Hedge Funds and other Strategies

[0ICU812]

As a trader with virtually no luck, I find myself being up and down. In the end, I might make some money, but hope to get better over time. I've been doing it about 3 years, and have only learned to take my time getting in trades, get out quick if they go south, and take some profits when you can.

I have taken a couple of technical trading courses. My conclusion is that technicals may or may not help, and there is a big debate over the efficacy of technicals. I do not believe that there is a magical way to ascertain what to buy and when.

I rely on my gut, and past performance. e.g. if the mkt has been up for several days in a row, I'll buy puts. I have tried to buy off technicals, but most follow the mkt. So if technicals point up, but the mkt. goes down, usually the mkt. wins.

Does anybody know what big traders or investment houses do to make money? What got me thinking is a post by a new trader. A response said that something like 95% of traders lose money. How does a hedge fund do it? Do they lose like everyone else? I kinds see what Madoff did, but I am talking about legit places. Or the average trader here? What is your game plan?

I can't believe that the people who run hedge funds are that much more of a genius than some traders that post here. And even the posters here have trouble getting it right sometimes.

[clavocat]

Many hedge funds do not beat the market, and the rest only beat them by a little other than extreme cases. They have top analysts that understand fundamentals much better than most on here and understand the economic situations as they live that type of environment, where most here have a day job. My 2 cents.

[Gordo]

I just watch the simple moving average of the particular stock that I am trading that day. I go into the morning with a couple of picks based on news and momentum. The futures also help me gauge what the upcoming mood may be. So far it has worked pretty well. It also helps to be lucky.:five:

[aiki14]

As a trader with virtually no luck, I find myself being up and down. In the end, I might make some money, but hope to get better over time. I've been doing it about 3 years, and have only learned to take my time getting in trades, get out quick if they go south, and take some profits when you can.

I have taken a couple of technical trading courses. My conclusion is that technicals may or may not help, and there is a big debate over the efficacy of technicals. I do not believe that there is a magical way to ascertain what to buy and when.

I rely on my gut, and past performance. e.g. if the mkt has been up for several days in a row, I'll buy puts. I have tried to buy off technicals, but most follow the mkt. So if technicals point up, but the mkt. goes down, usually the mkt. wins.

Does anybody know what big traders or investment houses do to make money? What got me thinking is a post by a new trader. A response said that something like 95% of traders lose money. How does a hedge fund do it? Do they lose like everyone else? I kinds see what Madoff did, but I am talking about legit places. Or the average trader here? What is your game plan?

I can't believe that the people who run hedge funds are that much more of a genius than some traders that post here. And even the posters here have trouble getting it right sometimes.

I thought about this for a while, I am not strictly technical or fundamental, but I have made money the last few years in the market. I am no smarter than anybody else and while I pride myself on working hard there are others who work just as hard. So what is it that has made it possible to be successful in bull and bear markets?
Here's what I came up with:
1) I started as a typical investor, and modified my techniques to trading. I knew that the only way to compete against the big guys is to have all the same arrows in my quiver that they have. I knew stocks, but learned options, futures, and other investment classes so I could more effectively trade the market that was presented to me.
2) I started with a lot of money. When I decided to trade for a living I knew it would require a certain amount of money to be able to use the aforementioned arrows, minimize the effect of commissions, and allow me to have a certain level of risk tolerance.
3) I use a professional trading platform. I used the Thompson platform for a few years and now use the Goldman RediPlus ( The one good thing that WSE did for me was get me a demo of that). The advantage of these platforms is astonishing. I have pipeline access to every major market on the planet, state of the art news feeds, proprietary algorithms for dark pool access and liquidity searches. I pay $1500/month for this and it's worth every dime.
4) I use position and portfolio hedges and I spend time making sure I minimize the risk and the commission costs of the positions and the hedges. I set a macro strategy (net long, net short, or market neutral) and then take my individual positions with that in mind, and hedge against that strategy being wrong.
5) I am rigidly disciplined, and I do not deviate from my plan. This is my most important policy, I cannot overstress it's value.
6) I trade 5 or 6 positions at a time, if I deviate from this it is to go with fewer never more.
7) I manage as much money as I can with my style, and as I get over that level I put it into a different investment. Usually a portfolio managed by professionals, but sometimes I'll use alternatives, structured products, oil limited partnerships, or most recently fixed income products.
8) I manage money based on what I estimate to be a good risk reward ratio. The lower the risk the more money I am willing to throw at the trade. And I look for the best way to play the trade, straight stock, options, futures, or a combination that gives me the best profile.

I realize I have probably left stuff out, and I also realize that most new traders cannot do these things. But that's how I do it.

I also cannot over stress the value of a good mentor. I was lucky to have such a person to go to for help, he never told me what to do but where to get the information that I needed. In light of the recent discovery that a self professed guru around here was a fraud, I would urge anyone to thoroughly check the references of potential mentors and remember it's your money.

Hope that helps

[Bolimomo]

.....
I can't believe that the people who run hedge funds are that much more of a genius than some traders that post here. And even the posters here have trouble getting it right sometimes.

Not all hedge funds make good time last year. In a good year where the S&P soared 10% to 20%, every fund manager is a hero. It's the difficult time that separate the real gem from the rest. Rising tides raise all boats. I am fortunate that I did very well in 2008, mostly thanks to the market's extreme volatilities in Sept/Oct/Nov. This month I start to experience some snags as the markets seem less predictable intraday as it once was. Can I repeat my own performance? Only if the market is willing. I projected that this year if I can do 30% upward I will be happy.

I do trading for a living full-time now. Quit my technology job. One thing I concluded was: I couldn't be a good trader because I was only doing it part-time... that I still have a "day job" to hang on to. Now it is sink-or-swim for me. No if or but. No excuses. I wish you all lucks part-time traders. You all are smarter than I am. You can probably make it work where I once failed.

For me: no news, no CNBC, no readings on Yahoo-Finance late at night, no chatroom, no e-mail newsletter, no scan-scan-scan, no third-party's picks, no asking "why, why, why". It's me watching the price actions (charts) of my 5 favorite stocks/ETFs (SKF/GS/SPY/AAPL/RIMM) all day long. It's trading the same set of 5 stocks day-in-day-out all year around, long and short. Technicals is all I use. Price charts with some indicators. Fundamentals mean practically zero for intraday tradings. These milk-cows provided my means of making a living. I love them until they produce no milk anymore (like RIMM... it's on notice).

Everybody's evolution path as a trader is different. You need to seek out for what works for you. At some point, you would need to answer the important question: Is trading for you? If not, don't waste your time. If a yes, then you must have the "do whatever it takes" attitude. Don't be a half-way trader wannabe. Don't walk your dog or go and have a cup of coffee when you need to spend time in front of the screen. Make trading your only priority. Those who made half-hearted commitments are the ones who fill up the 90-95%.

[Scooby2clutch]

Before speaking on this subject, I just want to thank akki and bolimomo for making such insightful analysis on what works for them and what not. Its been a pleasure reading up on your analysis on how to play the market.

But back to the OP, as you can see, there's no right or wrong way in playing the market. From day one, there's no holy grail in how hedge funds play the market to make the big bucks. The most important things I've learned up to this point is not some technical or fundamental analysis or indicators. You really have to form your own strategy to see what works for you and what not. Even the best traders take 2 steps forward and 1 step back. Look at akki and bolimomo for instance, both have way different trading strategies but it works for them. If you tell akki to use bolimomo's strategy, he probably won't be accustomed to it and won't feeel comfortable doing trades that way. Vice Versa.

What you can do is try everything out like all learners do, and see what you like and what not. Is it FA or TA or BOTH or even...NONE?? Money can be made holding long term, short term, strictly options, hedging, Intra day, swing trading and the list goes on and on. Nobody can give you a set of rules to trade with because these "rules" are molded to each individual. Before understanding stocks, you need to understand yourself. You need to ask yourself what you're trying to accomplish in conjuction with your risk tolerance. When they say most fail, its cause most don't understand themselves. Usually its not the "trading rules" that kills them but their inner nature. A lot of traders use the word "discipline" but you won't know the true meaning of that until you face adversity. In conclusion, there's no ulimate trading forumla or views on the market. Everything works to a certain extent and its up to you to distinguish whats good and whats not. No need to rush things, start slow and you'll pick things up while learning more about yourself.

[Survivor]

Interesting insight, let's toss some more into the mix.
If you follow the herd be prepared to get run over by it.
Learn to look the other way and some of your best stock picks
will have a good return.
A few months ago I came across Pioneer natural resources
and it jumped from 48.00 to 93.00 a share and I bought with 50 shares,
Lucky I guess- it wasnt Chevron or Exxon Mobil, something different.
Marathon beat me senseless, every time I bought some shares
it went down, WTF...?. so I stay away from that one.
ETF's kick ass, SKF, SRS, SCC, cyclical.
I think pre market trading, Big Money sets the course.
A true slaughter house watch that carefully,
I seen stock shoot up sky high then drop like a rock when the regular suckers start buying.
The value of the dollar is another joke, if it's too high they bitch and too low the bitch. cry babies.
Fear is the biggest advantage, most are fearful-
over come your fear and the best investors are not afraid.
It's hard to buy 6 grand worth of stock on a computer and you
have nothing physical in your possession.
Beware of the media and the big money that controls the stock market
Goldman Sachs, Barrons, Wall Street journal.
Oil barrel price manipulation is a good bell weather.
Vince Farrel who is a guest on Larry Kudrow, is one of the best people
I have listened to and made money following him.
Ken Fisher, Forbes, and Fisher investments, He is brilliant with a common sense approach,
He has helped me tremendously,
I have read all of his books and what a powerful insight he has.
A real eye opener.
I still like investors business daily try a two week free subscription.
Good luck in the future.

[madcowdisease]

Many hedge funds do not beat the market, and the rest only beat them by a little other than extreme cases. They have top analysts that understand fundamentals much better than most on here and understand the economic situations as they live that type of environment, where most here have a day job. My 2 cents.

They also have large coffers of cash which they leverage on margin. Such large margin loans allow them to get a much lower interest rate. In a bull market you can simply buy the index and leverage your margin to double your long market value. So for each point the market goes up the fund leveraged 2Xs is gaining 2 points in return. If your interest rate is low enough, and on a $100 million+ margin loan it is very low, you can basically double the return of the market by doing nothing but buying the index.

It has worked in the past for many funds. Problems only arise when the market goes south such as the current environment.

Moral of the story, the hedgies aren't that good. They simply leverage the hell out of their assets and ride momentum. Case in point: The crude oil manipulation from Oct. 2007-Aug 2008. Futures markets allow extreme leverage. In the case of crude oil over 10Xs capital. Simply swapping contracts reaped huge profits for Goldman et al.

[eaglearb]

You will find most hedge funds employ arbitrage strategies, that is hedged trading, think pair trading.