Legendary trader Mark Weinstein, who was one of the best traders of our time (Schwager, 1989), is well-known for the stunning accuracy of his trades. He described himself as a picky trader who always insists on waiting for a high probability setup. Despite his conservatism, he is fabulously profitable. In an option trading contest, he turned one hundred thousand dollars into nine hundred in just three months, and he did not have one losing trade in that contest. More impressively, he did it without pyramiding, i.e. no additional bets in a winning position, so that his amazing result was solely due to his unbelievable market timing.
There are two things which contribute to his amazing fest. Firstly, he is a flexible trader who constantly adjusts his indicators according to the market condition, so that they always reflect the current situation. He used a wide range of technical analysis, including Elliott Wave and Gann analysis, Fibonacci numbers, cycles, sentiment, moving averages, and various oscillators, because he knows that no one indicator can work forever, some will work better than others in certain times. Weinstein said:
“I use many different types of technical input… People think that technical analysis is unreliable because they tend to pick the one thing they are comfortable with. The problem is that no single technical approach works all the time. You have to know when to use each method. It is experience and gut feel. I use all forms of technical analysis, but interpret them through gut feel. I do not believe in mathematical systems that always approach markets in the same way.”
In addition to this, and more importantly, his success could be contributed to his cautious attitude to the market. As he said:
“I have a real fear of the markets. I have found that the greatest traders are the ones who are most afraid of the markets. My fear of the markets has forced me to hone my timing with great precision… I also don't lose much on my trades, because I wait for the exact right moment. Most people will not wait for the environment to tip itself off. They will walk into the forest when it is still dark, while I wait until it gets light.”
Weinstein has two excellent analogy about his trading philosophy:
“Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame. Only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of professional trading.”
In other words, he puts on a trade only when everything lines up in a virtually perfect way. He would pass up trades that could not give him a degree of near-absolute confidence, even though they turn out to be profitable in the end. Thanks to such a rigorous method of trade selection, it is known that virtually all of Weinstein's trades are at least in-the-money within twenty minutes of entry. As many other great traders have noted, the best trades often go immediately in your favour as soon as they are filled (see Schwager, 1989).
On the other hand, he is very careful about protecting his profits. Unlike many trend followers, he does not wait till the trend reverses. He would take a profit immediately as long as the reward justifies itself:
“When I trade at home, I often watch the sparrows in my garden. When I feed them bread, they take just a little piece at a time and fly away. They keep on flying back and forth, taking small bits of bread. They may have to make a hundred stabs at a piece of bread to get what a pigeon gets at one time, but that is why a pigeon is a pigeon. You will never be able to shoot a sparrow, it is just too fast. That is the way I day trade. For example, there are times during the day when I am sure that the S&P is going up, but I don't try to pick the bottom, and I am out before it tops. I just take the mid-range where the momentum is greatest. That, to me, is trading like a sparrow eats.”
It helps to understand that Weinstein usually plays for quick profits and covers his trades within hours or even minutes. Even on slightly longer-term trades, Weinstein will usually take some profits quickly to assure a net profitable outcome. He also trades markets in rotation, quickly shifting his profits from market to market, always seeking the profit potential with the lowest perceived risk.
In conclusion, there are three lessons which could be learnt from Weinstein:
- Be patient. Don't trade until an opportunity presents itself. Knowing when to stay out of the markets is as important as knowing.
- Be humble. When you get arrogant, you forsake risk control. The best traders are the most humble. Understand your limitations. Everyone has limitations—even the best traders.
- Be flexible. Your strategy has to be flexible enough to change when the environment changes. Don't get too complacent once you have made profits.
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