Can You Learn To Trade Like A Hedge Fund Manager? (Part II)
You must read Part I of how hedge fund managers develop forex trading strategies in a step by step manner before you continue with Part II. You should know that hedge fund managers are always edgy as most of the traders are. They constantly look for trading strategies that work because markets do not remain the same and conditions keep on changing.
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.
Will you only day trade or hold your position overnight? If you are doing a job, will you trade after hours? What time of trading best suits you? These things should be very clear in your mind before you start trading.
Learning the art of entry and exit is essential for your success. Should it be single entry, single exit? Should it be single entry, multiple exits? Should it be multiple entries, single exit? Should it be multiple 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, this is the time to take a test drive of the forex system that you have developed by back testing and forward testing. Back testing can be done on Metatrader and other platforms that are freely available online. Forward test your strategies on a demo account using live data.
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 here is to know exactly what type of market environment your strategy performs well in and what type of market environment your strategy fails in, because only then will you know when it is time to pull the plug.
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. Oftentimes we become so absorbed with trading that we do not notice the obvious.
This is why it is important to spend some time on a weekly or monthly basis to go over or reflect on your trading. You need to establish a certain ROI level for yourself and keep on tweaking your trading strategies until you start achieving that figure. - 23222
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.
Will you only day trade or hold your position overnight? If you are doing a job, will you trade after hours? What time of trading best suits you? These things should be very clear in your mind before you start trading.
Learning the art of entry and exit is essential for your success. Should it be single entry, single exit? Should it be single entry, multiple exits? Should it be multiple entries, single exit? Should it be multiple 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, this is the time to take a test drive of the forex system that you have developed by back testing and forward testing. Back testing can be done on Metatrader and other platforms that are freely available online. Forward test your strategies on a demo account using live data.
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 here is to know exactly what type of market environment your strategy performs well in and what type of market environment your strategy fails in, because only then will you know when it is time to pull the plug.
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. Oftentimes we become so absorbed with trading that we do not notice the obvious.
This is why it is important to spend some time on a weekly or monthly basis to go over or reflect on your trading. You need to establish a certain ROI level for yourself and keep on tweaking your trading strategies until you start achieving that figure. - 23222
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading and swing trading stocks and currencies. Learn Currency Trading. First Trade Your Forex Demo Account!
posted by X - Men @ 2:53 AM
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