Resumo "the new market wizards - jack schwager"

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1. FIRST THINGS FIRST
First, be sure that you really want to trade. As both Krausz and Faulkner confirmed, based on their
experience in working with traders, it is common for people who think they want to trade to discover
that they really don't.

2. EXAMINE YOUR MOTIVES
Think about why you really want to trade. If you want to trade for the excitement, you might be better off
riding a roller coaster or taking up hang gliding. In my own case, I found that the underlying motive for
trading was serenity or peace of mind-hardly the emotional state typical of trading. Another personal motive
for trading was that I loved puzzle solving-and the markets provided the ultimate puzzle. However, while I
enjoyed the cerebral aspects of market analysis, I didn't particularly like the visceral characteristics of trading
itself. The contrast between my motives and the activity resulted in very obvious conflicts. You need to
examine your own motives very carefully for any such conflicts. The market is a stem master. You need to do
almost everything right to win. If parts of you are pulling in opposite directions, the game is lost before you
start.
How did I resolve my own conflict? I decided to focus completely on mechanical trading approaches in
order to eliminate the emotionality in trading. Equally important, focusing on the design of mechanical
systems directed my energies to the part of trading I did enjoy-the puzzle-solving aspects. Although I had
devoted some energy to mechanical systems for these reasons for a number of years, I eventually came to
the realization that I wanted to move in this direction exclusively. (This is not intended as an advocacy for
mechanical systems over human-decision-oriented approaches. I am only providing a personal example. The
appropriate answer for another trader could well be very different.)

3. MATCH THE TRADING METHOD TO YOUR PERSONALITY
It is critical to choose a method that is consistent with your own personality and comfort level. If you can't
stand to give back significant profits, then a long-term trend-following approach-even a very good one-will be
a disaster, because you will never be able to follow it. If you don't want to watch the quote screen all day (or
can't), don't try a day-trading method. If you can't stand the emotional strain of making trading decisions,
then try to develop a mechanical system for trading the markets. The approach you use must be right for
you; it must feel comfortable. The importance of this cannot be overemphasized. Remember Randy McKay's
assertion: "Virtually every successful trader I know ultimately ended up with a trading style suited to his personality."
Incidentally, the mismatch of trading style and personality is one of the key reasons why purchased
trading systems rarely make profits for those who buy them, even if the system is a good one. While the
odds of getting a winning system are small-certainly less than 50/50-the odds of getting a system that fits
your personality are smaller still. I'U leave it to your imagination to decide on the odds of buying a profitable/
moderate risk system and using it effectively.

4. IT IS ABSOLUTELY NECESSARY TO HAVE AN EDGE
You can't win without an edge, even with the world's greatest discipline and money management skills. If
you could, then it would be possible to win at roulette (over the long run) using perfect discipline and risk
control. Of course, that is an impossible task because of the laws of probability. If you don't have an edge, all
that money management and discipline will do for you is to guarantee that you will gradually bleed to death.
Incidentally, if you don't know what your edge is, you don't have one.

5. DERIVE A METHOD
To have an edge, you must have a method. The type of method is irrelevant. Some of the supertraders
are pure fundamentalists; some are pure technicians; and some are hybrids. Even within each group, there
are tremendous variations. For example, within the group of technicians, there are tape readers (or their
modem-day equivalent-screen watchers), chartists, mechanical system traders, EIliott Wave analysts, Gann
analysts, and so on. The type of method is not important, but having one is critical-and, of course, the
method must have an edge.

6. DEVELOPING A METHOD IS HARD WORK
Shortcuts rarely lead to trading success. Developing your own approach requires research, observation,
and thought. Expect the process to take lots of time and hard work. Expect many dead ends and multiple failures
before you find a successful trading approach that is right for you. Remember that you are playing
against tens of thousands of professionals. Why should you be any better? If it were that easy, there would
be a lot more millionaire traders.

7. SKILL VERSUS HARD WORK
Is trading success dependent on innate skills? Or is hard work sufficient? There is no question in my mmd
that many of the supertraders have a special talent for trading. Marathon running provides an appropriate
analogy. Virtually anyone can run a marathon, given sufficient commitment and hard work. Yet, regardless of
the effort and desire, only a small fraction of the population will ever be able to run a 2:12 marathon.
Similarly, anyone can learn to play a musical instrument. But again, regardless of work and dedication, only a
handful of individuals possess the natural talent to become concert soloists. The general rule is that
exceptional performance requires both natural talent and hard work to realize its potential. If the innate skill
is lacking, hard work may provide proficiency, but not excellence.
In my opinion, the same principles apply to trading. Virtually anyone can become a net profitable
trader, but only a few have the inborn talent to become supertraders. For this reason, it may be possible to
teach trading success, but only up to a point. Be realistic in your goals.

8. GOOD TRADING SHOULD BE EFFORTLESS
Wait a minute. Didn't I just list hard work as an ingredient to successful trading? How can good trading
require hard work and yet be effortless?
There is no contradiction. Hard work refers to the preparatory process-the research and observation
necessary to become a good trader-not to the trading itself. In this respect, hard work is associated with such
qualities as vision, creativity, persistence, drive, desire, and commitment. Hard work certainly does not mean
that the process of trading itself should be filled with exertion. It certainly does not imply struggling with or
fighting against the markets. On the contrary, the more effortless and natural the trading process, the better
the chances for success. As the anonymous trader in Zen and the Art of Trading put it, "In trading, just as in
archery, whenever there is effort, force, straining, struggling, or trying, it's wrong. You're out of sync; you're
out of harmony with the market. The perfect trade is one that requires no effort."
Visualize a world-class distance runner, clicking off mile after mile at a five-minute pace. Now picture an
out-of-shape, 250-pound couch potato trying to run a mile at a ten-minute pace. The professional runner
glides along gracefully-almost effortlessly-despite the long distance and fast pace. The out-of-shape runner,
however, is likely to struggle, huffing and puffing like a Yugo going up a 1 percent grade. Who is putting in
more work and effort? Who is more successful? Of course, the world-class runner puts in his hard work
during training, and this prior effort and commitment are essential to his success.

9. MONEY MANAGEMENT AND RISK CONTROL
Almost every person I interviewed felt that money management was even more important than the
trading method. Many potentially successful systems or trading approaches have led to disaster because the
trader applying the strategy lacked a method of controlling risk. You don't have to be a mathematician or
understand portfolio theory to manage risk. Risk control can be as easy as the following three-step approach:
1. Never risk more than 1 to 2 percent of your capital on any trade. (Depending on your approach, a
modestly higher number might still be reasonable. However, I would strongly advise against anything over 5
percent.)
2. Predetermine your exit point before you get into a trade. Many of the traders I interviewed cited exactly
this rule.
3. If you lose a certain predetermined amount of your starting capital (e.g., 10 percent to 20 percent),
take a breather, analyze what went wrong, and wait until you feel confident and have a high-probability idea
before you begin trading again. For traders with large accounts, trading very small is a reasonable alternative
to a complete trading hiatus. The strategy of cutting trading size down sharply during losing streaks is one
mentioned by many of the traders interviewed.

10. THE TRADING PLAN
Trying to win in the markets without a trading plan is like trying to build a house without blueprints-costly
(and avoidable) mistakes are virtually inevitable. A trading plan simply requires combining a personal trading
method with specific money management and trade entry rules. Krausz considers the absence of a trading
plan the root of all the
principal difficulties traders encounter in the markets. Driehaus stresses that a trading plan should reflect
a personal core philosophy. He explains that without a core philosophy, you are not going to be able to hold
on to your positions or stick with your trading plan during really difficult times.

11. DISCIPLINE
Discipline was probably the most frequent word used by the exceptional traders that I interviewed. Often,
it was mentioned in an almost apologetic tone: "I know you've heard this a million times before, but believe
me, it's really important."
There are two basic reasons why discipline is critical. First, it is a prerequisite for maintaining effective risk
control. Second, you need discipline to apply your method without second-guessing and choosing which
trades to take. I guarantee that you will almost always pick the wrong ones. Why? Because you will tend to
pick the comfortable trades, and as Eckhardt explained, "What feels good is often the wrong thing to do."
As a final word on this subject, remember that you are never immune to bad trading habits-the best you
can do is to keep them latent. As soon as you get lazy or sloppy, they will return.

12. UNDERSTAND THAT YOU ARE RESPONSIBLE
Whether you win or lose, you are responsible for your own results. Even if you lost on your broker's tip, an
advisory service recommendation, or a bad signal from the system you bought, you are responsible because
you made the decision to listen and act. I have never met a successful trader who blamed others for his
losses.

13. THE NEED FOR INDEPENDENCE
You need to do your own thinking. Don't get caught up in mass hysteria. As Ed Seykota pointed out, by
the time a story is making the cover of the national periodicals, the trend is probably near an end.
Independence also means making your own trading decisions. Never listen to other opinions. Even if it
occasionally helps on a trade or two, listening to others invariably seems to end up costing you money-not to
mention confusing your own market view. As Michael Marcus stated in Market Wizards, "You need to follow
your own light. If you combine two traders, you will get the worst of each."
A related personal anecdote concerns another trader I interviewed in Market Wizards. Although he could
trade better than I if he were blindfolded and placed in a trunk at the bottom of a pool, he still was interested
in my view of the markets. One day he called and asked, "What do you think of the yen?"
The yen was one of the few markets about which I had a strong opinion at the time. It had formed a
particular chart pattern that made me very bearish. "I think the yen is going straight down, and I'm short," I
replied.
He preceded to give me fifty-one reasons why the yen was oversold and due for a rally. After he hung up,
I thought: "I'm leaving on a business trip tomorrow. My trading has not been going very well during the last
few weeks. The short yen trade is one of the only positions in my account. Do I really want to fade one of the
world's best traders given these considerations?" I decided to close out the trade.
By the time I returned from my trip several days later, the yen had fallen 150 points. As luck would have
it, that afternoon the same trader called. When the conversation rolled around to the yen, I couldn't resist
asking, "By the way, are you still long the yen?" "Oh no," he replied, "I'm short."
The point is not that this trader was trying to mislead me. On the contrary, he firmly believed each market
opinion at the time he expressed it. However, his timing was good enough so that he probably made money
on both sides of the trade. In contrast, I ended up with nothing, even though I had the original move pegged
exactly right. The moral is that even advice from a much better trader can lead to detrimental results.

14. CONFIDENCE
An unwavering confidence in their ability to continue to win in the markets was a nearly universal
characteristic among the traders I interviewed. Dr. Van Tharp, a psychologist who has done a great deal of
research on traders and was interviewed in Market Wizards, claims that one of the basic traits of winning
traders is that they believe "they've won the game before the start."

15. LOSING IS PART OF THE GAME
The great traders fully realize that losing is an intrinsic element in the game of trading. This attitude
seems linked to confidence. Because exceptional traders are confident that they will win over the long run,
individual losing trades no longer seem horrible; they simply appear inevitable-which is what they are. As
Linda Raschke explained, "It never bothered me to lose, because I always knew that I would make it right
back."
There is no more certain recipe for losing than having a fear of losing. If you can't stand taking losses, you
will either end up taking large losses or missing great trading opportunities-either flaw is sufficient to sink
any chance for success.

16. LACK OF CONFIDENCE AND TIME-OUTS
Trade only when you feel confident and optimistic. I have often heard traders say: "I just can't seem to do
anything right." Or, "I bet I get stopped out right near the low again." If you find yourself thinking in such
negative terms, it is a sure sign that it is time to take a break from trading. Get back into trading slowly.
Think of trading as a cold ocean. Test the water before plunging in.

17. THE URGE TO SEEK ADVICE
The urge to seek advice betrays a lack of confidence. As Linda Raschke said, "If you ever find yourself
tempted to seek out someone else's opinion on a trade, that's usually a sure sign that you should get out of
your position."

18. THE VIRTUE OF PATIENCE
Waiting for the right opportunity increases the probability of success. You don't always have to be in the
market. As Edwin Lefevre put it in his classic Reminiscences of a Stock Operator, "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."
One of the more colorful descriptions of patience in trading was offered by Jim Rogers in Market Wizards:
"I just wait until there is money lying in the comer, and all I have to do is go over there and pick it up." In
other words, until he is so sure of a trade that it seems as easy as picking money off the floor, he does
nothing.
Mark Weinstein (also interviewed in Market Wizards) provided the following apt analogy: "Although the
cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is
absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for Just the right moment. It
will wait for a baby antelope, and not Just any baby antelope, but preferably one that is also sick or lame.
Only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of
professional trading."
As a final bit of advice on the subject of patience, guard particularly against being overeager to trade in
order to win back prior losses. Vengeance trading is a sure recipe for failure.

19. THE IMPORTANCE OF SITTING
Patience is important not only in waiting for the right trades, but also in staying with trades that are
working. The failure to adequately profit from correct trades is a key profit-limiting factor. Quoting again from
Lefevre in Reminiscences, "It never was my thinking that made big money for me. It was always my sitting.
Got that? My sitting tight!" Also, recall Eckhardt's comment on the subject: "One common adage ... that is
completely wrongheaded is: You can't go broke taking profits. That's precisely how many traders do go
broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits."

20. DEVELOPING A LOW-RISK IDEA
One of the exercises Dr. Van Tharp uses in his seminars is having the participants take the time to write
down their ideas on low-risk trades.
The merit of a low-risk idea is that it combines two essential elements:
patience (because only a small portion of ideas will qualify) and risk control (inherent in the definition).
Taking the time to think through low-risk strategies is a useful exercise for all traders. The specific ideas will
vary greatly from trader to trader, depending on the markets traded and methodologies used. At the seminar
I attended, the participants came up with a long list of descriptions of low-risk ideas. As one example: a trade
in which the market movement required to provide convincing proof that you are wrong is small. Although it
had nothing to do with trading, my personal favorite of the low-risk ideas mentioned was: "Open a doughnut
shop next door to a police station."

21. THE IMPORTANCE OF VARYING BET SIZE
All traders who win consistently over the long mn have an edge. However, that edge may vary
significantly from trade to trade. It can be mathematically demonstrated that in any wager game with varying
probabilities, winnings are maximized by adjusting the bet size in accordance with the perceived chance for a
successful outcome. Optimal blackjack betting strategy provides a perfect illustration of this concept (see Hull
chapter).
If the trader has some idea as to which trades have a greater edge- say, for example, based on a higher
confidence level (assuming that is a reliable indicator)-then it makes sense to be more aggressive in these
situations. As Druckenmiller expresses it, "The way to build [superior] long-term returns is through
preservation of capital and home runs.... When you have tremendous conviction on a trade, you have to go
for the jugular. It takes courage to be a pig." For a number of Market Wizards, keen judgment as to when to
really step on the accelerator and the courage to do so have been instrumental to their achieving exceptional
(as opposed to merely good) returns.
Some of the traders interviewed mentioned that they varied their trading size in accordance with how they
were doing. For example, McKay indicated that it was not uncommon for him to vary his position size by as
much as a factor of one hundred to one. He finds this approach helps him reduce risk during losing periods
while enhancing profits during the winning periods.

22. SCALING IN AND OUT OF TRADES
You don't have to get in or out of a position all at once. Scaling in and out of positions provides the
flexibility of fine-tuning trades and broadens the set of alternative choices. Most traders sacrifice this
flexibility without a second thought because of the innate human desire to be completely right. (By definition,
a scaling approach means that some portions of a trade will be entered or exited at worse prices than other
portions.) As one example of the potential benefits of scaling, Lip-schutz noted that it has enabled him to
stay with long-term winners much longer than he has seen most traders stay with their positions.

23. BEING RIGHT IS MORE IMPORTANT THAN BEING A GENIUS
I think one reason why so many people try to pick tops and bottoms is that they want to prove to the
world how smart they are. Think about winning rather than being a hero. Forget trying to judge trading
success by how close you can come to picking major tops and bottoms, but rather by how well you can pick
individual trades with merit based on favorable risk/return situations and a good percentage of winners. Go
for consistency on a trade-to-trade basis, not perfect trades.

24. DON'T WORRY ABOUT LOOKING STUPID
Last week you told everyone at the office, "My analysis has just given me a great buy signal in the S&P.
The market is going to a new high." Now as you examine the market action since then, something appears to
be wrong. Instead of rallying, the market is breaking down. Your gut tells you that the market is vulnerable.
Whether you realize it or not, your announced prognostications are going to color your objectivity. Why?
Because you don't want to look stupid after telling the world that the market was going to a new high.
Consequently, you are likely to view the market's action in the most favorable light possible. "The market
isn't breaking down, it's just a pullback to knock out the weak longs." As a result of this type of
rationalization, you end up holding a losing position far too long. There is an easy solution to this problem:
Don't talk about your position.
What if your job requires talking about your market opinions (as mine does)? Here the rule is: Whenever
you start worrying about contradicting your previous opinion, view that concern as reinforcement to reverse
your market stance. As a personal example, m early 1991 I came to the conclusion that the dollar had
formed a major bottom. I specifically remember one talk in which an audience member asked me about my
outlook for currencies. I responded by boldly predicting that the dollar would head higher for years.
Several months later, when the dollar surrendered the entire gain it had realized following the news of the
August 1991 Soviet coup before the coup's failure was confirmed, I sensed that something was wrong. I
recalled my many predictions over the preceding months in which I had stated that the dollar would go up for
years. The discomfort and embarrassment I felt about these previous forecasts told me it was time to change
my opinion.
In my earlier years in the business, I invariably tried to rationalize my original market opinion in such
situations. I was burned enough times that I eventually learned a lesson. In the above example, the abandonment
of my original projection was fortunate, because the dollar collapsed in the ensuing months.

25. SOMETIMES ACTION IS MORE IMPORTANT THAN PRUDENCE
Waiting for a price correction to enter the market may sound prudent, but it is often the wrong thing to
do. When your analysis, methodology, or gut tells you to get into a trade at the market instead of waiting for
a correction-do so. Caution against the influence of knowing that you could have gotten in at a better price in
recent sessions, particularly in those situations when the market witnesses a sudden, large move (often due
to an important surprise news item). If you don't feel the market is going to correct, that consideration is
irrelevant. These types of trades often work because they are so hard to do. As a perfect example, recall the
willingness of the trader in Lipschutz's group to aggressively sell the dollar into a collapsing market following
the G-7 meeting. Another example of this principle is Driehaus's willingness to buy a stock heavily after it is
already up very sharply on a bullish earnings report if he feels the new information implies the stock will go
still higher.

26. CATCHING PART OF THE MOVE IS JUST FINE
Just because you missed the first major portion of a new trend, don't let that keep you from trading with
that trend (as long as you can define a reasonable stop-loss point). Recall McKay's observation that the
easiest part of a trend is the middle portion, which implies always missing part of the trend prior to entry.

27. MAXIMIZE GAINS, NOT THE NUMBER OF WINS
Eckhardt explains that human nature does not operate to maximize gain but rather the chance of a gain.
The problem with this is that it implies a lack of focus on the magnitudes of gains (and losses)-a flaw that
leads to nonoptimal performance results. Eckhardt bluntly concludes: "The success rate of trades is the least
important performance statistic and may even be inversely related to performance." Yass echoes a similar
theme: "The basic concept that applies to both poker and option trading is that the primary object is not
winning the most hands, but rather maximizing your gains."

28. LEARN TO BE DISLOYAL
Loyalty may be a virtue in family, friends, and pets, but it is a fatal flaw for a trader. Never have loyalty to
a position. The novice trader will have lots of loyalty to his original position. He will ignore signs that he is on
the wrong side of the market, riding his trade into a large loss while hoping for the best. The more
experienced trader, having learned the importance of money management, will exit quickly once it is
apparent he has made a bad trade. However, the truly skilled trader will be able to do a ISO-degree turn,
reversing his position at a loss if market behavior points to such a course of action. Recall Dmckenmiller's illtimed
reversal from short to long on the very day before the October 19, 1987 crash. His ability to quickly
recognize his error and, more important, to unhesitatingly act on that realization by reversing back to short
at a large loss helped transform a potentially disastrous month into a net profitable one.

29. PULL OUT PARTIAL PROFITS
Pull a portion of winnings out of the market to prevent trading discipline from deteriorating into
complacency. It is far too easy to rationalize overtrading and procrastination in liquidating losing trades by
saying, "It's only profits." Profits withdrawn from an account are much more likely to be viewed as real
money.

30. HOPE IS A FOUR-LETTER WORD
Hope is a dirty word for a trader, not only in regards to procrastinating in a losing position, hoping the
market will come back, but also in terms of hoping for a reaction that will allow for a better entry in a missed
trade. If such trades are good, the hoped-for reaction will not materialize until it is too late. Often the only
way to enter such trades is to do so as soon as a reasonable stop-loss point can be identified.

31. DON'T DO THE COMFORTABLE THING
Eckhardt offers the rather provocative proposition that the human tendency to select comfortable choices
will lead most people to experience worse than random results. In effect, he is saying that natural human
traits lead to such poor trading decisions that most people would be better off flipping coins or throwing
darts. Some of the examples Eckhardt cites of the comfortable choices people tend to make that run counter
to sound trading principles include: gambling with losses, locking in sure winners, selling on strength and
buying on weakness, and designing (or buying) trading systems that have been overfitted to past price
behavior. The implied message to the trader is: Do what is right, not what feels comfortable.

32. YOU CAN'T WIN IF YOU HAVE TO WIN
There is an old Wall Street adage: "Scared money never wins." The reason is quite simple: If you are
risking money you can't afford to lose, all the emotional pitfalls of trading will be magnified. Druckenmiller's
"betting the ranch" on one trade, in a last-ditch effort to save his firm, is a perfect example of the above
aphorism. Even though he came within one week of picking the absolute bottom in the T-bill market, he still
lost all his money. The need to win fosters trading errors (e.g., excessive leverage and a lack of planning in
the example just cited). The market seldom tolerates the carelessness associated with trades bom of
desperation.

33. THINK TWICE WHEN THE MARKET LETS YOU OFF THE HOOK EASILY
Don't be too eager to get out of a position you have been worried at>out if the market allows you to exit
at a much better price than anticipated. If you had been worried about an adverse overnight (or over-theweekend)
price move because of a news event or a technical price failure on the previous close, it is likely
that many other traders shared this concern. The fact that the market does not follow through much on these
fears strongly suggests that there must be some very powerful underlying forces in favor of the direction of
the original position. This concept, which was first proposed by Marty Schwartz in Market Wizards, was
illustrated in this volume by the manner in which Lipschutz exited the one trade he admitted had scared him.
In that instance, he held an enormous short dollar position in the midst of a strongly rallying market and had
to wait for the Tokyo opening to find sufficient liquidity to exit his position. When the dollar opened weaker
than expected in Tokyo, he didn't just dump his position m relief; rather, his trader's instincts told him to
delay liquidation-a decision that resulted in a far better exit price.

34. A MIND IS A TERRIBLE THING TO CLOSE
Open-mindedness seems to be a common trait among those who excel at trading. For example, Blake's
entry into trading was actually an attempt to demonstrate to a friend that prices were random. When he
realized he was wrong, he became a trader. Driehaus says that the mind is like a parachute; it's good only
when it's open.

35. THE MARKETS ARE AN EXPENSIVE PLACE TOLOOKFOR EXCITEMENT
Excitement has a lot to do with the image of trading but nothing to do with success in trading (except in
an inverse sense). In Market Wizards, Larry Hite described his conversation with a friend who couldn't understand
his absolute adherence to a computerized trading system. His friend asked, "Larry, how can you trade
the way you do. Isn't it boring?" Larry replied, "I don't trade for excitement; I trade to win." This passage
came to mind when Faulkner described the trader who blew out because he found it too boring to be trading
in the way that produced profits.

36. THE CALM STATE OF A TRADER
If there is an emotional state associated with successful trading, it is the antithesis of excitement. Based
on his observations, Faulkner stated that exceptional traders are able to remain calm and detached
regardless of what the markets are doing. He describes Peter Steidlmayer's response to a position that is
going against him as being typified by the thought, "Hmmm, look at that." Basso also talks directly about the
benefits of a detached perspective in trading: "If instead of saying, 'I'm going to do this trade,' you say, 'I'm
going to watch myself do this trade,' alt of a sudden you find that the process is a lot easier."

37. IDENTIFY AND ELIMINATE STRESS
Stress in trading is a sign that something is wrong. If you feel stress, think about the cause, and then act
to eliminate the problem. For example, let's say you determine that the greatest source of stress is indecision
in getting out of a losing position. One way to solve this problem is simply to enter a protective stop order
every time you put on a position.
I will give you a personal example. One of the elements of my job is providing trading recommendations
to brokers in my company. This task is very similar to trading, and, having done both, I believe it's actually
more difficult than trading. At one point, after years of net profitable recommendations, I hit a bad streak. I
just couldn't do anything right. When I was right about the direction of the market, my buy recommendation
was just a bit too low (or my sell price too high). When I got in and the direction was right, I got stopped
out-frequently within a few ticks of the extreme of the reaction.
I responded by developing a range of computerized trading programs and technical indicators, thereby
widely diversifying the trading advice I provided to the firm. I still made my day-to-day subjective calls on
the market, but everything was no longer riding on the accuracy of these recommendations. By widely
diversifying the trading-related advice and information, and transferring much of this load to mechanical
approaches, I was able to greatly diminish a source of persona] siress-and improve the quality of the
research product in the process.

38. PAY ATTENTION TO INTUITION
As I see it, intuition is simply experience that resides in the subconscious mind. The objectivity of the
market analysis done by the conscious mind can be compromised by all sorts of extraneous considerations
(e.g., one's current market position, a resistance to change a previous forecast). The subconscious, however,
is not inhibited by such constraints. Unfortunately, we can't readily tap into our subconscious thoughts.
However, when they come through as intuition, the trader needs to pay attention. As the anonymous
trader in Zen and the Art of Trading expressed it, "The trick is to differentiate between what you want to
happen and what you know will happen."

39. LIFE'S MISSION AND LOVE OF THE ENDEAVOR
In talking to the traders interviewed in this book, I had the definite sense that many of them felt that
trading was what they were meant to do-in essence, their mission in life. Recall Charles Faulkner's quote of
John Grinder's description of mission: "What do you love so much that you would pay to do it?" Throughout
my interviews, I was struck by the exuberance and love the Market Wizards had for trading. Many used
gamelike analogies to describe trading. This type of love for the endeavor may indeed be an essential
element for success.

40. THE ELEMENTS OF ACHIEVEMENT
Faulkner's list of the six key steps to achievement based on Gary Faris's study of successfully rehabilitated
athletes appears to apply equally well to the goal of achieving trading success. These strategies include the
following:
1. using both 'Toward" and "Away From" motivation;
2. having a goal of full capability plus, with anything less being unacceptable;
3. breaking down potentially overwhelming goals into chunks, with satisfaction garnered from the
completion of each individual step;
4. keeping full concentration on the present moment-that is, the single task at hand rather than the longterm
goal;
5. being personally involved in achieving goals (as opposed to depending on others); and
6. making self-to-self comparisons to measure progress.

41. PRICES ARE NONRANDOM = THE MARKETS CAN BE BEAT
In reference to academicians who believe market prices are random, Trout says, 'That's probably why
they're professors and why I'm making money doing what I'm doing." The debate over whether prices are
random is not yet over. However, my experience with the interviews conducted for this book and its
predecessor leaves me with little doubt that the random walk theory is wrong. It is not the magnitude of the
winnings registered by the Market Wizards but the consistency of these winnings in some cases that underpin
my belief. As a particularly compelling example, consider Blake's 25:1 ratio of winning to losing months and
his average annual return of 45 percent compared with a worst drawdown of only 5 percent. It is hard to
imagine that results this lopsided could occur purely by chance-perhaps in a universe filled with traders, but
not in their more finite numbers. Certainly, winning at the markets is not easy-and, m fact, it is getting more
difficult as professionals account for a constantly growing proportion of the activity- but it can be done!

42. KEEP TRADING IN PERSPECTIVE
There is more to life than trading