There’s a commonly held belief that success in trading is about finding a secret formula, a system that nobody else knows, that could explain price moves and offer a “solution” to the markets. Upon finding this secret formula, success would be assured.
But the idea that trading success is about finding an ideal “way” of trading is simply false. There are many different methodologies that people use to trade – many of them equally successful but entirely different.
To delve further into this topic, let’s examine the trading philosophies of two hugely successful traders who take completely different approaches to the markets.
Jim Rogers – The Fundamental Trader
Jim Rogers can only be described as a phenomenally successful guy. He’s also an investor – he trades based on the long-term nature of his view on the market.
In 1973, with the help of a scrappy young entrepreneur by the name of George Soros, he started the Quantum Fund, still one of the most successful hedge funds of all time. The company became so successful that Rogers left in 1980 because it was getting too big to manage, and he wanted to focus on his personal investments.
Rogers prides himself on being able to see the big picture, and anticipating long-term trends. He’s well-known for riding the gold bear market from around 1980 till around 2000. As gold continued to slide within every year in that 20-year period, most traders would declare the bear market finally over, promising and hoping for a correction in an investment that many could not let go of. They couldn’t see the forest for the trees. Gold was gold, and this was going to be their year.
Except for outliers like Jim Rogers, who shorted gold at every opportunity. He likened this marriage of investors to their trades to “generals who always fight the last war”, even when they should know it’s lost.
“The idea that gold has always been a great store of value is absurd. There have been times in history when gold has lost purchasing power—sometimes for decades.”
Another market he held particularly strong opinions about was the Japanese stock market. In the late 80s, the Japanese stock market was enjoying a never-before-seen boon. Investors could not get enough Japanese stocks. And yet in the middle of this explosive bull market, Rogers was convinced a crash was imminent.
There are many dooms-dayers and nay-sayers in the world of trading- that should come as no surprise – but few are ever as correct as Rogers.
His prediction was correct. In 1990, the Japanese stock market began a slide that would wipe a gargantuan 80% of value off the entire Japanese stock market in a little over a decade
Jim Rogers’ net worth, by the way, is an estimated $300 million. You can begin to see why.
And it’s a good thing as well that his fundamental prowess is as sharp as it is. Because Rogers simply doesn’t do charts. He is scornful of them.
“I haven’t met a rich technician,” Rogers said, “excluding, of course, technicians who sell their technical services and make a lot of money.
“I use them to see what’s going on, but I don’t say – “There is a reversal here!” – I don’t even know what a reversal is! I don’t know about those things and I don’t want to.”
Let that sink in. A trader worth $300 million, who claims not to know what a reversal is. You can’t get more cynical about technical analysis than Jim Rogers.
So naturally, traders might listen to Rogers and say to themselves: this man is one of the most successful traders ever to have lived. I must take his advice and forget technical analysis.
Unless of course, they consider successful traders from the other end of the technical spectrum…
Marty Schwartz – The Technical Trader
Marty Schwartz is a trader best-known for growing a $30,000 loan into more than $100 million in rapid-quick time.
During this period, Schwartz entered ten public trading contests. In the content that ran for a year, he achieved a 781 percent return. All other nine contests ran for four months, and he doubled his money in every single one. Fair to say then, not one of them a fluke.
Clearly, Schwartz, like Rogers, is another trader to be taken seriously when we’re talking about making money in the markets. His opinion on technical analysis?
Before he became a full-time technical trader, Schwartz was a securities analyst (a fundamentals guy) for more than a decade. He now claims to have made a full transition into technical utopia.
“I always laugh when people say, “I’ve never met a rich technical analyst”. I love that! It’s such an arrogant, nonsensical response. I used fundamentals for nine years, and only got rich as a technician.”
So there you have it – it would be hard to find two more opposing views on the use of technical analysis in trading. A disciple of technicals versus a monolithic heretic, a devout fundamentals guy.
Rogers has based every single one of his trades on good old fundamental analysis, and regards technical analysts as snake-oil salesmen, while Schwartz found technicals to be the only way he could make money, having lost money for ten years practising fundamentals.
Moral of The Story?
What does the division between these two ways of looking at trading tell us?
Simply, that there is no true path when trading – that different people can and do take completely different approaches on their way to market mastery, and that we should stop seeking the one single truth that holds all the answers.
There are a million ways to make money in trading – in fact, there are as many ways as there are successful traders – because everybody is different, and everybody, in the end, finds their way.
Some succeed with technicals, some succeed with fundamentals, and still, others succeed by a marriage of the two.
As with so many things in life, it’s simply a matter of finding what’s right for you.
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