Market Wizard Mark Ritchie

After reading Jack Schwager’s explanation of Mark Ritchie’s trading system, I was afraid that Ritchie’s interview in The New Market Wizards was going to be a little to compacted for me to get much value from it. That couldn’t have been farther from the truth. This was one of those interviews where I couldn’t stop highlighting one line after another. Ritchie provided so much incredible insight that I could have made this post the Top Thirty Quotes From Market Wizard Mark Ritchie. With that said, I highly recommend checking out this interview.

Top Five Quotes From Market Wizard Mark Ritchie:

“Lots of people in this business who pass themselves off as successes are really failures. I know one person in particular who to this day writes articles in industry publications and is often quoted by the press, yet he hardly knows the first thing about successful trading.” – Mark Ritchie

I think this actually applies to most areas of life. I have discovered that, as a general rule, anyone who feels the need to tell you how successful they are isn’t really all that successful. While the technology wasn’t developed yet when this interview was recorded, this quote certainly could apply to people who discuss the stock market on Twitter. There are some brilliant traders who are happy to provide insight, and there are some people who have no clue what they’re talking about. Your job is to learn how to tell the difference.

“I have a rule that whenever I’m still thinking about my position when I lay my head on my pillow at night, I begin liquidation the next morning. I’m hesitant to say this because it could be misconstrued. You know that I’m a praying person. If I find myself praying about a position at any time, I liquidate it immediately. That’s a sure sign of disaster. God is not a market manipulator. I knew a trader once who thought he was. He went broke – the trader, I mean.” – Mark Ritchie

This is a thought we have seen previously from other Market Wizards. If you are worried about a position to the point that it keeps you up at night, there is no possible way that you can clearly assess any aspect of the position. The best solution at that point is to liquidate the position. I thought Ritchie’s take on this was humorous.

“Magnitude of losses and profits is purely a matter of position size. Controlling position size is indispensable to success. Of all the traits necessary to trade successfully, this factor is the most under-valued.” – Mark Ritchie

This is another concept that has been preached by many of the Market Wizards. Almost every Market Wizard interview that mentions position sizing talks about reducing position sizing in order to limit risk. Ritchie goes on to say that positions should be small enough that any individual trade has virtually no impact on your emotions.

“You have to be able to think clearly and act decisively in a panic market. The markets that go wild are the ones with the best opportunity. Traditionally, what happens in a market that goes berserk is that even veteran traders will tend to stand aside. That’s your opportunity to make the money.” – Mark Ritchie

This concept goes both ways. It is important to keep our heads clear when the market gets out of control in either direction. Jesse Livermore was famous for making a fortune from the 1929 stock market crash. Similarly, many famous trend followers profited from the dot com crash as well as the financial crash in 2008. These traders all had one thing in common: they kept clear heads while the masses panicked.

On the flip side, the same traders were able to profit from the long side the whole way up in these bubble situations. They key is that they never let the situation get out of control. They never let their emotions influence their judgement. They always kept in mind that the market would eventually right itself.

“Also, I don’t think you can make money unless you’re willing to lose it. Unless you have money that you can afford to lose and still sleep at night, you don’t belong in the market. My willingness to lose is fundamental to my ability to make money in the markets.” – Mark Ritchie

This goes hand in hand with position sizing. The key is that you have to be ok mentally if your position goes against you. If you can’t afford to lose the money you are risking, then your judgement will be easily clouded. You will miss opportunities and hold on to losers because the fear of losing your capital will paralyze you.