Mr Top Step, Danny Riley (Twitter)was nice enough to share this interview and Q and A with famed trader and Market Wizard, Marty Schwartz.
Before I go into the summary and what I learned from the interview, Danny O’Reilly points out that ideas should be shared by dedicating this video to Charlie D. Charlie was a floor trader that taught a lot of other new traders unselfishly and did very well for himself. I also agree with this. I see those willing to share, whether its on their blogs or twitter accounts, get a ton out of helping others. I don’t know if it is karma but I appreciated the message.
The video runs one hour and is well worth your time. I’ve already watched it twice! Without further ado, here are some notes and key takeaways:
Marty Schwartz on: not being outworked by anybody, his trading, sucker plays (when the chart looks the best), being prepared the night before with levels, the emotions of trading (fading emotions), etc…
“The problem is when the opportunity presents itself, you usually are carrying some bad inventory or you are pissing in your pants” –I found this quite funny and on point. Most traders take risk and seldom are out entirely from the market. So in a bigger correction, when the time is ripe to go for the kill and get long, what holds traders back is their bad inventory (stocks with unrealized losses) or their fear (Ebola, Greek Exit, FED rate increase etc…).
“Am I craving the action or do I really want to win and be successful? Until you can answer that you should save your money.” –If you play Black jack and count cards there are times when the count is not favorable. Do you walk around and find another table, go to the bathroom or do you keep playing even when the odds are not in your favor? It’s quite the same in the stock market. Avoiding the sub optimal times in the market is a big battle for traders who love trading and love taking on risk.
Marty Schwartz said he could train 100 traders and only one or two would come out successfully. WHY? Its because you have to find something that compliments YOUR OWN style. –I’ve seen traders on Twitter with very good track records but followers unable to replicate the results even shadowing their trades. Why? Because its not their style and they are only picking a few trades instead of all of them. Either way, the point is to develop your own style of trading.
The mathematics of draw downs. Losing one third of your capital, you now must gain back around 50 % to get back to even. –Study this table of the mathematics of drawdowns by @SJosephBurns
Options premiums on puts have more premium than calls. Schwarz sells options on the S&P 500 300 + points OTM on puts and calls around 80-100 points OTM
Firewalls: Currently short 2180 calls but long 2200 calls on back spread so he can adjust and diminishes the margin requirement he needs to post.
“Oscillators precede price. You must use them over and over again until you can really tee it up.”–This is a marathon, not a sprint. For Schwartz, the market gives him a feeling with his methodology. He is not systematic but is self described as a synthesizer, taking in all of the information and trying to setup lower risk entries with high rewards.
“The key to being a great trader is to be flexible.” Schwartz can switch from long to short over a news event or something he sees. He talked about a story where one trader followed him into a trade and then shortly after flipped the position and went the opposite way. He owed nothing to that other trader, caveat emptor.
“Willing your position to win (adding to losers or pyramiding), does not lead to happiness.”–A lot of self development teaches you to just believe in yourself and your goals will come true but the market cannot be willed by one person, so willing your way to success is a chance at blowing up.
Here is the video. I hope you enjoy it as much as I did. httpv://www.youtube.com/watch?v=TAKMRFf0Mb0