Market wizard Michael Marcus famously turned $30,000 into $80 million. He shares the 3 criteria he looks for in every trade — and the 7 timeless rules that have contributed to his success.

  • Michael Marcus, a legendary commodities trader, shared the trials and tribulations of his trading career with Jack Schwager in a 1989 interview for his classic "Market Wizards" series. 
  • Early on, Marcus' trading performance was akin to that of a rollercoaster, climbing high only to plunge shortly thereafter.
  • He attributes all of his profits to a set of three simple criteria, and says "you have to make money, in any market, under any circumstances," if they're adhered to.
  • Marcus also shared seven timeless trading rules he picked up along his journey.
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"I feel like trading is the only thing I am really good at. If not for that, I probably would have wound up shining shoes."

That's what Michael Marcus, a legendary commodities trader, told Jack Schwager in a 1989 interview for his classic "Market Wizards" series.

"I think to be in the upper echelon of successful traders requires an innate skill, a gift," he said. "It's just like being a great violinist."

Unfortunately, for Marcus, it took a fair amount of time to discover his own proficiency. Early on, he spent years growing, and subsequently, disparaging his trading account.

Before Marcus knew anything about commodity trading — an asset class that would soon become his niche — it only took him a few days time to completely erase the $1,000 he had deposited in his account. Apparently, the friend that Marcus was receiving pointers from knew about as much about trading as he did: nothing. 

After blowing through his capital, Marcus took $3,000 worth of an inheritance and tossed it into wheat. He experienced his first winning trade, taking home about $200 worth of profits. On the scent of success, Marcus made timely corn and soybean purchases and watched his account balloon to $30,000. 

Then he lost is all … again. 

Marcus engendered such conviction around a corn trade that he borrowed $20,000 from his mother to parlay into the purchase. 

"I lost my own $30,000, plus $12,000 of the $20,000 my mother had lent me," he said. "That was my lesson in betting my whole wad."

As if those initial rags-to-riches rollercoaster rides weren't enough, Marcus would soon take $700, turn it into $12,000, squander it to below $4,000, bolster it to $24,000, and eventually multiply it into $64,000.

Still, those gains and losses pale in comparison to his 10-year performance at Commodities Corporation when he had finally mastered his craft.

"They started me out with $30,000 in August of 1974," he said. "After about ten years, I had turned that account in $80 million."

3 criteria 

Once Marcus cracked the proverbial trading code, his performance went parabolic. Interestingly enough, he attributes all of his profits to trades that met three simple criteria. It all comes down to fundamentals, technicals, and sentiment. Marcus says "the best trades" share all three. 

Allow him to explain.

"First, the fundamentals should suggest that there is an imbalance of supply and demand, which could result in a major move," he said. "Second, the chart must show that the market is moving in the direction that the fundamentals suggest. Third, when news comes out, the market should act in a way that reflects the right psychological tone."

Marcus provides an example of bad news being shrugged off in a bull market, while good news is responded to voraciously. He also gauges tone by paying attention to how many consecutive up or down days the market has had and sentiment indexes. 

"If you can restrict your activity to only those types of trades, you have to make money, in any market, under any circumstances."

7 timeless rules

Although Marcus' trading career is littered with an array of harsh losses, he was able to turn negatives into positives by learning from his mistakes.

Here are seven timeless rules he picked up along his mercurial trading journey.

1. Never bet more than 5% on one idea

"That way you can be wrong more than twenty times; it will take you a long time to lose your money," he said. 

2. Set a hard stop

"I mean actually put them in, because that commits you to get out at a certain point," he said.

3. Always be ready to pivot

"Another thing is that if a position doesn't feel right as soon as you put it on, don't be embarrassed to change your mind and get right out," he said.

4. Stay with winners, mercilessly cut losers

"Perhaps the most important rule is to hold on to your winners and cut your losers," he said. "Both are equally important."

5. Trade your own way

"You also have to follow your own light," he said. "Because I have so many friends who are talented traders, I often have to remind myself that if I try to trade their way, or on their ideas, I am going to lose."

6. Pay close attention to market reactions

"You absolutely want to put down a bet when a market acts terribly relative to everything else," he said. "When the news is wonderful and a market can't go up, then you want to be sure to be short."

7. Cultivate objectivity

"A good trader can't be rigid," he said. "If you can find somebody who is really open to seeing anything, then you have found the raw ingredient of a good trader — and I saw that in Bruce [Kovner] right away."

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