Martin Schwartz is one of the most successful individual traders on Wall Street. He had suffered losses for ten consecutive years. Later, he found the correct method and started with 40,000 dollars and eventually reached 20 million dollars.
A continuous loss for as long as ten years
When Martin Schwartz began trading, he was like many ordinary traders, with both wins and losses, mainly losses. While working, Martin traded for about 10 years and suffered losses every year. Although his income from work was decent, he was always on the verge of bankruptcy because his salary was basically used to cover the losses in trading.
Due to the failure in trading, he dared not get married. When interviewed by the author of “Financial Mavericks,” he said, “(At that time) on the one hand, I wanted to start my own family, but on the other hand, I felt that my financial resources were unable to bear the expenses of the family. I always refused to get married because I was worried that getting married and the family life after marriage would use up all my money.”
Turn from a loser to a winner.
How did Martin Schwartz turn losses into wins? By finding a trading method suitable for himself.
Martin Schwartz’s original job was a securities analyst. He provided his analysis results to clients. His clients were generally fund managers. Then the clients would pay consulting fees to the company, and the company would pay Martin a salary.
As an analyst, Martin Schwartz analyzed stocks and futures from a fundamental perspective. Therefore, his early trades were all based on fundamental conditions, but they were not successful and he was always in a state of loss.
It was not until Martin Schwartz met a person – Bob Zoellner.
In 1974, Martin had a difficult time at work and switched to Edwards & Hanly. Here, Martin witnessed the company’s partner Bob Zoellner single-handedly making up for the company’s operating losses by shorting stocks. And Bob Zoellner’s trading method is technical analysis. Martin then began to turn to technical analysis and achieved success.
But this does not mean that fundamental analysis is useless. Instead, different people are suited to different analysis methods. Jim Rogers in the United States and Fu Haitang in China are both fundamental analysts. Moreover, these two people almost completely reject technical analysis. But they have both achieved success. Therefore, whether it is fundamental analysis or technical analysis, as long as one masters a trading method suitable for oneself.
From 5,000 dollars to 140,000 dollars.
In 1977, Martin Schwartz began to try trading using technical analysis methods. At this time, he mainly used two methods. One was Bob Zoellner’s method of analyzing market trends; the other was the “Magical T Theory”.
Regarding Bob Zoellner’s method, Martin Schwartz did not elaborate in detail during the interview. But he gave an example: When good news is released and the market does not rise but falls instead, it indicates that the market is very fragile and the market condition is poor. And when bad news is released and the market does not fall but rises instead, it indicates that the market is very strong and the market condition is good.
The “Magical T Theory” mainly states that “the time it takes for the market to rise and fall is equal. The two are symmetrical in time, but the increase and decrease in amplitude are not equal.”
In response to this query, Martin Schwartz explained, “Before the market falls, there will be a process of building a top, which I call the ‘top-measuring stage’ (M-top).
In the ‘Magical T Theory’, the calculation of the falling time does not start from when the price reaches its peak, but from when the oscillator reaches its peak (the oscillator usually peaks before the price). In fact, this distinction is the cornerstone of the theory and method of the ‘Magical T Theory’.”
At this stage, Martin Schwartz’s method is to learn from the strengths of others. In his words, he does not create new methods but integrates the different methods and models of others. For example, when he wants to choose an entry point, he will use more than three methods to verify whether he should enter. Only when all three methods show that he should enter will he buy.
By 1979, Martin Schwartz had used two years to increase his account from 5,000 dollars to 140,000 dollars. This was his first pot of gold in the speculative market.
Become an individual trader who earns 6 to 7 million dollars a year.
After learning about Martin Schwartz’s trading career, you will find that he does not have the kind of experience of getting rich overnight with extremely good luck. His trading is built up little by little. So I say that his experience is closer to that of ordinary investors and is achievable by ordinary people.
In 1979, after Martin Schwartz earned 140,000 dollars, he began to engage in floor trading. At that time, floor trading in the US securities market required buying a seat. After buying the seat, Martin was left with only 20,000 dollars in principal. He borrowed another 50,000 dollars from his parents-in-law. In total, he had 70,000 dollars in principal. Due to the profit-making experience of the previous two years, Martin grasped a certain trading rhythm, and all subsequent trades went very smoothly.
Four months after entering floor trading, Martin Schwartz earned 100,000 dollars. By 1980, Martin had earned 600,000 dollars. Since 1981, the money Martin has earned has never been less than seven figures. Until Martin withdrew from the trading market in 1992, he earned an average of about 6 to 7 million dollars a year.
Pyramiding method.
Trading methods and guidelines of champion trader Martin Schwartz.
Although Martin Schwartz was successful in the field of speculative trading, he was not well-known at that time. It was not until he began to participate in the national futures and stock investment competitions that he became a renowned individual trader.
Martin Schwartz participated in ten national futures and stock investment competitions and won nine championships and one second place. In the competition where he won the championship nine times, in the one with the most returns, he once achieved an excellent return rate of 781%. For this reason, he is called the “champion trader”.
Later, Martin wrote a book to tell about his trading experience and trading guidelines. The name of the book is “Pit Bull: Lessons from Wall Street’s Champion Trader”.
Martin Schwartz’s trading guidelines mainly include the following aspects.
I. Judging stock strength or weakness
When the market index has fallen below its recent low point, is the stock price of a certain stock still higher than the stock’s recent lowest price? If the market has made a new low while this stock has not, it indicates that the stock is much stronger than the market and its trend is better. Such stocks can be considered for selection, although whether to buy still depends on other indicators.
II. Reducing trading scale after making a profit
This is based on Martin Schwartz’s experience. His experience is that after a large profit, he often gets involved in a losing trade. So after a successful trading profit, he will either take a day off or reduce the trading scale in the next trade, that is, reduce the total amount of stocks purchased.
III. Choosing pyramiding when bottom-fishing
Martin Schwartz believes that bottom-fishing after a sharp price drop is a gambling behavior. However, sometimes when there are sufficient reasons for bottom-fishing, it can be tried. But one should enter the market in a planned way. For example, adopt the “pyramiding method”, which means building positions gradually rather than all at once. Moreover, the position size should not be too large.
IV. Setting a stop-loss point before building a position
Martin Schwartz believes that traders should know how much risk they are willing to take, that is, how much money they are willing to lose at most. Set a “point to admit defeat and leave the market” and strictly abide by it. For Martin, once the loss causes him pain, meaning the loss exceeds the range he is willing to bear, he will immediately stop loss and leave the market.
V. Continuing to hold when the most feared thing doesn’t happen
Sometimes, after buying stocks or futures, you feel anxious. You see some news or analysis saying that the market will fall. At this time, you are very scared and think you will lose money soon. But if the loss situation doesn’t occur, don’t close out at breakeven. Instead, you should continue to hold positions or even add positions. Because there may be some force “supporting the bottom” in the market at this time, but you don’t know what it is yet. When you know the reason behind it, you may have missed the opportunity to build a position.
Martin Schwartz has lived the life that many traders idealize. Although he had a difficult early life, at the age of 34, he began to embark on the right path and became a profitable independent trader. In 1992, at the age of 48, Martin Schwartz retired bravely and moved to Florida with his family, staying away from the noisy Wall Street and enjoying a leisurely life.
Reproduction Notes：InvestFancy » Martin Schwartz: The trading approach from 40,000 dollars to 20 million dollars!