5 Quotes from George Soros that will dramatically change how you trade stocks
This man, George Soros is a legend, a key figure in the world of stock trading. If you are a trader and are not familiar with some of his quotes, you are missing out on invaluable nuggets of wisdom.
In 1992, Mr. Soros earned the title “The Man Who Broke the Bank of England’’. What did he do to gain this title? He decided to speculate against the ‘‘herd’’ by selling the Sterling Pound, thus making over a billion dollars out of that trade.
This is in line with his quote:
Markets are constantly in a state of uncertainty and flux, and money is made by discounting the obvious and betting on the unexpected.
This quote suggests that even Mr. Soros himself cannot predict what the market will do next. Even the best money managers are not infallible but can do certain things that will increase their chances of reaping consistent gains in trading.
On the other hand, he recons that the randomness of the market presents the biggest opportunity for smart traders to make money since people are betting on the obvious and 90% of them are losing.
Having said that, what exactly can you learn from the world’s greatest trader, George Soros?
1 The Risk Reward philosophy
It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right, and how much you lose when you’re wrong.
Mr. Soros is basically talking of trading with a proper risk reward ratio. The key is to pick the right trades and also learn to restrict the urge to over-trade. If you are right 80% of the time, you can still lose money if what you are making cannot compensate what you lost in the 20%.
The point is, you can become a profitable trader even if you lose most of your trades.
This quote agrees very well with one of my articles here on why risk managers are better traders compared to traders who chase the money and fail to observe the rule of risk reward ratios.
2 The Trend and the Inflection Points
Most of the time we are punished if we go against the trend. Only at inflection points are we rewarded.
In this quote, Soros is saying that going against the trend (no matter how tempting it is) will get you trampled by the herd. On the same breath, he is also suggesting that trends can end, and if they do, traders must take notice and act accordingly.
So yes, we get rewarded when we follow trends. On the other hand, we get burned when we fail to pick signals that say the trend will dramatically change direction. We do it by watching for crystal clear price action signals.
3 Keep it elegant and simple
The market is a mathematical hypothesis. The best solutions to it are the elegant and the simple.
If you have attended any conflict resolution management class, one of the things you will learn is when to stay and when to walk away in a situation that is likely to escalate into a fight or result in an injury.
The best solutions to everything in life are pretty simple, and that applies to trading as well.
You keep it simple stupid. I discovered price action trading and I appreciated how stupid simple it was. It immediately relieved me of the burden of littering my charts with 10 different indicators at once. Finally, my charts were crystal clean, and i could focus more.
4 Trading is no casino play
If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.
The life of a gambler is full of highs and lows. But they end up broke anyway. You can let the markets be your casino by over-trading and experiencing emotional turmoil and financial damage that most gamblers experience.
But you can preserve your capital by letting your trading become ‘’boring’’. In this context, boring means trading without letting your emotions make decisions for you. Now, this takes away the thrill factor from the equation and instead ushers in a routine of following a strict trading plan.
5 Proper Training and Practice builds your intuition
Short term volatility is greatest at turning points and diminishes as a trend becomes established. By the time all the participants have adjusted, the rules of the game will change again.
Just like technology in its infancy stages, the early trend adopters have sufficient time to take the normal ups and downs of the market. When the trend is ‘’fully cemented’’, newbies will have the perception that it is safe to enter in the direction of the ‘’trend’’. On the other hand, early adopters will be taking their profit, and thus exhausting the trend. Therefore, by the time all participants (new comers) adjust, the trend will have changed course.
Therefore, this leaves us with the question of how we can identify trends before they start forming.
Certain formations in the market will often give us clues. However, to build a strong intuition towards the market, you must get proper training.
In conclusion
These quotes make a lot of sense from the perspective of a trader because they give us insights into how Mr. Soros thinks about the market. Surprisingly, 90% of the market’s participants are fearful because they do the complete opposite of what these quotes are suggesting. If you are that person, you can change your mentality of the market. Catch up with me on this Forex review and trading blog to learn more.
