Some Questions to passages in "Market Wizards"

[matjes]

Hey guys,
im new here and started to read myself into the Forex World a few days ago. Finished the School of Pipsology (which was great, i love the style of writting!), and received no my copy of "Market Wizards".
So far it is a very motivating and interesting book, but as im new i have a few problems with some topics, added to that im not a native English speaker and this adds maybe also a few understanding problems.

It would be nice if you could help me out.


Page 122 (Interview with Paul Tudor Jones)

One thing i learned as a floor trader was that if, for example, the old high was at 56.80, there are probably going to be a lot of buy stops at 56.85. If the market is trading 70bid, 75 offered, the whole trading ring has a vested interest in buying the market, touching off those stops, and liquidating into the stops - that is a very common ring practice. As an upstairs trader, i put that together with what Eli taught me. If i want to cover a position in that type of situation, i will liquidate half at 75, so that i wont have to worry about getting out of the entire position at the point where the stops are being hit. I will always liquidate half my position below new highs or lows and remining half beyond that point.

what does he mean with "touching off those stops, and liquidating into the stops"? Does he mean why buy at a lower price than the previous high and sell(liquidate) when the price gets there(previous high = stop?) again?

What is an upstairs trader? Someone who goes mainly for long and seldom for short trades?

"i will liquidate half at 75, so that i wont have to worry about getting out of the entire position at the point where the stops are being hit."
I dont get this one, especially "getting out of the entire position" - what does this mean? He says that at 75 the market has an interest in buying, so why should he sell half of his positions on this point as he can expect a bullish reaction?


Page 123

In an act of bravado i told my floor broker to bid 82.90 for 100July, which at the time was a very big order. He bid 90 for 100, and I remember the Refco broker came across the pit screaming, "Sold!". Refco owned most of the certificated stock at that time [the type of cotton available for delivery against the contract]. In an instant I realized that they intended to deliver against the July contract, which then was trading at about a 4-cent premium to the October contract.

What does "they intended to deliver against the July contract" mean?


Thank you very much for your time. I will update this post when i find more passages which make me trouble.

[Simy]

First lets start by saying this book (as far as I know from googling it) is about stocks (and or futures). Not a forex book, although information can be gained from it not all of it applies, infact the first passage dosnt apply at all.

While googling upstairs trader found nothing, I did find this at http://www.bizterms.net/term/Upstairs-market.html:
"Upstairs market
A network of trading desks for the major brokerage firms and institutional investors that communicate with each other by means of electronic display systems and telephones to facilitate block trades and program trades. "

It could be assumed that an 'upstairs trader' operates in the 'upstairs market' on the other hand this article from investopedia may help: Upstairs Trade

I'm really not sure on that one!

For the liquidity section/quote (the first one) I'm not sure on the lingo, but it sounds like what hes saying is he will close half of his positions just before, and half just after to equal to being at the same price, versus trying to deal with the liquidity issues and timing that the market will present when everybody else is doing the same thing.


For the second paragraph, again this is just a guess but, if I remember correctly it sounds like hes dealing with options. With options you have the option to deliver a contract, eg make a purchase. Its kind of like buying the right (or selling the right) to buy at a set price, and then if you want you can buy it. Its kind of like a market on top of a market. The price varys and you can make money with just options, but... its similar with making it with the market. Now I could be wrong, its beenawhile since I researched options, they are of no use to me in the forex!

[rhodytrader]

Originally Posted by Simy

First lets start by saying this book (as far as I know from googling it) is about stocks (and or futures). Not a forex book, although information can be gained from it not all of it applies, infact the first passage dosnt apply at all.

The first passage relates to futures pit trading, that is true. To say that Market Wizards is about stocks and/or futures is WAY short of the mark. It's about all markets. The traders interviewed cover the full spectrum from stocks to commodities to forex to bonds to options.

[rhodytrader]

Originally Posted by matjes

what does he mean with "touching off those stops, and liquidating into the stops"? Does he mean why buy at a lower price than the previous high and sell(liquidate) when the price gets there(previous high = stop?) again?

He means that the pit traders would buy the market to run the stops, forcing them to be triggered, then selling into those buy orders.

What is an upstairs trader? Someone who goes mainly for long and seldom for short trades?

An upstairs trader is someone who doesn't trade on the exchange floor (pit). That's going to be pretty much everyone in this forum, and most traders period.

"i will liquidate half at 75, so that i wont have to worry about getting out of the entire position at the point where the stops are being hit."
I dont get this one, especially "getting out of the entire position" - what does this mean? He says that at 75 the market has an interest in buying, so why should he sell half of his positions on this point as he can expect a bullish reaction?

I think he's saying he'll take profits on half his position so he doesn't run the risk of getting caught in a quick reversal, but still leave himself open to profits if the market does run.

What does "they intended to deliver against the July contract" mean?

Futures contracts are agreements for a future transaction. Intention to deliver means the short in the position intends to do that transaction and not cover his position before expiration.

[Simy]

I havnt read the book, I just got a very short view of what the book is about by googling it, and from what I've seen here. Sorry I didnt state that clearly in the first place.

[rhodytrader]

Originally Posted by Simy

I havnt read the book, I just got a very short view of what the book is about by googling it, and from what I've seen here. Sorry I didnt state that clearly in the first place.

I caught that you'd just Google'd it. I just wanted to make sure to correct the impressions you had gathered from that. I've read the book (and The New Market Wizards) several times, and even once had the pleasure of interviewing the author, Jack Schwager.

[matjes]

Thank you very much rhodytrader, your answers helped me to understand the passages.

My first impression of the book is, that it will not help much to improve trading methods, its just very valuable to see what mental requirements the Pro-Traders emphasize on. What were their biggest mistakes (being to greedy, maybe too frightened, havin bad Money Management), what was important for them etc. . I think almost everybody can get the skill to be successfull, but too many have the wrong Mindset to adopt this disciplined.
Coming from a Poker Background i see a lot of similarities between these 2 disciplines, because many who fail at Poker dont do this because of missing skill but being too greedy (playing too high limits), too frightened (not playing profitable tables, folding too often against aggressive players), not disciplined enough (stick to your Gameplan!).

Do you recommend to read "The New Market Wizards" also? Which books could help me improve my understanding of the Forex Market and how to apply this knowledge to create an trading system? Which books are important in general.
Maybe you have a link for me with good Book Reviews (i know there are reviews at amazon, but there are trillions of trading books out there).

Thank you for your time,
Matthias

[rhodytrader]

Originally Posted by matjes

My first impression of the book is, that it will not help much to improve trading methods, its just very valuable to see what mental requirements the Pro-Traders emphasize on. What were their biggest mistakes (being to greedy, maybe too frightened, havin bad Money Management), what was important for them etc. . I think almost everybody can get the skill to be successfull, but too many have the wrong Mindset to adopt this disciplined.

Yeah, the Market Wizards books are interviews (for those who don't know) with top traders and money managers. Naturally, they don't share too many specific trading methods. But they share loads of hard won experience.

Do you recommend to read "The New Market Wizards" also? Which books could help me improve my understanding of the Forex Market and how to apply this knowledge to create an trading system?

I definitely recommend The New Market Wizards. There is a bit more conversation about forex trading in it, but that doesn't mean I think it's better. Reading both is a good idea. A lot of the stories from the first book relate to the powerful commodities markets of the 1970s which carry over to today's trading quite well. A the end of New the author does a good job of summarizing the key takeaways from both books.

Maybe you have a link for me with good Book Reviews (i know there are reviews at amazon, but there are trillions of trading books out there).

Recently I posted a list of trading book reviews on my blog. Some of them might be useful to you.

[matjes]

Originally Posted by rhodytrader

Yeah, the Market Wizards books are interviews (for those who don't know) with top traders and money managers. Naturally, they don't share too many specific trading methods. But they share loads of hard won experience.



I definitely recommend The New Market Wizards. There is a bit more conversation about forex trading in it, but that doesn't mean I think it's better. Reading both is a good idea. A lot of the stories from the first book relate to the powerful commodities markets of the 1970s which carry over to today's trading quite well. A the end of New the author does a good job of summarizing the key takeaways from both books.



Recently I posted a list of trading book reviews on my blog. Some of them might be useful to you.

Thank you for your time,
i took a first look at your blog, looks very informative so far, will take some time tomorrow to read your review and see what else valuable i can find on your Site .