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Thursday, November 30, 2006

23 Lessons From Stock Market Wizards




I recently finished reading Stock Market Wizards by Jack Schwager. This book has been my travel companion during my recent trips to Malaysia, with me reading it on the train and also on the ferry.

Most of you have probably heard of this book and some may have read it. For the benefit of those who have not read it or heard of it, Stock Market Wizards is basically a book that consists of interviews with 15 top stock traders in America. These top traders come from a myriad of backgrounds and have varied interests- from mathematician, historian, scientist, to those with an interest in photography and even farming. But they have quite a few things in common when it comes to trading:

DISCIPLINE

LOSS CONTROL

HARD WORK

Most of the traders interviewed were quite forthcoming, but a few were reluctant to talk about their strategies (even past strategies that worked but is now no longer used) for fear that disclosure would render its effectiveness. Of the 15 traders, only Mark Cook and John Bender are options trader. By the way, Mark Cook's story is one of my favourite and he is also the guy that likes to farm.

I am interested to read about these traders, not simply because they are top traders, but also because many of them encountered major failures and lost tons of money before they become successful in trading. The path to success is never easy and this book really keeps me inspired. I think in future if I meet with setbacks in my trading journey, I will re-read this book.



Here's my 23 lessons from Stock Market Wizards (in no order of importance):

1. Successful trader use trading methods that suit their personality
2. You can't control what the market does, but you can control your reaction to the market
3. To be a winner, you have to be willing to take a loss
4. HOPE should never be in your vocabulary
5. If you are on a losing streak, reduce your position size
6. Don't underestimate the time it takes to succeed as a trader
7. Approach trading as a vocation, not a hobby
8. Have a business / trading plan
9. Be honest about your weakness and DEAL with it
10. Know when to do nothing
11. Being a great trader is a process. It's a race with no finish line.
12. Never ever listen to other opinions. Make your own trading decisions
13. Analyze your past trades. Study what happened to the stocks after you closed the position
14. Don't take on excessive leverage. It only takes one mistake to knock you out of the game
15. Great traders continue to learn and adapt
16. Don't just stand there and let the truck roll over you
17. Being wrong is acceptable, but staying wrong is totally unacceptable
18. Contain your losses
19. Good traders manage the downside; They don't worry about the upside
20. Wall street research reports will tend to be biased
21. Knowing when to get out of a position is as important as when to get in
22. To excel, you have to put in hard work
23. Discipline, Discipline, Discipline!!!

Grade: A-


4 Comments:

Anonymous Anonymous said...

Have you tried www.optionwinner.com
?

12:23 PM  
Anonymous Anonymous said...

Great lessons, except for number four.
Being without hope is a terrible place to be in.

11:48 PM  
Blogger Simply Options Trader said...

Anon 1: no, i have not

Anon 2: lol, I guess in the context of trading, it's disastrous to ever hope the stock will recover its losses and keep holding on. Many times, a trader will end up losing everything.

But I do agree that we all need some hope in this world to help us pull through difficult times...

1:04 AM  
Blogger Phileo said...

Hi SimplyOptions,

I've been meaning to buy this book. Thanks for posting the great review !

3:10 PM  

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