Whether you are new to the world of Forex trading or have more experience in the currency markets, you
probably share the same ambition, namely:
How do you become successful in Forex trading?
One way to improve yourself is by learning from some of the most successful Forex traders in the world. In
this article we discuss what the top Forex traders in the world have in common and how these characteristics
helped to achieve Forex success.
There are statistics available that claim that the ratio
of successful versus less successful Forex traders is low, however:
... there are reasons to be skeptical about this type of
claims ...
... for the following reasons.
Firstly, 'hard' data is difficult to collect on this
subject because of the decentralized nature of the Forex market.
Secondly, it is more realistic to assume that the
distribution of successful Forex traders and less successful Forex traders
follows the pattern of a bubble, which would mean that:
1. Some big losers are
2. Many small losers are
3.
Many small winners are4. Some big winners are.
The available data from Forex and CFD brokers (albeit
only a very small part of the huge global FX market), suggest that the highly
successful traders are the rarest:
... because most people stop when they make a loss above
a certain threshold ...
... in contrast to the most successful Forex traders that
do not give up and will continue to trade.
The number of small losers is slightly higher than the
number of small winners, mainly due to spread costs. The percentage of
successful Forex traders is therefore not substantially lower than the number
of less successful traders. Nonetheless, there is little doubt that the best
Forex traders belong to a select group.
But when we look at this select group of top Forex
traders, we see that they have a number of things in common.
Common properties successful Forex traders
1. Discipline - the ability to recognize when a trade is less successful and then minimize the losses.
2. Risk management - a good understanding of a trade's risk / return. Read more here.
3. Courage - the willingness to do something different than the rest, in most cases.
4. Smartness - to be able to estimate how perceptions can form market trends. The result of these
characteristics is a prelude to consistent and large profits.
Best Forex Trader in the world
We start our overview of successful Forex traders by
looking at a legendary and one of the richest Forex traders in the Forex
industry, George Soros. George Soros is known as one of the best investors
ever. He owes this reputation as a legendary money manager to:
... a successful trade by going short on the GBP ...
... for Black Wednesday's on September 16, 1992.
At the time, the British were part of the Exchange Rate
Mechanism (ERM). The ERM demanded an intervention from the government when the
Pound weakened to below a certain level in relation to the German Mark.
Soros successfully predicted that a combination of
conditions - including the then high British interest rate and the unfavorable
exchange rate with which the British had stepped into the ERM - had placed the
central bank of England (Bank of England) in a vulnerable position.
Why was the central bank of England vulnerable?
The British commitment and commitment to maintain the
value of the Pound against the German Mark meant intervening when the Pound
weakened by either buying Pounds, raising interest rates, or both.
With the then recession, high interest rates meant to be
painful for the rest of the economy, and would instead slow down investments
instead of encouraging them. Economists from the central bank of England were
aware that the appropriate interest rate for the economy was much lower than
required to keep the Pound strong as part of the ERM.
Because of the British public commitment to buy Pounds it
was decided to keep the value of the Pound. In the weeks that followed, in the
run-up to Black Wednesday, Soros used his Quantum fund to build a large short
position in the Pound.
On the eve of Black Wednesday, the president of the
German Bundesbank suggested that certain currencies might come under pressure.
This moved Soros to significantly increase his position.
Despite buying billions of pounds by the central bank of
England on Wednesday morning, the price of the Pound hardly moved up. This
contributed once more to the flood of sales of Pounds from other speculators
who had followed the example of Soros.
The last desperate attempt to stabilize the Pound turned
out to be pointless.
When the British, later that day, announced their
departure from the ERM and the decline continued - the value of the Pound
dropped 15% against the German Mark and 25% against the US Dollar.
The Quantum fund earned billions and Soros became known
as "the man who broke the Bank of England".
The best thing about this story? Although the position of
Soros in the Pound was very large, the downside for loss was always relatively
limited. In the run-up to its trade, the market showed little to no enthusiasm
and confidence in a strong Pound. This was reflected in the repeated
intervention of the British government to keep the Pound on value.
Even if this trade had gone wrong and the British had
stayed in the ERM, a situation of intervention in the Pound was more obvious
than a big appreciation of the Pound. Here we see a strong appreciation of
Soros for risk / reward - one of the facets that helped him to achieve the
reputation of the best currency trader, the most famous Forex trader and the most
successful currency trader in the world.
Soros did not endorse the traditional economic theory
that prices would eventually move towards a theoretical balance. Instead, Soros
considered the theory of reflexivity more valuable in assessing the financial
markets.
This theory suggests a feedback mechanism between
perception and events.
In other words, the perceptions of participants help to
form prizes, which in turn contribute to perceptions.
This is reflected in his well-known short trade in the
Pound, where the devaluation of the Pound only occurred after enough
speculators believed that the central bank of England was no longer able to
maintain the value of the Pound.
He once made the following statement in the Wall Street
Journal: "I'm only rich because I know when I'm wrong".
This quote demonstrates: ... his willingness to close a
less successful trade ...
... the typical discipline that the most successful Forex
traders share.
Who else counts in the most successful Forex Traders?
Soros is without a doubt the list of the most successful
Forex traders in the world, but let's see who can still call it a known Forex
trader.
Most successful Forex traders: Stanley Druckenmiller
Stanley Druckenmiler regards George Soros as his mentor,
and has even worked with Soros for more than a decade at the Quantum fund.
After successful years together Druckenmiller also built
up a formidable reputation, in order to successfully manage billions in his own
fund, Duquesne Capital.
Although Druckenmiller was part of Soros's famous Black
Wednesday trade, he also had a great track record with successive years of
winning with his own Duquesne fund. The net assets of Druckenmiller are
estimated at more than 2 billion dollars.
He says that his trading psychology for achieving
long-term returns:
... is about maintaining capital and then ...
... the aggressive pursuit of profit when trades go well.
This approach somewhat belittles the importance of being
right or wrong. It emphasizes the value of maximizing opportunities when you
are right and minimizing losses when you were wrong.
As Druckenmiller said in an interview about his famous
book The New Market Wizards, "there are a lot of shoes in the shelf."
Forex success and best known
Forex traders: Bill Lipschutz
Strangely enough, Bill Lipschutz made gains in the
hundreds of millions of dollars on the FX division of Salomon Brothers in the
1980's, despite having no previous experiences in the currency markets.
Lipschutz, often referred to as the Sultan or Currencies,
describes the FX market as a very psychological market. Like the previously
discussed successful Forex traders, the Sultan believes that market perceptions
influence prices just as much as purely fundamental facets.
Lipschutz agrees with Druckenmiller's view that it does
not depend on being more accurate than being incorrect to become a successful
Forex trader. Instead, he emphasizes that you need to find out how you can make
a profit by only being equal in 20 to 30% of the time.
Here are some of Lipschutz's other views:
1. Every
trading idea must be well reasoned before you place the trade. Build up a
position when the market is moving your way and get off in the same way.
2. Be
alert to the focus of the market. The FX market is a 24 hour market and does
not stop when you go to sleep.
3. Always
manage your risk. Choose a correct position size to avoid being forced to close
your position if the timing was not entirely correct.
Getting rich from Forex - How successful is a successful
Forex trader?
We have looked at the best known Forex traders the
most successful Forex traders and the richest
Forex Trader, but there are many
successful traders to be found! Becoming rich in Forex and being
part of the
list of best Forex traders who are able to achieve constant monthly profits with
the trading
of FX is a realistic goal.
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