The Best Piece of Trading Advice Jack Schwager Ever Received

Jack Schwager is the legendary author of the Market Wizards series of books, including Market Wizards, The New Market Wizards, Stock Market Wizards and Hedge Fund Market Wizards. He’s interviewed dozens of successful, consistently profitable traders that have made tens of millions (or billions) from the markets and distilled their best words of wisdom down into 10-20 pages each.

So when Jack says this is the best piece of advice he’s ever received, you have to take hold. What is it?

This is the second article in our month-long series on how to get better trading every day. 

Know where you’re going to get out before you get in

The best piece of advice that Jack Schwager ever received was from Bruce Kovner in the original Market Wizards. Bruce told him to “know where you’re going to get out before you get in.”

It seems like a simple act, but it goes so much deeper. Knowing where you are going to get out before you get in does a number of things.

First, it makes you realize that the market will often not go your way. Even the best traders are wrong 30% or more of the time. That means that out of every 10 trades, they’re losing money on three of them. Starting out every trade by understanding where the market will prove your thesis wrong

Next, it makes you focus and develop an if / then scenario for the market. Anything can happen. Prices don’t have to do anything. Realizing that from the onset means that you can have a plan of action to implement as soon as the market does the unexpected. Not only are you going to get out of the current trade, but what will you do next.

Third — and most importantly — it puts the focus on risk. At Topstep, our motto is Always Trade for Tomorrow. To do that, you have to understand that no one trade, one day or one week should put your account in jeopardy. If you know where you are getting out before you get in, you can then make sure that risk management is at the forefront of your mind.

So, if you want to get better trading today, implement Jack Schwager’s advice — and never place another trade without committing to exactly where you will get out. Then stick to it.