Market Wizards – Jack Schwager

Market Meditations | January 5, 2021

The inspiration for Jack Schwager’s book Market Wizards was simple. He wanted to answer a fundamental question:

What separates the greatest traders of all time from the rest of the pack? 

His approach to answer the question was also straightforward:

Interview 17 of the greatest traders of all time and find out. 

Across all interviews there were some common denominators. Surprisingly, these were not the likes of: excellent education or impeccable charting skills. Rather, they were as follows: Desire, Discipline, Commitment, Patience, Independence, Risk Control and Acceptance of Loss.

All themes we cover regularly for our Market Meditators in the Tuesday and Thursday Education / Self Improvement newsletters.

In today’s letter, we provide insights from some of our favourite interviews in the book. Of course, should you want any more detail on the interviews we cover or access to the other interviews, be sure to check out the book.

Paul Tudor Jones 

Paul Tudor Jones (PTJ): billionaire hedge fund manager and estimated net worth of $5.8 billion.

A popular name and ally in our community, known for his bullish stance on crypto. Numerous supportive statements and interviews such as the below.

PTJ rose to fame when he predicted Black Monday. Not only predicted it but he even managed to survive it and make +62% that month.

In the Jack Schwager interview, one of the most remarkable themes we can draw is his close to obsession with risk control. Not what you might expect and not exactly the kind of click bait title the media likes to convey.

He admits that he thinks more about cutting losses than profit taking. He carefully uses stop losses with respect to price and time.

Time is an element some traders and investors forget in their risk management strategies. You’re waiting for a resistance level to be broken, sure but how long are you willing to wait?

Remember there is an opportunity cost to that trade. That is, you’ve locked up capital that could be deployed in other (profit making) trades. So it is essential to set timeframes to operate within.

✅ TIP: A valuable lesson we can learn from PTJ is to create trading strategies with a price target and time frame and a respective stop loss to mitigate risk within those parameters.

A more unique method disclosed in the interview: if PTJ reaches double negative digits in a month, he stops all trading activities. He believes this is what allows him to time many of the tipping points in the market.

Many traders and investors might prefer a buy and hold strategy compared to this more aggressive risk management approach.

However, the broader message is significant here: cutting your losses and letting your winners run. It is important that we learn to adopt a logical and unemotional approach to cutting losses. Without a futile ‘wait and hope’ method or doubling up on your position.

? The key is understanding that it is a long game and not about an individual trade or position.

Ed Seykota 

Ed Seykota (ES) was the pioneer of computerised trading systems. Such systems have come to dominate trading in legacy markets: with algorithms designed to trade off the back of headlines and technical levels much faster than humans could hope to ?

Much like PTJ, risk management is a top priority for ES. In the interview, he was asked what the elements of good trading are, to which ES responded:

The 3 rules of good trading are:

1️⃣Cutting losses

2️⃣Cutting losses 

3️⃣Cutting losses

Follow these 3 rules and you have a chance.”

On any one trade, he will not risk more than 5% of his equity. Although, he has admitted that there have been events where he has lost more than 5%. Specifically, black swan events where prices have gapped and his stop loss not been filled at the desired level. A powerful reminder to design a trading system to cope with such moves.

Another interesting statement from ES during the interview:

“Everyone gets exactly what they want out of the market.”

This is a testament to personal drive and ambition. Winners in the markets are those who genuinely want to win and are prepared to put the work into their constant education, growth and development.

Consistent losers have put a constraint on their success themselves. The idea is that: if you give up on your goal, you never truly wanted it in the first place.

Michael Marcus 

Michael Marcus (MM) was actually the student of ES. He is a commodities trader who managed to turn an initial $30,000 to $80 million ?

The lessons we draw from him are likely to do with that exact relationship and dynamic of knowing and initially learning from an extremely successful trader.

At the centre of MM’s trading philosophy is the importance of making your own decisions. This also goes for any type of investment ‼️

MM explains that each trader has strengths and weaknesses. For instance, some are good holders of winners but may hold their losers too long. Alternatively, some cut their winners a little short but are quick at taking their losses.

As long as you stick to your own style you get the good and bad of your own approach. When you incorporate someone else’s style you usually end up with the worst of both styles.

One must have the courage to hold on to their own position and accept the full risk. For if you are in a trade based on someone else’s strategy or judgements, given the slightest pushback by the market, you won’t be able to stick with it.


And thus concludes our summary of just a few insights from a handful of the great traders featured on Market Wizards.

We hope you are able to apply these lessons to your own trading and that they help you in your 2021 journey of wealth and success.