remained almost on my own. Then came the first, long-remembered deal.

Before her, I had just carefully analyzed the state of the cotton market for the entire period after the Second World War. It turned out that because of all sorts of government support programs, only two seasons, counting from 1953, could be called truly free markets (markets in which prices are determined by supply and demand, and not by an oppressive state program). I rightly assumed that prices can only be predicted for these seasons.

Unfortunately, I did not take into account another, more important circumstance, that the available data was not enough for a serious market analysis. Based on a comparison with these two seasons, I concluded that the market for cotton, then trading at 25 cents a pound, would rise, but not exceed 32-33 cents.

The first part of the forecast turned out to be correct: prices gradually grew from month to month. Then growth accelerated, and they jumped from 28 to 31 cents in just a week. This jump was caused by some news, which I almost did not attach any importance to. “Pretty close to the calculated top,” I thought, and decided to go short. After that, having risen a little more, the market quickly moved back to the 29-cent mark. I took this as completely natural, believing that the markets simply have to match my forecast. However, my enthusiasm and profits soon came to an end.

Cotton prices not only returned to a higher level, but moved inexorably further: 32 cents, 33, 34, 35. Eventually my deposit dried up and the position had to be liquidated. It is the absence of a lot of money in my account that I consider the happiest gift of fate: after all, as a result, the cotton market shot up to an incredible height - 99 cents! This was double the previous century record.

Because of this transaction, I was disappointed in the market for a while. In the next few years, I tested my strength again a couple of times. Every time I started with a little over $2,000, I lost it all in a single but large losing. One consolation - the losses were relatively small.

This losing streak was interrupted by two events. First, I met Steve Kronowitz.

In charge of commodity analysis at Hornblower & Weeks, I then recruited Steve for a vacant position as a non-ferrous market analyst. We worked in the same room and quickly became friends. Unlike me, a purely "fundamental" stock analyst, Steve took a strictly technical approach. (A fundamental analyst predicts prices based on economic data, while a technical analyst predicts prices based on internal market characteristics: past prices, transaction volumes, and sentiment indicators.)

Before that, I looked at technical analysis with great skepticism. It seemed to me that something as simple as analyzing charts could hardly be of any value. However, after working side by side with Steve, I began to notice that his trading orders often turned out to be correct. In the end, I became convinced that my initial assessment of technical analysis was wrong. I realized, at least in relation to myself, that fundamental analysis alone is not enough for successful trading; in addition, I needed to involve technical analysis to determine the moments of entry and exit from the market.

The second key point that eventually led me to join the ranks of those who knew success was the realization of the absolute need to control risk. I decided never again to lose the entire deposit on a single transaction - no matter how confident I was in my vision of the market.

Ironically, what I consider a turning point and one of the best trades of my career was, in fact, a loss. Then the German mark, after a long decline, finally entered a long period of consolidation. Based on my analysis of the market, I concluded that the brand forms some important price base. At this level, I entered a long position, simultaneously placing a good-till-cancelled stop order just below the last price low, believing that if my calculation was correct, the market would not fall to new lows. A few days later the market began to fall and I was closed with a small loss. The most interesting thing is that after that the market collapsed like a wreck. Previously, in such cases, I would have been completely ruined; now suffered only minor losses.

Shortly thereafter, I opened higher on the Japanese yen, which was in a consolidating area with technical indications of a bullish direction for the future exodus, allowing me to place a protective stop close enough. Whereas I used to only open a one-contract position, reasonably limiting my risk to just 15 ticks per contract (it's hard to believe now that I was able to get away with this close stop placement), now I've opened a 3-contract position. The market moved without looking back. Although I closed too early overall, I kept one of my contracts for quite some time, tripling my small account. This was the beginning of my success in trading. Over the next few years, combining technical and fundamental analysis with risk control, I built my modest capital well over $100,000.

But then the happy streak ended. I suddenly began to trade more recklessly, violating the rules I had developed. Now I understand that I was too brave then. Take, for example, losing on soybeans. The market moved against me. I believed that this decline was only a bull market correction, and instead of taking small losses, I increased the position greatly.

This mistake was aggravated by the fact that I made it before the release of an important government report on the grain harvest. It added to the bearish sentiment in the market and my account went down a lot. In a matter of days, I lost over a quarter of my total profits.

After I withdrew money from my account to buy a house and to spend on sabbatical expenses to write a book (Jack D. Schwager, A Complete Guide to the Futures Markets 1984), my savings were so poor that for almost five years I lost my chance return to the market. When I started trading again, I started, as usual, with a small amount - $ 8,000. Most of it was lost within a year. Adding another 8000 to the account, after a series of moderate losses, I managed to bounce back on several large winning trades. Within a couple of years, I got my account back to over $100,000. Then I stabilized, and for the last year, my account has fluctuated around that peak.

From an objective point of view, my trading was successful, but emotionally, I perceived it more as a failure. Generally speaking, with my knowledge of the market and experience, I should achieve more. “I doubled ten times the incomplete $10,000, but never managed to increase the total score any more, let alone surpass this level many times over. Why?" I wondered.

The desire to understand the reasons for this was one of the stimuli for writing this book. I wanted to ask successful traders about what are the main components of their victories, what is their approach to the market, what rules do they follow, how did their trading practice begin. And what would they advise other traders.

If my desire to resolve these questions was, to some extent, personal, then in a broader sense, I imagined myself as a kind of Generalized Trader, interested in questions that others would ask if they had the opportunity.

Part 1. Futures and Currencies

Futures without a halo of mystery

Of all the markets discussed in this book, most investors probably have the worst understanding of the futures markets. At the same time, today it is one of the fastest growing markets. Over the past twenty years, the volume of futures trading has grown more than twenty times. In 1988, the value of all futures contracts bought and sold in the United States exceeded $10 trillion. (This rough but reasonable estimate is based on the assumption that there are 246 million contracts trading, with an approximate average value of over $40,000 each. (If we exclude futures on short-term interest rates, for example, on the Eurodollar, then the cost of one contract varies from $eleven,000 in the sugar market at a price of 10 cents per 1 pound to $150,000 in the S&P index when it is equal to thirty0.)) I see, that it's not just pork belly contracts.

Today's futures markets span all major global market groups: interest rates (such as Treasury bonds), equity indices (such as the S&P 500 index), currencies (such as the Japanese yen), precious metals (such as gold), energy commodities (such as crude oil) and agricultural products (for example, grain). Although the first futures contracts originated in the agricultural markets, this sector now accounts for only about one-fifth of all futures trading. The emergence and spectacular spread of many new types of futures contracts has led to over the past decade to the formation of financial-type markets (these are currencies, interest rates and stock indices), which now account for about 60 percent of all futures trading. (Nearly half of the remaining 40 percent are energy and metals markets.) Thus, the term "commodity markets", often used in relation to futures markets, is increasingly at odds with reality. Many of the most active futures markets, such as those for the financial instruments mentioned above, are essentially non-commodity markets, and a significant number of commodity markets do not have corresponding futures markets.

The essence of the futures market is reflected in its name: the object of trade on it is