Back in the 1970s, McKay got in on the currency futures market by turning $2,000 into $70,000...Randy Mackay is a private currency trader that became well known through an interview by Jack Schwager in his book "The New Market Wizards". McKay trading accounts went up in 18 out of 20 years.




Your trading style must match your personality

Successful traders tend to match their personalities. There are so many different trading styles that you can always find one that will suit your personality.


Stay objective even if you have to get out

There's a principle I follow that never allows me to even make that decision. When I get hurt in the market, I get the hell out. It doesn't matter at all where the market is trading. I just get out, because I believe that once you're hurt in the market, your decisions are going to be far less objective than they are when you're doing well.


Catch the easy part of the trade

When the trade was easy, I wanted to be in, and when it wasn't, I wanted to be out. In fact, that is part of my general philosophy on trading: I want to catch the easy part. I never try to buy a bottom or sell a top. Even if you manage to pick the bottom, the market can end up sitting there for years and tying up your capital. You don’t want to have a position before a move has started. You want to wait until the move is already underway before you get into the market.



Watch how the market responds to fundamental information

I watch the market action, using fundamentals as a backdrop. I don't use fundamentals in the conventional sense. That is, I don't think, "Supply is too large and the market is going down." Rather, I watch how the market responds to fundamental information.


Unsophisticated participants versus professional traders

The nature of the short-term price action is almost diametrically opposite to what it used to be.

  • When most market participants were unsophisticated, traders tended to wait until the market was in the headlines and making new highs before they started to buy.
  • In contrast, professional traders, who dominate the markets today, will only be on the sidelines when there's a large move in the opposite direction. As a result, the price moves that precede major trends today are very different from what they used to be because the behavior of professional traders is very different from that of naive traders.


■ High-inflation leads to large price moves and heavy public participation

The markets started getting more difficult during the 1980s. The high inflation of the 1970s led to many large price moves and heavy public participation in the markets. The declining inflation trend in the eighties meant there were fewer large moves and those price moves that did occur tended to be choppier. Also, more often than not, the price moves were on the downside, which led to reduced public activity, because the public always likes to be long. Therefore, you ended up with more professionals trading against each other.


■ The British Pound Trade of 1976

Back in the 1970s, McKay got in on the currency futures market by turning $2,000 into $70,000. In 1976, the British government in order to protect British exports announced it will force the British pound to trade below $1.72. The pound at the time was trading near $1.65. Despite this announcement, the GBPUSD rallied from $1.65 up to $1.72.

McKay quoted:

"Most of the people I knew said, 'they're not going to let it go above $1.72, we might as well sell it; it's a no-risk trade'. I saw it differently. To me, the market looked like it was locked limit-up. I felt that if the government announced that they were not going to let the price go above a certain level, and the market didn't break, it indicated that there had to be tremendous underlying demand. I thought to myself, this could be the opportunity of a lifetime".

He went long 200 contracts, and in four months, the market went to $1.90.


Money Management Trading Tips

■ Prognostication vs execution

In the 1970s prognostication was 90% and execution 10%, whereas today prognostication is 25% and execution 75%.


■ Determine why the winners are winners and the losers are losers

Every trader is going to have tons of winners and losers. You need to determine why the winners are winners and the losers are losers. Once you can figure that out, you can become more selective in your trading and avoid those trades that are more likely to be losers.


■ Cut your losses short

You must get out of your losses immediately. You have to consider how many potential future winners you might miss because of the effect of a larger loss on your mental attitude and trading size. 

  • The worst thing that can happen to you is being right and still losing money.


When you lose money, reduce the trading size

The most important advice is to never let a loser get out of hand. You want to be sure that you can be wrong twenty or thirty times in a row and still have money in your account. When I trade:

  • I'll risk perhaps 5 to 10 percent of the money in my account.
  • If I lose on that trade, no matter how strongly I feel, on my next trade I'll risk no more than about 4 percent of my account.
  • If I lose again, I'll drop the trading size down to about 2 percent.

I'll keep on reducing my trading size as long as I'm losing. I've gone from trading as many as three thousand contracts per trade to as few as ten when I was cold, and then back again.



■ Randy McKay (Forex Trader)

Source: The New Market Wizards, Jack D. Schwager (c)



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