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Learn forex trading based on a forex system that is proven, tested and easy to use.You must have read Part I of how hedge fund managers develop forex trading strategies in a step by step manner. You should understand that hedge fund managers are always on their nerves edge as most of the traders are. They constantly look for trading strategies that work because market conditions keep on changing.
Hedge fund managers want to make good money consistently while always on their guard if a trade goes bad, how to get out of a bad position before it really becomes difficult to get out. You as individual investors also would bet your own money in the hope of making many pips.
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 time frame that you will trade most. You should decide whether you will use the 5 minute charts, 30 minute charts, 4 hour charts, daily charts, weekly chart etc and why.
Will you only day trade or hold your position overnight? If you are doing a job, will you trade after hours? What time of trading best suits you? These things should be very clear in your mind before you start trading.
Learn the art of entry and exit. It is essential for your success. Should it be single entry, single exit? Should it be multiple entries, single exit? Should it be single entry, multiple exits? 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, take a test drive of the forex system by back testing and forward testing. Back testing can be done on Metatrader and other platforms that are freely available. Forward test your strategies on a demo account with live data.
A better method would be to open a mini account and try to test it live with a small amount of money. You will not lose much money this way but will be playing against your emotions.
In the end, trading is all about developing discipline and controlling emotions. You don’t get this feel in demo trading when you know nothing is at stake and you are under no stress.
Get intimate with your strategies. There are two primary types of trading strategies—one that has a high percentage of profitable trades and one that has a high profit factor.
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.
Know how much drawdown you can afford on your account. You can establish a bench mark figure using a back test for each trading strategy. Decide before hand how much drawdown is acceptable before you need to 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 important to spend some time on a weekly or monthly basis to go over or reflect on your trading. You need to establish a certain ROI level for yourself and keep on tweaking your trading strategies until you start achieving that figure.
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