Can You Learn To Trade Like a Hedge Fund Manager? (Part II)
You must have read Part I of how hedge fund managers trade forex. You need to understand that hedge fund managers are always on their nerves edge. They constantly look for strategies that work.
Hedge fund managers aim is to make good money consistently while always on their guard because a trade can go bad any time. If a trade goes bad, they know beforehand how to get out of a bad position before it results in a huge loss. You as individual investors also would put your own money at stake in the hope of making good money.
You should decide whether you want to range trade or trend trade? Many hedge fund managers are trend following traders. If you want to become a trend trader than you need to become a master of predicting and anticipating trends in your favorite currency pairs. If you want to be a contrarian trader and range trade, than you should understand how to scalp.
You also need to decide the time frame that you will trade most. You should decide whether you will use the 5 min charts, 30 min charts, 4 hour charts , daily charts etc and why.
Do you want to hold your position overnight or you are happy as a day trader? If you are in a job, do you have time to trade in the evening or the night and how much time you can spare? What time is best for you?
Learn the art of entry and exit. You will need to learn technical analysis for this. Technical analysis is essential for your success. Should it be multiple entry, multiple exits? Should it be single entry, single exit? Should it be multiple entries, single exit? Should it be single entry, multiple exits?
You should understand the money management rules. Never ever put more than 1% of your equity at stake in a single trade. Learn to calculate the risk/reward ratio.
Now, test drive the forex system by back testing and forward testing. Back testing can be done on Metatrader and other platforms. Forward test your strategies on a demo account.
Open a mini account and try to test it live with a small amount of money. This way you will not lose much money but will be playing against your emotions.
Ultimately trading is all about developing discipline and controlling emotions. You dont get this feel in demo trading when you know nothing is at stake.
Get intimate with your strategies. There are two primary types of trading strategies”one that has a high percentage of profitable trades and one that has a high profit factor.
The key factor here is to know and find out what type of market environment your trading strategy performs well in and what type of market environment your trading strategy fails in. Because only then will you know what works under what conditions and what does not work.
Understand how much drawdown you can afford on your trading account with this trading strategy. You can establish a bench mark figure using a back test. Decide before hand how much drawdown is acceptable before you pull the plug out of the trade.
The last step of thinking or trading like a hedge fund manager is self reflection on your past trading performance. Self reflection is very important. Most of the time we become so absorbed with trading that we do not notice the obvious and keep on repeating it again and again.
This is why it is good to spend some time on a weekly or monthly basis to self reflect on your past trading performance. You need to fix a certain level of pips per day for yourself and keep on tweaking your trading strategies until you reach that figure.
