George Soros on Trading

I was going to point this out too. It's only when he's right that he that he steps it up. Not just because he has a strong hunch or feeling about market direction or position direction.

That's interesting about your friend. I was going to mention Stanley too. And someone already mentioned Jim Rogers.

 

Right. Stan the Man booked 30%+ returns over 30 years with no losing years, and he was definitely a "go for the jugular" disciple.

Via Druckenmiller, the most profound Market Wizards quote of all time (in my humble opinion):

The way to attain truly superior long-term returns is to grind it out until you’re up 30 or 40 percent, and then if you have the conviction, go for a 100 percent year. If you can put together a few near-100 percent years and avoid down years, then you can achieve really outstanding long-term returns.

 

It all comes down to what I seem to hear all the time from those in the know.

Don't ass to losers, only to winners.

Frankly, hard as shit to do.

If i get something wrong and I need to cut it loose, no problem, I can do that.

Here's the problem, I get into a position, it moves in the correct direction, I add to the position, now it needs to breakout or I'm screwed, any significant pullback and I'm red due to adding, where I would just be slight green had I not added.

Hard shit to sell, but I'm with it on principle.

 

I'm not sure if this would work for you, but i typically "add to your winners" by using the profits i've already made as a sort of buffer. Let me explain, assume that my setup comes at gold $1310 and I purchase at that level. I'm a swing trader by the way, holding positions for hopefully a month or 2-3 months. Anways, my position is at $1310, that is my biggest alotment, let's just say 5 contracts. My next add comes quickly, usually within the next 24 hours if my setup is confirmed and hasn't broke down yet to hit my stop, and is starting to climb. Let's say I add 3 more at $1320. Well, those 8 contracts are my position. If gold moves up to $1350, I don't just add while it is climbing. I wait until another set up is created and buy again (i basically assume that it is a completely different trade). My stops are very close, so let's say my setup again appears at $1380. My stop is exactly where my stop for the first buy was at --usually $10 lower than my entry or there abouts. If the 2nd trade doesn't work out, and the stop is hit, then i sell that position only, and consider the first position (purchased at $1310-$1320) a different position altogether and so i don't sell it.

In my experience that's the best way to add to positions. The markets are far different than they were 20 years ago. They are way choppier, so they will come for you if you just continue adding on the way up unless you've found a great ride.

 

I've been thinking I should try something like this.
Do you find it increases your profits over time and lots of trades?

 

Be aware that Soros is a long term macroeconomic trader.
So his advice might not apply to short term technical-analysis trading.

 

AFAIK he no longer trades. In fact, i don't even know who the head trader for the Quantum fund is any more. Not sure if it even matters since, Quantum is supposed to be more of a traditional mutual fund these days.

 

Another fascinating snippet re Soros. Both him and Warren Buffet are the same age, 80 years old!!!

(yes, you're wondering too why the hell we care a bean about these two old farts!)

 

You say you use profits as a buffer, but you don't close any part of position 1 when position 2 gets stopped. Perhaps this is a typo or I'm missing something"

Interested in hearing the explanation, not a poke, just a question.

 

George Soros: How He Knows What He Knows: Part 1: The Belief in Fallibility (First in a Four-Part Exclusive Series)

July 2003
By Flavia Cymbalista, Ph.D., with Desmond MacRae




To many who worship at the alter of the icons of Wall Street, billionaire George Soros, now a philanthropist of note, is considered the 20th century’s greatest trader. His lifetime record as a speculator, who made massive wagers on market direction at numerous opportune times, is unparalleled – even if he inevitably did make some expensive mistakes along the way. Anyone who had invested $1,000 in his Quantum Fund when it jumped out of the box in 1969 would have realized a cumulative 30-plus-percent annual return – or about $4 million – by the turn of the new century. How did he achieve his incredible performance? He himself attributes his success to a combination of theory and instinct.

In Soros’ theory of how markets operate, the perceptions of market participants help create their own reality. This leads to self-reinforcing processes that are eventually self-defeating.

According to Soros, his theory informs his decisions, and his body gives him the signals. The making of a self-reinforcing trend brings water to his mouth. The need for a portfolio shift makes his back hurt. His body “knows” he needs to take action, or to take careful note of a situation before his intellect can grasp it.

The way in which Soros’ theory and his body work together remains a mystery for most people. Not having understood his theory, they wrongly take the now famous quote by his son, Robert, as evidence that Soros trades using nothing more than instinct: “My father will sit down and give you theories to explain why he does this or that. But I remember seeing it as a kid and thinking…at least half of this is bull_ _ _ _. I mean, you know the reason he changes his position on the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm, and it’s this early warning sign.” [Cited in Michael Kaufman’s biography Soros: The Life and Times of a Messianic Billionaire (2002), p. 140]

Zeroing In

Relating economics and gut feeling is, admittedly, no easy task. Most economists’ ideal of the market is an information processor, a machine. They appear to believe that “rational economic man” is a computer that obviously does not have instincts.

Computers follow rules rigidly. But, rigidly following rules can only be rational in a world devoid of uncertainty, where things change in the future in the same ways that they changed in the past. Most economic models assume uncertainty away. They simply leave it out of the picture because, unlike probabilistic risk, uncertainty can’t be quantified. But for Soros, uncertainty is the nature of the game. Dealing with uncertainty is what trading is all about.

In my doctoral work in financial economics I found that markets do not work like machines, but rather like living beings, and that rationality under uncertainty requires more than logic alone. Thus, I found myself in a unique position to be able to explain how Soros combines analysis and instinct.

Realizing that logic alone cannot be the basis for successful speculation led me to study bodily knowing in my post-doctoral research. There’s a whole side to our embodied, experiential knowledge that computers don’t have and that the “rational economic man” in models most economists construct doesn’t have either. Our bodies “know” the situations we meet in life and how they can unfold. I found that physical experience has much more organized information about the world than the usual understanding of the body assumes.

Using the work of Eugene Gendlin, Ph.D., a world-renowned philosopher and psychologist, I’ve developed a methodology, called MarketFocusing, to combine gut feeling and logic to improve decision-making in markets. For several years, I have been helping traders improve their performance by accessing their bodily knowledge and increasing its reliability. In other words, I teach traders how to develop their biological software.

Putting my expertise in relating economics and gut feeling to good use, I wrote a paper called “How George Soros Knows What He Knows.” It explains how Soros’s theory and his bodily feelings work in parallel.

I sent my paper to Soros. He read it, found it very interesting and invited me to visit him. When I met him earlier this year, I was very pleased to learn that he is going to incorporate some of my insights in his introduction to a new edition of The Alchemy of Finance that should be out shortly.

The original paper is long and densely written. It incorporates economics, psychology and epistemology, a branch of philosophy that studies the grounds of knowledge. But for SFO magazine I’m simplifying, condensing and splitting my explanation into four parts (the original paper, as well as other articles, can be found on my website: www.marketfocusing.com).

This article is Part I. It explains Soros’ operating principle, which he calls “The Belief in Fallibility.” It sets the stage for understanding what Soros’ edge is. It also offers an exercise that traders can use to befriend fallibility and improve their trading. The other three articles will also include exercises that teach traders how to access their bodily knowledge and make it reliable.

Part II is “Combining Theory and Instinct.” It will show how uncertainty requires that traders use their bodily knowledge and relate it to their conscious analysis.

Part III, “Empathizing with the Mind of the Market,” explains how intuitive thinking can be used by traders to read the market’s biases as well as their own.

Part IV, “Using Reflexivity in Trading” is an explanation of Soros’ Theory of Reflexivity.