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George Soros: Forex Trading Strategy & Rules

The Man Who Broke The Bank of England

George Soros is famously known as “the man who broke the Bank of England.”

He gained international notoriety when, in September of 1992, he risked $10 billion on single currency speculation when he shorted the British pound. He turned out to be right, and in a single day, the trade generated a profit of $1 billion dollars.

Soros went off on his own in 1973, founding the hedge fund company of Soros Fund Management, which eventually evolved into the well-known and respected Quantum Fund. Reportedly racking up returns in excess of 30% per year and, on two occasions, posting annual returns of more than 100%.

Key Learning Points:

  • George Soros trading rules

  • Is George Soros a forex trader

  • How did George Soros trade forex

  • What is Soros investing in now

Top 10 Trading Rules Explained

Trading Rule 1:

“I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.”

Understanding that he was not always right enabled him to cut losses short and position size right. This is a significant problem with Forex traders. The average trader always wants to be right, this creates psychological biases which overshadow cognitive errors that the trader makes. E.g. Not following rules correctly or holding onto losing positions.

Trading Rule 2:

“My approach works not by making valid predictions but by allowing me to correct false ones.”

Soros’ is flexible in his trades; he changes his mind and reverses positions when needed. He does not marry his trades. For the normal forex retail trader, this is quite difficult to do mainly because of the insanely short time frames they try to trade on. Professional traders hold trades from anywhere between 1-18 months, so they're working on the weekly/ daily time frame. This method Soros mentions is difficult for retail traders to do and will likely cause them losses unless they up their time frames.

Trading Rule 3:

“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.”

George Soros knows that the key to profitability for him is more about big wins and small losses than his winning percentage. Many Forex traders are so fixated on winning percentages without realizing the risk reward potentials. Your Sharpe ratio should be at least 1. If it is not your strategy will inevitably fail. In simple terms this means that your rewards are always more than what you risk.

Trading Rule 4:

“The markets are always on the side of exuberance or fear. It’s fear and greed. Right now greed has the better of it, which is rather nice (for investors) as long as it doesn’t get out of hand,"

Market trends are caused more by the extremes of  investors emotions than fundamental reasons. Understanding the concept of "money flow" and "Risk on/off" can help you trade Forex currencies when there is large uncertainty. Safe haven currencies like the JPY, CHF and USD can appreciate in times of uncertainty, whereas most other risk currencies will depreciate.

Trading Rule 5:

“Once we realize that imperfect understanding is the human condition there is no shame in being wrong, only in failing to correct our mistakes.”

The problem is not in a losing trade but failing to learn from the loss. Did you hold on to a losing trade? Did you take profits early? As a retail Forex trader you need to iron out the mistakes to become successful.

Trading Rule 6:

“The worse a situation becomes, the less it takes to turn it around, and the bigger the upside.”