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Dr. Alexander Elder, psychologist, trader, and author of a number of books on trading, wrote in "Come Into My Trading Room" that the goal of a "serious amateur/semiprofessional trader" is 20% a year. The "expert" trader according to him might occasionally net a 100% return on a good year, but is most likely going to use 20% as their benchmark. Unfortunately for me, and for most other traders here, Elder's assessment of "professional" performance are not in accordance to our goals. 20% a year might do better than the stock market, but for all the trouble we're going through to learn how to trade, an extra 10% return on equity over the S&P's historical nominal average is just a joke. Any successful businessman is not afraid to think big, ask the Donald. That's exactly what we need to do, and as an example lets take a look at a real professional trader who was able to beat Alexander Elder's benchmark. Retail trader Martin "Buzzy" Schwartz had an audited average of 25% - PER MONTH!

For those of you who haven't read Schwartz's book, "Pit Bull", I highly recommend it. Its inspiring what a former marine who worked on Wall Street as an analyst for 8 and a half years managed to do after he quit his job and went out to tackle the options and futures market as a day trader. Back in Schwartz's day, trading was much more costly than it is now. To get over the insane commissions cost, Schwartz had to buy a seat on the American Exchange, which in 1979 cost around $90,000 (about $260,000 in today's dollars). Luckily Schwartz had a job as a Wall Street analyst, so he wasn't exactly poor. Nonetheless, that amount of money could have easily been a year or even two years' salary for someone in Schwartz's position, pre taxes (and taxes in those days were on the steep side for the upper income brackets). This shows you that to enter the game, you had to have a lot more commitment back then than today, when you can open up an FX account with a couple of thousand bucks and start making money. Perhaps the reason there is a 90% failure rate amongst traders today is because the lowered barriers of entry have attracted a lot of uncommitted participants. Back then, the only way you'd get suckered in inadvertently is if a broker found your number. So, what lessons can we learn from Schwartz? How did he get started?1. He wrote a plan that stated his goals, which gave a time frame for its achievement. Schwartz's wife, Audrey, encouraged him to take on trading, and told him to make a plan. Schwartz sat down and wrote a clear plan that said exactly what he wanted to do:a) Establish a trading methodology.b) Earn a grubstake of $100,000 within one year.c) Get a mentor, in Schwartz's case Bob Zoellner, a top trader who specialized in 'tape reading'd) Get a seat on an exchange.e) Take a sabbatical from his analyst job. As we can see, Schwartz created concrete goals and they were time bound, he had agreed to challenge himself to make a certain sum of money within a year. His wife Audrey was a bit cautious, thinking it was unrealistic, but Schwartz decided to damn the torpedoes. Prior to this, Schwartz spent two years doing the break even dance in the markets. The plan and the orientation on goals is what made the difference. While Schwartz may have had the disadvantage of having to pay an exorbitant fee for his seat, he did have the advantage of a mentor like Bob Zoellner (in the Wall Street world, people know each other). However, its worth pointing out that while few of us have access to people like Zoellner, we do have a multitude of books that were written by top traders, which were not so widespread back in Schwartz's day. 2. He went to work developing his methodology and was very thorough. Schwartz says "Developing a methodology that fit my personality was the most important part of my plan. Without a methodology for trading, I had no edge."Initially, coming from an analyst and business school background, Schwartz was purely about fundamentals. Understanding that was inadequate for the short term trading he wanted to do, Schwartz spent a lot of time pouring over every book he could get on the stock market, and then he personalized that information to form a belief he could trade with. As he says "I was a synthesizer, taking all these different theories and picking and choosing and blending whatever fit my personality, all the time looking for some mathematical harmony that would unlock the market's secrets for me" Eventually Schwartz settled on a view of the market, and with Zoellner's mentoring began to make money. 3. He played a highly leveraged market. To earn his grubstake, Schwartz played the options market, which is highly leveraged compared to stocks. In “How I Trade for a Living”, Gary Smith started with futures for the same reason – leverage. When you have a small grubstake, you have to take big risks to grow it fast. Its perhaps one of the main reasons so many are attracted to the Forex market. This is a constant dilemma we see with many traders. To make your grubstake large enough to live off of, you have to take increased risks. Taking increased risks when you're starting to trade is in many cases asking for an account blowout. Somebody like Elder will insist that 2% is the limit. However, if we want to trade for a living, a rate of return of 20% a year on capital is going to put us on the slow track. Zoellner's coaching may have been a significant help to Schwartz and prevented an account blowout, so maybe here's where Marty had an upper hand. 4. He earned his grubstake before going full time. In order to prove to himself as a trader, Schwartz went out to make his grubstake in the market. This gave him the trust in himself to go trading completely full time. As he said “Like the forty-niners who headed west to claim their fame and fortune, the traders who have the best chance of striking it rich are the ones who have earned their grubstakes” 5. The grubstake was adequate. Back in 1979, Schwartz decided that $100,000 was what he needed, which is equal to the combined annual household income he and his wife lived off. In 2010 dollars that's almost $292,000. As per his words “Your grubstake has to be large enough to give you the time to be successful and large enough so that no one trade can take you out. When I started on the Amex, I lost 10 percent of my working capital in the first few hours, but my grubstake was large enough, and my “puke point” low enough, so that I didn't stop myself out before the market had a chance to turn in my favor. Plus, I was a singles hitter, I wasn't going for the home run.”6. He had a strong enough motivation to trade.Marty Schwartz was bent on not getting stuck in 'middle class hell':“What scared me the most was the memory of my father stuck in a series of dead-end jobs, sitting in a mortgaged house, looking at a constant stack of bills, worrying about money. Getting trapped in the middle-class jail and ending up like my father was my worst fear. I couldn't let it happen to me”This, and the desire for freedom and independence, is what drove Schwartz to be a trader. He was displeased with his job as an analyst, even though he went to a top business school and was making a very good salary for his time. 7. He had a supportive environment. Martin Schwartz's wife, Audrey, was a very big support to him. At times she gave him valuable perspective, as Schwartz said she helped him become a good money manager. 8. He kept records.As an officer of the USMC, Schwartz was used to keeping good records, and he did this when he began trading. So these are the lessons we can learn from one of the top traders, on how to get started and be successful. Of course, there's a lot more to learn than just this, but in reading “Pit Bull”, you can clearly see that Schwartz definitely had a solid basis for a strong start-up to his very successful trading career. Compared to us he had disadvantages (the high cost of the seat, the need to be working the pits), and advantages (having Zoellner as a mentor, the discipline and courage of a marine), but any business is always about maximizing the opportunities that you have available to you.