Market Wizard Michael Marcus Trader Insights


Michael Marcus Trader Insights

Michael Marcus “They started me out with $30,000 in August 1974. After about ten years, I had turned that account into $80 million. Those were some very good years”Market Wizards interview with Jack Schwager

Michael Marcus is one of the most successful traders interviewed in Jack Schwager’s Market Wizard series. One of the keys to Marcus’s early market success was his ability to recognize the importance of intra-day chart points through his work on the trading floor at the New York Cotton Exchange. By paying attention to key intra-day chart levels Marcus was able to take much larger positions than he would have otherwise. The market would either take off, or he would be out for a small loss. Trading in this manner allowed Marcus to book huge winning trades of 30-40 times the size of his losing trades.

In today’s volatile electronic markets this method has become  less effective: false breakouts are the norm, back and fill is common place and small stops are easily taken out.

Michael Marcus Trader Insights:

  • Traditional trend following systems are doomed to mediocrity: Markets have changed and are increasingly prone to false breakouts. “Once a trend has been defined and a position taken, everyone else has taken the same position. Since there is no-one left to buy, the market swings round in the other direction and takes you out. Central banks are active in the markets and work to prevent moves from getting out of hand by taking the other side of the trend.”
  • A good trader can’t be rigid: “If you can find somebody who is really open to seeing anything, then you have found the raw ingredient of a good trader.”
  • Losing Streaks: “I start cutting down very fast to the point of stopping completely if it gets bad enough. But usually it never gets that bad.”
  • Money Management: “The first thing I would say is always bet less than 5 percent of your money on any one idea. That way you can be wrong more than twenty times; it will take you a long time to lose your money. I would emphasize that the 5 percent applies to one idea. If you take a long position in two different related grain markets, that is still one idea.”
  • Trade Selection: “I think the secret is cutting down the number of trades you make. The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone. First, the fundamentals should suggest that there is an imbalance of supply and demand, which could result in a major move. Second, the chart must show that the market is moving in the direction that the fundamentals suggest. Third, when news comes out, the market should act in a way that reflects the right psychological tone.”
  • Pay attention to market volatility: “At that time, we had many wild markets. One of my rules was to get out when the volatility and the momentum became absolutely insane.”
  • Ed Seykota: “He is a genius and a great trader who has been phenomenally successful. When I first met Ed he had recently graduated from MIT and had developed one of the first computer programs for testing and trading technical systems. I still don’t know how Ed amassed so much knowledge about trading at such an early age. Ed told me, I think you ought to work here. We are starting a research group and you can trade your own account. It sounded great; the only problem was that the firm’s research director refused to hire me.”
  • Common behavior between different markets: “If you can trade one market, you can trade them all. The principles are the same. Trading is emotion. It is mass psychology, greed, and fear. It is all the same in every situation.”

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