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5 Habits of Successful Traders

Hedge fund managers tips to successful trading

1. There Is No Holy Grail in Trading

Many traders are driven to believe there is a singular solution to defining market behaviour. May this be from human psychology or the education they chose to use, it is an underlying driver on why retail traders fail. The hedge fund managers in hedge fund market wizards discuss how there is no single solution and that the strategies that work are continually adapting to market conditions. The diverse range of methods different hedge fund managers used showed how there are multiple ways to be successful in the market however, they are hard to achieve and require the right mindset and education.

2. Find a Trading Method That Fits Your Personality

Not all the hedge fund managers had the same personalities and traits, not all of them used the same strategy and techniques to approach the market. Finding a method which fits their own beliefs and talent is what retail traders should figure out. One strategy that is successful for one trader may be a strategy that fails in the hands of another trader. The manager O’Shea answers the question of whether trading can be taught by expressing if he taught you what he did, you would fail because you are not him. If you followed him around for several years however, you may learn some good habits. Supporting his claim using his friend as an example who now works at a separate hedge fund managing money, using a completely different strategy and mindset which suits that person.

3. Trade Within Your Comfort Zone

There are lots of arguments to how much you should be risking per trade, $100, $200, 1% or 2% of your account? One of the major points made by Clark was that you must “trade within your emotional capacity”. If a position is too large then a retail trader will become prone to exit a good trade due to fear, this is because the weight of the position size is more than the individual can handle. Vidich also follows a similar verdict, “limit your size in any position so that fear does not become the prevailing instinct guiding your judgement”. Suggesting, having a smaller position size may work out more profitable especially for beginners.

4. Flexibility Is an Essential Quality for Trading Success

Retail traders are generally caught in a cycle of finding a singular strategy and statically following this strategy. On the flip side, highly skilled traders can not only liquidate positions if they have made a mistake but also reverse their trade ideas. O’Shea did just that when he had a pessimistic outlook of the financial outlook, but the market was telling him otherwise. After some research he formulated another hypothesis that fit the price action, this was that the markets were seeing the beginning of an Asian-led economic recovery. This shows not only how a great trader can get out of the idea if it’s wrong but how they can flip it so that it’s in their favour. Overall, if you must be right you may find it difficult to succeed, allowing your ego to take control can be detrimental.

5. The Need to Adapt

If trading was as easy as finding a trading method that works and following it with discipline, then everyone would be a successful trader or at least 90% of people would not fail. In the real world, trading is more difficult and requires the traders to think logically. Market conditions always change, strategies that worked for a period of time eventually fail. This was the case with the turtle traders who made millions, the method they followed before technology had an impact on the markets worked but as soon as the market shifted digitally it deteriorated. Many hedge fund managers are continuously adapting their strategies, an example of this would be Thorp who maintains a strong return/ risk on his statistical arbitrage approach. On top of this, Platt the hedge fund manager of Bluecrest believes that systematic approaches must be continually revised or else they degrade, describing the process as a research war. Retail traders must take this advice and apply it to their trading if they are to keep up with top hedge fund traders. This may be in the forms of adapting why your trade shave been getting stopped out more often in the recent few months and identify how you may be able to prevent this.

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