Updated April 2020
Although at times trading may seem like banging one’s head against a wall, there is light at the end of the tunnel.
There are traders – some legendary and some unheard of – extracting money out of the markets on a consistent basis.
The question then arises, what can you learn from these individuals?
George Soros
Soros sealed his reputation as a legendary money manager on September 16, 1992 – later dubbed Black Wednesday. He reportedly profited more than $1 billion shorting the GBP amid speculation the British government would be forced to break from the European Exchange Rate Mechanism, and allow the pound to devalue relative to other currencies. This cemented his reputation as a premier currency speculator. From then on, Soros earned the title: ‘The Man Who Broke the Bank of England’[1].
‘I’m only rich because I know when I’m wrong… I have survived by recognising my mistakes’ – George Soros
Soros recognised his mistakes. This is likely to strike a chord with most traders. How many times have you made the same mistake over and over again, and lost money as a direct result? Identifying mistakes not only helps your bottom line, it helps you grow as a trader.
‘It’s not whether you’re right or wrong that’s important, but how much you make when you’re right and how much you lose when you’re wrong’ – George Soros.
Soros’ quote drives home the point you can make money in this business even if you do not win the majority of trades. Further reading on the subject can be found here and also here. At its most basic, though, traders must understand as your reward on each trade increases, the number of winning trades required diminishes.
Stanley Druckenmiller
While not as recognised as Soros, Stanley Druckenmiller[2] is another legend of the business.
Until 2000, he worked for Soros. The duo famously bet against the British pound in 1992 and, as mentioned above, netted huge profits.
Druckenmiller made it big as a hedge fund manager for 30 years. The man averaged more than 30% returns over three decades. He had few losing quarters and did all of this trading size. According to research, he was the perfect trader, possessing mental flexibility and the ability to think independently.
‘I only focus on what is black and white and kind of sift out the grey area in my investing style’ – Stanley Druckenmiller
This quote is particularly stand out and may resonate with many traders.
Ever found yourself deviating from your trade plan and entering no man’s land? Focusing on only those setups clearly defined in your trading methodology and leaving out the grey areas is one of the key elements to staying consistently successful.
Trader A
Trading quietly in the background, yet controlling a reasonably hefty account, Trader A is an interesting character. For the sake of identity, we’ll not be using his real name, however he was recently interviewed for this piece.
Trader A travels a lot and is, for the most part, trading on the go using a laptop and a compact monitor. His account is in six figures and uses price action as a central trading medium. During our conversation, he emphasised the following points:
- Discipline is essential. He believes this can be learnt.
- Having a well-defined trading plan is vital. He did mention he has no need to refer to his plan anymore as he has it memorised given the length of time he’s been trading.
- He risks no more than 0.5% of his account on each trade. He noted once your account is large enough you can take less risk. To begin with, though, his risk was between 2-3% on each trade.
- Recording each trade is worthwhile for research. It helps recognise mistakes you may not otherwise be cognisant of during the trade.
- Although he considers himself an intraday trader, he does not feel compelled to trade every day. In fact, he mentions he regularly has days where the market offers him little opportunity to trade.
- ‘Trading should be as easy as making a good cup of tea’. Yes, he’s British.
In an effort to extend the last point, he went on to explain trading is simple; it is the trader who complicates things. Focusing on psychology and thinking in probabilities are key he stressed. It is then a matter of locating the setup and executing, as per your trade plan.
Just to be clear, Trader A has no financial background. He graduated with an Arts degree. However, it took nine years of grit and determination before he saw consistent results.
Take-Away Points
- Be quick to recognise mistakes. Keep a journal.
- Have a trade plan and do not deviate.
- Only trade black and white setups – pass on the grey areas.
- Think of trading in terms of probabilities, not in terms of being right or wrong.
- Trading should be simple. Do not overcomplicate things.
[1] https://priceonomics.com/the-trade-of-the-century-when-george-soros-broke/
