Speaking very generally, hedge funds can be categorized as directional funds (so-called macro funds and most long/short funds) and absolute-return-oriented or ARO funds (sometimes called nondirectional funds or market-neutral funds). Hedge funds, however, are not truly nondirectional or market neutral.
Most directional macro funds employ few or no hedging strategies, but simply make bets on their specific ideas, whereas long/short funds are mainly similar to long-only managers except that they also sell stocks short, thus reducing (but not eliminating) their exposure to broad market trends. Many hedge funds fall easily into these broad categories, but some do not.
Hedge funds can also be categorized according to the kinds of investment strategies they follow. Following are some of the many examples of strategies a hedge fund might focus on: