As individual traders, our $20,000 trading account is as important as any $20 million hedge fund. Our $20,000 account is more important. We are using our own hard earned money on trading. A hedge fund manager is most probably trading with other people’s money.

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It must be clear from the beginning; every trader has to find one’s own edge. We should learn from other successful traders. But, it is your methods that will make you succeed in the long run. This step by step process of developing your own trading strategies (like the hedge fund managers do) will help you in the long run.

The first thing that you need to understand is what type of trader you are and what is the style of trading that best suits you. Are you a day trader? Do you want to swing trade or position trade?

The most important thing for you from the start is to figure out whether you want to trade based on fundamentals or technicals or a combination of both. When hedge fund managers develop their trading strategies they define clear cut trading rules and code them. This way they avoid the pitfalls of emotional trading.

Every currency pair requires a different trading strategy to make pips. You need to understand this. Some trading strategies work best on one currency pair but don’t work on others. Read more in Part II of this article how hedge fund managers develop their trading strategies step by step.

You need to understand that hedge fund managers are always on their nerve’s edge. They constantly look for strategies that work. 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.

Do you want to hold your position overnight or you are happy as a day trader? If you are in a job, do you have time to trade in the evening or the night and how much time you can spare? What time is best for you? 

You should learn money management principles in depth. It is good money management principles and their consistent application that will make you survive in the long run. Never ever try to put more than 3% of your equity at stake at one time. Understand how to calculate the reward/risk ratio for each trade. Never trade if the reward/risk ratio is below 3/1.

Open a mini account and try to test it live with a small amount of money. This way you will not lose much money but will be playing against your emotions.

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.

Understand how much drawdown you can afford on your trading account with this trading strategy. You can establish a bench mark figure using a back test. Decide before hand how much drawdown is acceptable before you pull the plug out of the trade.