This blog post is a continuation of the 15 trading tips that Jack Schwager shared during his market wizards seminar.
To read the first part of this blog which touched on the first 7 trading tips, please click on this link over here.
For the benefits of those who do not know him, Jack Schwager is the best-selling author of the ‘Market Wizards’ series of trading books, which have sold over a million copies worldwide.
Below is a continuation of what Jack Schwager shared in the seminar:
This part of his talk emphasized on the need to cut loss when you have to.
The single trait that makes most people fail as a trader is their lack of discipline in devising a trading plan and follow their trading plan.
Most average traders do not have the discipline to let their profit run when they should and also do not have the discipline to cut their losses short when they have to.
If you have a lack of discipline, you will definitely fail as a trader.
Jack Schwager commented that many retail traders like to ask around for tips and views, and also like to share their views about the market freely with their friends.
This kind of interaction result in a trader losing his independence in analysing the market in a way that suits his trading experience and personality.
Jack Schwager shared a true personal experience to illustrate this point:
Many years back, Jack’s friend approached him and asked him about his view about a certain currency pair.
Based on Jack’s usual analysis methodology, he told his friend that he thinks the currency is likely to depreciate further.
However, Jack’s friend insist that Jack is wrong and the currency should appreciate from there.
When the exchange was over, Jack had to travel for a business trip. Ironically, as a result of this interaction and views exchanged with his friend, Jack decided not to short this currency pair, “just in case” that his friend is right.
Guess what? When Jack Schwager returned from his trip, he realised that the currency pair which he was bearish about, actually did plunge a few hundred pips while he was away.
And when Jack and his “helpful friend” got back together one day, his friend told him that he had listened to Jack’s advice and short the currency pair and made a big pile of profits from that trade.
“When two best traders comes to trade together, they will both lose money in the end”.
This was one of the painful lesson that Jack Schwager learned personally and this experience was also related in his book.
This is another important trait that Jack noticed in all of the market wizards that he interviewed.
Many of the market wizards actually had multiple terrible failures as an amateur trade in their early days.
Most average traders would have simply given up on trading after experiencing a few rounds of negative experiences as a money losing trader.
However, one trait that differentiates these top traders from average traders was that they had absolute belief in their abilities to make things right in the end.
They persisted in honing their trading skills despite multiple failures because they had the kind of confidence in themselves, which average people do not have.
They were confident enough to try and try and try again until they made it in the end.
11) Losing is part of the game
This was a fact as concurred by all the market wizards; that you have to accept that losing is part of the game.
Very often, amateur traders often held their ego as high as the moon in the sky.
When a position an average trader puts on, starts to turn into paper losses, he will continue to hold on to that trade.
He is hoping that the market will reverse back in his anticipated direction and prove him right that his analysis was the right one.
But when the market continues to go against his direction (it usually does), the average trader will lose all his rationality about his capital bleeding away and the opportunity costs he is constantly incurring by holding on to a losing trade.
All he cares about is wanting to be proved that his original analysis was right. Finally, when he realises that he was wrong, it was already too late and he has to cut his trade with a huge loss.
As such, Jack Schwager believes that accepting losses as part of the game is a vital mind-set that a good trader must have.
When a trader has this belief built into his mind, he will be able to take his small losses decisively and with a pinch of salt and.
However, there is an even bigger picture to this point according to Jack.
The reality is that every good trading system and strategy will have a period of time when it wouldn’t work and result in frequent losses.
If a trader is not able to accept this and continue to stick to his system during these down periods, he will not be present to continue using that system when the much better and good times comes back subsequently.
12) Patience is gold
Patience is another key attribute that Jack Schwager had observed of the top traders.
He provided a quote by Jim Rogers to explain this point:
“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.”
It is true that you need to have patience to be a successful trader or investor.
Whether you trade short term or long term, there will be times when the market is not conducive for making trades.
If you can have the patience to do nothing when the market is giving nothing, then you are already way ahead of most amateur traders.
Jack also used a quote by Jesse Livermore to explain further:
“”There is the plain fool who does the wrong thing at all times anywhere, but there is the Wall Street fool who thinks he must trade all the time.”
13) The importance of sitting still
This point is a bit similar to the earlier point, except that this point is more applicable to those open trades that you are already in.
There is a tendency by traders to want to take quick profits once there are any to be taken.
And Jack used this quote by Jesse Livermore to illustrate this point:
“It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!”
According to Jesse Livermore, the best chance to reap big profits is to learn how to let the stock price run its full course.
When the stock is still going in the direction of your trade, then you need to have the discipline to hold on to your chair and sit tight with your position.
Get out only after the stock has shown signs of starting to turn against you.
14) Loyalty is a disaster
Jack Schwager said that a good trader should not have any loyalty to any stocks that he is in.
A stock is merely a tool to make money from and if any trader starts to become too loyal to his position or to the stock that he owns, he will not do the right thing (which is to cut the position), when bad things happen.
To illustrate this point, Jack shared a quote by Jesse Livermore again:
“As I said before, a man does not have to marry one side of the market until death do them part.”
A stock or a trade position is not your wife, neither is your friend. If it is not working out for you and making you money, never hesitate to dump that position.
15) The comfort thing
This was a very enlightening point that Jack brought out.
According to him, we as human are designed so poorly to trade, such that when an average human make a trading decision, his chances of winning is less than a random chance.
What is the reason for this?
Jack carried on to explain that for most average people, it is a natural human instinct to seek comfort in the way they go about doing their daily work.
As such, it is also naturally for you to make trading decisions that gives you comfort but not profits.
Some examples that I can personally think of is:
1) Dollar averaging down on a stock as it becomes cheaper and cheaper is a form of comfort.
2) Not willing to take a loss is a form of seeking comfort as well.
3) Choosing to quickly take small profits is a form of comfort seeking as well.
As a conclusion, Jack said that they market do not pay you to do comfortable things.
And top traders always have to make trading decisions that are contrarian and uncomfortable to the average trader.
Maybe, that is why they are successful in the first place.
— Jack Schwager With Philip Teo —
In conclusion – what has Jack Schwager taught you?
It is clear that if you wish to become one of those top market wizards or to be half as good as they are, it takes much more effort than just reading a book or putting on a trade.
You will need years of experience before an you can blossom into a proficient trader.
On top of that, being hardworking for a number of years is not good enough as well.
What is the point if you try to hone your trading skills with the wrong concepts of trading?
The 15 trading tips that Jack Schwager shared in his Market Wizards seminar, is frankly the most important foundation that a budding trader should have.
It is with this foundation, that you as a promising trader, learn and apply all the right strategies that helps you become the type of profitable trader that you want to be.
I hope these foundations that Jack shared will serve you well on your journey to become a great trader.
Before you go, please comment below which of the trading tips he shared is the most enlightening for you.
Meanwhile, I wish you the very best in your journey to become one of the market wizards!