By Ee Hsin Kok. Edited by Arjun Chandrasekar.
The Market Wizards is a classic trading book written by Jack D. Schwager and published back in 1989. It features a series of interviews that takes you through the minds of the 16 greatest traders in the world. In this article, we summarize some of the timeless key lessons taught through this collection of interviews.
Lesson 1: Discipline is key.
The key trait shared by every single trader interviewed was discipline. The traders all acknowledged that the key to winning was to develop an effective strategy, but to stick to that plan regardless of what happens was the most crucial part to their success. As Jack Schwager puts it, “No matter how sound the trading strategy, its success will depend on this execution phase, which requires absolute discipline.”
Lesson 2: Trading should be Personalized
Throughout all 16 interviews, there was another similarity, or rather, a lack of one, that appeared between all the traders, and it was that they all had different trading methodologies. Richard Dennis for example, was a big trend trader unafraid to double down on bets and sustain large drawdowns; while others, like Mark Cook, were far more conservative and afraid of drawdowns. No matter how great a strategy is, as mentioned above, the key is in its execution. If the strategy doesn’t fit you, you’re not going to have the discipline to execute it properly, and you won’t see results.
Lesson 3: Manage Your Risk
According to each of the traders, risk management was another crucial role to their success. Many of the traders had to learn the hard way because they wiped out their first accounts. In fact, many of them attributed the experience of losing everything, as a major factor to their success. As Mark Minervini puts it, “I think people spend too much time trying to discover great entry strategies and not enough time on money management.” If you want to learn more about risk management, you can check our article on it here.
Lesson 4: Don’t Be Afraid Of Risk
Now this may seem contrary to the point made above, but it really isn’t. Learning to manage risk, and learning to NOT be afraid of risk, are two entirely different things. Risk management is there in order to keep your account safe in the event of a losing streak or an unexpected event. If anything it encourages risk taking, because you can do so without the fear that a few bad calls will wipe out your portfolio. A trader who takes risks without proper risk management will eventually go broke; while a trader who has proper risk management but is afraid of risks, will only breakeven. To make money consistently, you need both.