Learn to Trade like a Hedge Fund Manager (Part I)
The difference between a professional trader and an amateur trader is that a professional trader never goes into a trade blindly. You see hedge fund managers have to show good results to their investors in order to solicit their investments into their funds. Hedge fund managers have to convince their clients that they have a battle tested strategy.
As individual traders, our $20,000 trading account is as important as any $20 million hedge fund. Our $20,000 account is more important. We are using our own hard earned money on trading. A hedge fund manager is most probably trading with other peoples money.
Most of the hedge fund managers follow a step by step process to develop their forex trading strategies. There is no reason why should we as individual traders also not follow that step by step process to develop our own trading strategies. We cant afford to lose our hard earned money in unsuccessful trading.
One thing should be clear; every trader has to find his/her own edge. We can learn from others. But in the end, it is our own methods and insights that will make us succeed as forex traders in the long run. Lets discuss the step by step process of developing our own trading strategy like the hedge fund managers.
Start by properly defining your trading strategy. Every hedge fund manager like every individual trader follows a different methodology. Some traders use fundamental analysis. Other traders use technical analysis.
The first thing that you should understand is what type of currency trader you can be and what style of trading best suits you. Are you comfortable as a day trader? Do you want to be swing trader or position trader?
From the start, figure out whether you want to trade based on fundamentals or technicals or a combination of both. Hedge fund managers develop their trading strategies by defining clear cut trading rules and coding them. This way the hedge fund managers avoid the pitfalls of emotional trading.
Trading based on emotions is dangerous and will ruin you as a trader in the long run. Make your forex system rule based and mechanical with clear cut steps that you will follow in order to make your trading as unemotional as possible.
Some trade news. You should decide if you want to be a news trader. Whether you will use technical indicators in your trading, there are many so which ones and how! There are many currency pairs. You cant trade all of them. You need to pick a few favorite currency pairs. All currency pairs are not equal. You need to focus on only a few to become a successful trader.
Every currency pair requires a different strategy to succeed. You need to understand this. Some strategies work best on some currency pairs but dont work on others. Read more in Part II of this article.
