Dalio is considered controversial in the way he runs Bridgewater in terms of company policy and investment methods. So what can we learn from Ray Dalio to help us become successful Forex traders? Lets take a look at his strategy in greater detail.
Dalio is a “macro” long term trader and looks for long term economic fundamentals and the fund itself trades in excess of a hundred different contracts which include – Government bonds, currencies and commodities and has a global outlook, looking for the best trends where ever they may be in the world. The core of Dalio's trading strategy is what he refers to as “timeless and universal” which is laid out in a 20-page “Template for Understanding” and sees the economy in a different way to many others:
The Economic Machine
“The economy is like a machine.” This machine looks complex but he thinks its relatively simple but “not well understood” He sees transactions in the global economy simply the moving parts of the machine. His view is that, normal economic theories do not take into consideration the individual components of supply and above all, demand in relation to price:
“To understand demand properly, you must know whether it is funded by the buyers’ own money or by credit from others”. (Ray Dalio)
Mindset for Trading Success
Of course his trading strategy is heavily based on his ideas of the workings of the global economy and the correlation between various asset classes in a similar way to George Soros. The average currency trader though is not interested ,in trading big fundamentals and most want to be technical traders but they can learn from Dalio's mindset and how he approaches trading.
“In pursuing my goals I encountered realities, often in the form of problems, and I had to make decisions. I found that if I accepted the realities rather than wished that they didn’t exist and if I learned how to work with them rather than fight them, I could figure out how to get to my goals” (Ray Dalio)
How many Forex traders could learn from the above? Most and its a fact, most traders don't see the reality of what it takes to win at currency trading. For example, how many traders think they can make big profits with low drawdown, without having a trading strategy with an edge? A huge amount, with most simply having no idea what a trading edge is because they have never bothered to get a sold trading education. Most currency traders could win, if only they saw the reality of the markets as they are and not how the trader would like them to be.
His company is based on ‘radical transparency’ where finding the truth and what they can improve on is more important than how you actually getting the information. Your job title mean nothing as Bridgewater operates on a meritocracy. Dalio’s main aim is find the root of a problem and how to fix it. Everyone is encouraged to be open and honest with one another, even if it might hurt someone's ego. Having weaknesses and making mistakes is not looked down upon but seen by Dalio, as a way of finding the truth. Also, if you have weaknesses, its not to be ashamed of you can work on them and improve. No one is perfect, all we need to do is know our mistakes and acknowledge them to be able to improve.
OK the above is referring to groups of traders but what I like about the concept which is to focus on what's important, to forget your ego, know your strengths and weaknesses and above all else focus on the truth.
Most Forex traders need to lose their egos because they get in the way of their trading and as we know cause them to run losses and refuse to admit their wrong. Also you need to know your weaknesses as a traders you can work on them but how many traders do this? Not many. Trading the truth is what we all aspire to and the culture of Bridgewater is successful in generating returns for the company and if we become more honest as traders lose our egos and work on our weaknesses, we can become better and more profitable traders.
Ray Dalio is very rich and billion dollars of dollars per year and is in the top 50 on the Forbes 400 list. But In October, 2008 when the world was hit by an economic crisis which was when he published his twenty-page essay which we referred to earlier titled “A Template for Understanding What’s Going On,”
This document told the truth about the mess the global economy is in and he stated it wasn't just a period of recession the world faced but a period, where savings would have to the rebuilt and borrowing would need to be curtailed for a generation to get the global economy back on track.
He's not the only person with this view but its the right view and the economic problems which have persisted, since the global crisis of 2008 are still with us today and prove he is right. Do Government's see it? Of course not there view is to simply expand the money supply and there building another huge crisis which will create an even bigger economic crisis than 2008.
His trading strategy like the strategy of George Soros is one which is based on seeing the big picture across numerous assets classes and how these assets are correlated. The strategy itself, relies on a deep understanding of macro economic trends and for technical Forex traders this is not to helpful but the way he implements his strategy is and is based on honesty, seeing the reality, being open and not being bothered if he is wrong. Like all the great traders a humble man but his track record is one of the best in terms of consistent returns on equity deposited.