Lessons From a Trading Great: Michael Marcus

Michael Marcus turned $30,000 into $80 million over a 20 year period — not too shabby.

He was profiled in Schwager’s original classic Market Wizards, giving one of the more impressive interviews in a book filled with many.

What many don’t know is that Marcus was also part of what has to be the most famous mentor/trader lineage in trading history. The names read like a trader hall of fame inductee list.

The lineage began with Amos Hostetter, Founder of Commodities Corp and mentor to Ed Seykota (whom was also profiled in Market Wizards). Seykota then trained Marcus whom in turn mentored Bruce Kovner.

That’s like if Jerry West had trained Kareem abdul-Jabbar and he taught Michael Jordan whom then mentored Stephen Curry.

Needless to say, whatever knowledge they were teaching one another is worth knowing.

To follow are some bits of wisdom from one of trading’s greatest:

On Having the Proper Mindset

I think that, in the end, losing begets losing. When you start losing, it touches off negative elements in your psychology; it leads to pessimism.

I am very open-minded. I am willing to take in information that is difficult to accept emotionally, but which I still recognize to be true.

Gut feel is very important. I don’t know of any great professional trader that doesn’t have it being a successful trader also takes courage: the courage to try, the courage to fail, the courage to succeed, and the courage to keep on going when the going gets tough.

I would sometimes think that maybe I ought to stop trading because it was very painful to keep losing. In ‘Fiddler on the Roof,’ there is a scene where the lead looks up and talks to God. I would look up and say, ‘Am I really that stupid?’ And I seemed to hear a clear answer saying, ‘No, you are not stupid. You just have to keep at it.’ So I did.

Trading has two types of capital that must be managed – financial capital and mental capital. In this case, losing a lot or being unsure of your system drains you of your mental capital. You don’t want to do that. Losing either your financial or mental capital will knock you out of business. So protect both equally well.

The Importance of Risk Management

At key intraday chart points, I could take much larger positions than I could afford to hold, and if it didn’t work immediately, I would get out quickly. For example, at a critical intraday point, I would take a twenty-contract position, instead of the three to five contracts I could afford to hold, using an extremely close stop. The market either took off and ran, or I was out.

If you become unsure about a position, and you don’t know what to do, just get out. You can always come back in. When in doubt, get out and get a good night’s sleep. I’ve done that lots of times and the next day everything was clear.

My trading in those days was a little bit like being a surfer. I was trying to hit the crest of the wave just at the right moment. But if it didn’t work, I just got out. I was getting a shot at making several hundred points and hardly risking anything. I later used that surfing technique as a desk trader.

Perhaps the most important rule is to hold on to your winners and cut your losers. Both are equally important. If you don’t stay with your winners, you are not going to be able to pay for the losers.

The Philosophy Behind His Trading

Every trader has strengths and weaknesses. Some are good holders of winners, but may hold their losers a little too long. Others may cut their winners a little short, but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach.

The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone. First, the fundamentals should suggest that there is an imbalance of supply and demand, which could result in a major move. Second, the chart must show that the market is moving in the direction that the fundamentals suggest. Third, when news comes out, the market should act in a way that reflects the right psychological tone.

I think to be in the upper echelon of successful traders requires an innate skill, a gift. It’s just like being a great violinist. But to be a competent trader and make money is a skill you can learn. 

In the final analysis, you need to have the courage to hold the position and take the risk. You need to be aware that the world is very sophisticated and always ask yourself: ‘How many people are left to act on this particular idea?’ You have to consider whether the market has already discounted your idea.

I look for confirmation from the chart, the fundamentals, and the market action. I think you can trade anything in the world that way. 

Comm. Corp. taught me to see the signal, like the signal, follow the signal. If you follow your system /methodology then over time your edge will kick-in and you’ll end up ahead.

 

If you’re craving more lessons from the trading greats, then check out our in-depth special report by clicking here.

 

 

Michael Marcus

Related Posts

Subscribe To Our Newsletter

Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

AK

Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.