Market Wizard Monroe Trout

Jack Schwager’s interview with Monroe Trout from The New Market Wizards came at the perfect time for me. I have been thinking that I would like to begin moving towards a more systematic approach to my trading. Trout’s hybrid style that combines systems and discretionary trading served as inspiration for me to further pursue a shift in that direction.

Top Five Quotes From Market Wizard Monroe Trout

“If you find the ones who know something about the market and are willing to talk to you about it, you can learn quickly.”

Trout is talking about trading in the pits here, however I have found this quote to have a much broader application. I have found many very successful traders through Facebook and Twitter who have been more than willing to help me learn in any way that they can. Since I began talking to some of these traders, my knowledge growth has been outstanding.

The key here is being able to tell which traders actually know what they’re talking about. This ability to differentiate the knowledgable traders from the idiots tends to come with experience, but as a general rule, anyone who tells you how smart they are probably isn’t.

“I don’t pull out any money. I rent my condo and I drive a cheap car.”

This line made me laugh out loud. The more I study the great traders, the more I find that almost all of them have zero interest in material possessions. This is yet another shining example of that.

Obviously, it is much harder to trade if you have to make enough to cover your living expenses every month. It would be much easier to think clearly if you didn’t need the money. Once again here we see a trader who is more concerned with the game of beating the market than the monetary rewards that come with it.

“A successful trader is rational, analytical, able to control emotions, practical, and profit oriented.”

This is a nice way of summing up the character traits of a successful trader. It is probably understood that you have to be rational and analytical. It would be hard to develop an interest in the markets without those traits.

In my experience, the ability to control emotions is probably the most important of these traits and also the most difficult to master. There have been many times when I thought I had my emotions under control only to find out that I didn’t. This can be devastating for a trader.

“most small speculators will never be around long enough to find out whether their system could have worked, because they bet too much on their trades, or their account is too small to start.”

I think these two things holding traders back go hand in hand. When I started investing, I would invest my entire account into positions and reason that I had to because my account was so small. The two issues were tied together.

As my account grew (from saving, not from trading) I cut my trading back to what I thought were more reasonable positions only to learn later that I was still trading far to big for my account size. I think most traders go through this period of developing an appropriate risk strategy. Sadly, most investors have no concept of how much risk they are exposing themselves to.

“Good money management alone isn’t going to increase your edge at all. If your system isn’t any good, you’re still going to lose money, no matter how effective your money management rules are. But if you have an approach that makes money, then money management can make the difference between success and failure.”

I thought it was very interesting the way Trout discusses the relationship between a trading edge and money management. While money management is absolutely essential to profitable trading, it won’t be enough to save a bad system from failing. However it can mean the difference between long term winning or losing given a good system.