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.
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.
Understanding Best Forex Broker
Looking for the Best Forex Brokers and trading locations is somewhat like looking for the elderly in the haystack that you have heard about all your life . They are out there and once you place a excellent one they will potentially create you a lot of money so you’ll want to hang on to them. The largest challenge is to discover one that is consistently excellent and may work well with you. He or she might be tops in their ground and until now if there is problems communicating with them, they won’t do you any good . The greatest policy is to open and open with each other.
Web searches can help . They will help you locate some probable folks and start narrowing down the ground. You can also talk to friends and others that are trading and see who they think the best forex broker trader might be. The trouble is that if they obtain someone that is doing a fantastic job for them, they might be reluctant to change you on to their self. But it’s a begin and it will give you a foundation from where to judge .
numerous brokers today may allow you to give them a check out before you commit. They know it is a difficult business and they want to earn yours so they must be willing to let you give them a test run without long-term commitments. If they don’t you might want to look elsewhere for someone that will . The best forex broker will do what they will to earn your business, a bad one may not.
What you will need to look at is to be sure that the broker you are getting is regulated. While that will not guarantee success, it will give you the peace of mind of knowing they are more likely to be honest in the dealing s with you. Remember that the best forex brokers stay in business by doing good business practices.
Trades are made by means of spreads, fixed or variable. Depending on what you are doing one in fact might be a better deal than the other and so you may discover that the best forex brokers will keep you informed on this.
Make sure that you know upfront what the costs are. The best forex brokers will help spell it out for you on the costs of the spreads and the commissions. They want you trading with them so they want to keep you as happy as they can and knowing these figures will help alleviate suprises.
You need a decent platform and the best idea is one that allows automated trading and single click execution.
The most forex brokers acquire to be that way because of great customer service. This is what may save you if there are disputes and / or troubles so make sure that the one you select has high ratings in this zone and you will be a lot happier in the long run even in the circumstance you do not do so well.