Monroe Trout. Master of Risk Management

Monroe Trout Market Wizards

Monroe Trout interview was one of the simplest of the book The New Market Wizards.

Trout explains how most of his trading is based on a constant study of different systems and a tight, almost to the point of obsession, money management. And how that was key to his trading success as a fund manager.

His profile was one of the best when measured by risk parameters. His draw dawns would never be higher than 8%. His obsession with reducing risks makes it very difficult to make a good return, and yet he managed to achieve both: low risk and high returns.

Any saver would like a guy like Trout managing his money; I would too.

He did not guarantee you to win 100 % per year, but you could be sure you would not need to face devastating drawdowns over 20 %.

Monroe Trout interview

In the interview, he talks about his initial steps in the pits of New York and how he managed to learn scalping. And he says that he was the guy on the other side of the trade: the market maker capturing the spread.

As usual, and you can see this in more interviews, a lot of day traders started their careers being market makers in the pits.

That is what scalping is about: for market makers, those who have the real edge at “day trading”.

He says that he learned scalping by his daily interaction with other traders, and that is learned in a natural way, listening and seeing how the best and most experienced guys do it.

Although he also says that not everybody makes it in the pit, and many of the guys who used to try would be out of business very rapidly.

Monroe Trout quotes

In the interview he says:

Volume has gone up dramatically, which is great. The markets also appear to have become more efficient. Some of the patterns I used to trade off are starting to get eliminated as other people start picking up on them.

We have to understand that efficient trading systems become obsolete with time, and for a good reason.

The market conditions change over time, and volatility is not always the same.

If the conditions remain the same for a sufficient period, many people will realize it and will try the same sort of techniques making it harder for any technical system to remain profitable.


You know, when everybody goes to the same side of the boat, the boat sinks.

As for money management he says:

If we are down 4 percent on a single day, we close out all positions and wait until the next day to get into anything again. This rule has been activated only twice in the last two years…

Monroe Trout money management

You will hardly find someone so obsessed with strict money management.

It seems exaggerated, but from a psychological point of view it has a great advantage.

Then when you trade with the necessity of winning it is very likely that the psychological pressure will affect you and make you take the wrong decisions. That is why, when things get nasty, the best is to get out and calm down, or at least reduce our trading size.

Another interesting point in the interview is when he says that he does not sleep very well and that his trading activity is probably the cause of it. This is probably true.

The fact is that I think that I would sleep better had I not trade. This activity affects our nervous system for sure. Interestingly,

Trout says that he sleeps better when he loses because when he wins he is very excited.


P.S. This is a personal translation from my spanish blog

Thanks for reading and sharing.