The 5 Ss of Trading: Lessons from Market Wizards

One of my favorite books on investing is the Market Wizards book series by Jack Schwager. He recently released the latest book in the series, “Market Wizards: The Next Generation“.

Across all the books I’ve highlighted dozens of passages that offer insight and wisdom on how to navigate markets and trade. I’ve distilled those lessons into the 5 Ss of trading: Strategy, Size, Stops, Survive, Slow

Strategy. Your plan for trading the markets. And how you execute your plan. Size and stops should be part of your strategy.

Size. How much capital do you allocate per trade. A common theme from Market Wizards is they will (typically) not risk more than 0.5% – 2% of their capital on a single trade. Consider sizing into positions using tranches.

Stops. When you enter a trade, at what price level will you exit the trade if it goes against you? Determine this level before you enter the trade. A mental stop is much more difficult to uphold versus an actual entered stop.

Survive. Yes you trade to grow your account. But you need to preserve your account. You need for it to survive so that you have the opportunity to grow it. Ensure your strategy prioritizes the survival of your account.

Slow. Don’t rush into trades. Don’t rush into growing your account. The risk of over trading (the urge to do something) is a common theme shared by Market Wizards. Slow down and if you miss a particular trade, let it go, on to the next.

Using Gemini to proctor the Jeste-Thomas Wisdom Index (JTWI)

The Jeste-Thomas Wisdom Index (JTWI) is a wisdom scale developed by researchers at University of California San Diego.

It is a seven item questionnaire intended to evaluate wisdom. Naturally LLMs are great tools for proctoring such assessments.

Here was the prompt I plugged into Gemini:

I’d like to take the Jeste-Thomas Wisdom Index (JTWI) exam. Would you be able to proctor it for me? If yes, let’s do the exam where you’ll present one question at a time. I’ll provide my answer and then you can proceed to the next question.

Chrome Split View with Gemini

I’m loving the “new split view with current tab” feature in Chrome.

My current setup has Gemini on the left and the main content on the right.

In this example the main content is a WSJ article on proposed Medicare changes. Any passage that I’m confused about or need more insight, I feed into Gemini and ask away.

chrome-split-view
chrome-split-view

dbt Labs founder and CEO Tristan Handy on Reusable Ecosystems

https://a16z.com/podcast/ai-data-engineering-and-the-modern-data-stack

When asked which software engineering practices he is most excited about in the context of data and data engineering, he mentioned: local development environments, compilers, and healthy, reusable ecosystems.

Healthy, reusable ecosystems. When you build a website, you don’t start by writing HTML and CSS. You typically use something like React, which has a bunch of reusable components. And almost never are you going to build these basic components.

The point of good tooling is to multiply the impact of every individual professional. The better tooling you can give someone, the more business values they create, the more you can afford to pay them.

If we can create really highly functional package ecosystems, we can stop the process of people reinventing the wheel over and over again.

The more you can standardize, the better your (AI) agents will be able to interface with your data.

Insights from Howard Lutnick on All-In

From Commerce Secretary Howard Lutnick’s second appearance on the All-In Podcast.

Outcome driven

I am outcome driven. I don’t really buy into talking about how hard I worked on something that failed. If I worked really hard and it failed, it failed. Outcomes are what matter. You don’t tell people how hard you worked on what failed.

Incremental vs reimagining

Most people who have ever been in government tend to be incremental. They come in, learn how it worked, and try to move the ball 10% from that. They don’t rethink the system entirely. My objective coming into this department, which is an awesome, incredible, diverse department, is to really think through it’s powers and possibilities. To reimagine, rethink them, hire people and mold those people to think outside the box. So the first three months was getting people to think can I really challenge this, can I really do this, and try to convince everyone around me that this is an ok way to do it. The way it was done yesterday, isn’t necessarily right, it was just what they did yesterday.

Iterate to success

I spent months, going back and fourth with the Japanese and President Trump with different ideas. So if you suggested I got it right the first time, that would not be true. I’ve always described my business success in life, iterate to success, sooner or later I got through.

Trader seesaw: being on the right side vs wrong side

Sometimes there is a seesaw, and people are just on the wrong side of it. When I was a trader, early on in my career, and I would start on the wrong side of the seesaw. I’d buy and it would go down, then I’d sell it would go up, then I’d buy it would go down. Now when you are on the right side of the seesaw you can’t lose. You buy and it goes up, then you sell and it goes down, and you buy and it goes up, you feel like you’re the king. But when I was on the wrong side of the seesaw, what I would do is put the phone down, go in the bathroom, fill a bucket with water, take a rag and wash the plants in the office, because it was much cheaper than me picking up the phone.