Secrets of Market Wizards

Timeless Traits of Victorious Market Wizards - Part 5

“I do not care if it is a white cat or a black cat. It is a good cat as long as it catches mice.” - Deng-Xiaoping

The message borne by the articles in this series is that permanently successful traders have certain common traits. We’ve a lot to learn from them. One of them is Mark Minervini, who started speculating in the early 1980s. After several years of very poor trading results, he began to trade successfully, especially after he’d gone through a book titled: Superperformance Stocks (by Richard Love). This book wasn’t popular, but it brought about the breakthrough Mark needed in his trading career. It highlighted what winning stocks have in common. Mark sharpened his trading skill and made compounded yearly profits of 220%, in a period of 66 months. That’s we can say that he turned $10,000 to $3,300,000, according to an estimate. He’s become adept at risk control, as losing streaks don’t have any significantly adverse effects on his portfolios anymore. Roughly 15 years ago, he won a trading competition in the United States when he made 155% profit. He was one of the interviewees in the popular book titled: Stock Market Wizards (by Jack Schwager). He was also interviewed in TRADERS’ (July 2012). A few of his quotes end this article.


Traits of Successful Market Wizards
17. Victorious market wizards neither water weeds nor uproot flowers: As old as this saying may be: Cut your losses short and let your profits run, it’s a timeless truth in the markets. It makes a perfect logical and rational sense. Sadly, many traders cut their profits (for the fear that they might go negative) and run their losses (for the hope that they might go positive). This is counter-intuitive. Losses are weeds on your portfolios while profits are flowers. You shouldn’t uproot the flowers and water the weeds. Allowing negative positions to run is like watering weeds. Victorious market wizards do exactly the opposite, reversing the wrong mindset. If one of their positions is performing well and going as expected, they allow it to run for as far as possible. When a position doesn’t go in a forecasted direction, they quickly cut it short, and patiently search for another trade setup, based on their rules. You must never widen your stop loss under any circumstances, even if a position is moving against you. The price mayn’t come back to your entry level again and this would have an adverse effect on your portfolio.

18. Victorious market wizards acknowledge that profits will take care of themselves: You can’t force the markets to give you profits. You just need to do what’s right; profits will come naturally. You’d seldom trade flawlessly, though you can carry out your trading plan flawlessly. Neophytes care more about huge profits than flawless execution of their trading plans. Majority of speculators are opinionated against the realities in the markets - they feel they are correct in their opinions. It’s one of the reasons many of them don’t use stops. They want to be right. Neophytes tend to buy one new trading system after the other, instead of sticking to a particular system. If the new system experiences a losing streak (something normal for all strategies under heaven), they abandon it and go for another new system. They are just under illusion. Neophytes prefer instant gratification while brushing aside important aspects of trading victory. I realize that no matter how much you warn people, they’ll still prefer to do wrong things. Unless checked by grim consequences, the human mind isn’t wired to do right things. For example, some traders will continue to trade without stops, some traders will continue to use big position sizes in the markets that they cannot predict with an utmost certainty, etc. You need rock-solid discipline to follow time-tested trading principles that can guarantee your permanent success. You need courage too. You just need to be courageous in doing what’s right when using your trading approach

19. Victorious market wizards can pinpoint high probability and low risk entries: Winning trading methods enable speculators to enter the markets at better prices. Victorious market wizards buy low and sell high, but they do it right. This means that they buy low in an uptrend, and sell high in a downtrend. Even if one is to sell an all time high, or buy an all time low, it’ll be after there’s a confirmation that the trend has really changed. Market wizards have various methods they use to achieve this.

20. They know where they will exit for a loss and where they will take their profit: For every trade they open, market wizards know where they’ll exit if it does not go in their direction. They also know where they’ll take their profits and pat themselves on the back, if they’re right. Every trade ought to be open with hard, physical stop loss level and take profit level, while the loss from a stop trigger would be smaller than the reward from a take profit trigger. Speculation has to do with making average winners that are bigger than average losers, and doing that consistently. Successful traders have a deep love for trading, and as a result of this, they press on, even in a difficult market condition.

Conclusion: This is the concluding article in this series. As from next week, I’ll begin to feature renowned super traders the world over. Their strengths, weaknesses, trading beliefs and lifestyles would be discussed. This would encourage you; goading you towards your financial aims and ambitions. Instead of allowing dread to paralyze your potential, do something to move forward. Don’t be discouraged by dread. Rise up and become the master of your own destiny. Ponder about victorious market wizards and sack you fear. If you allow yourself to be discouraged from trading and investing, you might realize that the outside world is harder than you think, and you’ll forfeit the opportunities that markets offer you. Those who stay in their comfort zones aren’t going anywhere. Discouragement and dread would only leave you with no achievements. According to Dr. Janice Dorn, if… you begin to move in the direction of your fears - slowly and steadily - you will find that they have less and less power over you. Your world begins to expand. You understand that fear is really False Evidence Appearing Real (F.E.A.R.). You begin to see that you have the power within you to face these fears and to control them. They are real only if you allow them to be real.

This article is ended with quotes from Mark Minervini:

1. “I dropped out of school in the eighth grade to work as a musician playing the drums in the studio and performing live… Early on, I made every mistake you can think of. For about five or six years I did not make any money trading; in fact I was at a net loss. If there is such a thing as a natural born trader, then I was an unnatural. Although I had trades go my way from time to time, it was how I handled the trades that went against me that created a problem and hurt my performance.”

2. “I do not avoid a trade based on the time of day. I make a trade when the stock is set up and starts to move in the direction of my trade… Probably the most important turning point was when I started religiously cutting my losses short, keeping them very small. I really started to focus on not losing as my Number One goal. This is the most important area of speculation regardless of style or strategy. To be successful, you simply must keep your losses smaller than your gains… I am always thinking risk management first. I would rather have a small position than no position or a position that I cannot get out of easily… My goal is to control my drawdown and equity curve.”

 

Excellent post. That guy knows what he is talking about!!!

 

LEARN FROM MARKET WIZARDS - PART 1


Irving Kahn, who was born on December 19, 1905, is an American investor and funds manager. He was educated in New York and later served as a teaching assistance to Benjamin Graham at Columbia Business School. Graham himself was credited as being the creator of value investing methodology. Benjamin Graham had influence on Kahn and others who eventually became investors. One of them is Warren Buffet.

Kahn has had numerous experiences in many fields. He’s a Chartered Financial Analyst, a former director, a former president of an institution and a trustee emeritus of a foundation. He’s still Chairman of Kahn Brothers Group, Inc. Kahn started his career in 1928 and has remained active till now. So he’s currently the oldest funds manager the world over. His first trade in 1929 was a short position, which was made shortly prior to the notorious market crash in October that year. On December 19, 2011, Irving Kahn became 106 years old. He said he still derives pleasure from speculation, though he told CNN Money (money.cnn.com) that he no longer watches the stock market zealously even though he’s a streaming terminal on his desk. He still watches the 20 stocks he is holding. Kahn has witnessed much technological advancement, apart from changes in the financial industry since the beginning of his career.

Lesson
One of the peerless benefits in trading and investing is that there’s no compulsory retirement age (unlike most other professions).
Trading and investing is a journey of a lifetime, not a short stint.
It’s a marathon, not a sprint.
Besides, the older you become, the more skilled, the more experienced, the more relevant, and the more judicious you’ll be as a trader or investor. There’s indeed financial freedom in trading, but it’s a long-term objective. Things that would last usually come slow and steady. Irving Kahn is a living proof that permanent success can be derived from trading and investing. We’ll always be inspired by successful traders. If they can do it, we can do it too. There are trading styles that lead to abortive trading careers, and there are trading styles that lead to permanently successful trading careers. Those who quit trading have really not found the secrets of everlasting triumph in the markets - no matter what they claim to be (or to have been).

Conclusion: Another permanently successful market wizard would be featured next week. This article is ended with a quote from Irving; it’s what he said in an interview:

“Well when I got to the Street in ’28/’29 it was much more of a rich man's game – not that I was rich, but I mean it was designed for banks, insurance companies, railroads or public utilities. It is no longer a rich man’s business. It’s a business for everybody.”

By Azeez Mustapha

 

"Victorious market wizards can pinpoint high probability and low risk entries: Winning trading methods enable speculators to enter the markets at better prices."

Generalities for the most part. Jim Rogers has been saying the same for years. Risk is known only after the fact. Probability is unknown. What are these people talking about?

 

I don't know that risk is only known "after the fact".

Consider a trading strategy where items A,B,C and D must be present in order to trigger a trade and, if they are present, they require that an initial stop be set at "Price X" because if price reaches "Price X" in the course of that trade, then the signal given by the simultaneous existence of items A,B,C and D was false.

In that case, isn't the risk exactly the distance between the entry price and "Price X"? So, the probability of "Price X" being hit is unknown, but the amount of risk associated with that probability is known. This assumes a certain amount of liquidity and the absence of a gap over "Price X", but there are many markets that meet these criteria.

Then, what if you have thousands of examples of this scenario and know from them that "Price X" gets hit 40% of the time? Can you say that it is likely that the probability of "Price X" getting hit is 40%? Or, at least can you say that it is not 100%? And is it really possible that a scenario which has failed at a 40% rate over 1000 or more iterations can fail at a 75% rate, or even a 60% rate, for the next 1000? Are the probabilities in the market really that unstable?

 

There is a difference between expected risk and real risk. If the market crashes at the open below your stop, then you get a taste of what real risk is. Small account traders and paper traders do not have a real feeling of what is like to expect 1% risk and end up with a 5% loss on a 100 million account in just one day. When you get to trade big money you will understand that you can only hope and pray you know your risk.

 

Futures markets are open almost 24 hours/day, though, so discontinuities like this are rare and there is no reason to say, before the fact, that such discontinuities won't be of benefit to you.

E.g., what if you were short before 9/11 or long before one of the surprise Fed moves? Obviously, some traders were and so while you could say they were just lucky and that luck will eventually turn at the next "9/11" or the next surprise Fed move, that is just a guess at what will happen.

As for "weekend risk", which is the other place were these discontinuities could occur in what are essentially 24 hour markets, there are also ways to mitigate that through options purchased before the close of the week. In a real market crash, the implied volatility component of the options could even end up making them worth more than the original position. I recall seeing stories of people who bought call options before the 87 crash who ended up making more on the sale of those options due to the spike in volatility than they lost on their long positions.

So, I don't deny that exceptions to the idea of "known risk" exist even in big, liquid markets, but there are also these other factors, i.e. a "black swan" could go in your favor and there is already a market for insurance against these events.

Yeah, OK, so then there is counterparty risk, but that is an even lower probability risk than the event risk and you would usually be made whole by the exchange or through the legal system.

So, I would say that if you are managing all of your risks appropriately, expected and actual risk should be close enough that any difference is a rounding error, regardless of the size of your account.

 

Dr. Van K. Tharp: Peak Performance Trading

LEARN FROM MARKET WIZARDS - PART 2


Dr. Van K. Tharp is a world-renowned trading coach - one of the best on this planet. He’s a unique global expert when it comes to trading. He’s been coaching people to reach their best in trading and investing. This has been his calling since 1982. In countless instances, he’s encouraged others to surmount challenges when it comes to creation of trading strategies, trader’s mindset and behavioral biases, and other areas of challenges in trading. Bagging his PhD in psychology from the University of Oklahoma Health Science Center in 1975, he’s studied and researched distinct traders and investors (market wizards included) and has developed models for profitable speculations in the markets. He’s devised unique presentations for financial institutions and has showcased them all over the world. He’s been a guest of expositions and conferences the world over. He’s the only trading coach included in that best-seller, The Market Wizards: Interviews with Great Traders (Jack Schwager). He’s been featured in world-class trading publications, and has authored best-sellers like Trade Your Way to Financial Freedom, Super Trader - Make Consistent Profits in Good and Bad Markets, etc. A regular free newsletter from his Institute can be requested at Vantharp.com.

Dr. Van himself has declared without mincing words that: "Trading and investing are very simple processes and we human beings try to make it into something much more complex. Unfortunately, we have a lot of biases that enter into trading decisions…I believe people get exactly what they want out of the markets and most people are afraid of success or failure. As a result, they tend to resist change and continue to follow their natural biases and lose in the markets. When you get rid of the fear, you tend to get rid of the biases… As for risk, most people don't understand it, including a lot of professionals, and what's really interesting is that once you understand risk and portfolio management, you can design a trading system with almost any level of performance." (Vantharp.com, homepage).

Lesson
There are winning trading concepts espoused by Dr. Tharp. These concepts may help you too. Having basic understanding of these concepts would surely help you gain a better insight into trading. Below are some of them of them (this is not a complete list):

Psychology of trading: There are many psychological issues affecting traders, like gambling, perfectionism, inordinate fear and huge losses. For example, trading without stop loss or betting too big is gambling. Perfectionism doesn’t help because best traders also lose; only that they still make average gains that are much bigger than average losses. Fear might make use act irrationally. We may even shy away from taking trades that could be winners. All these biases merely lead to huge losses. Traders need to work on themselves to overcome these issues.

System development: Trading strategies themselves don’t make money. It’s how they’re implemented that enables them to help traders realize gains. Most people buy trading systems but don’t follow the rules that come with them. This still boils down to knowing what the best are, and sticking to them. The best trading system can lead to a margin call if handled by an inexperienced and undisciplined trader, whereas the worst trading system can realize long-term profits if handled by disciplined and experienced traders.

Position sizing: This aspect of trading shows how much one risks per trade. How many shares or contracts? Inability to apply effective position sizing (sometimes referred to as money management) is often the reason for accounts that go kaput.

Expectancy: One of the secrets of successful traders is to risk less than the predetermined potential returns. Like risking $1 to gain $2 or better $3. A risk-to-reward ratio of 1:2 allows a trader to survive with a hit rate of 50%, and a risk-to-reward of 1:3 allows a trader to survive with only 33.3% hit rate. The higher the reward, the better. Positive expectancy has to do with the benefit your trading system can generate over time. Trading systems that use no stops or use risks that are bigger than rewards are worse expectancy systems.

Business planning: The financial market owes you nothing. It may tease people with easy money and later take it away when it becomes irrational. If you really mean to be a winning trader or investor, Van says that you’d need to approach the practice of trading with the same level of rigor with which you’d approach a high level of human endeavor or business.

Conclusion: I came across Dr. Van Tharp and his works at the time I was contemplating to quit trading. His works changed my mind, and I continued to press on. I’ve never regretted that decision till now. He is one of those individual experts in trading who’ve had tremendous impact on my career. I’m grateful for how his concepts have benefited me and many people around the world, either directly or indirectly. If you also have tremendous challenges in trading, you can enlist the help of a very good coach or trading mentor. Indeed, we have many good things to learn form market wizards.

This article is concluded with more quotes from Dr. Van Tharp. It can be seen in his monthly markets updates and they’ve to do with his view on the current market conditions:

“Crisis always implies opportunity. Those with good trading skills can make money in this market—a lot of money. There were many good opportunities in 2011 and, so far, many more in 2012. Did you make money? If not, do you understand why not? The refinement of good trading skills doesn't just happen by opening an account and adding money. You probably spent years learning how to perform your current job at a high skill level. Do you expect to perform at the same high level in your trading without similar preparation? Financial market trading is an arena filled with world-class competition. Trading requires massive self-work to produce consistent, large profits under multiple market conditions. Prepare yourself to succeed with a deep desire, strong commitment and the right training… But to capture those opportunities you must know what you are doing. If you want to trade these markets, you need to approach them as a trader, not a long-term investor… Trying to navigate these markets without an education is hazardous to your wealth.”

 

Anton Kreil: BBC Million Dollar Trader

LEARN FROM MARKET WIZARDS - PART 3

Anton Kreil was born in Liverpool in 1979, into a poor family where money was a very scarce commodity. During his early years, he’d to live through a series of hard times, but at the age of 13, he decided to try whatever he could do to get out of poverty and become successful in life. From the age of 18-21, he was at Manchester University, where he studied Economics. At this time, he’d decided not to measure his own income by the average national salary. He worked as an institutional trader for Goldman Sachs, Lehman Brothers and JP Morgan, having built a profitable portfolio for himself prior to this period.

He became a Vice President of JP Morgan European Equities at the age of 26, and retired from the investment banking industry at the age of 28. He toured the world and went back to the UK in 2008 to produce a BBC program titled: Million Dollar Traders. Several neophytes were provided with funds to speculate on the markets during the credit crunch: they even did better than some hedge funds managers. Although certain contestants failed emotionally and had to drop out of the program, it became apparent that ordinary folks will really perform like skilled traders if given proper training. That show became popular throughout the world - something that threw Kreil into limelight. Kreil is currently the CEO of the Institute of Trading and Portfolio Management. He plans to go to space very soon and make an attempt to become the first trader to make a trade from space.

Lesson
There are helpful lessons you can learn from Anton Kreil.

a) Your background doesn’t determine your future. Even if you were born into a poor family, that doesn’t mean that you’d be poor for the rest of your life. Your life is what you make it.

b) As a trader (especially as a professional), if you can continue in this journey to financial freedom (a goal that many traders like Anton Kreil has reached), you’d eventually not need to judge yourself by average national salary. I’ve seen financial experts calculating the income of a lifetime of a BSc, an MSc or a PhD holder, they never can calculate what a great trader might earn in his lifetime. It’ll usually be far bigger than what an average civil servant/employee earns in her/his lifetime. You can trade your way to financial freedom.

c) You can experience breakthrough if you’re mentored and coached by successful traders. You can look over their shoulders, see how they trade and imitate them to your own advantage. Just make sure you choose mentors that have track records.

d) A combination of fundamental and technical analyses is important. Endeavor to know the fundamental factors affecting the instruments you plan to speculate on, then look at your charts and trade what you see.

e) Kreil is big a believer of truncating positions that don’t go in the expected direction, while giving profitable positions enough leeway. It’s one of his simple secrets. We’ll surely do ourselves much favor by trading in the same manner. He doesn’t trade against the trend, and you could choose to do that. The market that is rated as being oversold or overbought might still go far further than that, even it’ll reverse. Those who trade against the trade might be forced out of their positions before the markets turn eventually. Running losses with the hope that they’ll go back to positivity would eventually backfire.

Conclusion: Anton Kreil was interviewed in TRADERS’ (January 2012) - one of the best interviews in this year. More information about him can also be found at Antonkreil.com. This article is ended by one of his quotes.

“Success in the long run for me is defined as consistently positive returns with a consistency for never losing too much money when things go wrong. For those starting out I think it is very important to develop a trading strategy that will stand a very good chance in working through all business cycles. The world looks very different now to what it looked like in 2006, 1999, 1991, 1982 and is forever changing. Trading strategies that depend on a certain market environment will always get found out when the market environment changes. As a trader you want to be trading from now till the day you drop dead.”

 

Ituglobal wrote

...That’s we can say that he turned $10,000 to $3,300,000, according to an estimate.
################

Very can be ... but trading record was not public ...


Belov are public trading records (on link ) from month FXCM competion's with real money

for 1 place 25000 $ ,second -10000 $ ,3- 5000 $

From Germany Law price money are not taxed ( "Preis Geld "
===========================
in Börsenspiel "equal win in lotto)
====================
Profit on trading capital is taxed
=====================

http://forexforums.dailyfx.com/king-micro-trading-contest/485819-contest-winner-archive.html

List of top performers with results from march 2009 (41 contest months )

first place
------------

1.october 2011 -12725 % canada A.e 1296.08$-166226.28$
2.may 2010 - 3109 % poland A.e. 532.32 $ -17087.65$
3.dec 2009 -2931.95% china A.e. 725.24 $-21989$
4. sen.2010 -2860.58% canada A.e. 546.74$ -16186.95$
5. dec 2011 -2464.12% china A.e. 507.97$-13024$
6. maj 2011 -2116 % china A.e. 523.38$-11600.14 $
7. march 2009 -1951 % hk A.e. 961.10$-19714.24$
8..februar 2012-1918.36% china A.e. 13928$-281128$
9. jun 2012 -1809 % china A.e. 505.50$-9638.01$
10.march 2011 -1711 % macao A.e. 2122.45$-38456.03$
11.april 2009 -1703 % china A.e. 500.78$-9033.73$
12 .sent 2011 -1627 % china A.e. 502.49$-8678.72$
13. july 2009 -1550.54% malaysia , 585.48$ -9663.61$
14.oct 2009 -1540.23%,china ,500.57$ -8210.52$
15.nov 2009 -1455.14% , china 500.92$ -7790 $
16.sept 2009 - 1432.86%,u.k. 512.37$-7853.89$
17.aug 2010 -1284.46 % , usa , A.E. 1021.04 $ - 14135.85$
18.jun 2009 -1266.01 %, china , A.E. 500.11 $ - 6831.54 $
19.2011-1185.25% , canada , A.E. 520 $ - 6683.28$
20.jan 2011 - 1181.58%,india , A.E. 500.92$ - 6419.70 $
21.jun 2011-1176.79%, usa, A.E. 2767.13 $ -35330.55$
22. feb 2010-1129.72% , china , A.E. 500.68$ - 6156.96 $

second place
----------------
1.march 2009 -USA 1918.67%
2.dec 2009 Ykraine -1513.28 %
3.sept 2011 China - 1423.74%
4.oct 2011 Spain - 1,350.53%
5.sept 2010 China - 1,309.64%
6.may 2010 Malaysia - 1132.45%
7.sent 2009 China -1114.66%
8.oct 2009 China -1101.65%

third place
-----------
1.dec 2009 China -1231.5%
2.march 2009 China 1206.03%
3.oct 2011 China - 1,105.62%


Each month some 5000 -10000 attempts ( each account with more as 500 $ -automaticaly )

For 41 month's 200 000 -400 000 attempts