Marty Schwartz is an independent trader, who was a legend in the 1980s. He was featured in the first Market Wizards book. Here’s Jack Schwager’s description of Schwartz:
In nine of the ten four-month trading championships he entered (typically with a starting stake of $400,000), he made more money than all the other contestants combined. His average return in these nine contests was 210 percent—nonannualized! (In the one remaining four-month contest he witnessed a near breakeven result.) In his single entry in a one-year contest, he scored a 781 percent return.
5 notable quotes from Schwager’s interview with Schwartz:
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I always take my losses quickly. That is probably the key to my success. You can always put the trade back on, but if you go flat, you see things differently. The pressure you feel when you are in a position that is not working puts you in a catatonic state.
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Learn to take losses. The most important thing in making money is not letting your losses get out of hand. Also, don’t increase your position size until you have doubled or tripled your capital. Most people make the mistake of increasing their bets as soon as they start making money. That is a quick way to get wiped out.
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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.”
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I always check my charts and the moving averages prior to taking a position. Is the price above or below the moving average? That works better than any tool I have. I try not to go against the moving averages; it is self-destructive. (in his book Pit Bull, Schwartz says that he is using a 10-period exponential moving average).
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What was your experience during the week of the October 19, 1987 stock crash?
I came in long. I have thought about it, and I would do the same thing again. Why? Because on October 16, the market fell 108 points, which, at the time, was the biggest one-day point decline in the history of the stock exchange. It looked climatic to me, and I thought that was a buying opportunity. The only problem was that it was a Friday. Usually a down Friday is followed by a down Monday.
The high in the S&P on Monday was 269. I liquidated my long position at 267.5. I was real proud of that because it is very hard to pull the trigger on a loser. I just dumped everything. I think I was long 40 contracts coming into that day, and I lost $315,000.
One of the most suicidal things you can do in trading is to keep adding to a losing position. Had I done that, I could have lost $5 million that day. It was painful, and I was bleeding, but I honored my risk points and bit the bullet.
I thought about going short, but I said to myself, “Now is not the time to worry about making money; it is the time to worry about keeping what you have made.” Whenever there is a really tough period, I try to play defense, defense, defense. I believe in protecting what you have.
Source: Schwager, Jack D. (2012-01-09). Market Wizards: Interviews with Top Traders. Wiley. Kindle Edition.
Related reading: Size Matters
