Friends often ask me, how can one make profits that are dozens or even hundreds of times? Every time I hear this question, I feel a shiver down my spine, because this mindset is akin to when I first started trading, as if I were pumped full of adrenaline, always believing that I had to make a name for myself in the trading world.
This is also influenced by many trading gurus. I've seen many trading cases in the market where profits have doubled, often leaving me feeling inspired and eager to replicate their success and reach the pinnacle of life.
However, reality is always harsh. Now that I have been trading for over a decade, having experienced the ups and downs of trading, I still greatly admire their success, but I have also become much more rational. Nowadays, I am more interested in learning some useful trading ideas from them to improve myself and elevate my trading to a higher level.
Today, I will share four practical cases from trading gurus, discussing their trading processes, so we can summarize ideas from them and enhance ourselves.
1. Soros shorting the British Pound.
This is one of Soros's most classic trading operations and his legendary battle. Let's take a look at what he did in this trade.
This matter begins with the Exchange Rate Mechanism established by the European Community in 1979, which limited the fluctuation range of the exchange rates of 11 European currencies, such as the British Pound and the German Deutsche Mark, which were fixed at a 1:2.95 ratio according to the mechanism.
However, the development between countries is not balanced. Once there is a difference in inflation rates, central banks must intervene in the exchange rates to maintain stability. But in reality, each country has its own hidden agenda.
You can imagine this situation as Cao Cao's warships in the Battle of Red Cliffs from the Three Kingdoms, chained together. Naturally, they are fine when the wind is calm, but when a fire reaches the doorstep, they all suffer together.
Soros noticed that the British economy was in recession, the Pound was overvalued, the Deutsche Mark was undervalued, and additionally, the Italian Lira was overvalued while the French Franc was undervalued. Moreover, Soros discovered that European countries could not maintain a unified stance. Once there was any disturbance, global speculators would also take the opportunity to attack those weaker currencies, which happened in the summer of 1992.Soros shorted the British pound, bought German marks, and also purchased some French francs, bought £500 million worth of British stocks, because currency devaluation would lead to a rise in stock prices, while going long on German and French bonds and shorting German and French stocks.
Moreover, he guaranteed with $1 billion and borrowed $3 billion, investing a total of $10 billion.
The rest is history.
The exchange rate of the pound against the mark plummeted, and the Bank of England, with £44 billion in foreign exchange reserves, spent £15 billion of its reserves to support the pound's exchange rate, even raising interest rates to an astonishing 15%, but to no avail.
On September 16, British Prime Minister John Major announced the withdrawal from the European Exchange Rate Mechanism; the UK surrendered, Soros emerged victorious, and made a profit of $2 billion.
Before shorting the pound, Soros had spoken with the head of the German central bank, and he felt that Germany would not come to the rescue of the British exchange rate. In addition to Soros, not only were there others shorting the pound, but at that time, the global daily currency trading volume reached $1 trillion, from American mutual funds to Japanese insurance companies, all were looking for opportunities globally and were beneficiaries of shorting.
2. Livermore shorted the US stock market.
Livermore's shorting of the US stock market is an unparalleled feat to this day, making a profit of $100 million in just 9 days (the $100 million at that time is roughly equivalent to $80-100 billion today).
Before the 1929 US stock market crash, there had been several years of continuous growth, and Livermore was a natural bear; he gradually became aware that a major crash was imminent.
His main operational judgment was based on precise interpretation of fundamental news and an orderly plan.At that time, the leverage in the U.S. stock market was very high, with ordinary traders able to obtain leverage of up to 10 times, and Livermore could even get 25 times leverage, indicating a severe bubble.
In February 1929, the Federal Reserve began to investigate stock financing. In early September, Livermore got insider information that the Federal Reserve was preparing to raise interest rates. Subsequently, the market was continuously filled with bearish news about the stock market. The Bank of England raised interest rates, an important British holding company, Hatry, went bankrupt, and the British Chancellor of the Exchequer also warned of significant risks in the U.S. stock market, causing the market to suffer a heavy blow.
At this point, Livermore knew that the decisive moment was approaching. He mortgaged his house and yacht, borrowed 10 million U.S. dollars, added to his own 20 million U.S. dollars, and with his 25 times leverage, he could theoretically short sell stocks worth 750 million U.S. dollars.
Starting from early October, he began to build positions, short selling nearly a hundred stocks, with a total market value of 450 million U.S. dollars.
On October 21, 1992, the U.S. stock market opened significantly lower, with the largest drop reaching 6%.
From October 23 to October 28, Livermore made several operations of closing and opening positions, and on the 28th, he added an additional 50 million short positions.
On October 29, Black Tuesday arrived, and the market panicked and fell by 19%. Livermore closed all his positions and made a profit of 93 million U.S. dollars.
At the time of this operation, Livermore was 52 years old and became one of the richest people in the world. He also established the Jesse Livermore Family Trust Fund with tens of millions of U.S. dollars in 1929, a preemptive operation that provided a safety net for his daily life in case of future trading failures.
However, this profit seemed to have used up all of Livermore's good fortune in his life. Subsequently, his life and marriage frequently encountered problems, and he suffered severe trading losses. He went bankrupt for the third time in 1934 and committed suicide at the Sherry-Netherland Hotel in Manhattan in 1940.
3. Fu Haidian went long on garlic.When Fu Haiyang first started trading futures, he did not have a smooth journey. By 2009, his losses, external debts, and interest had once reached a staggering 3 million yuan, an astronomical figure for a farmer from Shandong. Without a good opportunity, it might have been impossible for him to recover in a lifetime.
It wasn't until he spotted an opportunity with garlic that he made a remarkable turnaround. At that time, the garlic market was extremely depressed. Farmers would not water their crops even in drought, nor would they weed, as it made no difference whether the garlic grew well or not since it was unsellable. Moreover, after the garlic matured, they had to hire labor to dig it up, and the money from selling it was not even enough to cover the labor costs.
The cheapest garlic was sold at 0.07 yuan per jin (0.5 kg), while the cost of storing garlic in a cold storage was 0.15 yuan per jin. The money from selling garlic was not even enough to cover the storage fees. Some garlic traders abandoned their garlic in the cold storage and fled, with many losing everything they had.
At that time, the electronic price for garlic was 860 yuan per ton, while the spot price had dropped to around 200 yuan per ton. Fu Haiyang firmly believed that garlic could not continue to fall, as the price was extremely unreasonable. Such an unhealthy supply and demand relationship was bound to rebound. The more it fell, the higher it would rise, as extremes would inevitably reverse. Thus, he went all-in with a long position.
Finally, the spring for garlic arrived. The price of old garlic in stock rose from 0.10 yuan to 3 yuan, and the newly produced garlic in 2009 rose to 5 yuan. With an initial investment of 50,000 yuan, he made 6 million yuan in just three months.
It was with this 6 million yuan capital that Fu Haiyang later made a profit of 120 million yuan in cotton futures. His rationale for opening a position in cotton futures was very similar to that of garlic futures. Through research and field visits, he discovered that the area of cotton cultivation in rural areas had significantly decreased by 40%-50%, which would lead to a substantial reduction in supply. The probability of an increase in cotton futures prices in the future was high. Therefore, he maintained a heavy long position in cotton futures for over a year, and when the price of cotton rose to 29,600, he closed his position, making a profit of 120 million yuan.
In summary, his trading logic was: low prices, low inventory, strong demand, and a future price increase is inevitable.
Of course, Fu Haiyang was not invincible. He also experienced a loss of 100 million yuan down to 20 million yuan. In a television program, he repeatedly emphasized that he does not recommend newcomers to the trading field to enter the futures market, indicating that he has also deeply experienced the dangers of trading risks.
4. Lin Guangmao's cotton trading.Lin Guangmao was born in 1981 and after graduating from university in 2002, he joined China Textile as a trader, gradually achieving stable profits only by 2008.
In 2008, influenced by the financial crisis, global commodity prices plummeted, with cotton futures dropping straight down by 10,000 yuan. At that time, domestic cotton production was low, and import demand was strong, while the state was also strategically reserving cotton. A combination of factors drove the cotton futures prices to rise significantly.
In 2010, Lin Guangmao spotted a trading opportunity in cotton futures. He started buying at 16,600 and gradually increased his position with floating profits. During the holding process, his account once suffered a floating loss of 60%. He withstood the pressure of drawdown and eventually reached the limit of holding 30,000 contracts, holding the position for 4 months at a high level and closing the position, making a profit of 1.2 billion, with a profit multiple of 220 times.
Subsequently, Lin Guangmao shorted 20,000 cotton contracts at a high position, taking 9 months and making a profit of 700 million yuan.
In 2012, Lin Guangmao faced the biggest trading loss of his life, going long on cotton futures and losing 1 billion yuan within a year.
Lin Guangmao posted his positions online and challenged the cotton short seller Ge Weidong, saying, "Cotton will rise in the future, but I will still be the one making money." However, after his positions were seen clearly by his opponents, it put him in a very passive position in operations, ultimately leading to his failure in cotton futures.
In his own words, the reason for the loss was: "It is the inevitable result of overconfidence and inflated confidence! Going long in one go, shorting in one go, in just over a year, from 6 million to more than 2 billion, I suddenly felt invincible."
5. What is there to learn from them?
Firstly, I must express my admiration for these four masters. They have managed to multiply their investments so many times, add so much leverage, keenly spot opportunities, seize them quickly and decisively, and dare to operate with heavy or even full positions, which is beyond the capabilities of ordinary people like us.
Moreover, most of them have experienced very deep drawdowns and have still been able to withstand the mental pressure to continue to adhere to their own ideas, which is truly not easy.In fact, we can draw on their approach; they all operate within their familiar fundamental areas and use their years of experience to judge future trends. Those of us who engage in technical analysis do the same; we summarize opportunities with high certainty based on our own experiences, patiently wait for these opportunities to arise, and earnestly seize them, believing in our judgments and sticking to them until the end. Essentially, there is no difference between this and how they conduct their trades.
Some might question here, what if there are too few certain opportunities and the waiting time is too long? In reality, opportunities with high certainty can be big or small. A pattern with high certainty that is effective in one hour is likely to be equally effective in 15 minutes, although when trading in 15-minute intervals, both the stop-loss and take-profit ratios are reduced. This depends on our own control over the frequency of trading.
Moreover, the success of these trading masters is difficult to replicate. For instance, Lin Guangbo achieved a profit of 220 times. Friends with trading experience know that if our account doubles, most of us would immediately react by closing the position or reducing it. It's already a stretch to hold on until the account triples or quintuples, let alone 220 times. We are essentially incapable of holding on that long.
Furthermore, a profit of 220 times is achieved by continuously adding to the position with floating profits. Consider the immense psychological pressure we must endure in trading and the strong mental fortitude required to do so. A single misstep could lead to eternal regret!
I believe that the trading masters' deep cultivation in their trading fields, their keen judgment, and their tenacious willpower are worth learning from. However, we also need to recognize our own limitations and make money within the scope of our abilities.
Lin Guangbo once said, "Leave the market when you are satisfied, or when your expected target is reached." Success is not defined by making 200 times the profit; making money within the range of your abilities is also considered successful.
