Learning To Trade Like A Hedge Fund Manager (Part I)
May 25th, 2009
Learn Forex trading from Hedge Fund Managers. Develop a forex system that is purely mechanical and rules out emotional trading.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 $5,000 account is as important as any $25 million hedge fund. In fact, our $5,000 account is more important. We are betting our own hard earned money on currency trading. A hedge fund manager is most likely trading with other people’s money.
Hedge fund managers follow a step by step process to develop and test their currency trading strategies. Over the years, currency trading has become an important part of their investment portfolio. There is no reason why we as individual traders should also not follow that step by step process to develop out own trading strategies.
One thing must be clear from the start; every trader has to find his/her own edge. We can and should learn from others. But, it is our own methods and insights that will make us succeed as forex traders. Let’s discuss the step by step process of developing our own trading strategies like the hedge fund managers do.
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 need to figure out is the style of trading that best suits you and what type of trader you are. Are you a short term trader like most day traders? Are you a long term trader and want to swing trade or position trade?
The most important thing for you from the start is to figure out whether you want to trade based on fundamentals or technicals or a combination of both. When hedge fund managers develop their trading strategies they define clear cut trading rules and code them. This way they avoid the pitfalls of emotional trading.
You should decide whether you want to be a news trader. Whether you will use technical indicators in your trading, if so which ones and how! You can’t trade all the currency pairs. You need to pick a few currency pairs and master their behavior. Not all currency pairs are created equal and you need to focus on only a few to become a successful long term trader.
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