Book Review: Unknown Market Wizards: The Best Traders You’ve Never Heard of

Jack D. Schwager is the author of Unknown Market Wizards. He is the man behind the Market Wizards series. He interviewed successful traders who are not well-known in this new book. It offers the readers a glimpse into the mind of some of the world’s best traders.

Layout of Unknown Market Wizards

Unknown Markets Wizards contains a preface, 10 chapters, a conclusion, an epilogue, and two appendices. The chapters are divided into two parts.

Part I consists of the first five chapters and the interviewees are all futures traders.

The next five chapters form Part II and the interviewees are all stock traders.

The conclusion is called 46 Market Wizard Lessons and is the summary of this book. The two appendices are Understanding the Futures Markets and Performance Metrics.

Highlights

I will share what I learned for investing from this book. First, good risk management. There are three levels of risk management: individual position, portfolio levels and equity-based. The first level is about limiting the loss on individual trades and the second level is about minimizing correlation of the individual positions. The third level means cutting position sizes or ceasing trading when equity drawdowns reach specific threshold. Good risk management will help to protect our capital. I am lacking in this area.

Second, avoid suboptimal trades. For me, it means to concentrate on stocks that I have high confidence of them turning out to be profitable. In order to have high conviction, it means that I would have to know the company thoroughly and conclude that its performance will continue in the future. Nonetheless, no one can accurately predict the future and this is where risk management comes into the picture.

By having a strategy and sticking to it will help to remove human emotions and impulses which often lead to disastrous results. Nonetheless, the strategy may need to be updated as the method may become obsolete as the world progresses. The strategy should fit an investor’s personality, otherwise it would often fail. Remember that investing or trading are activities where success or failure depends fully on the person. So, learn from own mistakes and avoid repeating them, rather than blaming the outcome on someone or something else.

Conclusion

Unknown Market Wizards is obviously about trading or speculating. Nonetheless, some lessons here can be applied to investing too. This book has prompted me to rethink my investing strategy and refine my risk management. I have read a lot of investment books but this book really left a deep impression on me. Thus, I would recommend you to read it to learn about the risk controls used by these traders.

As usual, let me end with some quotes from the book.

“Successful trading is the art of doing nothing. It’s what you don’t do in between the real trade opportunities that will determine your success over the long run.”

“Don’t sweat the trades you missed that you weren’t prepared to take in the first place. The markets provide a constant stream of opportunities.”

“The markets are not about certainty; they are about probabilities.”

“Analyze every mistake you make until you learn something from it and then incorporate what you learn into your process.”

“If you are hoping a trade will work, you are gambling and not trading.”

Recommended book

I borrowed this book and could not find a store selling it online in Malaysia. So, if you know where to get this copy, kindly let us know in the comments section below.