Becoming A Market Wizard

Michael Marcus turned $30,000 into $20 million in just twenty years.

Wait, what?

That's correct. $30k into $20 million. That's why he was featured in the Market Wizards books. And that's why he has to be considered one of the greatest traders of all time.

Question: What were the qualities that made Marcus a Wizard?

Question: Is something like that possible for us?

First let's talk about Michael Marcus. In a recent article on Valuewalk.com, Marcus talked about his important trading guidelines. First I'll list and condense those items. Then I'll offer some comments. And then we'll look at becoming a Wizard ourselves.

Marcus' guidelines:

  1. Being a successful trader takes courage: the courage to try, the courage to fail, the courage to succeed, and the courage to keep on going when times get tough.
  2. Trading has two types of capital that needs to be managed -- financial and mental. Losing a lot drains you of your mental capital. Losing either mental or financial capital will knock you out of business. So protect both equally well.
  3. If you become unsure about a position, just get out. You can always come back in.
  4. As long as you stick to your own style, you get the good and bad in your approach.
  5. Gut feel is very important. I don't know of any professional trader that doesn't have it.
  6. I think to be in the upper echelon of successful traders requires an innate skill, a gift. But to be a competent trader and make money is a skill you can learn.
  7. Perhaps the most important rule is to hold on to your winners and cut your losers. Both are equally important.
  8. The best trades are the ones in which you have all three things going for you: fundamental, technical, and market tone.
  9. In the final analysis, you need the courage to hold the position and take the risk.

I love what he said about courage. We've talked about that many times in previous posts. And we'll talk about it many more times.

I also love what he says about mental capital. Losing is draining, and we've talked about that, too.

Getting out when you're unsure and sticking to your own style are also very valuable points.

It is with his next points that I find myself disagreeing strongly with someone who made $19,970,000.

What does it mean that gut feel is important? I know what it means, of course, but how does this help anyone? If I'm sitting in my trading room tomorrow, how do I use "gut feel" to take my next trade? It doesn't mean anything.

And to then go on to say that it is gut feel alone that can take you to the upper echelon is dishonest. How can something that can't be defined be the only thing that makes you great? All that does is foster hopelessness and confusion.

As far as the old adage of holding winners and cutting losers? It's true if you're a trend-follower. It's absolutely not necessary if you're a daytrader.

And the best trades have fundamental, technical, and market tone? What the heck is "market tone"? How do I use that in my trading?

Last, I don't think fundamental reasons ever have to be a part of a successful trading plan.

Okay, let's try this. Let's look at a robot (the exact same one we looked at last week). This robot doesn't have gut feel, doesn't hold winners, doesn't cut losers, doesn't look at fundamentals, and doesn't consider at market tone.

And it's a robot I've personally traded and is traded by some of my Lifetime Members.

The goal is to get from $30,000 to $20 million in 20 years.

Guess what? It failed. It didn't get to $20 million.

It did much better than that.

Here's a screenshot of the compounding spreadsheet I used last week on the EURAUD robot:

 

In the webinar, I stopped the calculations when I got from $10K to $1 million (in 5.6 years). On this spreadsheet I kept going until today (October, 2016).

If you kept going, you can see that $10K turned into $16.3 million by October, 2016 (starting in March, 2006).

To put that into perspective, Marcus compounded his money at a rate of 38.4% annually. The EURAUD robot (hypothetically, of course) compounded at a rate of 99.6% annually.

In short, the robot out-traded a Market Wizard by a rate of almost 3 to 1. A simple robot, with no gut feel, fundamentals, or trading axioms, does everything a master can do -- only better.

Summary:

  • Marcus: $30,000 into $20 million in 20 years
  • Robot: $10,000 into $16.3 million in 11 years

To trade at a Market Wizard level, though, it takes a boatload of courage, which was Marcus' final point.

He's not a Wizard for nothing.

Tomorrow we'll talk about how much courage it takes to do Market Wizard things.