The Little Book of Trading: Trend Following Strategy for Big Winnings

Chapter Two

Someone's Gotta Lose for You to Win

David Druz

DAVID DRUZ HAS BEEN TRADING AS A TREND FOLLOWING trader for more than three decades. He, like many in this book, did not start with millions, and when he and I talked he made sure that I understood one of his biggest insights, perhaps the single biggest reason he made his fortune: Life is not fair, and everyone doesn't win. In fact, markets are typically structured with a winner and loser. Druz believes the evidence shows overwhelmingly that somebody has to lose for you to win. That might sound hardcore, but hold your judgment. There is more.

Imagine you have a friend named Charlie, a fraternity brother a couple years ahead of you in college. You are attending the University of Illinois at Urbana-Champaign in the 1970s. Your buddy Charlie starts trading with $2,000 and a year later has run that up to around $500,000. Oh sure, Charlie appears to be brilliant in his trading and absolutely fearless, but how is he doing it?

After graduation Charlie comes back to school on weekends to visit his girlfriend. He always has wads of bills in his pockets. Many guys in the frat love it because Charlie buys rounds and rounds at the college bars. But wasn't there at least one guy who wanted to know how Charlie did it, instead of how much ...