Trade Forex Like A Hedge Fund Manager

Learn to trade forex like a hedge fund manager. 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 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. 

It must be clear from the beginning; every trader has to find ones own edge. We should learn from other successful traders. But, it is your methods that will make you succeed in the long run. This step by step process of developing your own trading strategies like the hedge fund managers do will help you in the long run. 

Properly define your trading strategy. Every hedge fund manager like every trader follows a different methodology. Some use fundamental analysis. Other 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 emotion is dangerous and can and will ruin you as a trader. Make your forex system rule based to make your trading as unemotional as possible. 

You need to decide whether you want to be a news trader or you will use technical indicators in your trading. You need to pick a few currency pairs and become master of 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. 

Every currency pair requires a different trading strategy to make pips. You need to understand this. Some trading strategies work best on one currency pair but don't work on others. 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 should also decide the best time frame that you will trade most. You should decide whether you will trade the 5 minutes, 30 minutes, 1 hour, 4 hours, daily or weekly chart 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? 

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, 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. 

A better approach would be to open a mini account and try to test it live with a mini lot. You will not lose much money this way but you will be playing against your emotions like when you will put large amount of your money at stake using this strategy. 

In the end, forex trading is all about developing discipline in yourself and controlling your emotions. You dont get this feeling in demo trading when you know nothing is at stake and you are under no stress of losing your hard earned money.

Now is the time to get intimate with your strategies. There are two main types of trading strategies"one has a high percentage of profitable trades in a number of trades and the other has a high profit factor per trade. 

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 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.