Day trading like billion dollar hedge fund managers

I have always been fascinated by billionaire hedge fund managers. These are people who have amassed a fortune by trading currencies, stocks, ETFs, options, indices, and bonds among others. Some of the most successful hedge fund managers I follow closely include: William Ackman, Ray Dalio, and Dan Loeb. Each of them manages more than $20 billion with Dalio owning the largest hedge fund company globally. My dream as a trader has always been to be just like these guys. In her book, Day trading and swing trading the currency market, Kathy Lien notes that as day traders, we can all confidently call ourselves hedge fund managers. With your $10,000 trading account, you are probably a more successful hedge fund manager than those mentioned above. This is simply because of the fact that you own the $10,000 while the $20 billion hedge fund managers’ funds are from institutions and high net worth individuals. Therefore, to be a successful small scale hedge fund manager, here are the key details you must always follow.

Defining the strategy

Hedge fund managers use different strategies to boost their revenues. As such, there are many strategies that have been developed. Some of them are strict technical traders who specialize on charting while others are fundamentalists who believe in using the news and market data. Others combine the two strategies. On the other hand, others use the hedging technique while others are long, short traders. Others are contrarian while others are activist investors. As a day trader, you need to define the strategy to use and fall in love with it. Perhaps, your strategy can entail trading currencies from the emerging markets only. Alternatively, you can have the strategy of trading precious metals or crude oil. You also need to define the timeframe through which you will be trading. By having a specific strategy, you will be at a good position to understand the market and place trades that you are comfortable with.

Art of entering and exiting

The time you enter or exit a trade will be very important for you. This is simply because if you enter a trade at the wrong time, you might end up losing. On the other hand, if you exit early, chances are that you might avoid an upside. There are 4 key strategies to enter and exit in trading.

  • Single entry, single exit. This is a strategy where you put your entire position at one price and then exit the entire position at a specific price.
  • Single entry, multiple exits. Here, you will make one entry and then position the trade to exit at multiple levels. This strategy is ideal for riding a breakout.
  • Multiple entries, single exit. In this strategy, you enter a trade at different times but exit once a certain level has been reached by averaging up or averaging down. Averaging down is to add a position if it moves against you while averaging up is to add a position that is going against you.
  • Multiple entries, multiple exits. This is a strategy where you scale into and out of positions where you make multiple entries and multiple exits especially in a trending session.

Trading psychology

All successful hedge fund managers have had their down years. In fact, many of them have in different years lost billions of dollars in their careers. The key to their success has always been to manage their losses in a credible manner. They understand that the market is made up of a series of bumps. As a day trader, you need to be psychologically prepared for any eventuality. At times, you might do a comprehensive review of the market and place your trade accordingly but the market fails to respond in your favour. At this time, you might be forced to recoup your funds by placing trades in the opposite direction and make huge losses. Therefore, you should always learn to manage the risks of trade up and down market movements.

Self-reflection

As a trader, self-reflection is an important ingredient for success. All successful hedge fund managers take time to reflect on their daily, weekly, or monthly traders. According to Kathy, most of the hedge fund managers she interviewed for her book spent time to reflect on the gains and losses they made in a certain duration of time. This helps them to avoid the same mistakes again.