Market Wizards: Interviews with Top Traders
Interviews that introduced the trend followers to a general audience.
Summary
Schwager interviewed traders who had produced exceptional records, including Michael Marcus, Bruce Kovner, Richard Dennis, Paul Tudor Jones, Ed Seykota, Marty Schwartz, Jim Rogers, Tom Baldwin, Michael Steinhardt and William O'Neil. Each chapter is a transcript with Schwager's framing, and the traders describe their methods, their worst losses and their rules.
The methods conflict directly. Some are pure technical trend followers, some are fundamental macro traders, some are floor scalpers, some are value investors. Schwager's argument, made in the closing chapter, is that the common elements are not in the method but in the approach: every one of them has a defined edge they can articulate, every one treats risk control as the first consideration rather than as a constraint on returns, every one sizes positions relative to what they can afford to lose rather than to what they expect to make, and every one has a rule for exiting a losing position that is set before entry. Several describe an early catastrophic loss that produced the discipline.
The book is the most quoted trading book after Reminiscences of a Stock Operator, and its value is in showing that many incompatible methods work and that risk management is what separates the survivors. The obvious problem is survivorship: Schwager interviewed people who had already succeeded, and there is no way to know how many traders with identical discipline failed. Several of the interviewees subsequently had large drawdowns or closed. The interviews are from 1988 and market structure has changed completely, so the specific techniques are historical.
Key takeaways 7
- Successful traders use incompatible methods, which shows that no particular approach is required and that the method must fit the person using it.
- Risk control is the first consideration in every successful trader's process, and position size is set by what can be lost rather than by what might be gained.
- An exit point for a losing position must be determined before the position is entered, because judgement deteriorates once the loss exists.
- Most large losses come from a small number of positions where the trader abandoned their own rules, not from the method being wrong.
- Traders must be able to state what their edge is, and those who cannot articulate why they expect to win are gambling.
- Losing periods are inevitable and the correct response is to reduce size, not to increase it in order to recover.
- A trading approach borrowed from someone else fails because the borrower will not hold it through the drawdowns the originator tolerated.
Who should read it
Traders and investors who want first-hand accounts of risk discipline from practitioners with different methods, read with survivorship bias in mind.
About Jack D. Schwager
Futures research director and author; co-founder of FundSeeder; creator of the Market Wizards series
The Market Wizards interviews are a primary record of how top traders actually operate, cited across the field.
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