Gary Bielfeldt, Bond Market Wizard

Gary Bielfeldt was another trader interviewed by Jack Schwager in his book The Market Wizards.

This interview was close to not being published since the author thought it was too short. Despite that, I found it quite interesting and simple.

You will not find specific methods of how to win 1 million dollars in the stock market, but there are advices that are essential for trading.

Gary Bielfeldt interview

Four phrases of this interview are worth as much as some trading courses out there.

Bielfeldt was one of the main bond traders in the 80s. He was without doubt, the strongest individual trader in that market, trading at institutional level. And that was for a man that started with 1000 $, and doing it from his house. There was no internet then; only phone.

He said:

Right. I developed my own trend-following system.

I use the system primarily as a backup to tell me when to get out of a position.

That is the sort and brief answers he gave to Schwager. No wonder he was not happy about the interview, but sometimes you say all that is needed in a few words. A word to the wise, however.

He would trade the trend, and not a 15 minutes chart one, but something more fundamental.

Trading a system for a while will teach a new trader the principle of letting profits run and cutting losses short.

Gary Bielfeldt trader

Once you start trading the trend you realize that a winning ratio of 1:1 is not the best thing you can do. You have to increase that ratio a lot. And you need trending markets for that; the €$ of 2013 is not a good example.

I looked at some of these systems a few years ago and found that they generally made too many trades.

He is talking about how popular were systems already in those years. Those systems would not perform well due to excessive trading and, therefore, commissions and costs. That is because many systems and people tend to follow day trading siren songs, but those songs are nice for the broker, not for the trader.

Why do most traders lose?

They overtrade, which means that they have to be right a lot just to cover commissions.

You know, if you want to make money doing day trading, the best you can do is to open a brokerage yourself; a market maker preferable, where the real day trading for a living is.

The most important is discipline – I am sure everyone tells you that. Second, you have to have patience; if you have a good trade on, you have to be able to stay with it. Third, you need courage to go into de market, and courage comes from adequate capitalization. Fourth, you must have a willingness to lose; that is also related to adequate capitalization. Fifth, you need a strong desire to win.

Those are basic notions of trading like patience, courage, capitalization, willingness. Despite that, he said that he broke those principles sometimes.

Once, in his beginnings, he made a great trade entering a long position in soybeans. If the price fell 10%, his account would be wiped out. Luckily for him, the market went up and he doubled his account. But the truth is that we should follow the rules he said.

Most traders have a tendency to take risks that are too large at the beginning.

I wish I would have understood this better in the beginning; it could have saved me some trouble.

Many of us start trading thinking that we are the best and that we are going to beat the market.

It is fine to have confidence, but it is not advisable to start an activity and thinking that you know everything.

Humility is a much better companion for the start. As Bielfeldt says, many novice traders are greedy and bold, and, of course, end up going bust.

That is why I will never get tired of saying that novice traders should stay away from the markets, study them a lot and if they trade, do it in a very small way. The thing they need first is first-hand experiences.

Experience is worth much more than hundreds of courses or masters, or whatever.

You should play the good hands, and drop out of the poor hands

His knowledge of poker when young helped him to understand that you do not need to bet always, but when the odds are in your favor.

Unfortunately for him, Bielfeldt lost a lot of many in the late eighties trading the bond market.

It seems that his trading system got crushed when the bond markets got stuck and boring. He forgot that a good trader should always diversify his trading.

The bond market was superb for trend trading before but stopped later.