The Little Book of Market Wizards by Jack D. Schwager

2024-08-02

There is no single correct way to trade the markets. Successful traders find a methodology that fits their personality.
It’s not enough to have money management, you also need to have an edge. Having an edge means that you have a method. So what exactly is your methodology? Does your trading method provide an edge?
The hard work in trading comes in the preparation. The actual process of trading, however, should be effortless.

Know where you will get out before you get in.
Placing Stops: You should place a stop at a level that disproves your trade premise, as opposed to placing a stop based on your pain level. The market doesn’t care about your pain threshold.
Take partial loss: If the market is moving against you, and you don’t know why, take in half. You can always put in on again. If you do that twice, you’ve taken in three-quarters of your position. Then what’s left is no longer a big deal.
Never risk more than 1 percent of total equity on any trade.
When I asked the Market Wizards what differentiated them from the majority of traders, the most common reply I got was discipline.
It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I have known many men who were right at exactly the right time, and... they made no real money out of it. Men who can both be right and sit tight are uncommon.
Learn From Mistakes: I developed a discipline that whenever I put on a trade, I would write down the reasons on a pad. When I liquidated the trade, I would look at what actually happened and compare it with my reasoning and expectations when I put on the trade.
For the Market Wizards trading is not a matter of work or a matter of getting rich. Rather, trading is something they love to do - an endeavor pursued for the fun of the challenge.