Pit Bull: Lessons From Wall Street’s Champion Trader is one of the greatest trading books I have ever read. The book is about the life of Martin Schwatz's journey as a trader.
The book was so real and it taught me that if you want to be a successful trader it is very tangible for anyone with time and hard work. Let me give you two quick examples of what I mean.
Marty Schwartz is a champion trader having won several trading Championships, most of the time making more money than all the other participants combined. In a particular contest which spanned one year, he had a 781%. As a short-term trader he turned a $40,000 account into over $20 million while never realizing a drawdown of more than 3% in any one month. However, Marty struggled and after 10 years of trading he was struggling and still consistently losing money in the Markets.
Another quick example was his work ethic. He would consistently draw all his charts by hand on paper for charting purposes. Marty use to trade all day and study at night, drawing channels, support and resistance levels, in preparation for the new trading day. He says that it helped him “connect” with his instruments better and although it requires much more time, it was tremendously beneficial.
Marty worked as a financial analyst for several years before quitting and with $100k bought a seat on the American Stock Exchange to trade stocks, options and futures in 1979. Marty’s style was to get in and out of positions quickly and rarely traded against the 10 EMA. His first full year as a trader, Marty made $600,000 and the following year, he made $1.2 million. But it was the introduction of S&P futures on the Exchange that took Marty’s trading to another level. He began trading his own fund where he managed other people's money. However, the stress of running the fund contributed to his being diagnosed with pericarditis. So at the age of 48, Marty and his family moved to Florida where still traded but away from Wall Street.
As Marty’s bank account grew, he became obsessed with making more money. But shortly afterwards, he realized that there was more to life. With the help of his wife, he realized that his life was not - as he put it - a "dress rehearsal; it was the real thing and I had been screwing it up." With all that said, lets get into some trading nuggets that Marty shared with the world.
Your grubstake must be large enough to allow time for you to be successful and that no one trade can take you out.
He wanted to make money - not necessarily be right, so he took his ego out of the equation. "Before, admitting I was wrong was more upsetting than losing the money." He stopped willing the market to move in his direction. His mentality changed from the idea that he was right to the idea that the market can do what it does - and if he's wrong, he has to get out. He thought about the number of winning trades ahead of him. "By living the philosophy that my winners are always in front of me, it is not so painful to take a loss.
Most people would rather lose money than admit they’re wrong. What is the ultimate rationalization of a trader in a losing position? “I’ll get out when I’m even.” Why is getting out even so important? Because it protects the ego. I became a winning trader when I was able to say, “To hell with my ego, making money is more important.”
An object in motion will stay in motion. This principle means that once price starts trending, there is a good chance that the trend will continue. Amateur traders always try to call tops and bottoms and enter trades counter to the ongoing trend, although riding the existing trend would often yield much better results.
“Most people think that they’re playing against the market, but the market doesn’t care. You’re really playing against yourself. You have to stop trying to will things to happen in order to prove that you’re right. Listen only to what the market is telling you now. Forget what you thought it was telling you five minutes ago. The sole objective of trading is not to prove you’re right, but to hear the cash register ring.”
After a successful period, take a day off as a reward. I’ve found it difficult to sustain excellent trading for more than two weeks at a time. I’ve had periods where I can be profitable for twelve days in a row, but eventually you just get battle fatigue. So, after a strong run of profits, I try to play smaller rather than larger. My biggest losses have always followed my largest profits.
Before taking a position, always know the amount you are willing to lose. Know your “uncle point” and honor it. I have a pain threshold, and if I reach that point, I must get out.
I want to leave you all with this last nugget, because the game of trading...
*I always try to encourage people that are thinking of going into this business for themselves. I tell them, “Think that you might become more successful than you ever dreamt, because that’s what happened to me.” I have a wonderful lifestyle. My kids think all fathers work at home.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
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by rollandthomas