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The Most Successful Forex Traders Ever

These are considered some of the most successful Foreign Exchange traders ever:

■ Andy Krieger

■ George Soros

■ Bill Lipschutz

■ Stanley Druckenmiller

(i) Andy Krieger

Andy Krieger is a Forex trader that made a lot of money by trading the New Zeeland Dollar or else the Kiwi. In 1987, the US Dollar faced enormous selling pressure and consequently, the other major currencies became fundamentally overvalued. Exactly that time, Andy Krieger placed very large selling orders on Kiwi. He achieved to sell more currency than the New Zealand could even supply (money supply) and by this way, he managed to gain billions of US dollars. He used the power of derivates (options) to leverage his funds and to achieve the Kiwi crush.

(ii) George Soros

George Soros is one of the most famous investors in the world. He was born in 1930 and graduated the LSE (London School of Economics). George Soros in 1992 managed to gain 1 billion US dollars from a single transaction in just one day. He is known as the man who managed to “Brake the Bank of England”.

(iii) Bill Lipschutz

Bill Lipschutz was born in New York in 1956. He is a Forex trader and the co-founder and Director of Portfolio Management at Hathersage Capital Management. He was awarded B.A. in Cornell College in Fine Arts and Masters Degree in Finance. Originally Bill Lipschutz was a Stocks trader, but afterwards, he became a Forex Trader. Bill Lipschutz managed to make over $300 million from Forex Trading in a single year.

(iv) Stanley Druckenmiller

Stanley Druckenmiller started his career as an oil analyst for the Pittsburgh National Bank and in 1988 started to work for George Soros.

Druckenmiller made his first grand trade after the collapse of the German Wall. Firstly he bought the German mark and after he bought German Bonds against the German Stocks. During that particular day, he managed to make 1 billion US dollar. This trade was in accordance with the attack of George Soros in the British Pound.

READ MORE:

◙ Paul Tudor Jones Tips

◙ Hedge Funds Market Wizards 2012

◙ New Market Wizards 1993

◙ Market Wizards 1989

■ The Most Successful Forex Traders Ever

CarryTrader.com

DIALOGUES FROM THE HEDGE FUNDS MARKET WIZARDS {2012, JACK D. SCHWAGER}

This is another great book by Jack D. Schwager. We recommend to buy it and read it –But until then, here are some important quotes from the traders that are interviewed.

MORE: ◙ Paul Tudor Jones Tips | ◙ New Market Wizards 1993 | ◙ Market Wizards 1989

Colm O’Shea

■ Price movements only have a meaning in the context of the fundamental landscape. To use a sailing analogy, the wind matters, but the tide matters, too. If you don’ t know what the tide is, and you plan everything just based on the wind, you are going to end up crashing into the rocks. That is how I see fundamentals and technicals. You need to pay attention to both to make sense of the picture.

■ Fundamentals are not about forecasting the weather for tomorrow, but rather noticing that it is raining today. The great trades don’ t require predictions.

■ If you play roulette, you are in the world of risk. If you are dealing with possible economic events, you are in the world of uncertainty. If you don’ t know the odds, putting a number on something makes no sense.

■ People love stable earnings, isn’t that great? I hate stable earnings. It just tells me the company is not being truthful.

■ The big mistake people make is to confuse liquidity with solvency.

■ In a bubble, the true believers will always win. You just need to make decent returns and wait until the market turns. Then you can make great returns. What I believe in is compounding and not losing money. All markets look li qui d during the bubble, but it’ s the liquidity after the bubble ends that matters.

■ Markets don’ t think, just like mobs don’ t think. Why did the mob decide to attack that building? Well, the mob didn’t actually think that. The market simply provides a price that comes about through a collection of human beings.

■ My typical time horizon for trades is one to three months.

■ Having a positive skew is very important. It is not about being right all the time. Most good macro traders will be right only about half the time or even less.

■ You need to implement a trade in a way that limits your losses when you are wrong, and you also need to be able to recognize when a trade is wrong.

Scott Ramsey

■ I always want to buy the strongest and sell the weakest. Always.

■ I use the Relative Strength Index (RSI), but not as an overbought/oversold indicator; instead, I look for divergences between the RSI and look at the 200-day moving average and Fibonacci retracements. I particularly like to get combined signals, such as the approaching the 200-day moving average and a 50 percent retracement. I will pay a lot of attention to that type of indicator combination.

■ Hope is the worst four-letter word for a trader.

■ It doesn’t matter whether you win or lose on any individual trade, as long as you get the process correct.

■ Trading is not a hobby. You need incredible dedication. Treat trading like a business. Keep a journal of your trades. If you make a mistake in the markets, write it down.

■ My challenge is to pick up on the subtle nuances of the various markets and to anticipate changes or accelerations in trends. I have found that by observing how the markets relate to one another, you can often detect when patterns of behavior change. A change in behavior is usually a failure of one or more related markets to confirm an existing move and serves as a warning sign. Since the 2008 financial crisis, market correlations have been extremely high.

■ In my opinion, the driver is usually the equity market. The typical stimulus-response pattern is:

Equities Up = Commodities Up = Dollar Down

The opposite price movements occur on “risk off” days.

Read more: Hedge Funds Market Wizards 2012

Paul Tudor Jones

Paul Tudor Jones is an American Trader founder of Tudor Investment Corporation. Paul Tudor long-term annual returns are close to 19.5%. Here are some important rules by this notorious trader.

MORE: ◙ Hedge Funds Market Wizards 2012 | ◙ New Market Wizards 1993 | ◙ Market Wizards 1989

■ I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.

■ One principle for sure would be: get out of anything that falls below the 200-day moving average.

■ When you are trading size, you have to get out when the market lets you out, not when you want to get out.

■ First of all, never play macho man with the market. Second, never overtrade.

■ Don't ever average losers. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well. Never trade in situations where you don't have control.

■ Don't be too concerned about where you got into a position. The only relevant question is whether you are bullish or bearish on the position that day.

■ Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible drawdown. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out. Don't be a hero. Don't have an ego. Always question yourself and your ability.

■ When I trade, I don't just use a price stop, I also use a time stop. If I think a market should break, and it doesn't, I will often get out even if I am not losing any money.

■ When we came in on Monday, October 19, we knew that the market was going to crash that day. As the previous Friday was a record volume day on the downside. The exact same thing happened in 1929, two days before the crash.

■ Everything gets destroyed a hundred times faster than it is built up. It takes one day to tear down something that might have taken ten years to build.

■ The first is, you always want to be with whatever the predominant trend is. My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?” If you use the 200-day moving average rule, then you get out. You play defense, and you get out.”

■ The sweet spot is when you find something with a compelling valuation that is also just beginning to move up. That’s every investor’s dream.

■ I’m looking for 5:1 Risk / Reward ratio. Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.

■ My contrarian trading was based on the fact that the markets move sideways about 85 percent of the time. But markets trend 15 percent of the time and you need to follow the trend during those times.

■ I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade.

■ I am always thinking about losing money as opposed to making money. Don’t focus on making money; focus on protecting what you have. At the end of the day, the most important thing is how good are you at risk control.

■ I look for opportunities with tremendously skewed reward-risk opportunities. Don’t ever let them get into your pocket – that means there’s no reason to leverage substantially. There’s no reason to take substantial amounts of financial risk ever, because you should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward-risk opportunities that should give you minimum draw down pain and maximum upside opportunities.

■ Only bet when the odds are substantially in your favor. Don’t bet unless you have a margin of safety.

Read more: Paul Tudor Jones Tips

DIALOGUES FROM THE NEW MARKET WIZARDS {JACK D. SCHWAGER}

This excellent book called “New Market Wizards” includes interviews with top American traders of the time. Pure words of trading wisdom that everyone should consider and adapt on his trading culture.  I recommend buying that book.

MORE: ◙ Paul Tudor Jones Tips | ◙ Hedge Funds Market Wizards 2012 | ◙ Market Wizards 1989 

William Eckhardt (» more on Wikipedia)

■ Traders who survive avoid snowball scenarios in which bad trades cause them to become emotionally destabilized and make more bad trades. They are also able to feel the pain of losing. If you don't feel me pain of a loss, then you're in the same position as those unfortunate people who have no pain sensors. If they leave their hand on a hot stove, it will bum off. There is no way to survive in this world without pain Similarly, in the markets, if the losses don't hurt, your financial survival is tenuous.

■ If a trader is losing money, I can address two situations. If a trader doesn't know why he's losing, then it's hopeless unless he can find out what he's doing wrong. In the case of the trader who knows what he's doing wrong, my advice is deceptively simple: He should stop doing what he is doing wrong. If he can't change his behavior, this type of person should consider becoming a dogmatic system trader.

■ As a general rule, losses make you strong and profits make you weak.

■ Basically, I would buy when weak hands were selling and sell when weak hands were buying.

■ Trading can be a positive game monetarily, but it's a negative game emotionally.

■ The market behaves much like an opponent who is trying to teach you to trade poorly.

■ Human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.

■ There is what I refer to as "the call of the countertrend." There's a constellation of cognitive and emotional factors that makes people automatically countertrend in their approach. People want to buy cheap and sell dear; this by itself makes them countertrend. But the notion of cheapness must be anchored to something. People tend to view the prices they're used to as normal and prices removed from these levels as aberrant. This perspective leads people to trade counter to an emerging trend on the assumption that prices will eventually return to "normal." Therein lies the path to disaster.

■ The major factor that whittles down small customer accounts is not that the small traders are so inevitably wrong, but simply that they can't beat their own transaction costs. By transaction costs I mean not only commissions but also the skid in placing an order. As a pit trader, I was on the other side of that skid.

■ You should try to express your enthusiasm and ingenuity by doing research at night, not by overriding your system during the day. Overriding is something that you should do only in unexpected circumstances -and then only with great forethought. If you find yourself overriding routinely, it's a sure sign that there's something that you want in the system that hasn't been included.

■ You shouldn't plan to risk more than 2 percent on a trade. Although, of course, you could still lose more if the market gaps beyond your intended exit point.

■ An old trader once told me: "Don't think about what the market's going to do; you have absolutely no control over that. Think about what you're going to do if it gets there."

■ One important application of robust statistics concerns a situation in which you have several indicators for a certain market. The question is: How do you most effectively combine multiple indicators? Based on certain delicate statistical measures, one could assign weights to the various indicators. But this approach tends to be assumption laden regarding the relationship among the various indicators. In the literature on robust statistics you find that, in most circumstances, the best strategy is not some optimized weighting scheme, but rather weighting each indicator by 1 or 0. In other words, accept or reject. If the indicator is good enough to be used at all, it's good enough to be weighted equally with the other ones. If it can't meet that standard, don't bother with it. The same principle applies to trade selection. How should you apportion your assets among different trades? Again, I would argue that the division should be equal. Either a trade is good enough to take, in which case it should be implemented at full size, or it's not worth bothering with at all.

Read more: New Market Wizards 1993