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William Eckhardt: The Oracle of Chicago
Written by: PaxForex analytics dept - Friday, 27 June 2014 0 comments
"If you want to get rich, just find someone making lots of money and copy what he's doing." - J. Paul Getty
William Eckhardt started his career in 1974, which was 4 years after his doctoral studies experience at the University of Chicago (he failed to finish his studies for a doctoral degree in math). He’s published many articles in academic journals. He took part in the Turtle Trading Experiment with Richard Dennis in which he betted against Richard. Richard said the principles used by a guru could be inculcated into trainees, but William didn’t think this is possible. At last, some trading principles were inculcated into some novice traders and they later went on to make spectacular results. Thus William was proven wrong.
He founded ETC (Eckhardt Trading Company) in 1991 – a firm which has over $1,000,000,000 in trading funds and speculates on great varieties of market instruments. As a result of his strong academic experience, he advocates the use of mathematics and statistics in trading. In a period of 20 years, the ETC made an average of 17.3 per cent per annum (making a record 21.09 per cent in the year 2010). William Eckhart remains a successful trader and funds manager.
Lessons I prefer to call William Eckhardt the Oracle of Chicago. Here is the trading Insight that comes from the Oracle of Chicago.
Incessant transaction activities in the markets ultimately leave some as winners and some as losers. When there’s an effective trading principle, that principle would enable only the privileged few to be home and dry. This is a fact that’s common in the trading world. Money usually goes from the majority to the minority. The lesson here is that: in order for you to win, you need to adopt the trading principles used by the privileged few. When a trader thinks like an average individual and showcases common emotions, she/he would end up like most people who lose their equity.
Successful trading can be taught, and it can be learned. This is a truth that William failed to grasp many years ago, but experience showed him otherwise. Now he believes that gifted trading coaches can train people and mentor them until they become experts.
In most cases, colossal positivity tend to be more tempting but harmful than colossal negativity, especially when it comes to irrational thinking. It’s helpful not to be too happy when there is colossal positivity. People tend to open illogical trades after the markets have smiled on them for a long time. Speaking more on this, William says: “When you’re on a big winning streak, there’s a temptation to think that you’re doing something special, which will allow you to continue to propel yourself upward. You start to think that you can afford to make shoddy decisions. You can imagine what happens next. As a general rule, losses make you strong and profits make you weak.”
Speculation is like a mirror since people know what
they oughtn’t to do; but that’s what they do. They know what they ought to do; but that’s what they don’t do. Winning trading principles go against what most people prefer.
Many people believe in cutting their profits before the markets take them. They think they need to quickly take their profits so that the portfolios balances can increase, but this is how many traders end up shooting themselves in the back. When suicide traders sustain large losses because they run their losses, those who call themselves expert make gains that are too insignificant. The trader is her or his own enemy, because of the normal human tendency to anticipate and to dread. When you’ve a losing trade, you anticipate that it’ll soon turn positive; whereas the loss simply becomes bigger (it could’ve been smaller than that if you’d not anticipated anything). When you’ve a winning trade, you dread the possibility that it’ll soon turn negative, and you take your profit prematurely. The dread has prevented you from riding the market that is about to go in your favor by several hundreds of pips. For you to be a triumphant trader, you need to bring these two counterproductive emotions to subjection. You need to do the exact opposite of what most others will do: when you are supposed to dread the possibility of a trade going against you, that’s the best time to anticipate further profit from that trade. When you are supposed to anticipate that a negative trade could turn positive, that’s the best time to dread the possibility of it not turning positive, and therefore resulting in much more unbearable negativity.
Conclusion: The factor behind the markets is this: There are always bulls and bears in the markets, and some of them capitalize on new trading opportunities just before you recognize them. Did you ever wonder whether there are still bulls in an overextended northward bias? Many ignore this probability, including you, for the market continues to move upwards as the buying pressure exists. Yet, how can this be ascertained? You might then want to shift gears and bear it in mind that some experts tend to see new trading opportunities earlier than you. What’s the kind of trading mentality possessed by those experts who tend to see trading opportunities before you do and thus capitalize on them; thereby making decent gains?
This article is concluded by a quote from William:
“Don’t think about what the market’s going to do; you have absolutely no control over that. Think about what you’re going to do if it gets there. In particular, you should spend no time at all thinking about those rosy scenarios in which the market goes your way, since in those situations, there’s nothing more for you to do. Focus instead on those things you want least to happen and on what your response will be.”