Tips from hedge fund managers for profitable trading
1. Trading Does Not Have a Holy Grail
Many traders are compelled to think that characterising market behaviour can be accomplished in a single way. It is a fundamental reason why retail traders fail, regardless of whether this is a result of human psychology or the schooling they decided to utilise. The hedge fund managers in the book hedge fund market wizards talk about how there isn't a single solution and how successful tactics are constantly changing to reflect the state of the market. The wide variety of strategies employed by the many hedge fund managers demonstrated that there are many ways to succeed in the market, but they are difficult to attain and call for the appropriate mindset and training.
2. Select an approach to trading that matches your personality.
Not all hedge fund managers shared the same personalities and character traits, and not all of them approached the market in the same way. Retail traders should determine a strategy that matches their personal values and skills. A trading technique that works well for one trader might not work well for another trader. When asked if trading can be taught, manager O'Shea responds that you would fail if he tried to teach you since you are not him. But if you followed him about for a while, you might pick up a few good behaviours. His use of his friend, who now manages money at a different hedge fund employing an entirely different technique and mindset that suits that person, as an example to support his assertion.
3. Stay in Your Comfort Zone When Trading
There are many different opinions on how much of your account, if any, you should risk per transaction. Should it be $100, $200, 1%, or 2%? Clark stressed that you must "trade within your emotional capacity" as one of his main principles. A retail trader is more likely to abandon a winning trade out of fear if a position is too big because the pressure is too much for the person to bear. Similar advice is given by Vidich, who advises people to "limit their size in any position so that fear does not become the dominant instinct guiding their judgement." It is suggested that smaller position sizes might be more profitable, especially for new traders.
4. Flexibility Is a Key Component of Successful Trading
Retail traders are frequently locked in a loop of selecting a single strategy and rigidly adhering to it. On the other hand, highly adept traders have the ability to both reverse their trade ideas and liquidate positions if they have made a mistake. When O'Shea had a negative outlook on the economy but the market was telling him otherwise, he did exactly that. After doing some study, he came up with a different theory that explained the price movement: the markets were witnessing the start of an Asian-led economic recovery. This demonstrates how a skilled trader can not only abandon a bad notion but also turn it around to work in their interest. Overall, it may be challenging to succeed if you must be correct; letting your ego take over might be harmful.
5. A Need for Adaptation
If choosing a profitable trading strategy and sticking to it religiously, everyone would be a successful trader—or at least 90% of traders wouldn't lose money—in trading. Trading is more challenging and demands logical thinking from traders in the actual world. Market conditions are always shifting, and plans that initially succeeded eventually fall short. This was the case with the turtle traders who made millions; their strategy worked before technology changed the way markets functioned, but it degraded as soon as the market went digital. Many hedge fund managers are constantly changing their tactics; Thorp, who maintains a favourable return/risk ratio on his statistical arbitrage technique, is one such manager. Additionally, Bluecrest's hedge fund manager Platt believes that systematic methodologies must be updated on a regular basis to prevent degradation, referring to the procedure as a research conflict. If retail traders want to keep up with top hedge fund traders, they must implement this advise into their trading. This could take the form of figuring out why your transaction has been getting stopped out more frequently over the past few months and figuring out how you might be able to stop it.