Last Updated on April 30, 2022 by Oddmund Groette
Randy McKay is an American investor with a record 20-year consistent profits — he started from a few thousand and traded that to tens of millions of dollars. Despite his trading records, he is probably most known for being interviewed in Jack Schwager’s New Market Wizards, published as long back as 1992.
Still, trading wisdom rarely gets outdated, and this article contains lessons, quotes, and the life of Randy McKay.
Randy McKay’s life and trading career:
McKay started trading currency futures in 1970. His brother was a floor broker on the Chicago Mercantile Exchange, so he got a job as a runner on the floor to attend night school while working.
In 1972, Chicago Mercantile Exchange seats were $100 000, making his dream of being a floor trader seem impossible. At the beginning of currency trading, seats were sold for $10,000, but existing brokers got free seats, including Randy’s brother.
Randy took over his brother’s seat with $2,000 in the capital. But the market was dormant after a few weeks. He made about two trades per day during that time. However, he turned the $2,000 into $70,000 after seven months.
In 1976, Randy made his first big trade in the Pound after the UK government announced a price ceiling of $1.72 to facilitate exports and cut down imports. Following the announcement, the market rallied from $1.65 to $1.72. It dipped several times by smaller amounts, but it kept returning to $1.72.
Most traders thought it wouldn’t break the $1.72 resistance level, but Randy saw a locked limit up the market. He bought 200 contracts — which was five times larger than his average size. He called the Bank Of England every day for a quote, and one morning the quote was around $1.725.
Randy called his brother and all his friends and bought more contracts. The market rallied to $1.90 in four months. He targeted this level because it was a round number and had been a support level before its decline but was now a resistance level.
He sold 1400 contracts, 400 for himself and the remainder for his friends over forty-five minutes, and made about $1.3 million from that trade. He sold plenty, dragged the price down, and made more money on the extras.
He knew that trading in this market was too easy, and it wouldn’t last long. Declining inflation in the ‘80s didn’t create much momentum in the market. Therefore the market consolidated. Randy always paid attention to price action and more to how the market responded to fundamentals.
Randy traded lots of markets, “I’ve got thirty-eight markets on my screen. If I miss moves in ten of them, there will be ten others that have a price move”, he remarked. Regarding his strategy, he stated.
Randy’s money management techniques are highly conservative — a drastic variation in capital allocation in trading. When his trades are going well, he traded large positions, but when they are not, he will reduce them drastically by more than a factor of 100. “You have to wait until you get back into the proper frame of mind,” he said.
He usually risked about 5% to 10% of his account for an initial trade. If the trade went wrong, he’d reduce it to 4% for the next trade. And then to 2% if the second did not work out. That’s an aggressive strategy that is reserved for extremely experienced traders.
Randy McKay quotes:
Below are what we consider the main takeaways from Randy McKay’s interview in New Market Wizards:
I used to like buying or selling on breakouts, but nowadays the breakouts that work look similar to the breakouts that are sucker plays. I now buy on breaks and sell on rallies.
When I get hurt in the market, I get the hell out….If you can’t out it out of your mind, you can’t trade it.
Major trends today are very different from what they used to be because the behavior of professional traders is very different from that of naive traders.
Nowadays the breakouts that work look similar to the breakouts that are sucker plays.
The most important advice is to never let a loser get out of hand. You want to be sure that you can be wrong twenty or thirty times in a row and still have money in your account.
Every trader will go through cold spells.
…virtually every successful trader I know ultimately ended up with a trading style suited to his personality.
Sometimes the reason people lose is that they’re not sufficiently selective.
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