6 Lessons from this Wizard Trader (2024)

Have you ever heard of Dan Zanger?

He is one of the greatest personal swing traders of all time and managed to turn 11,000 dollars into 18 million in less than 20 months. A Return on investment of more than 164,000%. And all of that, from his home.

In this post, we will find out about his trading philosophy that made him beat the market as few have.

How does Dan operate?

Dan is a pure technical analyst who focuses on momentum breakout patterns. He literally spends hours and hours studying every form of chart pattern and their behaviors in different contexts.

Here, I will not discuss any of the specific patterns that he traded. Instead, I will outline the trading principles that made him successful.

The secret sauce behind Dan’s success

1. Know when to trade, or more importantly, when not to trade

“Observe and live in the firestorm of the market for a few dozen years, and you’ll learn not to stick your hand in the fire when you see it. I got burned too many times to forget what “chop and slop” truly means, whether long or short.”

Dan traded momentum. In a way, it is like surfing. If you checked the weather previsions and it doesn’t look good, would you drive three hours to try to surf? I doubt so.

In the same way, Dan understood that it is better to be on the side-line, emotionally free, and waiting for the perfect setup rather than forcing trades. He didn’t fight against the wind, and this was one of the key reasons behind his incredible performance.

2. Watch out for the FED

“What the Fed is doing has become more important than ever.”

As we said just before, the most important aspect of swing trading is to be in the market only when the condition is perfect. In the game of trading, it is Central Banks that create the proper condition.

Asset prices are driven by liquidity. By influencing the money supply through changes in interest rates and money printing, Central Banks affect this cycle. Hence, Dan is always aware of what they are doing because their actions and methods affect stocks significantly.

3. Trade the market leaders

Every market rally begins with market leaders outperforming the rest followed by the sector. Dan believes that it is important to know which sector leads or lags at any point in time as it tells important information on where we are in the economic cycle. He likes trading the market leaders and he is really cautious when they stop leading. Over the years, he has learned to recognize the movement of money from one sector to another and plan accordingly.

4. Have a simple approach to your trading and stick to it

“If you do your homework, you’ll make more money than you’ll ever know what to do with.”

Dan has strict rules that allow him to make clear decisions without being influenced by the day-to-day noise of the market. Those rules protect him from being emotional. At any point in time, he knows how much capital to put at risk and he has a clear view of when and how to exit his trade depending on what happens. In short, Dan knows what his edge is and follows his plan diligently.

Similarly, if you want to win at trading, you need to know what your edge is and have a clear trading strategy. If not, you should not expect to stay long in the game. Having a strategy and sticking to it is what will distinguish you from 90% of actors in this market. Consistency win.

5. Keep an open mind and never get emotionally attached to a position

“I love trading stocks, but I learned long ago to never get attached to a belief or fall in love with a stock. I did that once and it cost me a bundle.”

Dan is a big fan of William O’Neil, and even claims to have read his book nearly a hundred times. He uses a lot of principles from this trader, notably regarding managing his emotion.

O’Neil treated all stocks as bad. This heuristic protected him against any sort of disillusion around any stock. He believed that once irrationality around a stock kicked in, he lost his biggest edge: clear judgment.

“My philosophy is that all stocks are bad. There are no good stocks unless they go up in price. If they go down instead, you have to cut your losses fast. Letting losses run is the most serious mistake made by most investors.”

At the end of the day, trading is the art of staying emotionally free. You need to build a system that allows you to never have to be emotional when trading. You cannot beat your irrational brain, but you can make sure that it is never triggered.

6. Small caps are the champions

Small enterprises are those that tend to grow the most in terms of their fundamental value. This has the power to influence stock prices.

Every year, some small caps gains more than 200%. Mechanically, this process is explained by their small float. A company going through a phase of “game changer” in terms of its fundamentals combined with a low supply of stock is the perfect combination for explosive price movement.

This mechanism is weaker on big caps as much more volume is needed to move the price. This is one of the reasons why Dan paid particular attention to those small caps.

If you trade with a relatively small capital, you should have your eyes on small caps. Those are the ones that could give you the biggest returns.