Randy Mckay. A Futures Market Wizard

I am going to talk about one of the most interesting interviews in the book The New Market Wizards by Schwager.

Randy Mckay was one of the first futures currency traders in the pit of Chicago.

By the time Mckay traded the pits, in the seventies, there was no internet, and most trading has to be done by “phone”.

Randy Mckay trader

The time came and Mckay had to go home to carry on his activities, and he had a difficult transition first year, when he struggled with electronic trading.

Another interesting point of this interview is the fact that Mckay says that trends used to be smoother in the seventies than in the nineties and the 2000s.

It seems that trends were easier to grasp and to trade then. Now, it is not enough identifying a trend, but you have to be very careful when to trade. This is a very interesting point, and I would like to study it further to see if conditions have changed as Mckay says.

Maybe there are too many people doing trend trading today.

Randy Mckay Market Wizard

One of the most interesting parts of the interview is when he says:

Right. 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 do not 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.

This is very important. And it is another way of saying what Livermore and other trader would say: do not trade “dead” markets.

There are loads of assets. You have to trade those that are hot, in which the trend is very clear and preferably with strength. And the best assets for that are those that are quoting at its historical maximum price.

For instance, Mckay remembers one market that traded in that way: gold in the seventies. Those years, the price was quoting higher week after week.

He gave another good example about this when he said that he opened a stock broker account to buy some stocks a friend told him. That was because those stocks seemed “cheap”.

Well, after a year, and an impressive bull market in stocks, those securities were even. So Mckay decided to sell them and buy those stocks that had risen the most (The Googles and Apples of that time).

After a while those stocks showed a good profit. However, he decided to close the account and trade the SP500 futures, which had been recently introduced.

Randy Mckay trading

Another remarkable moment of his interview was when he talked about his first great trade. Mckay was convinced that the Sterling would break up above 1.72 because he saw a very strong bull market, and also the British Government that did not want the Pound to go up more.

Well, he bought the Pound and it went to 1.9 in a few months.

He made one million dollars then.

When you read something like that, you notice that the guy did not do day trading trying to chase 20 pips per day. Maybe he did that as a market maker in the pit for his customers. I do not know. But, for his trading he was a trend trader, which is the way every trader should trade.

Another interesting part was when he said:

When I get hurt in the market, I get the hell out. It does not matter at all where the market is trading. I just get out, because I believe that once you are hurt in the market, your decisions are going to be far less objective than they are when you are trading well.

When you have a bad streak or some huge losses, it is very easy that your emotions will betray you. We must have discipline and do what Mckay says.

He also talked about money management, giving examples of it.

He said that if he lost several consecutive times he would reduce his trading size significantly. If he bet 5% and he lost, he would bet 4% next time, and so on till 0.

It can illustrate very clearly the fact that we should apply that sort of money management when we trade. If we keep the size of our trading when we are losing, we will be in very serious trouble.

The best is to be conservative and trade moderately, even more at the beginning. And that beginning could be many years for the majority of traders.