Trading Secrets of Warren Buffett and George Soros!

(Read the full article, no matter how much knowledge you have on forex, it will change your thoughts on trading!)

Almost every trader on this planet like me wants to be a ‘Warren Buffett’ or a ‘George Soros’. They are more than a legend; they are worshiped as God by traders when it comes to the trading world. They are not rich by birth or handed a Holy Grail. Instead, they learned to trade from the ground up. They gained enormously over the years and they had their trading mistakes too. So, they are human for sure and yet they’ve done which seems impossible to us! Did you ever wonder how exactly they trade? What are the secrets of a trader like Mr. Warren Buffett and Mr. George Soros? How do they think of a trade? What are the things they do differently than us?

You would be surprised by knowing that there is one thing common between great minds and great comic villains which is they can’t keep secrets! Villains reveal secrets with riddles and a great minds reveal them so simply; in fact, we often can’t catch them! You overlook those quotes every day! Common traders often think that they need to find something complex for success when it isn’t.

How I see them?

Both of them are my trading idols, I follow their ‘quotes’ more than I follow the Bible and try to understand what they are saying me to do and how.

Mr. Warren Buffett:

The perfect trader and world’s most successful investor. He bought per share of Berkshire Hathaway at a cost of $7.50 and now each of them are worth ~$254,000. This is just one example out of hundreds.
Warren Buffett was mentored by another legendary figure, ‘Benjamin Graham’ (who is known as ‘Dean of Wall Street’ and Father of ‘Value Investing’), Warren Buffett mentioned many times that he learned the most important lesson of his life “Price is what you pay, value is what you get” from him!

Mr. George Soros:

The ultimate survivor who survived the Nazi occupation of Hungary. Survival is a key element of his trading philosophy. As a survivor, he knows when an opportunity comes and how exactly to grab it? On September 17, 1992 he brought Bank of England to its knees by betting against the pound which is considered as the trade of the century. He made ‘Quantum Fund’ one of the most successful hedge funds of all time.

There are a lot of things in common between them. But most importantly they trade differently from how everyone else does! What if I tell you the trading secrets of Warren Buffett and George Soros are already in front of you, they revealed it a long time ago, you just don’t understand what they are actually saying!

There are 3 stages when it comes to stock or currency trading. They are:
1. Selecting process (How and when you should choose a stock or currency pair)
2. Risk and Trade management (How much you are going to risk and how you handle them)
3. Keep track record of everything (best way to find what you are doing wrong)

Let’s breakdown them.

1. Selecting Process: (Filtering a trade)

This is the way of picking a stock or a currency pair which has the best probability. We call it Strategy in Forex. I filter trades by different parameters of my ‘Core Price Action’.

Finding a trade and waiting for it to come into your net is boring. But in trading being boring is what you need. Doing Nothing is often the right thing to do.

“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” –George Soros

“You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.” – Warren Buffett

First and foremost, Warren Buffett finds the real value of the stocks and buys them cheaper by applying ‘Margin of Safety’. He waits until he gets the price he is looking for. He tells you to ignore hot stocks and forecasters by doing some real homework about the company, not the stock itself. So that you know the scenario behind the stock.

“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” – Warren Buffett

“There seems to be some perverse human characteristic that likes to make easy things difficult.” – Warren Buffett

“Never invest in a business you can’t understand.” – Warren Buffett

So, stop making things difficult. Just know why you are buying or selling it relying on facts.
There is a huge difference between stocks and Currency markets. The margin of safety on a currency pair is basically buying lower than the key support and selling above from resistance. Warren Buffett always tells you to trade with longer vision and so I identify key levels from Weekly or Monthly charts and trade on daily time frames. Lower than Daily time frame is deadly. Why would you take hundreds of trades if you can make a way more money from a very few trade in a month and with much lower risk?

2. Risk and Trade Management: (Only thing that matters between profit and loss)

When it comes to risk management both of them are bulletproof. My trading world changed when I understood the only rule set by Warren Buffett. He runs one of the most successful companies by setting only one rule!

“Rule No. 1: Never Lose money. Rule No. 2: Never forget rule No. 1”

I understood it only a few years ago, and it changed the focus point of my trading strategy! Is he telling you ‘never lose a trade’? Absolutely not. He is telling you to change your motto of trading, stop looking for the profit instead focus with everything on the probability of your losses. Learn to control it by having plans of losing less. Profit is the byproduct of losing less. The sole of my ‘core price action’ forex trading strategy is losing less.

What about Mr. George Soros? How does he manage risk? Let’s see what his disciple said about him!

“I’ve learned many things from [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.” Stanley Druckenmiller, 1994

So, it carries the same message, to lose less. You might say Shaon it is okay but how do they manage their risk?

Mr. Buffett has two famous quotes on them:

“Do not put all eggs in one basket.”

“Never test the depth of river with both feet”

Did you catch anything? It is ‘stop trading like gambling’, run it like a business. He learned it from ‘Benjamin Graham’. Treat all trades equal. An emotional bias and deviating from the strategy would be the reason for losing big. Focus on the quality.

Okay, what about Mr. Soros? How does he manage his trades? Let’s share his quotes first.

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

Being wrong is normal but keeping it alive once you know it is unforgivable. It is a crime in the trading world, stop committing it. They always get worse and you’ll pay the greater amount if you keep a mistake alive and keep praying. So, never increase your risk more than you planned for. You can use it with another trade. Don’t let a mistake be cancer, you won’t survive long if you do so.

3. Keeping Track Records: (Only way to learn what your mistakes are)

This is a very important part of trading. It comes before you actually trigger a trade. A wild animal even keeps tracking of its prey before attacking it. It is a must and no alternative, start tracking a trade into a trade journal before you take the position. It will help you to check the reality over your emotions. It helps you to know what you are dealing with days before you trade.

“Risk Comes from not knowing what you’re doing”-Warren Buffett

He still writes about the trades on papers. And George Soros is very clear about his position on keeping records of what he is doing so that he can learn from his mistake.

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

Keeping a trading journal in forex trading is the only way to find out what you are doing wrong! Lazy traders first start ignoring it. Nobody can make you a trader if you keep doing mistakes regularly. A trading journal will help you to repeat it.

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”-Warren Buffett

Remember, I mentioned earlier that losing less is the only way to earn more. Only gambling is focused on profit. Watching your little expenses is very important when it comes to trading. Lower spreads and lower interest rates (Swaps) are important in forex trading. Make sure your broker is charging you lower commissions. You can find a fair broker at Best Forex Broker site.

Warren Buffett always encourages you to reinvest your profit and not living under credit loans. Trading with the money that you can’t afford to lose would never make you successful. You might not get profit every month from your investment so stop making it the only source of your income.

It is your turn now! Please let me know your thoughts in the comment section. Share the article with your social networks. It inspires me to share more with you guys!

Wish you all the best.

About the Author:

Shaon Bhuiya is a price action trader, Fund Manager, Coach and Forex Blogger. He is highly regarded for his unique ‘Core Price Action’ trading strategy. Learn more about him here at FxTemper. Follow him at Twitter @Shaon77