What Ray Dalio Can Teach Us About Reality of Trading

Ray Dalio the founder of Bridgewater Associates -- the world’s most profitable hedge fund in terms of dollar volume is known as a proponent of radical honesty. Some critics view the whole Bridgewater culture as bordering on a cult, but the more I read Dalio’s writings the more I am convinced that he is right.

In one of his writings Dalio notes, “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. It might take repeated tries, and seeking the input of others, but I could eventually get there. As a result, I have become someone who believes that we need to deeply understand, accept, and work with reality in order to get what we want
out of life. Whether it is knowing how people really think and behave when dealing with them, or how things really work on a material level—so that if we do X then Y will happen -- understanding reality gives us the power to get what we want out of life, or at least to dramatically improve our odds of success. In other words, I have become a “hyperrealist.”

When I say I’m a hyperrealist, people sometimes think I don’t believe in making dreams happen. This couldn’t be further from the truth. In fact, I believe that without pursuing dreams, life is mundane. I am just saying that I believe hyperrealism is the best way to choose and achieve one’s dreams. The people who really change the world are the ones who see what’s possible and figure out how to make that happen. I believe that dreamers who simply imagine things that would be nice but are not possible don’t sufficiently appreciate the laws of the universe to understand the true implications of their desires, much less how to
achieve them.”

When it comes to our little world of trading accepting reality can mean the difference between winning and losing and one of the hardest realities to accept is that it is almost impossible to make a million dollars from a $5,000 or $10,000 or even a $50,000 base. This is the dream that so many individual traders have and ironically enough its is fueled by guys like Dalio and Paul Tudor Jones and all the other great hedge fund legends who “started with nothing” and are now multi-billionaires. The reality however is that their wealth came from two very important factors -- their ability to trade well and more critically their ability to attract outside capital so that they could operate on a larger base.

It’s true, in my time I have seen a few incredibly talented traders take $10,000-$20,000 and run it to a quarter of a million in a matter of months, but I have seen many, many, many more traders take a $250,000 and run it into $10,000 over the same time frame. The fact of the matter is that is you are able to produce 20%-40% annual returns on a moderately levered account you are doing unbelievably well and your trading returns as equal to the titans of finance. That may not get you to million tomorrow, but a $25,000 account making 40%/year grows to $700,000 in just one decade. That won’t make a you millionaire overnight but its not chump change either. That’s the reality of trading.

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Boris Schlossberg

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