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01 May 2020
4 min read

Netting the Magic: How to Trade like the Market Wizards

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Written by OspreyFX News Team
*OspreyFX would like to state that traders should research extensively before following any information given hereby. Please read our Risk Disclosure for more information.

Netting the Magic: How to Trade like the Market Wizards

  • 5 Influential Forex Trades that have Shaped the Industry
  • What Lessons Can Traders Learn from the Trading Gurus?

Every industry has those leaders whose opinion has the ability to change a person’s behaviour and impact their everyday lives. They are usually so charismatic that when they speak, everybody just stops and listens. With its daily trading volume of 6.6 trillion dollars, the forex market is no different. Who holds a special presence within this lucrative market? Which powerhouses have the greatest impact and the ability to shift perception?

With that in mind, we have created the “OspreyFX’s Top Picks” series where we will be identifying the big players together with some of the key lessons that we can learn from them. Here, we will highlight 5 influential figures that have shaped the forex industry with the aim of providing some words of wisdom that can help traders move from novice to pro.

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How to Trade like Market Wizard 1: George Soros

George Soros, a lionized hedge fund tycoon who successfully managed client money in New York for over 40 years. Known as the “man who broke the Bank of England”, Soros’ claim to fame came in 1992 when he made a profit of $1 billion by shortening the British pound.

As a leading philanthropist, Soros has donated over $32 billion to his Open Society Foundation to work globally. Furthermore, he is the founder and primary funder of the Central European University in Budapest.

Interestingly, he secured his fortune in its entirety without any preliminary capital or fund. Extensive research and what he describes as a “seat of the pants” approach allows him to place big bets on investments, irrespective of rising or falling values. This strategy has been known to cause fluctuations in market prices, particularly when it comes to currencies. Significantly, when he pursues a currency, investors tend to follow.

With a real-time net worth of $8.3 billion and number 162 in the Forbes 400, traders can gain great knowledge from this trading legend.

 

1. Prepare, Prepare, and Prepare some more.

Markets are unpredictable so no trader can predict what will happen next. However, having a plan for different scenarios places you in the best position to capitalize on opportunities.

 

2. Elegance and Simplicity are Key Ingredients for Profitable Trades

Keeping things simple is an approach that generally pays off in everyday life and investing is no exception. So, try not to overthink your trading plan. We have a comprehensive guide on building an effective trading plan, you can read here and here.

 

Did you know

Soros was born in Hungary in 1930 and lived through the Nazi occupation. His family survived by securing false identity papers, hiding their background, and helping others do the same.

 

How to Trade Like Market Wizard 2: Bruce Kovner

An unlikely forex billionaire, Bruce Kovner learnt the tricks of the trade while working as a taxi driver in New York. His trading debut materialized in 1977 when he borrowed $3,000 on a credit card to trade soybean futures and watched them soar in value to $40,000. This trade thought him a valuable lesson about the importance of risk management since he only sold the contracts once the value had dropped to $23,000. Nonetheless, he had been stung by the trading bug and he went on to join Commodities Corporation and founded the global macro hedge fund Caxton Associates.

Kovner’s trading strategy is centred on the fundamental understanding that traders should always have a stop loss that they stick to. He is number 125 in the Forbes 400 and has a real-time net worth of $5.3 billion. But what can you learn from this trading mogul?

 

1. Risk Management is Imperative

Risk is unavoidable, but risk management is the solution. Kovner once said, “Under trade, under trade, under trade”. Beginner traders tend to over trade. However, patience is key and so it’s important to only trade when there is an obvious reason to.

 

2. Greed and Fear are your Greatest Enemy

There is no room for ego and greed when it comes to trading. Effective trading is about trading within your means but not having the fear to take positions others are unwilling to. Forex trading requires a certain level of knowledge and experience, you can read our article here on how you can achieve that killer mindset.

 

3. Discipline in Executing Vision

Apply yourself and great things can happen. Trading is to a certain extent about your conviction in what you are trading and having the vision that is necessary to get it across the line.

 

Did you know

Another humanitarian, Kovner established The Kovner Foundation in 1996 with the aim of supporting a variety of worthy causes. Particularly, he supports initiatives that promote excellence in education and the arts, amongst others. He is deeply invested in the maintenance of people’s rights and enabling them to pursue opportunities that contribute to their happiness.

How to Trade Like Market Wizard 3: Bill Lipschutz

Bill Lipschutz is not only a forex trader but the co-founder and director of Portfolio Management at Hathersage Capital Management. He began trading in the 70s while he was still attending college. During this time Lipschutz turned $12,000 into $250,000 to then only lose the entire stake with one poor trading decision. This hard lesson in the art of risk management resonated throughout his career.

In the 80s while trading was taking off, he landed a career with Salomon Brothers and eventually becoming Global Head of Foreign Exchange. This proved to be a successful move because at his peak, Lipschutz was bringing in $300 million annually.

Lipschutz’ trading style can be compared to that of Soros, in that he doesn’t believe in following others like sheep and being part of the herd. What are the critical lessons from this pro trader?

 

1. Perseverance and Learning from Mistakes

Like countless traders, Bill Lipschutz did not become rich overnight – success requires hard work and grit. All traders are different and the path to consistent profit will be different for everyone.

Trading can be complex, and the journey can feel like a rollercoaster ride, but there is money to be made. Effort breeds success and the harder traders work and the more they learn from the mistakes along the way, the bigger their reward in the long-term.

 

2. Embrace Pain: Do not Fear it

Trading is the name of the game, and pain is one of the key players. Traders can strike lucky; heck maybe even have a trail of consecutive wins, but the real test takes place when losses begin to happen. Nobody likes to lose. Confidence breaks down, and we can start to think irrationally which in turn impacts our game even further.

When you go through a losing streak and self-doubt kicks in, own and embrace it because otherwise, it’s game over.

 

3. TIME as a Risk Factor

We will often hear the phrase, time is of the essence and it is certainly true in trading. More often than not traders fail to realise that trading involves a lot more than the financial risk. The time factor materializes in a number of ways:

Less is more, the fewer positions you enter at any given time the increased likelihood of consistent profit.

The more positions are likely to be affected by outside sources (such as the news or market events) the longer they are kept open.

 

Did you know

Lipschutz’ claim to fame occurred when he was mentioned in the book Market Wizards by Jack Schwager. He is now one of the most widely followed traders within the trading community.

 

Netting the Magic: Trading like the Market Wizards

 

How to Trade Like Market Wizard 4: Michael Marcus

Michael Marcus is a commodities trader primarily known for turning $30k into over $80 million over a 20 year period. Even though Marcus was dubbed “Genius Trader”, he was not numb to pain. Indeed, he was known to have often lost all his money between 1969 and 1973 through a formula of borrowing, losing, borrowing losing.

After losing all of his and his family’s money on a rumored blight trade, Marcus took a job as a research analyst at Reynolds. He later met and was mentored by Ed Seykota, one of the greatest trend followers trading has ever seen. Marcus can attribute a lot of his success to his understanding of fundamental trading rules. Let’s see what we can learn from this trading guru.

 

1. Every Trader has Strengths and Weaknesses

Strengths and weaknesses are present in all walks of life and trading is no exception. Traders will have their own distinctive style, one that suits their personality. For instance, some are good holders of wins but perhaps hold the losses too long. Another aspect to this is avoiding uncharted territory and trading markets you know and are comfortable with. This strategy helped Marcus minimize losses and maximize his hit-rate.

 

2. Patience, Patience with a Sprinkle of Patience

We see this time and time again, but it is very true. Patience is a precursor to success in trading. Patience presents itself at every stage of the journey: patience in learning, patience with volatility, and patience in trades to maximize profits.

 

3. Courage and Conviction

Having the courage to keep open positions but also the courage to take risk is crucial. Marcus once stated “Being a successful trader takes courage: the courage to try, the courage to fail, the courage to succeed and the courage to keep going when the going gets tough”.

 

Did you know

In 1972 Marcus met a man who claimed he could double Marcus’ capital. Incentivized by the fact that he had never traded before, he ended up losing everything through this person’s commodity tips. Perseverance won and Marcus refused to let this define him, going on to become one of forex’s most successful traders.

How to Trade Like Market Wizard 5: Jesse Livermore

Jesse Livermore one of the greatest traders of all time, made millions from the markets on several occasions. Livermore defied his father’s wishes when he became a farmer after dropping out of school at 14. His burning desire for numbers and arithmetic led him to run away from home, with just $5 in his pocket. The early years saw him trade at bucket shops and at 15, Jesse had made $1,000…the equivalent of $20,000 in today’s money.

He was starting to make a name for himself in the trading sphere, but he became famous during the 1907 panic when a cotton trade led him to lose 90% of everything he had. His losses grew deeper in the following years, eventually running up a debt of $1 million and in 1915 Jesse declared bankruptcy.

Livermore certainly learnt from his mistakes and in the lead up to the 1929 Wall Street Crash, he identified many commonalities with the 1907 situation. By the end of the big market crash, he was worth $3 million (approx. $1.4 billion today), whereas most people had fallen short.

Livermore is no stranger to heartache, but amidst the sorrow, there are lessons to be learnt from this trading extraordinaire.

 

1. Markets are Driven by Humans and Human Nature Does not Change

Livermore once stated “I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.”

What happened in the past is more than likely going to happen again. Humans are guilty of allowing emotions to get in the way of logical thinking. Over time we see people act in the same way as a result of greed, fear, or even inexperience. It’s for this reason that patterns repeat themselves time and time again.

 

2. Know Yourself

This goes beyond knowing your trading style or plan, traders must thoroughly know themselves if they want to be a successful trader in the speculative markets.

 

3. The Trend is your Friend

Successful traders are known to follow the line of least resistance. We would never advise trading against trends, especially if you are new to trading. Unless you have acquired the patience and financial resilience to stick to a long-term plan, do not bet against the main forces of market momentum. Read our article here to understand how you can effectively identify a market trend.

 

Did you know

Livermore joined the labour market at the young age 14 when he took on the role of chalk boy for a brokerage called Paine Webber. It was here that his love story with trading began. He memorized the numbers at the end of each day, jotted them in a notebook, and observed the patterns in price movements. Jesse was partial to the lavish lifestyle and trading enabled him to enjoy the finer things life has to offer.

The road to success in the forex market is paved with obstacles, many of which will test every fiber of your determination. Here we have explored and handpicked a selection of the most influential traders of all time. We believe that these 5 traders offer significant trading lessons, particularly when it comes to the polarity between success and failure. Learning about and remembering success stories such as these will help you to think positively when you need it the most.