Marty Schwartz is another rock star trader profiled in Market Wizards. After completing his service in the Marine Corps, Schwartz earned a MBA at Columbia Business School. After graduation, Schwartz became a securities analyst. Following eight frustrating years as a securities analyst, Schwartz became a full time independent trader in 1979. The star trader achieved trading fame during the U.S Trading Championships, run by Norm Zadeh, a professor at Princeton University. In the competition, Schwartz had larger profits than all of the other traders combined, and returned 781 percent in the one-year contest. Schwartz shares his trading tips in Market Wizards outline below.

Work Ethic
In any profession, a strong work ethic is important for success. Work ethic is especially important in trading, an extremely competitive career. Schwartz always tries to be better prepared than his competition. His preparation involves long hours and attention to detail, and this work ethic is crucial to his outstanding trading results.

Accepting and Recognizing Wrong Decisions
Removing ego from his trading psychology, is another important factor for Schwartz’s trading success. When Schwartz was a losing trader early in his career he struggled to admit when he was wrong. He corrected this detrimental psychology to become a winning trader. A component of being a winning trader is accepting that you cannot always be correct. Sometimes the market acts in improbable ways that one trader cannot fight against. Winning traders are able to recognize when they are wrong and cut losses. “One of the most suicidal thing you can do is to keep adding to a losing position.”

Coping With Large Losses
Even the best traders have to face large losses at times. Schwartz trades around large losses by reducing the size of his trades until he regains confidence. “After a devastating loss, I always play very small and try to get black ink, black ink. It’s not how much money I make, but just getting my rhythm and confidence back.”

Risk Control
Schwartz, similar to many traders including Larry Hite, employs strong risk control to be a winning trader. By limiting downside risk and preserving capital during down markets, Schwartz is able to position his portfolio to take advantage of early bull markets.

Macro Market News
Similar to many of the traders profiled in Market Wizards, Schwartz monitors how markets or stocks react to news to gain a better macro view of the market. When the market drops after good news, that indicates market weakness. Conversely, a market rally on bad news signals strength.

Schwartz’s 6 Top trading Rules
1. He compares moving averages of a security to the price of the security. “I try not to go against the moving averages, it’s self destructive.”

2. Schwartz also looks for specific types of market divergences such as a stock not declining when the general market has been falling. This divergence example would be a bullish indicator for the individual stock.

3. Similar to after a large loss, Schwartz reduces the size of his positions after a large gain. He has a personal track record of making over confident trades after a winning streak, so reducing his positon size increaes profit.

4. He does not generally attempt to pick the bottom of falling stocks. Schwartz believes this is very difficult and needs strong justification to buy a stock that is near all time lows.

5. Always have a set downside limit that outlines how much you are wiling to lose before entering the trade. This risk control measure is outlined by many other star traders.

6. “Work, work, work.” By learning from your mistakes and researching new methods traders improve over time and become more profitable.

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