Every trader likes to think that they have an inside edge. However, not all traders set the markets on fire. Here are three of the world’s most successful traders and how they left their mark on the trading world.
Cook had a bumpy early trading history. At one point, he lost his entire net worth – including family money. However, after this disaster in 1982, Cook made a stunning comeback within five years, recouping all of his losses and more. One key thing he learnt was that he would not sell any more naked options – which was the cause of his original downfall.
Cook attributed his recovery to something that he refers to as the “Cumulative Tick Indicator”. This is derived from a very common indicator called the “Tick”. This is basically the number of NYSE stocks that see an uptick on their last trade, minus the number of stocks that see a downtick on their last trade. For example, if 1500 stocks saw an uptick, and 750 saw a downtick, then the tick is 750. Cook’s cumulative tick indicator adds or subtracts ticks to a cumulative total when the tick is outside a neutral range. He uses this as an overbought or oversold signal, looking for market reversals when the indicator moves towards bearish or bullish extremes.
Seykota is one of the pioneers of computerised trading – first starting to implement automated trading systems back in the 1970s for futures. Initially, he focused on putting in place money management algorithms and trying to recognise patterns in stock trading. He was so successful that he managed to generate a 2,500% return on one of his client’s accounts by 1988. Today, he apparently spends just a few minutes a day trading – all he needs to do is to execute his computer programme and wait for the signals to come out.
Seykota, despite his huge success, puts much of his gains down to strong money management and his ability to know when to cut his losses. He also says that public market information is of little use, since this is already accounted for in the prices.
Sperandeo is an options trader who made profits 18 years in a row using technical analysis. Over this period, he managed to generate an average annual return of 72%. He stresses that he only takes risk when he sees that the odds are with him. He also spent two years studying how long market moves are likely to last. One of the things he uncovered was that swings on the Dow are typically 20% during a bull market, and that they are likely to peter out after that. He says that one of the main reasons that technical analysts get it wrong is that they apply strategies blindly to markets, without looking at how long bullish or bearish trends are likely to last.
As a trader, you might never make the millions these guys made but you may improve your performance by paying attention to some of the lessons they learnt about money management.