William Eckhardt Double-Take

Reading through The New Market Wizards written by Jack D. Schwager, I came across the William Eckhardt chapter and had to stop and re-read. I know what you are saying...."That book came out almost 20 years ago, where have you been?" Actually, I read the first book, Market Wizards, and since I don't care much for sequels, I passed on the second book.

Eckhardt's insights regarding market psychology and trading system development is well worth a second look. Maybe it is better that I didn't read this 20 years ago. The pitfalls that come with living the mistakes, rather than reading about them, tend to stick in the cranium longer. Someone wiser might benefit by following some of his advice beforehand.

Here's a small sample:

"One common adage on this subject that is completely wrongheaded is: you can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance." - William Eckhardt


"Don't think about what the market's going to do; you have absolutely no control over that. Think about what you're going to do if it gets there. In particular, you should spend no time at all thinking about those rosy scenarios in which the market goes your way, since in those situations, there's nothing more for you to do. Focus instead on those things you want least to happen and on what your response will be." - William Eckhardt


"If a betting game among a certain number of participants is played long enough, eventually one player will have all the money. If there is any skill involved, it will accelerate the process of concentrating all the stakes in a few hands. Something like this happens in the market. There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses. The implication for the trader is that to win you have to act like the minority. If you bring normal human habits and tendencies to trading, you'll gravitate toward the majority and inevitably lose." - William Eckhardt


"It's much easier to learn what you should do in trading than to do it. Good systems tend to violate normal human tendencies." - William Eckhardt


"I know of a few multimillionaires who started trading with inherited wealth. In each case, they lost it all because they didn't feel the pain when they were losing. In those formative first few years of trading, they felt they could afford to lose. You're much better off going into the market on a shoestring, feeling that you can't afford to lose. I'd rather bet on somebody starting out with a few thousand dollars than on somebody who came in with millions." - William Eckhardt


"If you're playing for emotional satisfaction, you're bound to lose, because what feels good is often the wrong thing to do. Richard Dennis used to say, somewhat facetiously, "If it feels good, don't do it." In fact, one rule we taught the Turtles was: When all the criteria are in balance, do the thing you least want to do. You have to decide early on whether you're playing for the fun or for the success. Whether you measure it in money or in some other way, to win at trading you have to be playing for the success." - William Eckhardt