detail Jack I think it's a really important point but let's move this along a little bit so we came to hear a bit more about what you're working on these days I know you're keeping busy with fun cedar as well as been working on some indicators with trade shock but let's start with fun cedar so give us an overview of what this is all about and and how this platform is helping traders to improve ok so fun cedar I first want to give credit where credit is due I like to say was my idea wasn't my idea uh it was an idea of a colleague Manuel bellari who I was who I work with on a different project he at the time he was with a DM Festa services and I was actually our relationship started when I was told with fortune asset management which was a hedge fund advisory firm that got acquired uh but we continued to work together and in terms of constructing portfolios and I was an advisor for that project and these are portfolios of hedge funds in any case one day a manual said to me we were in a conference and the through they said I've had this idea tell me what you think of it and he was the fun cedar concept so this concept was and what the fun cedar current concept is is to create a web site be a web meeting place that would be the intermediary between between undiscovered traders primarily it doesn't have to get asked of trader but traders particularly undiscovered traders and investors looking for trading talent and they could and they could meet that the website you know sort of you could also think of fun sedar.com as a search engine for trading talent so that's the basic idea and very critically part of that idea is that you just don't do you just don't try to get traders to register your site and put them on and get their numbers opposed to a very very essential part of this concept is that you don't get the numbers from the traders you get the numbers directly from the broker so traders would register on the website and link their accounts to the website so therefore the numbers that would be collected on the website would be numbers coming directly for the brokers so it gives a much greater validity and sort of implicit verification in that process these are the both sites which will just take numbers that I provided so that was also an essential element and to to get traders to to take to the website the key is that you're gonna provide this verified track record and that won't make it easier much easier for traders who would have not a prayer in the world of attracting money let alone institutional money of being able to do so with their trading talent we in fact have unbelievably with the site's still pretty early on we're still in the early stages but even at this point we have literally over trainers registered from over a hundred countries I mean I I I found that astounding that thou I mean if I think it's astounding that this traders of a hundred countries but the fact that we vetti have have that many different countries represented and this is still very very early on we've only just recently expanded the site to go beyond the initial couple of brokers we were able to directly link with a few brokers and now we can link with virtually all major brokers but that just happened so this was even before that point so you take traders in some developing countries let's say or some Eastern European countries I'll take a trader I don't know anywhere it could be in the Ukraine or whatever who has a math degree and develops a trading system that's really good is he gonna have any chance of raising any money you know institutional money not a chance in the world but if he can get a small stake together and trade it that get the track record that's coming from the broker he can build up a track record that can then be used to attract attention so that's the basic concept now so far we've we've only done the trader side of it we had originally planned to have a trader Adam you decide together as one website and for regulatory reasons we decided to keep those separate that we would have we would right now we're just in the process of building the trader side and getting attracting as many hopefully talented traders who can worldwide to the site into building the track records that ultimately hoping to be the Leeside people go to the or or or that can be used to find trading talent and at this point there is no investor side because that's where our focus says we will later this year construct the investor side of that as a separate site which we will then populate with we will use traders from the trader side as sources as source as a source for the the investor side and you know the divest aside will will be through a registered company and which which will have all the appropriate regulatory compliance met and so forth so we're just taking care to do it that way but as far as traders are concerned while this site does not directly is not directly accessible by investors there will be we will be a one company that that holds both sites and and if there's trading talent that shows up on on the front cedar comm we're going to be using that site to find trading talent and hopefully in the future lead some of that trading town to connect that I would say connect some of that trading talent we have investors primarily basically now or maybe only institutional type investors looking to allocate money to undiscovered traders oh and I should add one thing the decide right now there is a curve platform that allows the last trades to do stuff that they really can't do on most normal platforms like get an equity curve and do analysis I think the equity curve we are our this is that was basically the first platform of music we we currently have at the development they we have a technology team doing a whole completely new platform that will have little literally 20 different trading tools including all sorts of graphics and analytics that one could perform on on one on ones trading record both the equity add trades themselves and will will allow and that will allow stuff like besides just equity charts or even underwater or other though allow charts say rolling charts of let's say rolling return charts or rolling Sharpe ratios already metric you want to choose will have tools that allow traders to create technical use technical tools let's say like a cross off moving average to apply to their equity curve so they can signal when their equity curve is Treach is starting to tread down so they could use that as a cautionary signal to to maybe take a second look at their trading or maybe cut back training or stop training or whatever so we'll have we'll add about the Colo simulations on and on and on now that do much more comprehensive and much better graphics website will come on stream probably some time to fall if people go to fun cedar calm and register then anytime we do anything new like we just did what we expanded the the accessibility through almost all major brokers which was a new thing we did that just the days ago we put out a newsletter so if you're registered and we do we have the new platform you'll be you'll be notified of that and and traders now as I say almost no matter who their brokers are can probably link to the site ok excellent I mean that sounds like a really good really good platform definitely can see how it's going to help a lot of traders out one thing I've got to ask is have you been surprised and maybe pleasantly shocked with some of the results and talent that have been produced by users of the soil well it's too new to to answer that question because you know when unfortunately track records materialize in real time and we're tracking from when now in some cases it depends it with some brokers like it director brokers I think they're a when they sign up their the back tracker gets get he gets imported and we do have some some good true traders that have done through that up but it depends on the broker and for a lot of brokers there's no past record that's very important so it just gets built in real time from the point of the registration or closed account linking in some cases is small about the data but for the most part for those traders we really have to wait for the track records to develop now I do fully I wouldn't be surprised I'm actually one of the things I do anticipate is they will we will find some really exceptional traders that are unknown to the world through this process by giving you know linking out on a global fashion like I say once you go out you're literally getting people from 100 plus countries you're going to be looking at people that no one else has looked at before and that combined with the idea that you only need a tiny tiny fraction of all traders to be really good to have a substantial number of excellent traders so I don't know how many traders there are well you know there's certainly there's certainly many millions maybe tens of millions across the world who knows but you only need a tiny fraction of those a fraction of 1% to be good to to really have a large number of good traders so doesn't have to be a large percentage so I fully expect that we will have some really good traders commanders process and in fact one of the things people will see with you go on the website is something this thing called market wizard search what the market is a search is is there is going to be some future book called undiscovered market Wizards and that those undiscovered market Wizards will be come from traders we we discovered through this website that a book ain't could happen this year next year it's gonna take a few years of kind of having this thing run and but at some future point when we feel we have or I feel I have enough traders identified through the site to seemed have been able to perform for enough time with enough consistency then there'll be this book called undiscovered bar quizzes so I'm expecting that to be happen and I would be surprised if we don't find enough traders to fill a book very cold I mean that's that's definitely something to look forward to so all the traders in that book you plan on sort of sourcing from funds yeah that's what that that's that's the plan that's the plan I I I guess I shouldn't be chiming if I find some of the SKA no traitor unknown traitor in a different way I guess I would rule out that they would go but my primary source for this book is going to be indeed the website that's the plan and uh you know I if I'm wrong there would be a book but I really have trouble believing that we that I won't find at least a volume of I'm sure I'll find more than that I think I will have bored enough people to be able to choose you know I a books worth of of what what I call a discovered market wizards yeah yeah no doubt I'm sure you will I'm sure you'll definitely find some so let's let's just change topics and speak a little bit about um that on the trade shock front I'm keen to hear about the indicators you've been working on there so tell us a little bit about maybe what trade shark is and the indicators you've been okay so trade shark is a short software company and not just because I I did a project with them but their chart software is really very good you can tailor your charts very precisely the way you want them ease it's intuitive it's uh it's it's it's a very very nice chart package and lots of indicators and including into quite a number of proprietary indicators that that's a matter of people find what works for them and so forth so I never I never endorse other you know indicators or anything else because even my own I wouldn't say or I don't make any guarantees about I'm tell you what they are and all that but so they it asked me to to do this project they want to be to create some indicators and they have had two other people that have created a Larry Williams I think Ralph fits and created some propriety and indicators for them and they asked me if I could be willing to do that and I said you know tell you the truth I'm I'm just not an indicated person I actually don't use indicators myself have not used them and while I've worked on systems I training systems that I'm fair about to work or training systems I've really never done indicators but I said let me think about it and I thought about it what I actually ended up doing was I realized that I'll assist the work that I had done could actually be transformed into indicators and so there was a project I'd done way back well I guess it was a least 24 over 25 years ago and I don't know what my partner to time Lewis look at who who was a real computer whiz that he he's always programmed everything I've done actually since the time we met he's always been the fellow has done the holy all the footwork all the programming and all the hard work you know and so anyway we have developed when I was are when I was at Prudential I had developed the SID house trading system and we had come up with certain systems that were putting out signals on all that so the idea was to use those systems with different parameters and and they those systems included both trend and some count the trend approaches and the idea was to create indicators that were composites of those you know using different inputs difficult system so to speak into a signal indicator so it is one one indicator that's called a trend the trend wait well the trend weights really a composite of different systems and this is also an overbought oversold indicator which is a composite of different counter-trend systems and there's a there's a there's one that's directional weight which basically adds the two together so you know if the trend wait if that markets trending trending trending in the trends sort of it reaches a maximum reading it stays there for a while or it's very high readings eventually the account the trend starts to build up and at some point if you if the directional which combines it to come back to zero or even reverse direction while the trend is full looks like it's running so that's a third tool and then is something called a dual tread which which basically takes which takes a tread weight and combines it with one of trade shock sown indicators which is a much shorter term indicator so my stuff tends to be more the indicators are really and I there I did a set of videos the videos are available for free at trade chart calm you could find them you could find the indicators there's a knot the indicators the video so the into videos are for free and you could look at them so this is all explained so there's one on each approach but and there's one called a dual trend or the dual trend takes a trend to trend wait which is which is intended to capture long term trends of the market that's what it does really well it's good at staying with trends and all that it has the same it has the effects of any trend approach which if you get a very choppy market it is going to lose money but on balance over the years the reason I took something for 25 years old so we could test it for the past 25 years I want to make sure that any internment it was you know something that had a significant edge working versus you know you know so that I could make the least confidently say that based upon 25 years plus empirical evidence there's a bunch better chance coming with it than against it oh so it was the board to be able to test something like that blind that's why I want to use something that was developed a long time ago and in any case that is combined with the trade Sharks another to HIV negate which is much shorter term and that's called a dual trend and I kind of like that because they're so different and that the dual trend will change very quick much more quickly but it also is does know we won't be anywhere near as good at riding trends and combining the two is kind of has nice properties so that's a forfeit proach so there are these approaches they're explained by the videos it's more they more inclined towards a systematic approach to markets and I also arranged them one of the key things I did was to make them to have them each have inputs that needed to be defined so there's not just one fixed way to use it you have to define a threshold threshold conditions for each of these indicators and is also you can choose something like an early exit an early reversal which are explained and by doing that you can turn these indicators into your own sort of approach which is very important because I I don't want to go counter to my own advice I always tell people don't just get a trading system and follow it I don't buy somebody else's trading system fellow because the odds are you're not going to last because as soon as it has a bad period in every system has a bad period you're gonna ban it because it's not yours so I've made these so that they can't be they can't be combined they can be used together they could be used you can vary each one and so two different users could develop completely different signals often the same indicators and that was critical because one of the essential points is that users need to make these two to choose the parameters that go with these approaches so that they fit the way they're comfortable trade in the markets and when you when you do anything one thing that's good about trade shock is that you can actually see like you could do stuff which I do in the videos is like anytime there's a buy signal it's shaded green any time so this sell signal that it's shaded red and it's neutral it's let's say yellow as an example well you could superimpose that on the price chart as a lightly shaded backgrounds and you can pull in the data of let's say last ten years and then you can walk through ten years of data using this particular approach and see exactly how the market did it's not fitting it to what it did you you could see you know had you done this ten years ago and theoretically you could have done this ten years ago can because it's based upon stuff that was evolved twenty-five years ago how it would have performed in a real sense you can get so users can get a real sense of how what one particular adaption of these indicators would actually work and can experiment and see very visually how where the buys themselves are coming in yeah yeah good one well I'll put a link to these videos in the show notes for this interview Adam and if you want to access the show notes just go to chat with traders comm Ford slash twenty seven and the links will be underneath the interview but I mean Jack we should probably start to wrap things up because we've been going on for a little while now but before we do this one last quest and I'm sure you have a ton of great quotes and one-liners which you've picked up over the years and it wouldn't be right to ask you what's your favorite but is there just one or two quotes that you would like to leave us with before we wrap okay that's an interesting question okay I'll give you two quotes I'll give you one quote from one of the people I interviewed and I'll give you one quote that's my own um so interview from the people I interviewed and this is the quote this is what I tell people if if someone said to me Jackie oh we want you to give your best trading advice we only got one there's one kind of a condition or constraint here you can only use Ted words so if I can only give advice in ten words right and this is the part I would use it has a quote from Bruce governor and the quote is no we are getting out before you get in and the quote that I would use and I guess I should just make explain why that's so important well for one thing it did sort of guarantees risk management and for the other thing is it is much more subtle and that subtlety is you're making a decision of where to get out of a trade before you get in means that you can make that decision with the benefit of complete objectivity anybody's been a trader will know that once you're in a position you lose objectivity so most people almost everyone will get into position then figure out worried about getting out some later point and but once are the position your your your your thinking gets clouded if you can decide that ahead of time as Bruce Cutler suggests then you are thinking from being much more objective and I believe a potentially successful frame of reference as far as my quoting myself there's the line I have sort of paraphrasing it and it goes to this idea of finding your own approach to market and the line is there's a million ways to make money in the markets unfortunately they're all very difficult to find but there are a million ways and and the point is don't worry about finding in one way there are lots of different ways but they're hard to find but there are lots of ways and only a very very small number of types of ways are are going to be right for you yeah both extremely great quotes Jack thanks so much for sharing those and thank you so much for coming on the show I appreciate that so it's a you know you you really did your homework on those questions and you did a really extremely can I've done quite enough interviews of the years and you did a really good job on touching on a lot of different subjects and and clearly doing your homework so I think that I appreciate that for from your side and I think the one the one drawback is that this broadcast is fought gas could end up something so long it may be you have to break it into two parts I don't know whatever yeah not that's great but before I'm and thank you very much for that I appreciate appreciate your feedback there before you go you want to share with listeners where they can go to find out more about you and stay in touch with what you are right okay so you know again the the main site you know that what the company involved is fun cedar calm I also have a Jack Swagger my name calm which I that you know no longer update put the stuff up there you know there's stuff up there you know interviews and articles and and links to books and stuff like that but the and and and the other side is part C telecom so those are the two sites I would direct people to okay good one well I'll put links to everything we've mentioned during the interviews that your books you'll saw on Twitter are usually the show notes yeah yep cool and links to fancy dough trade shark and yeah everything that's been mentioned just go to chat with traders comm ford slash 27 and you'll find everything there in the show notes a gain Jack thanks a lot for doing this take care and let's talk soon I was fine doing okay have a good one Erin thanks jack [Music] you've come to the end of this episode of chat with traders but don't worry more great episodes are on the way to stay updated with each great new episode be sure to subscribe to the podcast in iTunes and we'd love it if you leave us a rating and review we'll see you next time on chat with traders [Music] [Applause] [Music] [Applause] [Music]

Channel: Chat With Traders

Views: 186,497

Keywords: Jack Shwager, chat with traders, day trading, swing trading, position trading, trend following, stock trader, stock trading, future trading, forex trading, fx trading, equities, stocks, forex, options, futures, bonds, options trading, technical analysis, fundamental analysis, price action, tape reading, trading strategy, trader interview, stock market, finance, charts, trader, entrepreneur, interview, dividend, nasdaq, wall street, intraday, psychology, market wizards, jack schwager

Id: Ht-8dx0PGHA

Length: 96min 23sec (5783 seconds)

Published: Tue Feb 16 2016