Insights, Lessons Learned And Skills Reinforced From 11 Market Wizards In 2020

The catalyst for this blog is the new Stock Market Wizards book that happily appeared under my Christmas tree last week. When I opened this gift, I was in the midst of doing my own annual page-by-page review of my personal Traders Journal for the year 2020. Putting that aside, I eagerly read through Jack Schwager's newest book, Unknown Market Wizards (2020, Harriman House).

This particular Schwager book with his interviews of 11 investors / traders related to me on a very personal level. Why so? The mere fact is that unlike his other Market Wizards books — with billionaire traders like Paul Tudor Jones, Richard Dennis and Bruce Kovner — the real world traders in this new book are a lot more like me. In that light, for page after page, trader after trader, a recurring truth resurfaces consistently. It's one that we investors need to hear and reinforce — you must "keep a Trader's Journal." For example, Richard Bargh records his thoughts and feelings daily to identify weaknesses in his mindset. He does this to keep track of how his mindset changes over time. Another trader talks about how his journal helps him highlight trading errors. It's clear to him that you must learn from your mistakes and embrace the lessons if you are to become a consistently profitable long-term investor. 

Trader Daljit Dhaliwal talks about the importance of a methodology that fits one's own personality. Your personal Traders Journal is the tool to make that a reality. Another trader explains the importance of risk management to one's success. The strange phenomenon with investors is that one's risk tolerance shifts constantly so a personal journal is the best way to gauge these shifts over time and to invest accordingly to reflect your personal risk over time. Nearly all of these wizards talk about having a precise methodology. A shoot-from-the-hip approach is the antithesis of successful investing. In reality, we've all been guilty of such impulsive behavior. Therefore, our journals become our confessionals, helping us avoid the dark side of trading outside of our methodology. 

Speaking metaphorically, there is an interesting two-headed dragon that appears as one reads this book. One head of the beast advocates for taking larger positions on select high-conviction trades which is a well-documented strategy of most exceptional traders. The other dragon head, however, is overly fearful of large trades and becomes paralyzed into a mindset that clearly leads to poor decisions. The best therapy for reconciling this two-headed creature is your trading journal. Addressing this balance and writing about it in your journal leads to better outcomes that will improve your bottom line. 

Another theme which emerges is that investors must never underestimate the importance of acknowledging and dealing with their own human nature. This particular theme is also a big part of our book, Tensile Trading. We call it the "Investor Self". Schwager's wizards tell stories of being adversely impacted by their own emotion-based actions. In particular, they contend that trades motivated by greed or by a compulsion to make back money lost in the same market causes serious damage to both present and future trades. Short of a therapist or personal trading coach, their trading journals proved to be the best device available to identify and corral these killer tendencies. 

I especially related to one of the Wizards who describes how he lightens up his positions amidst the euphoria of a parabolic market move — always wanting to be on the right side of a liquidation panic while accepting the actuality that he'll leave some money on the table. My own 2020 trading journal has a provocative narrative of my struggles this year with precisely this situation. Writing about my present conflicts real time and chronicling my thinking and behaviors has had the effect of vaccinating me against future missteps. If you don't have routines which embrace lessons learned, then those insights will be wasted and mistakes will recur. You'll be destined once again to pay tuition to the University of Wall Street!

A number of the Wizards disclose the need to spot emerging trends in both social media and happenings of everyday life as a source of uncovering trading opportunities. They maintain that similar reappearing observations in your trading journal will alert you to these progressions and allow you to profit from your vision. 

Finally, I felt an affiliation to Amrit Sall as he speaks about what he calls the "Internal Game of Trading". He contends that keeping a trading journal helps him maintain focus with a calm mindset. Moreover, he talks about charting the connection between emotions and losses. Purging self-sabotaging behavior preserves his "mental capital" which he claims is a critical aspect of trading success. Others touch as well upon these very same sentiments. 

In closing, let me paraphrase a quote by Musauer Mansoor Ijaz: "There is no such thing as beating the market. When you make money, it is because you understood the same thing as the market did and you behaved in the appropriate manner. If you lose money, it's simply because you refused to listen to the market and behaved inappropriately. There is no other way of looking at it."

My advice remains the same as always, Keep a trading journal in order to better understand your behavior and to help you hear what the market is saying. 

Trade well; trade with discipline!

- Gatis Roze, MBA, CMT

StockMarketMastery.com

• Author, "Tensile Trading: The 10 Essential Stages of Stock Market Mastery" (Wiley, 2016)
• Presenter of the best-selling "Tensile Trading" DVD seminar
• Presenter of the "How to Master Your Asset Allocation Profile DVD" seminar
• Developer of the Tensile Trading ChartPack for StockCharts members