After reading Jack Schwager’s introduction to his interview with Al Weiss in The New Market Wizards and seeing how short the chapter was, I didn’t think I would be able to get five solid quotes out of it. Once again, I was dead wrong. Obviously I wasn’t able to see the parts of the interview that Schwager cut out, but I found the parts he left in to be very interesting.
Top Five Quote From Market Wizard Al Weiss
“It was not an overnight process. I spend four years of solid research before doing any serious trading.”
Weiss explained that due to a couple of very successful investments, he was able to spend four straight years doing nothing but studying the markets. He went into great detail describing how far back he went in his analysis of chart patterns. According to Weiss, most people who study the markets only go back 30 years. He believes that his more exhaustive study is one of the reasons he has been so successful.
I think the first part of this quote is powerful as well. So many new traders think that they are just going to open an account and start printing money. This is rarely the case, and if there are profits, it’s usually more due to lucky timing than skill. Successful trading is a process that must be learned and mastered through years of study.
“A pattern that works 50 percent of the time can be quite profitable if you employ it with a good risk control plan.”
Once again, we see an incredibly successful investor pointing out the importance of risk management. I have read many times that the beginning trader spends far too much time focusing on entry and exit points and far too little time focusing on risk management. I have also read studies where monkeys throwing darts have traded successfully by using strict risk management.
The key here isn’t that you should let a monkey pick your stocks. The key here is that it is FAR more important that you have a solid plan for how to trade the stock than how to find the stock.
“Many economists have tried to trade the commodity markets fundamentally and have usually ended up losing. The problem is that the markets operate more on psychology than on fundamentals.”
Every book on my Top Ten Trading Books breaks down this concept in one way or another. Our current strategy is to use fundamentals to screen for stocks, but to use technicals for the actual trading of those stocks. This gives us a best of both worlds approach.
“Another import an consideration in regard to cycles is that their lengths vary greatly from market to market.”
I thought this was an interesting point to make that probably doesn’t get enough consideration. Weiss pointed out that some grain markets go through bull phases every five years while gold goes 20-30 years between bull markets. This goes back to the first quote that it is important to put in the time and do the research.
“The essential element is that the markets are ultimately based on human psychology, and by charting the markets you’re merely converting human psychology into graphic representations. I believe that the human mind is more powerful than any computer in analyzing the implications of these price graphs.”
This is a pretty standard argument in favor of technical analysis. Crowd psychology is what drives the supply and demand of major price movements. I also find it interesting that Weiss believes the human mind is better equipped to interpret these moves than any computer.