Savvy Nickel
by Jack D. Schwager
Jack Schwager's follow-up to Market Wizards features a new generation of trading legends — including Bill Lipschutz, Mark Ritchie, and Stanley Druckenmiller. Essential reading for serious traders who want to understand the full range of strategies and psychological disciplines that produce elite performance.
*Disclosure: This article contains affiliate links. If you purchase through these links, we may earn a commission at no additional cost to you. We only recommend books we genuinely believe in.
Published in 1992, The New Market Wizards follows the same interview format as Market Wizards (1989) but features a different cast of trading legends. Where the original focused heavily on futures traders of the 1970s-80s, the New Wizards include equity traders, currency specialists, and a new generation who came of age in the more complex markets of the late 1980s. Stanley Druckenmiller's account of breaking the Bank of England alongside George Soros is alone worth the price of the book.
| Attribute | Details |
|---|---|
| Title | The New Market Wizards |
| Author | Jack D. Schwager |
| Publisher | HarperBusiness |
| Published | 1992 |
| Pages | 493 |
| Reading Level | Intermediate |
| Amazon Rating | 4.6/5 stars |
Paperback: Buy on Amazon
Kindle: Buy on Amazon
Lipschutz was Salomon Brothers' global head of foreign exchange in the late 1980s, trading $250 billion in currencies daily. He turned $12,000 in inherited stock into $250,000, then lost it all in one reckless options trade — then rebuilt from scratch to become one of the best FX traders alive.
His core lessons:
Lesson 1: Be willing to be wrong. "If I have a position going against me, I get right out. If they are going for me, I keep them. Risk control is everything."
Lesson 2: Think asymmetrically. "You have to be willing to make asymmetric bets — where the potential upside is substantially larger than the potential downside. And then size them correctly."
Lesson 3: The hardest part of trading. Lipschutz argues the psychological challenge of holding positions through normal volatility without being shaken out is the primary differentiator between good and great traders. Most traders who are analytically sound still fail because they cannot psychologically hold positions through the normal noise of markets.
Lipschutz on position sizing:
He managed currency positions worth hundreds of billions for Salomon. His framework: the size of any position should be calibrated to the amount of volatility you can handle psychologically, not just what your risk management formula says. If a position is large enough that you're checking prices constantly and making impulsive adjustments, it's too large for you regardless of what the math says.
Druckenmiller managed the Quantum Fund for George Soros and is one of the most successful macro traders of all time. His most famous trade: the 1992 shorting of the British pound that earned $1 billion in one day.
The Black Wednesday Trade (September 16, 1992):
Background: The UK had joined the European Exchange Rate Mechanism (ERM) in 1990, fixing the pound's value against the German Deutsche Mark. The fixed rate was too high — the UK economy was in recession and needed looser monetary policy, but the ERM commitment required higher rates to defend the pound peg.
Druckenmiller's analysis:
The trade:
The result: $1 billion profit in a single day. The British government spent £3.3 billion defending the pound and failed. The UK withdrew from the ERM. Interest rates were cut. The UK economy subsequently outperformed those that remained in the ERM.
Investment lessons from Black Wednesday:
| Lesson | Application |
|---|---|
| Governments cannot fight markets indefinitely | Pegged exchange rates eventually break if fundamentally misaligned |
| Size appropriately to conviction | Soros and Druckenmiller sized their largest trade to match their highest conviction |
| Risk/reward must be asymmetric | Downside (pound stays strong, modest loss on short) vs. upside (devaluation, enormous gain) was clearly asymmetric |
| Political will is a finite resource | The UK could not sustain politically unpopular high interest rates to defend an overvalued currency |
Druckenmiller on concentration:
"I've never felt the urge to diversify. If you've done your homework and you have a high-conviction idea, why would you dilute it with your 20th-best idea? Diversification is for people who don't know what they're doing."
This contrasts sharply with passive investing advice — but Druckenmiller is operating at a level of analysis and information depth where his view is internally consistent.
Ritchie traded commodities futures for 20 years with exceptional results. His interview covers the psychological development of a successful trader.
Ritchie on the three stages of trader development:
Stage 1: Learning the market. Understand how prices move, what drives supply and demand, how participants behave. This typically takes 2-5 years of actual trading with real money.
Stage 2: Learning yourself. Identify your specific psychological weaknesses — are you prone to holding losers? Exiting winners too early? Trading too large? Each trader has specific failure modes. This stage requires honest self-examination and often requires losing money to identify the patterns.
Stage 3: Integration. Combine market knowledge with self-knowledge to develop a strategy that works with your psychology rather than against it. A trader who knows the market but has not done the psychological work will fail. A trader who has done the psychological work but lacks market knowledge will also fail. Both are required.
His risk management framework:
Ritchie uses a simple rule: never risk more than 2% of capital on any single trade. At this position size, you can have 20 consecutive losing trades and still have 66% of your capital. Recovery from 20 losses is psychologically and financially possible. Recovery from a 50% drawdown (caused by larger position sizes) is much harder.
The 2% rule compound effect:
| Consecutive Losses | Capital Remaining (2% risk per trade) |
|---|---|
| 5 | 90.4% |
| 10 | 81.7% |
| 15 | 73.9% |
| 20 | 66.8% |
| 30 | 54.5% |
Even 30 consecutive losses leave more than half the capital intact. With larger position sizes, far fewer losses produce catastrophic outcomes.
Eckhardt was Richard Dennis's partner in the famous Turtle Trader experiment, where they trained 23 individuals with no trading background to follow a specific trend-following system. The Turtles went on to collectively earn hundreds of millions following the methodology.
Eckhardt's philosophy:
Eckhardt is unusual among market wizards for being entirely systematic — he does not use discretionary judgment. Every trade is defined by rules derived from historical data analysis.
His key insights:
On the edge: "You should have a demonstrable statistical edge. If you can't define your edge clearly enough to program it into a computer, you probably don't have one."
On human judgment: "The human brain is poorly adapted to probability. It finds patterns in noise and assigns confidence to them. For systematic trading, you must override this tendency with rules derived from genuine historical data."
On diversification for systematic traders: Unlike discretionary traders who concentrate in high-conviction ideas, systematic traders should trade the widest possible range of markets to diversify across strategy performance cycles. A trend-following system that performs poorly in choppy equity markets may perform well in trending commodity markets.
Schwager summarizes the consistent themes across all his wizard interviews:
There is no single method shared among the best traders. Some are fundamental analysts, some are pure technicians, some are systematic quantitative traders, some trade based on supply/demand analysis in physical commodities. What they share is that each has identified a genuine edge and executes it with discipline.
The implication for would-be traders: Copying another trader's strategy rarely works because the psychological profile required to execute each strategy is different. The strategy must fit the trader.
Regardless of strategy, all the wizards have rigorous risk management:
| Principle | Application |
|---|---|
| Define maximum loss before entry | Stop loss level determined before trade |
| Position size to volatility | Smaller positions in more volatile markets |
| Portfolio-level risk | Total portfolio risk limited regardless of individual positions |
| Avoid averaging down | Adding to losing positions is the most common catastrophic error |
| Protect against worst case | What if everything goes wrong simultaneously? |
Technical analysis or fundamental analysis creates a tradeable edge. Psychological discipline converts that edge into long-run profits. Traders who cannot maintain discipline — holding losers, over-trading, abandoning systems during drawdowns — fail regardless of the quality of their analysis.
Every wizard has losing trades. None has had a permanent catastrophic loss. The distinction: managed losses (defined, accepted, moved on from) versus unmanaged losses (holding hoping to break even, adding to losing positions, refusing to accept being wrong).
| Dimension | Market Wizards | New Market Wizards |
|---|---|---|
| Era | 1970s-80s traders | 1980s-90s traders |
| Primary markets | Futures, commodities | More equities, currencies |
| Famous trades | Turtles, Dennis | Black Wednesday (Druckenmiller) |
| Style diversity | Heavy trend-following | More strategy diversity |
| Overall quality | Slightly higher (original cast) | Nearly as good |
Both books are essential. Read Market Wizards first; New Market Wizards second.
Rating: 4.6/5
The New Market Wizards is an excellent companion to Market Wizards. The Druckenmiller and Eckhardt interviews alone justify reading it. Essential for anyone studying professional trading psychology and methodology.
Paperback: Buy on Amazon
Kindle: Buy on Amazon
Prices current as of publication date. Free shipping available with Prime.
by Jack D. Schwager
Jack Schwager interviews the greatest traders of the 1980s and distills what separates consistent winners from the rest. A masterclass in trading psychology, risk management, and the diverse approaches that produce extraordinary long-term results.
by Edwin Lefèvre
The fictionalized biography of Jesse Livermore, the greatest speculator of the early 20th century. First published in 1923, this remains the most widely read book on trading psychology, market timing, and the emotional discipline required for long-term market success.
by Mark Douglas
Mark Douglas's masterwork on trading psychology. The definitive guide to developing the disciplined, probabilistic mindset that separates consistent winners from traders who blow up their accounts despite having technically sound strategies.
Most people accept the first offer they get. That single decision can cost them hundreds of thousands of dollars over a career. Here's how to negotiate — and why the stakes are higher than they appear.
The ability to wait - to choose a larger reward later over a smaller one now - is the single most consistent predictor of financial outcomes. Here's the science, and how to actually build this skill.
Fractional shares let you buy a slice of any stock or ETF regardless of its price. Here is how they work, which brokerages offer them, and when they actually matter for your portfolio.