Forex Patterns and Probabilities: Trading Strategies for Trending and Range-Bound Markets

CHAPTER 21

A Tale of Two Traders

I’ve been fortunate enough to trade not only for myself, but also for several hedge funds. Working with hedge funds is terrific—they write big checks and then they leave you alone. Trading for individuals is hard work—they write small checks and they never leave you alone. If you want to trade for others, institutional money is the way to go.

There is a lot of institutional money out there, looking for a home. Hedge funds have expanded tremendously in the past few years, with assets under management skyrocketing from about $500 billion in the year 2000 to over $1.5 trillion in 2006. These figures will likely continue to grow in the future. The upshot of this is that some hedge funds literally have more money to invest than they can reasonably handle, and they might “farm out” some of these assets to individuals like you and me.

If you can establish a reasonable track record, you might be able to convince a hedge fund to allow you to trade some of their funds. What constitutes a good track record? The answer may be different from what you believe.

INDIVIDUALS VERSUS INSTITUTIONS

If you want to trade for individuals, you’ll often be asked, “How much money will you make for me?” This is indicative of how most individual traders think; they are more concerned about reward than they are about risk. Individuals ask questions like, “How long will it take to double my money?” and “When will my account reach $1 million?”

Also, if you are getting started ...