The Way of Trading

May 22, 2025 #Essays#Reading#Trading

The path to becoming a top trader is a journey of “seeing oneself, seeing the world, and seeing all beings.” It’s not about battling the market, but battling your inner self.

This year (2024), I successfully completed my annual reading challenge, devouring 100 books. The works spanned diverse fields including science, medicine, psychology, art, social sciences, literature, and investment trading, with many truly exceptional titles among them. I’ve compiled a list of recommendations from this treasure trove. There are so many excellent books worth reading that, to keep this list manageable, I’ve had to be highly selective. The following recommendations are all books I rated at least four, and often five, out of five stars.

These books either broadened my horizons and deepened my understanding, provided a wealth of valuable knowledge, or profoundly moved my soul, evoking both joy and sorrow. I plan to revisit all of these books in the future, which speaks volumes about their significance to me and the quality of this curated list.

These are books #3 and #4:

Market Wizards - Jack D. Schwager

Original Title: Market Wizards - Jack D. Schwager

The New Market Wizards - Jack D. Schwager

Original Title: The Market Wizards - Jack D. Schwager

Jack D. Schwager’s Market Wizards and The New Market Wizards are two classic interview compilations, featuring conversations with numerous top traders, hedge fund managers, and other financial “masters.” The interviewed traders represent a wide spectrum of personalities and trading styles—some specializing in commodity futures, others preferring forex, global macro strategies, or excelling in quantitative trading. Yet, one consistent thread unites them all: their unparalleled performance.

Schwager himself was once a trader, albeit not a particularly successful one (though he’s now a highly accomplished author). Driven by a desire to uncover the secrets of top traders’ success, he embarked on these two classic interview series. These books capture both the triumphant highs and agonizing lows of these traders’ careers.

Some Traders’ Triumphs:

Monroe Trout: Over a five-year period under review, Monroe Trout achieved an average return of 67%, with a maximum drawdown of just over 8% throughout. He was profitable in 87% of months. His exceptional risk/reward ratio remained unmatched, even by legendary traders like Paul Tudor Jones.
Randy McKay: A seasoned and experienced currency futures trader, Randy McKay grew $2,000 to $70,000 in seven months, then to a million dollars the following year. He boasts a record of consistent profitability spanning over 20 years, with estimated cumulative earnings in the tens of millions of dollars. His earliest account, started in 1982 with $10,000, generated over $1 million in cumulative gains (over two decades).
Eckhardt: A mathematician and partner to the renowned futures speculator Richard Dennis, Eckhardt managed a few other accounts over the five years leading up to his interview, achieving an average return of 62%. His performance ranged from a 7% loss in 1989 to a staggering 234% gain in 1987. Since 1987, his personal trading has yielded an annual average return exceeding 60%, with 1989 being his only losing year.
Paul Tudor Jones: The famous manager of Tudor Futures Fund, Paul Tudor Jones still managed to secure a 62% return in a single month during the 1929 market crash. He achieved five consecutive years of triple-digit returns with remarkably low risk drawdowns. When he launched Tudor Futures Fund in September 1984 with $1.5 million under management, every $1,000 invested grew to $17,482 by the end of October 1988, and his total assets under management had swelled to $330 million.
Bielfeldt: Starting with a modest $1,000, Bielfeldt, a trader from a small American town, rose to become one of the world’s largest bond traders.
Martin S. Schwartz: A former securities analyst, Martin S. Schwartz achieved an average monthly return of 25% (annualizing to over 1,400%) over seven years, primarily trading stocks and index futures.

Some Traders’ Struggles:

Bill Lipschutz: A forex trader, Bill Lipschutz initially grew his $12,000 account, primarily through stock trading, to $250,000 within four to five years. However, he eventually lost almost all of it in a matter of days by consistently shorting at the bottom of a bear market until he was wiped out. Subsequently, he stopped trading his personal account and focused on institutional work, securing a stable income.
Eckhardt: The mathematician mentioned earlier, Eckhardt once lost over half of his capital in two trades within five minutes, learning his first lesson in risk management the hard way.
Richard Dennis: Richard Dennis famously transformed a $30,000 account into $80 million over ten years, yet he also lost over 50% of the capital in a fund he managed in 1988.
One trader made $27 million trading copper spreads in a single year, only to lose almost all of it.

Such triumphs are rare; the struggles, however, are endless… I won’t list them all, as they generally follow a similar pattern: significant, often devastating, losses.

What Defines a Top Trader?

As a trader who has achieved consistent profitability, I’d like to share some of my insights and reflections on trading, drawing not only from these two books but also from my practical experience and extensive research across numerous other books and interviews. This section delves deeper into the broader aspects of being a trader.

What distinguishes successful top traders? And what about the “chives” (novices/retail investors)? The following points will help you discern who on the market is a scammer, a chive, or a gambler, and who is a truly exceptional trader.

1. Don’t treat money as money. For elite traders, trading is a game where money is merely the scoreboard. Being too attached to money in this game will only lead to losing it.

True “chives” are overly fixated on money. They’re reluctant to cut losses at the first sign of a dip, leading to a long and arduous journey to break even, and ultimately, transforming small losses into massive ones. Because they’re so preoccupied with money, true “chives” begin dreaming of lavish lives—luxury cars, beautiful women, extravagant nights—the moment they open a position. Then, at the slightest profit or minor pullback, they’ll close the trade, locking in a tiny gain. Their reasoning? If it can’t make them rich overnight, at least they can afford a pork knuckle rice meal.

Top traders, however, don’t view money as an end in itself; they understand it’s merely a numbers game. Whether a trade involves $100 or tens of millions, its essence remains the same when measured by the same risk percentage. These elite traders focus on improving their “score” within this game, which allows them to maintain a calm and steady mind.

2. Emphasize risk management. This is what all investment masters and top traders repeatedly stress: what’s most crucial in investing? Risk management, risk management, and damn well, more risk management.

True “chives” never manage risk. They ignore the laws of probability, fixate solely on profits, dream of getting rich overnight, love to “all-in” with heavy positions, seek out bargains, adore “buying the dip,” and constantly chase after 100x or 1000x opportunities. If you chase bottoms, you’ll find an endless supply of them. You might be focused on profit, but the market is focused on your capital.

Top traders know they won’t always be right; even the best average only a 50% win rate. Fail to manage risk effectively, and the market will simply devour your capital. Elite traders never over-leverage or attempt to “catch falling knives” (buy the dip). They understand the importance of respecting the market, knowing that “black swan” events are inevitable and occur far more frequently than most people imagine. Therefore, every trade is meticulously calculated for risk. They absolutely avoid unfavorable trades that risk a lot for a small potential gain.

3. Love for Trading.

True “chives” don’t love trading itself; they love spending money. They dislike the process of trading, which is why they invest minimal time in genuinely studying and researching it. They don’t focus on self-improvement, instead hoping for massive returns from minimal effort. They neither research, analyze, nor confront their mistakes, trading purely out of a desire for overnight riches. “Chives” emotions swing wildly with market fluctuations; they aren’t trading, they’re gambling.

To clarify: Gambling refers to systems with a negative expectancy, where consistent participation leads to losses. Trading, on the other hand, refers to systems with a positive expectancy, where consistent participation leads to gains. The underlying asset—whether U.S. stocks, cryptocurrencies, or various financial derivatives (options, futures, bonds)—makes no difference.

Top traders, without exception, deeply love trading. They work harder than anyone else. Beyond the monetary rewards, trading itself offers immense enjoyment and challenge. They understand the fundamental difference between genuine trading and gambling, so they don’t fantasize about getting rich overnight. Instead, they focus on refining their processes, maintaining discipline, and meticulously analyzing their mistakes. Many elite traders developed an interest in the business and financial world from a young age.

4. Unwavering Self-Confidence. True, robust self-confidence leads to fearlessness, not complacency or an inability to admit mistakes.

True “chives” are driven solely by fear, devoid of confidence. Lacking a system or discipline, they distrust their own judgment, unable to hold onto winning positions for fear of their hard-earned profits slipping away. Conversely, they stubbornly cling to losing positions, afraid to honestly confront their errors, which ultimately transforms small losses into catastrophic ones.

Elite traders, however, possess unwavering confidence in their systems and exhibit absolute discipline. They maintain a calm demeanor regardless of market fluctuations, daring to hold onto winning trades to let profits run, and courageously cutting losses decisively, nipping major setbacks in the bud. This confidence also empowers top traders to honestly confront their mistakes, understanding that only by acknowledging and correcting errors can they truly improve.

5. Courage to Admit Mistakes. Elite traders are far more adept at self-reflection regarding their errors and are quick to acknowledge them. How you handle failure ultimately determines whether you remain mediocre or achieve greatness.

True “chives” never admit fault: they believe they are always right. If they profit, they’re a “badass” trader, making Warren Buffett look ordinary. If they lose, they’re even more “badass,” a value investor, a spiritual shareholder, the next Buffett. “I’m always right,” they declare. “I’m so smart and capable, I have a degree and a career. If I lose money in the stock market, it can only be because the market is specifically targeting me.” When “chives” make money, they flaunt it everywhere, offering elaborate analyses to prove how intelligently they executed points 1, 2, and 3 to earn their profits. When they lose money, they stay silent, convinced it will eventually bounce back. True “chives” readily take credit for profits but never take responsibility for losses, always deflecting blame.

“Chives” need to understand whether they are trading or investing. Those who try to do both often end up as “chives” who excel at neither, merely providing capital and liquidity to the market.

Top traders know: “If I’m consistently losing money, then I am unequivocally wrong, and I must find a way to correct my mistakes.” Traders take 100% responsibility for their trading outcomes, never deflecting blame onto the market or external factors. “If I lose a significant amount of money, then I am simply not a competent trader.” “If I make money, it’s just the market being generous, or I got lucky. In every trade, I simply strive to lose less, or ideally, not lose at all.”

6. Intelligence is not a prerequisite. Top traders come from all walks of life—some with finance backgrounds, many transitioning from non-financial fields, ranging from average education to economics professors. In reality, trading has no IQ barrier; in fact, overly “smart” individuals can often become arrogant, refusing to admit mistakes, leading to devastating losses. What top traders need isn’t “cleverness,” but wisdom.

True “chives” think: “Isn’t trading just buying low and selling high? With my high education and successful career, do I really need to use my brain for something this simple?” “If I lose money, it must be the market’s fault; how could I be wrong? If it drops, I’ll buy the dip; if it drops further, I’ll buy more. If it keeps falling, then I’m a value investor! If it rises a little, I’ll quickly exit and then post on social media: ‘Look how badass I am, I just made money!’” When prices rise, they claim they were “already positioned.” When prices fall, they insist they “already bailed out.” Yet, in the quiet solitude of night, they secretly weep over their losing positions.

Top traders know: “If trading were that simple, if a degree were all it took, then all the money in the world would already be mine.” In reality, when it comes to trading, the market is equally merciless to the clever and the foolish; there’s no distinction. What trading demands isn’t cleverness, but wisdom, humility, and a profound respect for the market. Elite traders remain unfazed by both profits and losses. They understand that any gains are gifts from the market, and if they fail to remain humble, the market will reclaim them. Consequently, they have no need to boast about their trades daily.

Can ‘Chives’ Change Their Fate by Copying Top Traders? No.

Firstly, different individuals have different trading styles, and attempting to execute strategies that don’t align with your personality is unsustainable. Secondly, since you aren’t the trader yourself, you can’t perfectly replicate their actions. You might fail to cut losses, struggle to hold onto profitable positions, and bail out with minimal gains. You won’t enter trades at the exact same time or price points; even an hour’s delay can significantly shrink profit margins. Furthermore, a 50% win rate with a 2x risk-reward ratio already qualifies one as an excellent trader. If you don’t follow every single trade, and only happen to catch the losing ones, you’ll simply conclude that the original trader’s skill is lacking. Without their own trading strategy and independent critical thinking, “chives” are destined to remain “chives.”

What’s the big picture of trading? There are myriad trading styles, and each can form the basis of a positively expectant trading system. The key then lies in execution. Fundamental analysis, technical analysis, a combination of both, price action, quantitative trading, arbitrage, long-term trading, short-term trading—the list goes on. As evidenced by dozens of interviews with the world’s top traders, every single one of these approaches can lead to becoming an elite trader.

Each of them, including top hedge fund managers, possesses a long track record of outstanding performance. The crucial step is finding a style and trading model that suits you, and then, most importantly, executing it with unwavering conviction. Don’t assume someone is wrong just because their ideas differ from yours. Two traders with divergent styles might argue fiercely over the same market scenario, yet both could ultimately be correct. The key is to discover what works best for you.

The Biggest Misconception About Trading: Its Simplicity.

As a consistently profitable trader, I can tell you unequivocally: there are only top traders, no mediocre ones. It’s either 0 or 100. A mediocre programmer can still find work as a CRUD developer (a “brick-mover”), but a mediocre trader will inevitably become a “chive” who loses money sooner or later. Becoming a top trader demands full-time, undivided attention, an intense passion for trading, strong learning ability, innate understanding, and formidable execution skills. It also requires a dedicated risk capital for trial and error, a robust financial safety net, and at least three to five years of “007” level effort (this is for those with high aptitude; on average, it takes five to eight years, and many don’t see significant results for over a decade). Even then, success isn’t guaranteed. There are countless “chives” who have been losing money for decades and are still trying to break even. If you lack the time, cost, courage, determination, and patience to commit to at least three years of “007” effort, then you might as well bid farewell to the path of a trader.

Trading can be likened to sports, music, or painting: just as you can’t simply “effort” your way into becoming a top athlete or musician, you must accept that you can’t necessarily “effort” your way into becoming a top trader. Reaching the pinnacle of any field demands a similar degree of time, sweat, pain, and struggle. A person’s innate understanding and resilience determine how quickly they reach the summit, though many never even find the path up the mountain.

Anyone attempting short-term trading in the market must understand that your counterparts are hardworking and talented top traders. If you cannot outperform them, your money will simply be transferred to their accounts.

For anyone else who doesn’t aspire to be a top trader, who lacks the interest or desire to dedicate immense effort to a full-time trading career, and simply wishes to effortlessly achieve the market’s average annual return of roughly 10-20%, the best path is to stop fiddling around aimlessly. Instead, focus on building your earning potential outside of trading, educate yourself on investing, and then consistently invest in U.S. stock market index funds. In five years, you’ll discover you’ve outperformed most self-proclaimed retail “chives,” a large number of hedge funds [1] and various ETFs [2], and 99% of “mediocre traders” [3].

[1] Many hedge funds don’t survive beyond three years. Exceptionally successful hedge funds (referring to those with at least hundreds of millions in AUM and annual returns of at least 50%) are typically only accessible to internal employees or well-connected high-net-worth individuals.

[2] Studies have shown that most individuals’ stock-picking abilities are worse than those of randomly selecting monkeys.

[3] Statistical data indicates that only 1% of day traders achieve consistent profitability for even one year, and the number consistently profitable for over three years is certainly even lower.

The Philosophy of Trading

The path to becoming a top trader is a journey of “seeing oneself, seeing the world, and seeing all beings.” It’s not about battling the market, but battling your inner self.

“Seeing oneself” means honestly confronting your own greed, fear, and weaknesses. It means understanding your true strengths and flaws, and if you’re truly wrong, admitting it without deflecting blame or making excuses. Trading illuminates your human nature and personality with stark clarity. Either you can do it, or you can’t. The courage to defy self-imposed limits is wisdom, as is the courage to acknowledge your shortcomings. This is self-awareness.

From the Tao Te Ching, Chapter 33: “He who knows others is wise; he who knows himself is enlightened.”

“Seeing the world” means revering the market and respecting risk. The market is ruthless; it doesn’t care about your positions. In the face of true, monumental crises, all individuals are mere ants. Maintain constant humility and reverence for the market. If you expose arrogance or hubris, the market will swiftly teach you a lesson. And if you refuse to learn that lesson, bankruptcy awaits.

“Seeing all beings” means using others as a mirror—observing the daily ebb and flow of greed and fear in the market, witnessing the countless scammers rampant, and reminding yourself that without humility and honesty, you are no different from those myriad “chives” and “gambling addicts.” Seeing all beings also implies recognizing the myriad sufferings of humanity and giving back to society through charity, making the world a slightly better place. Many investors and top traders are also remarkable philanthropists and educators. As the saying goes, “When poor, improve yourself; when prosperous, improve the world.” Like Buddha, they save others and themselves. Those who only act for their own benefit will never become masters.

The journey of “seeing oneself, seeing the world, and seeing all beings” is both sequential and interwoven, mutually reinforcing and indispensable. This is the “Dao” (the Way) of a top trader; the specific techniques (“shu”) are far less crucial. Thus, top traders are simultaneously profound thinkers, practitioners of a philosophy, and individuals of deep self-awareness.

These are some of my thoughts and insights on trading. Both books are well worth reading and re-reading for anyone interested. All of Jack D. Schwager’s books are excellent; while he may not have been a successful trader himself, he is a highly accomplished author. Finding a path one loves and is suited for is indeed a very wise choice.