The Real Secret Of The Markets: From All The Market Wizards

By Dave McLachlan

Psst!  Can you keep a secret?  Read on, I’m about to reveal the magical key to the markets.  Whoops, did I say magical?  Would you believe… mundane?  As they say, the best way to hide something brilliant is in plain sight. 

Some people see the market as a lifelong puzzle.  They might spend years and years – some even decades trying to decipher that one “secret” to the markets.  For them the winning strategy is just one trading rule away – that if they just figure out this next mathematical formula, or that next astrological signature they will have trading success and live happily ever after, basking in their riches.

This really gives me a good chuckle.  Especially as the founders of Long Term Capital Management (rest their trading souls) were all mathematical geniuses, with PHDs and an “unbreakable” formula.  Several billion dollars down the drain later and a world emergency in the mini crash of October 1997… well, you get the point.

There IS A Secret, But It’s Not What You Think

But there is hope – and that is because there IS a secret method to the markets – but it’s not what you think.  If you have read Jack Schwagger’s Market Wizards books (and if you haven’t PLEASE go out and get them… right now!) you will find that all the top performing traders of the world have different methods.  In fact I don’t think one is exactly the same.  And yet they all out-perform the market on a consistent basis.

How can this be?  They can’t ALL have the secret to the markets, can they?  Again, yes – but not in the way that you think.

Giving You An Excuse To Trade

You see our precious trading rules, the ones we worked so hard to learn and stick to every day are actually nothing more than an excuse to trade.  That’s right – they are a reason for your brain to say “OK, I will put my trade on here”.  Your rules might be different to Joe Bloggs down the road, and yet you might enter a trade at around the same price, at around the same time.  Even if you enter at different times, you both still might be profitable.  How does this happen?

Well first we have to realise that there are no “right rules” – just rules that are right for us.  Some of us might prefer a longer term approach.  Some of us might prefer to be amongst the action and glued to our screens all day.  Some prefer numbers, some prefer pictures.  We are all different – so we must find the method that suits our differences.

The Handful Of Things That Give You Success

Once we know this, there is really only a handful of things that give us success.  And yes – you can consider them magical if you really want to!  The first is that old trading maxim:

  • Let your profits run and cut your losses short.

In fact, this was the only thing that all the Market Wizards had in common – their systems cut their losses and let their profits run.  The second one is, as old hand Pat Hearne from Reminiscences Of A Stock Operator puts it:

  • You can’t tell til you bet!

Or in other words – you’ve got to be in it to win it.  You don’t make money sitting on the sidelines.  Every trading system in the world will have a losing period at some stage.  The key is having the gumption to stick to your rules and be in the market when it takes off again in your direction – and not to lose too much in the mean time.

So throw away your misconceptions of right or wrong.  There is only profit and loss.  And I hope you’re with me on this one, because the profit side makes me much happier than the loss!

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April 14, 2010  Tags: , , , , , ,   Posted in: Articles On Building Wealth

One Response

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