Diary of a Financier

Bookshelf Update: The New Market Wizards

In Bookshelf on Tue 7 Jun 2011 at 00:33
  • My favorite excerpts from The New Market Wizards.

After crushing Jack Schwager’s first work, I quickly sought delivery of the second installment, The New Market Wizards: Conversations with America’s Top Traders. Although I deem it worthy of my Bookshelf, this wasn’t as engrossing as its predecessor. I still had to extract my favorite passages, which sage advice I plan on revisiting throughout my career…

William Eckhardt- Beta Testing & Human Bias

Karl Popper has championed the idea that all progress in knowledge results from efforts to falsify, not to confirm, our theories… You have to try your best to disprove your results. You have to try to kill your little creation. Try to think of everything that could be wrong with your system, and everything that’s suspicious about it…

The human mind is made to create pattens. It will see patterns in random data… “Too fine an eye for a pattern will find it anywhere.” In other words, you’re going to see more on the chart than is truly there.

Also, we don’t look at data neutrally–that is, when a human eye scans a chart… it will tend to focus on certain outstanding cases, and we tend to form our opinions on the basis of these special cases. It’s human nature to pick out the stunning successes of a method and to overlook the day-in, day-out losses that grind you down to the bone.

Al Weiss- Technical Patterns within Context

I don’t always interpret the same pattern the same way. I also factor in where we are at in terms of long-term economic cycles… I don’t simply look at the classical chart patterns as independent formations. Rather, I tend to look for certain combinations of patterns or, in other words, patterns within patterns within patterns. These more complex, multiple-pattern combinations can signal much higher probability trends.

Stanley Druckenmiller- Fundamentals for Value, Technicals for Timing

I never use valuation to time the market. I use liquidity considerations and technical analysis for timing. Valuation only tells me how far the market can go once a catalyst enters the picture to change the market direction.
The catalyst is liquidity, and hopefully my technical analysis will pick it up.

Stanley Druckenmiller- Preservation of Capital First, Then a Solo Home Run Can Win the Game

George Soros has a philosophy that I have also adopted: The way to build long-term returns is through preservation of capital and home runs…

[M]ost significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong…

If a trade doesn’t work, [Soros] is confident enough about his ability to win on other trades that he can easily walk away from the position.

Linda Bradford Raschke- Trade the Market, Not Preconditions

I’m also a firm believer in predicting price direction, but not magnitude… I get out when the market action tells me it’s time to get out, rather than based on any considerations of how far the price has gone. You have to be willing to take what the market gives you. If it doesn’t give you very much, you can’t hesitate to get out with a small profit.

Anon- Zen’s Law of Attraction

Did you ever read Zen and the Art of Archery?

The essence of the idea is that you have to let the arrow shoot itself. There’s no ego involved. It’s not, “I’m shooting the arrow, and I’m releasing it.” Rather, the arrow is shot and it’s always right.

The same concept applies to trading. There’s no sense of self at all. There’s just an awareness of what will happen. The trick is to differentiate between what you want to happen and what you know will happen. The intuition knows what will happen.

–Romeo

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