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The New Market Wizards 11THE NEW MARKET WIZARDSCONVERSATIONS WITHAMERICA'S TOP TRADERSJACK D. SCHWAGERHarperBusiness22This book was originally published in 1992 by HarperBusiness, a division of Harper-Coltins Publishers.THE NEW MARKET WIZARDS. Copyright
1992 by Jack D. Schwager. All rights reserved. Printed in theUnited States of America. No part of this book may be used or reproduced in any manner whatsoeverwithout written permission except in the case of brief quotations embodied in critical articles and reviews.For information address Harper-Collins Publishers, Inc., 10 East 53rd Street, New York, NY 10022.HarperCollins books may be purchased for educational, business, or sales promotional use. Forinformation please write: Special Markets Department, HarpeiCollins Publishers, Inc., 10 East 53rdStreet, New York, NY 10022.First paperback edition published 1994. Designed by Alma Hochhauser OrensteinThe Library of Congress has catalogued the hardcover edition as follows:Schwager, Jack D., 1948-The new market wizards : conversations with America's top traders / Jack D. Schwager.- Isted-p. cm.Sequel to: Market wizards.ISBN 0-. Floor traders (Finance)-United States-Interviews. 2. Futures market-United States. 3. Financial futures-United States. 1. Schwager, Jack D., 1948- Market Wizards. H. Title-HG92 332.64'0973-dc20 92-52612ISBN 0- (pbk.)984-/RRD-H ContentsPreface ________________________________________________________________________ 4Acknowledgments________________________________________________________________ 5Prologue _______________________________________________________________________ 6PART I Trading Perspectives _________________________________________________________ 7Misadventures in Trading __________________________________________________________ 8Hussein Makes a Bad Trade _______________________________________________________ 11PART II The World's Biggest Market___________________________________________________ 12Bill Lipschutz: The Sultan of Currencies ______________________________________________ 13PART III Futures-The Variety-Pack Market _____________________________________________ 33Futures-Understanding the Basics __________________________________________________ 34Randy McKay: Veteran Trader______________________________________________________ 35William Eckhardt: The Mathematician________________________________________________ 45The Silence of the Turtles _________________________________________________________ 57=== Michael Carr === __________________________________________________________________ 58=== Howard Seidler === ________________________________________________________________ 59Monroe Trout: The Best Return That Low Risk Can Buy __________________________________ 61AlWeiss: The Human Chart Encyclopedia _____________________________________________ 71PART IV Fund Managers and Timers___________________________________________________ 74Stanley Druckenmiller: The Art of Top-Down Investing __________________________________ 75Richard Driehaus: The Art of Bottom-Up Investing______________________________________ 84Gil Blake: The Master of Consistency ________________________________________________ 91Victor Sperandeo: Markets Grow Old Too _____________________________________________ 98PART V Multiple-Market Players _____________________________________________________ 107Tom Basso: Mr. Serenity _________________________________________________________ 108Linda Bradford Raschke: Reading the Music of the Markets ______________________________ 113PART VI The Money Machines_______________________________________________________ 119CRT: The Trading Machine________________________________________________________ 120Mark Ritchie: God in the Pits______________________________________________________ 122Joe Ritchie: The Intuitive Theoretician ______________________________________________ 130Blair Hull: Getting the Edge_______________________________________________________ 138Jeff Yass: The Mathematics of Strategy _____________________________________________ 147PART VII The Psychology of Trading _________________________________________________ 154Zen and the Art of Trading _______________________________________________________ 155Charles Faulkner: The Mind of an Achiever ___________________________________________ 156Robert Krausz: The Role of the Subconscious _________________________________________ 165PART VIII Closing Bell ____________________________________________________________ 172Market Wiz(ar)dom_____________________________________________________________ 173A Personal Reflection ___________________________________________________________ 181Appendix: Options - Understanding the Basics__________________________________________ 182Glossary _______________________________________________________________________ 18444PrefaceTO MY FAMILY Joe Ann Daniel Zachary SamanthaWho are all very special to meWith loveHere's what I believe:1. The markets are not random. I don't care if the number of academicians who have argued the efficientmarket hypothesis would stretch to the moon and bac they are simply wrong.2. The markets are not random, because they are based on human behavior, and human behavior,especially mass behavior, is not random. It never has been, and it probably never will be.3. There is no holy grail or grand secret to the markets, but there are many patterns that can lead toprofits.4. There are a million ways to make money in markets. The irony is that they are all very difficult to find.5. The markets are always changing, and they are always the same.6. The secret to ess in the markets lies not in discovering some incredible indicato rather, it lies within each individual.7. To excel in trading requires bination of talent and extremely hard work-(surprise!) the bination required for excellence in any field. Those seeking ess by buying the latest $300 or even$3,000 system, or by following the latest hot tip, will never find the answer because they haven't yetunderstood the question.8. ess in trading is a worthy goal, but it will be worthless if it is not panied by ess in yourlife (and I use the word ess here without ary connotation).In conducting the interviews for this book and its predecessor. Market Wizards, I became absolutelyconvinced that winning in the markets is a matter of skill and discipline, not luck. The magnitude and consis-tency of the winning track piled by many of those I interviewed simply defy chance. I believe theMarket Wizards provide role models for what it takes to win in the markets. Those seeking quick fortunesshould be discouraged at the onset.I have strived to reach two audiences: the professionals who have staked careers in the markets or areserious, students of the markets, and the lay readers who have a general interest in the financial marketsand a curiosity about those who have won dramatically in an arena where the vast majority loses. In order tokeep the book accessible to the layperson, I have tried to avoid particularly esoteric topics and have includedexplanations wherever appropriate. At the same rime, I have strived to maintain all core ideas so that therewould be no loss of meaningful information to those with a good working knowledge of the markets. I thinkthis book should be as meaningful to the layperson as to the professional simply because the elements thatdetermine ess in trading are totally applicable to ess in virtually any field or to achieving anymeaningful goal.55AcknowledgmentsMy thanks to those who graciously agreed to be interviewed for this volume, freely sharing their thoughtsand experiences while refraining from requests for cosmetic changes when presented with the finishedmanuscript for review. (Not all those I interviewe the exceptions do not appearin this book.) In a number of cases, the traders I interviewed had nothing to gain from participating, at leastnot arily, as they either do not manage any public funds or are not open to further investment. I amparticularly appreciative of their cooperation.I would like to thank my wife, Jo Ann, for reading the original manuscript and providing some well-directed suggestions, all of which were taken. Mostly, I must thank Jo Ann for enduring yet another year as a&book widow,& not to mention keeping the kids quiet so that I could sleep in the mornings after those all-night writing sessions. My three wonderful children-Daniel, Zachary, and Samantha-were as understanding ascould possibly be expected for any group aged eight, seven, and three in accepting all those hours stolenfrom our time together and activities foregone as a result of my involvement in this work.Finally, I would like to thank the following friends for their suggestions and advice regarding potentialinterview candidates: Norm Zadeh, Audrey Gale, Douglas Makepeace, Stanley Angrist, Tony Saliba, andJeffGrable.66PrologueThe JademasterOne cold winter morning a young man walks five miles through thesnow. He knocks on the Jademaster's door.The Jademaster answers with a broom in his hand.&Yes?&&I want to learn about Jade.&&Very well then, come in out of the cold.&They sit by the fire sipping hot green tea. The Jademaster presses a green stone deeply into the youngman's hand and begins to talk about tree frogs. After a few minutes, the young man interrupts.&Excuse me, I am here to leam about Jade, not tree frogs.&The Jademaster takes the stone and tells the young man to go home and return in a week. The followingweek the young man returns. The Jademaster presses another green stone into the young man's hand andcontinues the story. Again, the young man interrupts. Again, the Jade-master sends him home. Weeks pass.The young man interrupts less and less. The young man also learns to brew the hot green tea, clean up thekitchen and sweep the floors. es.One day, the young man observes, &The stone I hold is not genuine Jade.&I lean back in my chair, savoring the story. My student interrupts.&OK. OK. That's a great story. I don't see what it has to do with making money. e to you to find outabout the markets. I want to learn about the bulls and the bears, commodities, stocks, bonds, calls andoptions. I want to make big money. You tell me a fable about Jade. What is this? You ...&&That's all for now. Leave those price charts on the table. Come back next week.&Months pass. My student interrupts less and less as I continue the story of The Trader's Window.-from The Trader's Window,ED SEYKOTA77PART I Trading Perspectives88Misadventures in TradingOn the lecture tour following pletion of this book's predecessor, Market Wizards, certain questionscame up with reliable frequency. mon question was: &Has your own trading improved dramaticallynow that you've just finished interviewing some of the world's best traders?& Although I had the advantage ofhaving plenty of room for dramatic improvement in my trading, my response was a bit of a copout. &Well,& Iwould answer, &I don't know. You see, at the moment, I'm not trading.&While it may seem a bit heretical for the author of Market Wizards not to be trading, there was a perfectlygood reason for my inaction. One of the cardinal rules about trading is (or should be): Don't trade when youcan't afford to lose. In fact, there are few more certain ways of guaranteeing that you will lose than bytrading money you can't afford to lose. If your trading capital is too important, you will be doomed to anumber of fatal errors. You will miss out on some of the best trading opportunities because these are oftenthe most risky. You will jump out of perfectly good positions prematurely on the first sign of adverse pricemovement only to then see the market go in the anticipated direction. You will be too quick to take the firstbit of profit because of concern that the market will take it away from you. Ironically, overconcem aboutlosing may even lead to staying with losing trades as fear triggers indeci-siveness, much like a deer frozen inthe glare of a car's headlights. In short, trading with &scared money& will lead to a host of negative emotionsthat will cloud decision making and virtually guarantee failure.pletion of Market Wizards coincided with my having a house built. Perhaps somewhere out in thisgreat country, there is someone who has actually built a house for what they thought it would cost. But Idoubt it. When financing the building of a house, you find yourself repeatedly uttering that seeminglyinnocuous phrase, &Oh, it's only another $2,000.& All those $2,000`s add up, not to mention the much largersums. One of our extravagances was an indoor swimming pool, and to help pay for this item I liquidated modity account-in the truest sense of the word. It was my sincerest intention not to resume trading untilI felt I had adequate risk capital available, and an unending stream of improvements on the house keptpushing that date further into the future. In addition, working at a demanding full-time job andsimultaneously writing a book is a draining experience. Trading requires energy, and I felt I needed time torecuperate without any additional strains. In short, I didn't want to trade.This was the situation one day when, in reviewing my charts in the afternoon, I found myself with the firmconviction that the British pound was about to collapse. In the previous two weeks, the pound had movedstraight down without even a hint of a technical rebound. After this sharp break, in the most recent week, thepound had settled into a narrow, sideways pattern. In my experience, this type bined price actionoften leads to another price decline. Markets will often do whatever confounds the most traders. In this typeof situation, many traders who have been long realize they have been wrong and are reconciled to liquidatinga bad position-not right away, of course, but on the first rebound. Other traders who have been waiting to goshort realize that the train may have left without them. They too are waiting for any minor rebound as anopportunity to sell. The simple truth is that most traders cannot stand the thought of selling near a recentlow, especially soon after a sharp break. Consequently, with everyone waiting to sell the first rally, themarket never rallies.In any case, one look at the chart and I felt convinced this was one of those situations in which the marketwould never lift its head. Although my strong conviction tempted me to implement a short position, I also feltit was an inappropriate time to resume trading. I looked at my watch. There were exactly ten minutes left tothe close. I procrastinated. The market closed.That night before leaving work, I felt I had made a mistake. If I was so sure the market was going down, Ireasoned, I should have gone short, even if I didn't want to trade. So I walked over to the tewnty-four-hourtrading desk and placed an order to go short the British pound in the overnight market. The next morning Icame in and the pound was down over 200 points on the opening. I placed a token amount of money into ount and entered a stop order to liquidate the trade if the market returned to my entry level. Irationalized that I was only trading with the market's money, and since my plan was to cease trading on areturn to breakeven, I was not really violating my beliefs against trading with inadequate capital. Thus, Ifound myself trading once again, despite a desire not to do so.This particular trade provides a good illustration of one of the principles that emerged from my interviewsfor Market Wizards. Patience was an element that a number of the supertraders stressed as being critical ess. James Rogers said it perhaps most colorfully, &I just wait until th'ere is money lying in er,and all I have to do is go over there and pick it up. I do nothing in the meantime.& In essence, by notwanting to trade, I had inadvertently transformed myself into a master of patience. By forcing myself to waituntil there was a trade that appeared pelling that I could not stand the thought of not taking it, I hadvastly improved the odds.During the next few months, I continued to trade and my equity steadily increased, as I seemed to bemaking mostly correct trading decisions. My account grew from $0 (not counting an initial $4,000 depositthat was quickly withdrawn once profits more than covered margin requirements) to over $25,000. It was atthis juncture, while traveling on a business trip, that nearly all my positions turned sour simultaneously. Imade some hasty decisions between meetings, virtually all of which proved wrong. Within about a week, Ihad lost about one-third of my gains. Normally, when I surrender a meaningful percentage of my profits, Iput on the brakes, either trading only minimally or ceasing to trade altogether. Instinctively, I seemed to befollowing the same script on this occasion, as my positions were reduced to minimal levels.At this time, I received a call from my friend Harvey (not his real name). Harvey is a practitioner of ElliottWave analysis (plex theory that attempts to explain all market behavior as part of a grand structure of99price waves).' Harvey often calls me for my market opinion and in the process can't resist telling me his.Although I have usually found it to be a mistake to listen to anyone else's opinions on specific trades, in myexperience Harvey had made some very good calls. This time he caught my ear.&Listen, Jack,& he said, &you have to sell the British pound!& At the time, the British pound had gonevirtually straight up for four months, moving to a one-and-a-half-year high.&Actually,& I replied, &my own projection suggests that we may be only a few cents away from a majortop, but I would never sell into a mnaway market like this. I'm going to wait until there are some signs of themarket topping.&&It will never happen,& Harvey shot back. &This is the fifth of a fifth.& (This is a rerference to the wavestructure of prices that will mean something to Elliotticians, as enthusiasts of this methodology are known. Asfor other readers, any attempt at an explanation is more likely to confuse than enlighten-take my word forit.) &This is the market's last gasp, it will probably just gap lower on Monday morning and never look back.&(This conversation was taking place on a Friday afternoon with the pound near its highs for the week.) &Ireally feel sure about this one.&I paused, thinking: I've just taken a hit in the markets. Harvey is usually pretty good in his analysis, andthis time he seems particularly confident about his call. Maybe I'll coattail him on just this one trade, and ifhe's right, it will be an easy way for me to get back on a winning track.So I said (I still cringe at the recollection), &OK Harvey, I'll follow you on this trade. But I must tell youthat from past experience I've found listening to other opinions disastrous. If I get in on your opinion, I'llhave no basis for deciding when to get out of the trade. So understand that my plan is to follow you all theway. I'll get out when you get out, and you need to let me know when you change your opinion.& Harveyreadily agreed. I went short at the market about a half-hour before the close and then watched as pricescontinued to edge higher, with the pound closing near its high for the week.The following Monday morning, the British pound opened 220 points higher. One of my trading rules is:Never hold a position that gaps sharply against you right after you have put it on. (A gap refers to the marketopening shaiply higher or lower than the previous close.) The trade seemed wrong. My own instincts were tojust get out. However, since I had entered this trade on Harvey's analysis, I thought it was important toremain consistent. So I called Harvey and said, &This short pound trade doesn't look so good to me, but sinceI don't think it's a good idea to mix analysis on a trade, my plan is to follow you on the exit of the position.So what do you think?&&It's gone a little higher than I thought. But this is just a wave extension. I think we're very close to thetop. I'm staying short.&The market continued to edge higher during the week. On Friday, the release of some negative ews for the pound caused the currency to trade briefly lower during the morning, but by the afternoonprices were up for the day once again. This contrarian response to the news set off warning bells. Again, myinstincts were to get out. But I didn't want to deviate from the game plan at this late juncture, so I calledHarvey again. Well, as you might have guessed, the wave was still extending and he was still as bearish asever. And yes, I stayed short.On the next Monday morning, it was no great surprise that the market was up another few hundredpoints. A day later, with the market still edging higher, Harvey called. His confidence unshaken, he tri-umphantly announced, &Good news, I've redone my analysis and we're very close to the top.& I groaned tomyself. Somehow this enthusiasm over an event that had not yet occurred seemed ominous. My own con-fidence in the trade reached a new low.No need to continue the gruesome details. About one week later, I decided to throw in the towel, Harveyor no Harvey. By the way, the market was still moving higher seven months later.It is amazing how one trading sin led to a cascade of others. It started out with greed in wanting to findan easy way to recoup some losses-by following someone else's trade. This action also violated my strongbelief that it is unwise to be swayed by other people's opinions in trading. These errors were quickly followedby ignoring some screaming market clues to liquidate the position. Finally, by surrendering the decisionprocess of the trade to another party, I had no method for risk control. Let me be absolutely clear that thepoint is not that I followed bad advice and lost money, but rather that the market is a stem enforcer thatunmercifully and unfailingly extracts harsh fines for all (trading) transgressions. The fault for the losses wastotally my own, not Harvey's (nor that of the method, Elliott Ware Analysis, which has been wed effectivelyby many traders).I traded lightly for another month and then decided to call it quits as my account neared the breakevenpoint. It had been a quick ride up and down, with little to show for it except some market experience.Several months later I was a speaker at a seminar at which Ed Seykota had agreed to make a rareappearance. Ed,was one of the phenomenal futures traders I interviewed for Market Wizards. His views onthe markets provide an unusual blend of scientific analysis, psychology, and humor.Ed began his presentation by asking for a volunteer from the audience to point to the time periods onvarious charts that coincided with the dates of financial magazine covers he had brought along. He started inthe early 1980s. The cover blared: &Are Interest Rates Going to 20%?& Sure enough, the date of themagazine cover was in near-perfect synchrony with the bottom of the bond market. At another point, hepulled out a cover with an ominous picture of farm fields withering away under a blazing sun. The publicationdate coincided with the price peak of the grain markets during the 1988 drought. Moving ahead to then-current times, he showed a magazine cover that read:&How High Can Oil Prices Go?& This story was written at the time of skyrocketing oil prices m the months1010following the Iraqi invasion of Kuwait. &My guess is that we've probably seen the top of the oil market,&said Ed. He was right.&Now you understand how to get all the important information about impending market trends from newsand financial magazines. Just read the covers and forget about the articles inside.& Quintessential EdSeykota.I was eager to speak to Ed so that I could relay my trading experiences and glean the benefits of hisinsights. Unfortunately, at every break during the seminar, each of us was surrounded by attendees askingquestions. We were staying at the same small hotel m San Francisco. After we got back, I asked Ed if hecared to go out and find a spot where we could relax and talk. Although he appeared a bit beat, he agreed.We walked around the area trying to find something that resembled fortable local bar or cafe, but allwe managed to find were large hotels. Finally, in desperation we wandered into one. In the lounge, a loudband and a truly bad singer were belting out their version of what else-&New York, New York.& (I'm sure if wewere in New York, the band would have been playing &I Left My Heart in San Francisco.&) This certainly wouldnot do for a quiet conversation with the man I hoped would be my temporary mentor. We sat down in thelobby outside, but the strains of the music were still fortably loud (yes, Virginia, there are soundsworse than Muzak), and the atmosphere was deadly. My hopes for an intimate conversation were quicklyfading.Trying to make the best of a bad situation, I related my recent trading experiences to Ed. I explained howI started trading again despite my reluctance to do so and the incredible string of errors mitted on theone British pound trade-errors that I thought I had vanquished years ago. I told him that, ironically, at onepoint before I put on the British pound trade, when I was still up about $20,000, I was in the market for anew car that cost exactly that amount. Since my house had virtually drained me of assets, I was tempted tocash in the account and use the proceeds to buy the car. It was a very appealing thought since the car wouldhave provided an immediate tangible reward for a few months of good trading without even having riskedany of my own funds.&So why didn't you close the account?& Ed asked.&Well,& I said, &how could I?& Although I managed to turn a few thousand dollars into $100,000 on acouple of occasions, I had always stalled out. I had never been able to really break through and extend it intosome serious money. If I had decided to cash in my chips to make a purchase, I would always havewondered whether this would have been the time that I would have realized my trading goals. Of course,with the benefit of hindsight, I would have been much better off taking my profits, but at the time I couldn'tsee giving up the opportunity. I rationally explained all mis to Ed.&In other words, the only way you could stop trading was by losing. Is that right?& Ed didn't have to sayanything more. I recalled that in my interview of him for Market Wizards, his most ment was:&Everybody gets what they want out of the market.& I had wanted not to be trading, and sure enoughthat's what I got.The moral here is: You don't always have to be in the market. Don't trade if you don't feel like it or iftrading just doesn't feel right for whatever reason. To win at the markets you need confidence as well as thedesire to trade. I believe the exceptional traders have these two tra for the rest of us,they e together only on an occasional basis. In my own case, I had started out with the confidencebut without the desire to trade, and I ended up with neither. The next time I start trading, I plan to haveboth.*The Elliott Wave Principle, as it is formally called, was originally developed by R. N. Elliott, an accountantturned market student, Elliott's definitive work on the subject was published in 1946, only two years beforshis death, under the rather immodest title: Nature's Law-The Secret of the Universe. The application of thetheory is unavoidably subjective, with numerous interpretations appearing in scores of volumes. (SOL-RCE:JohnJ. Murphy, Technical Analysis of the Futures Markets, New York Institute of Finance, 1986.)播放器加载中，请稍候...
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The New Market Wizards 11THE NEW MARKET WIZARDSCONVERSATIONS WITHAMERICA'S TOP TRADERSJACK D. SCHWAGERHarperBusiness22This book was originally published in 1992 by HarperBusiness, a division of Harper-Coltins Publishers.THE NEW MARKET WIZARDS. Copyright
1992 by Jack D. Schwager. All rights reserved...
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