Even Jack Schwager didn’t believe this trader’s returns. So he audited them.

Wizard Wednesday #4: a near-million-percent return, and the one idea from this chapter I’m testing this week.

Chapter four is ShortBear, a trader I follow on Twitter with no idea the numbers were like this. Nearly a million percent return. The returns were so absurd that Schwager, who’s been writing these books for 40 years, didn’t believe them. So he brought in a large accounting firm to audit the records and called the broker directly to verify. That’s the bar for this book. Not a screenshot of a winning trade. Audited statements, tax returns, broker calls. Worth remembering whenever someone dismisses these traders as frauds.

The idea I’m stealing: the time stop. On his small-cap shorts, he didn’t target a dollar amount. He just got out at the end of the day, and his testing found that beat trying to pick a profit target or a trailing stop. Here’s why that stopped me. My day-trading algos do the exact same thing, get out at the end of the day, no target. He arrived at it through completely different research. When two separate processes land on the same answer, that’s a strong signal it’s real.

So this week I’m testing a tweak. Time stops on my losers, get out fast, and trailing stops on my winners, let them run. I’ve tested versions before, but every time I hear a sharp idea I go back to my existing systems first. Improving what already works is easier and safer than building something new.

Short-term trades build the muscle. Long-term trades build the wealth.

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— Michael Nauss, CMT, CAIA, CDMS