Here are the top quotes by Market Wizard and Black Jack Wizard Ed Thorp from the book Market Wizards by Jack Schwager.
“I started out by betting $1 on the bad hands and a maximum of $10 on the good hands. It drove them crazy because they were looking to make some big money. I disciplined and paced myself. It was a lesson about managing money that stuck with me forever after.” – Edward Thorp
“If we lost 5 percent, we would shrink our positions. If we lost another few percent, we would shrink our positions more. The program would therefore gradually shut itself down, as we got deeper in the hole, and then it had to earn its way out.” – Edward Thorp
“You have to decide ahead of time how much of a drawdown would imply that the system is not as good as you thought it was, and therefore shouldn’t be traded.” – Edward Thorp
“I think inefficiencies are there for the finding, but they are fairly hard to find.” – Edward Thorp
“Try to figure out what your skill set is and apply that to the markets. If you are really good at accounting, you might be good as a value investor. If you are strong in computers and math, you might do best with a quantitative approach.” – Edward Thorp
Ed Thorp’s key trading advice:
- Increase your trade size as the probability of winning are more in your favor.
- Trade smaller during losing streaks and increase your trade size only after you start to win again.
- Before you start to trade a system you need to set a stop loss on your drawdown. This is the amount of money lost that will show your trading system is not as valid as your back tests implied it was.
- It is difficult to find your own trading weaknesses. A trading journal helps.
- In trading do more of what you are truly good at and less of what you are not good at. Leverage your winning skill set and minimize what you are bad at.