People are always asking me to recommend books about markets and trading. I have read many and there are many more on my list but for inspiration, readability and insight, few books can match the Market Wizards series by Jack D Schwager.
The latest is Hedge Fund Market Wizards, published on May 29, 2012. I want to talk about the great lessons in the first chapter, which is with macro trader Colm O’Shea. Most of the chapter can be read for free at Google books.
This chapter repeatedly resonated with me because we have a similar trading style and outlook. Let me share some of the best insights.
- Policy makers don’t understand that they are not in control. It’s not that speculators are in control, either, but rather that fundamentals actually matter.
- If you read the Financial Times, it’s all there. You don’t have to be a brilliant economist, you just have to realize when something matters.
- Implementation is the key to everything.
- Never underestimate the ability of people to be optimistic and believe that everything is going to be okay.
- What is important to the market is not whether growth is good or bad, but whether it’s getting better or worse.
- This is what strikes me about really good money managers — they don’t get attached to their ideas…. I recognize the world as I find it and I am flexible enough to change my mind.
- He views trades as hypothesis’ on what’s happening in the world
- You have to embrace uncertainty and risk
- Don’t set stops based on your pain threshold, set them based on the hypothesis. Start by deciding where the market would have to go for me to be wrong.
- Perseverance and the emotional resilience to keep coming back are critical because as a trader you get beaten up horribly.
I explored another comment O’Shea made about the madness of current economic thinking in a post at ForexLive.