Based on Martin "Buzzy" Schwartz, Pit Bull: Lessons from Wall Street's Champion Day Trader (1998) Chinese title: δΊ€ζε ε
Schwartz won the US Investing Championship multiple times with returns exceeding 200% in some years. This book covers his transition from securities analyst to full-time trader, his core tools (10-period EMA, MACD, market internals), and the psychological and risk management lessons that made him a champion.
Martin "Buzzy" Schwartz is one of the most successful day traders in Wall Street history. His achievements:
Most day traders fail. Schwartz succeeded because:
"I've always been a competitor. I like to trade to win. Not to lose. Not to break even. To win."
"I finally understood that the fundamentals were already reflected in the price. I didn't need to analyze the balance sheet or talk to management. I just needed to watch the tape."
This is not to say fundamentals do not matter β but for a day trader operating on hourly and daily timeframes, the price action is the only signal that matters. Fundamental analysis has value for investors with multi-year horizons, but it is a hindrance for short-term traders because it creates anchoring bias.
ANALYST MINDSET (what failed):
- "This stock is undervalued at $30. It should be $50."
- Result: Bought at $30, held as it dropped to $20, averaged down.
- Fundamental analysis was correct on value but wrong on timing.
TRADER MINDSET (what worked):
- "The 10-EMA is rising and price is above it. The trend is up."
- Result: Bought on signal, stopped out if trend failed, re-entered on next signal.
- Technical analysis provided timing and risk management that fundamentals lacked.
Schwartz used remarkably few tools:
| Tool | Purpose | Settings |
|---|---|---|
| 10-period EMA | Trend direction and entry/exit | 10-period on daily and intraday |
| MACD | Momentum confirmation | Standard 12-26-9 |
| TICK | Short-term market breadth | Real-time NYSE TICK |
| TRIN (Arms Index) | Supply/demand balance | Real-time NYSE TRIN |
| Volume | Confirmation of price moves | N/A |
The 10-period EMA was Schwartz's most important single indicator. He used it on both daily and intraday charts.
EMA Calculation:
Multiplier = 2 / (Period + 1) = 2 / 11 = 0.1818
EMA_today = (Close - EMA_yesterday) * Multiplier + EMA_yesterday
BULLISH: Price above the 10-EMA AND 10-EMA is rising
BEARISH: Price below the 10-EMA AND 10-EMA is falling
NEUTRAL: Price oscillating around a flat 10-EMA
Long Entry:
1. Price is above the 10-EMA (uptrend confirmed)
2. Price pulls back to the 10-EMA (or slightly below)
3. Price bounces off the 10-EMA (candle closes above)
β BUY on the bounce
Alternative: Buy when price crosses above the 10-EMA from below,
CONFIRMED by MACD turning positive or trending higher.
Short Entry:
1. Price is below the 10-EMA (downtrend confirmed)
2. Price rallies up to the 10-EMA (or slightly above)
3. Price rejects the 10-EMA (candle closes below)
β SELL SHORT on the rejection
Alternative: Sell when price crosses below the 10-EMA from above,
CONFIRMED by MACD turning negative or trending lower.
EXIT LONG:
- Price closes below the 10-EMA on the daily chart
- OR stop loss is hit
EXIT SHORT:
- Price closes above the 10-EMA on the daily chart
- OR stop loss is hit
Schwartz used the 10-EMA on multiple timeframes:
DAILY CHART: Determines the primary trend direction
Price above daily 10-EMA β Look for longs only
Price below daily 10-EMA β Look for shorts only
INTRADAY (5-min or 15-min): Times entries within the daily trend
Enter long when intraday price bounces off the intraday 10-EMA
while the daily trend is up
"The 10-period moving average is my line in the sand. If price is above it, I'm bullish. Below it, I'm bearish. It's that simple."
MACD Line = EMA(12) - EMA(26)
Signal Line = EMA(9) of the MACD Line
Histogram = MACD Line - Signal Line
Schwartz did not use MACD as a primary signal generator. He used it as confirmation for the 10-EMA signals:
MACD CONFIRMATION FOR LONG:
- MACD Line crossing above Signal Line β Confirms bullish momentum
- MACD Histogram turning positive β Momentum accelerating
- MACD above zero line β Trend is bullish
MACD CONFIRMATION FOR SHORT:
- MACD Line crossing below Signal Line β Confirms bearish momentum
- MACD Histogram turning negative β Momentum accelerating down
- MACD below zero line β Trend is bearish
Schwartz paid attention to divergences between price and MACD:
BULLISH DIVERGENCE:
Price makes a lower low, BUT MACD makes a higher low
β Selling pressure is weakening. Potential reversal up.
BEARISH DIVERGENCE:
Price makes a higher high, BUT MACD makes a lower high
β Buying pressure is weakening. Potential reversal down.
Divergences are not immediate signals β they indicate weakening trend strength. Schwartz would use divergence as a warning to tighten stops or reduce position size, not as an outright reversal signal.
FUNCTION schwartz_signal(price, ema_10, macd, macd_signal):
# Determine trend from 10-EMA
trend = "BULLISH" IF price > ema_10 AND ema_10_is_rising ELSE "BEARISH"
# Check MACD confirmation
macd_bullish = (macd > macd_signal) AND (macd_histogram > 0)
macd_bearish = (macd < macd_signal) AND (macd_histogram < 0)
# Generate signal
IF trend == "BULLISH" AND macd_bullish:
IF price_bouncing_off_ema_10:
RETURN "BUY"
ELIF trend == "BEARISH" AND macd_bearish:
IF price_rejected_at_ema_10:
RETURN "SELL SHORT"
RETURN "NO SIGNAL"
TICK = (Stocks on uptick) - (Stocks on downtick)
Interpretation:
TICK > +800: Strong buying pressure (bullish short-term)
TICK > +1000: Extreme buying (market may be overextended)
TICK < -800: Strong selling pressure (bearish short-term)
TICK < -1000: Extreme selling (market may be oversold)
TICK near 0: Balanced/neutral
TRIN = (Advancing Issues / Declining Issues) / (Advancing Volume / Declining Volume)
Interpretation:
TRIN < 0.80: Strong buying pressure (bullish β more volume going to advancers)
TRIN 0.80-1.20: Neutral / balanced
TRIN > 1.20: Strong selling pressure (bearish β more volume going to decliners)
TRIN > 2.00: Panic selling (often precedes a bounce β contrarian buy signal)
FUNCTION market_internal_score(tick, trin):
score = 0
IF tick > 400:
score += 1
IF tick > 800:
score += 1
IF tick < -400:
score -= 1
IF tick < -800:
score -= 1
IF trin < 0.80:
score += 1
IF trin < 0.60:
score += 1
IF trin > 1.20:
score -= 1
IF trin > 1.50:
score -= 1
# Score range: -4 to +4
# +3 or +4: Very bullish internals
# -3 or -4: Very bearish internals
# -1 to +1: Neutral
RETURN score
Schwartz tracked his daily P&L obsessively:
SCHWARTZ'S DAILY RULES:
Daily Loss Limit: Set a maximum daily loss (e.g., $X or Y% of capital)
IF daily P&L reaches -$X:
STOP trading for the day. No exceptions.
Go home. Exercise. Clear your head.
Daily Profit Target: Not rigid, but awareness
IF significant profit early in the day:
Consider reducing size or stopping early to "bank" the win.
Do not give back a big win trying to make it bigger.
"I never let a gain turn into a loss on the day. If I'm up $50,000 and I give back $20,000, I stop. I'm still up $30,000. That's a winning day."
This rule prevents the emotional spiral where a profitable day turns into a loss because the trader got greedy or started revenge-trading after giving back profits.
"Never risk more than you can afford to lose in a day."
Schwartz's risk management was built on this single principle. Everything else derives from it:
RISK HIERARCHY:
1. Daily max loss: Fixed dollar amount you will not exceed
2. Per-trade max loss: Fraction of daily max loss
3. Position sizing: Calculated from per-trade max loss and stop distance
4. Leverage: Used but always within daily max loss framework
FUNCTION schwartz_position_size(daily_max_loss, num_planned_trades, entry, stop):
per_trade_risk = daily_max_loss / num_planned_trades
risk_per_share = ABS(entry - stop)
position_size = FLOOR(per_trade_risk / risk_per_share)
RETURN position_size
EXAMPLE:
Daily max loss: $10,000
Planned trades today: 5
Per-trade risk: $2,000
Entry: $50.00
Stop: $49.00
Risk per share: $1.00
Position size: 2,000 shares
SCALING INTO WINNERS:
- Enter with 50% of intended position at initial signal.
- Add 30% when the trade moves in your favor (confirmation).
- Add final 20% on continued momentum.
- Move stop to breakeven on each addition.
SCALING OUT:
- Take 50% off at first profit target.
- Trail the remaining 50% with the 10-EMA.
- Exit remaining position when the 10-EMA is violated.
1. PRE-MARKET: Assess overnight developments, check daily chart trend (10-EMA).
2. OPEN: Watch first 30 minutes for direction and TICK/TRIN readings.
3. SIGNAL: Wait for 10-EMA bounce or break on intraday chart, confirmed by MACD.
4. ENTRY: Execute with predetermined position size and stop.
5. MANAGEMENT: Monitor TICK, TRIN, and price relative to 10-EMA.
6. EXIT: At target, at stop, or when 10-EMA is violated.
Schwartz viewed trading as a competitive sport. His mental approach borrowed from athletics:
Schwartz's Loss Protocol:
1. Take the loss immediately. Do not hesitate.
2. Write it down in the journal.
3. Ask: "Did I follow my rules?"
IF YES β It was a good trade with a bad outcome. Move on.
IF NO β It was a bad trade. Identify what went wrong. Fix it.
4. Do NOT increase size on the next trade to "make it back."
5. If 3 consecutive losses: STOP trading. Review. Reset.
"I lost a lot of money in 1987. But I survived. And I came back. The guys who didn't have risk management β they didn't come back."
1. Exercise (1 hour) β Physical preparation for mental battle
2. Review overnight news, futures, foreign markets
3. Review daily charts of key markets and positions
4. Identify the day's key levels (support/resistance on daily chart)
5. Check 10-EMA position on daily and weekly charts
6. Plan the day: What are you looking for? What signals will trigger action?
7. Mental preparation: "I will follow my rules. I will cut losses. I will let winners run."
Opening 30 minutes:
- Observe. Do not trade aggressively.
- Let the market show its hand. Watch TICK and TRIN for direction.
- Identify if today's action confirms or contradicts the daily trend.
Core trading hours (10:00 AM - 3:00 PM):
- Execute planned trades based on 10-EMA signals.
- Monitor market internals continuously.
- Adjust position sizes based on conviction and daily P&L.
Last 30 minutes (3:30 PM - 4:00 PM):
- Decide whether to hold overnight or close all positions.
- IF daily P&L is significantly positive: Consider closing to bank profits.
- IF daily P&L is negative: Close all positions. Do not carry losses overnight.
1. Record all trades in journal (entry, exit, size, P&L, notes)
2. Calculate daily P&L
3. Review: Did I follow my rules?
4. Prepare watchlist for tomorrow
5. Physical recovery (light exercise, relaxation)
6. Mental recovery: Separate from the market. Do not check prices after close.
| # | Rule | Rationale |
|---|---|---|
| 1 | Cut losses immediately | The single most important rule |
| 2 | Never risk more than you can afford to lose in a day | Survival is paramount |
| 3 | The 10-EMA defines the trend | Simple, effective, objective |
| 4 | Confirm with MACD before entering | Reduces false signals |
| 5 | Watch market internals (TICK/TRIN) | Context for individual trades |
| 6 | Don't fight the tape | If the market is going against you, get out |
| 7 | Start the day fresh β yesterday doesn't matter | No emotional carryover |
| 8 | Exercise daily | Physical fitness = mental fitness |
| 9 | Take breaks after losses | Prevent revenge trading |
| 10 | Bank profits β don't give back winners | Protect your P&L |
| 11 | Avoid the first 30 minutes for aggressive trading | Let the market show its hand |
| 12 | Keep a journal of every trade | Accountability and learning |
9:30-10:00: Volatile, often reversals. Amateur hour. Observe, don't trade aggressively.
10:00-11:30: First directional move. Best time for trend trades.
11:30-1:30: Lunchtime lull. Reduced volume, choppy. Often a bad time to trade.
1:30-3:00: Afternoon trend. Often a continuation or reversal of morning trend.
3:00-4:00: Institutional buying/selling. Strong moves, especially on expiration days.
The 10-period EMA is the line in the sand. Above it, you are bullish. Below it, you are bearish. This single tool provides more clarity than dozens of indicators.
Confirm with MACD, don't just trade the EMA alone. MACD confirmation reduces false signals. The combination of 10-EMA trend direction and MACD momentum is Schwartz's core edge.
Market internals (TICK/TRIN) provide context. Individual stock or futures trades exist within the broader market environment. Always know what the market internals are saying before entering.
Never risk more than you can afford to lose in a day. This is the cardinal rule. When the daily loss limit is hit, stop trading. No exceptions, no "one more trade."
Cut losses immediately and without hesitation. The size of the loss does not determine whether it was a good or bad trade. Following your rules determines that. Take the loss and move on.
Bank your profits β do not give them back. If you are up significantly, protect those gains. Giving back a winning day because you got greedy is a failure of discipline.
Physical fitness supports mental fitness. Trading is a high-stress activity. Exercise, sleep, and nutrition directly affect decision-making quality under pressure.
Start every day fresh. Yesterday's losses or gains are irrelevant. Each day is a new competition. Do not carry emotional baggage from previous sessions.
The first 30 minutes are for observation. Let the market show its hand. The opening range provides critical information about the day's likely direction.
Keep a detailed journal. Every trade, every day, with notes on what you thought, felt, and did. The journal is the tool for continuous improvement.
"Before I learned to trade properly, I was losing money, my health was deteriorating, and my marriage was falling apart. When I got disciplined about trading, everything else got better too."