How to Think Like a Hedge Fund Manager


25 March 20218 min read

“It is the unemotional, reserved, calm, detached trader who wins [...] not the ambitious seeker of fortune.”

How long ago do you think this quote was written? Five years? Perhaps twenty years? Maybe even thirty?

Try over 2,500 years ago.

And I’ll give you three guesses to figure out who said it...try again...close...sorry, that’s three. Give up? Before I let you in on the secret, there is a catch. It isn’t an exact quote. I’ve changed just one word—trader. But you’ll have to keep reading to the end to find out the source of such wisdom.

Forbearance, equanimity, aplomb

They’re just fancy words for patience, composure and self-control. And they’re all qualities that successful hedge fund managers possess in spades. The good news? You and I possess them, too, which means that there aren’t any ostensible differences between us and “them.” Human psychology is human psychology. But the trick is understanding how the ways in which we think and feel impact how we trade. Mastering one’s emotions and controlling behavior is probably the biggest thing that separates the pros from the amateurs. Make a rash decision and you might lose your shirt. Rely on a gut instinct or intuition rather than backtesting and targeted research and you might lose more than your shirt.

“If you can keep your head when all about you are losing theirs...” Rudyard Kipling

With enough self-awareness and practice, though, you can remain cool, calm and collected, even under the most challenging of circumstances. Now I know what you’re thinking. Trading psychology can be difficult enough to master for seasoned managers, let alone for novices first starting out. But it’s important to keep in mind that the world’s leading traders all began their journey at square one. Just like you, they had to learn the fundamentals of trading and then fine-tune their knowledge and skills over an extended period of time.

However, as you continue along your trading journey, skills and knowledge alone won’t make you a great trader. You cannot travel the trader’s path until you have become the path itself, with all of its uncertainties, its blind corners and its ups and downs. Your ability to keep a cool head, to analyze any given situation rationally and to make an informed decision based on facts is what will ensure that you remain in the game until the final whistle.

“The mind is everything. What you think you become.” Buddha

Professional athletes have a secret weapon at their disposal, one that separates them from amateur athletes. It’s called sports visualization or guided imagery. Rather than using their bodies, they harness the power of the mind. By consciously visualizing images mentally, they can rehearse a skill or movement as well as control and ensure a particular outcome.

Take Michael Phelps, one of the greatest swimmers of all time. As part of Phelps’s training regimen, his coach Bob Bowman would instruct him to watch a mental videotape of his races before going to sleep and right after waking up in the morning. Phelps would visualize each and every aspect of a successful race, from start to finish. Bowman explains it in the following way:

“We figured it [imagery] was best to concentrate on these tiny moments of success and build them into mental triggers. […] It’s more like his habits had taken over. The actual race was just another step in a pattern that started earlier that day and was nothing but victories. Winning became a natural extension.”

Obviously, Phelps was blessed with a tremendous amount of natural talent, which he was able to maximize via a rigorous and well-structured training routine. But he also imagined victory and this mental imagery of success translated into actual success on race day.

Or, to put it another way, fake it until you make it. Imagine yourself as a calm and successful trader and eventually, with enough hard work, dedication and experience, you’ll become one. The first step to achieving anything in life is convincing yourself that you are capable of achieving it.

“The pursuit, even of the best things, ought to be calm and tranquil.” Cicero

Perhaps you’re saving for retirement. Or you have your eye on some real estate. You might even like trading just for the sake of it. Whatever you’re pursuing, whatever your long-term trading strategy or goals, you should have complete and utter control of your mental mindset. Cryptocurrency trading can be highly volatile. You can’t afford for your emotions to be just as volatile.

Over trading, impulsive trading, hastily jumping in and out of trading markets—allowing your trading strategy to be hijacked by your emotions is a sure-fire recipe for disaster.

The most successful fund managers ignore the noise, focusing instead on pursuing their long-term trading strategies with a steady hand. A more consistent approach, even if it’s a slower one, can be ideal as it almost always yields better results.

“Time is on my side, yes it is.” Mick Jagger

Right. You’ve got the message by this point. Slow and steady wins the race. Now raise your hand if you think that successful hedge fund managers or even your better-than-average crypto trader is sitting in front of a screen for hours on end engaged in day trading. I’m glad to say that I don’t see any hands because day trading is the hardest and the most stressful way to make money.

Cryptocurrency trading never stops, making it almost impossible for private traders to track market fluctuations, diversify risk, reduce error and ensure trading discipline 24 hours a day, 7 days a week, 365 days a year. Thankfully, the disruptive impact of fintech means that crypto traders like you and me are no longer limited to a handful of trading hours each day.

Trality’s automated crypto trading platform means that time really is on your side. Rather than having to be glued to your computer or only able to trade during waking hours, as was the case with traders in the not-so-distant past, you can now establish pre-set rules to open and close trades and then let the bot perform its automated magic around the clock. No more missed trades or the need to carry out repetitive tasks, which are time consuming and unpleasant.

Turbocharged trading with Trality’s crypto trading bots

Trading systems trace their roots as far back as 1949, when American Richard Donchian launched Futures, Inc., one of the first publicly held commodity funds, which used set rules to generate buy and sell signals. Today, as much as 80% of trading on the stock market is done via algorithmic-based automated programs, with successful hedge fund managers harnessing the power of technology in order to exceed their trading targets.

With Trality’s state-of-the-art tools, both beginners and more advanced retail traders are already benefiting from fast, secure and reliable automated crypto trading bots.

What are the advantages of using a trading bot?

It’s safe to say that the richest hedge fund managers on the annual Forbes 400 list all power their trading through state-of-the-art tech. And we already know that the big players on Wall Street have been using algorithmic trading tools for decades. It should be crystal clear by now that technology confers tremendous advantages to well-informed and cool-headed traders. We’ve even covered some of the benefits in another article: “Crypto trading bots: The ultimate beginner's guide.”  Below you’ll find some of the main points.

Emotionless trading

You’ll often read that more than 80% of private traders lose money due to a variety of factors. Trading volatile cryptocurrencies is emotional work and with emotions come errors in judgement. As much as 39% of manual trades are influenced by our emotional states, which can cause us to make irrational decisions. It’s simple human psychology.

Choose instead to be among the 20% of smart traders who make money by harnessing the power of trading bots to ensure a non-emotional, systematic approach to trading.

Higher trading speed

Time is money. And when it comes to speed, bots are simply faster: millions of computations and thousands of transactions across various time zones and markets almost instantaneously. Trades happen in a fraction of second – far faster than anything an individual trader can accomplish, which is one reason Wall Street has been using algorithmic trading for decades.

In the time it takes you to read this sentence, a trading bot could have made multiple profitable trades for you.

Backtesting and paper trading

Pilots learn to fly with flight simulators, and traders should be using market simulators when learning to trade for the exact same reasons. We learn by doing, but we don’t want to lose money (or crash an expensive plane) in the process. Even experienced traders can reap the benefits of trading simulators.

With trading bots, backtesting and paper trading allow you to harness the power of historical data to simulate the viability of a particular trading strategy or pricing model. The point is not to predict the future (after all, we’d all be rich by now), but to determine how well (or poorly) a particular trading strategy is likely to perform based on historical data. Armed with a reliable backtesting tool and an accurate set of data, you can explore new strategies, add expertise and build confidence before you’re ready to put your money on the line.

Risk diversification

If you’re looking for a get-rich scheme, then you’re better off heading to Vegas.

Trading bots are about minimizing risk by not putting all of your eggs in one basket. We all know that cryptocurrency markets can be highly volatile, which is why a prudent trading strategy should include risk diversification. One way to diversify your risk is to run multiple trading bots. And while a diversified portfolio is certainly not foolproof, it can balance risk and reward in order to reduce exposure to any one particular asset. Age-old advice that still rings true with cutting-edge technology like trading bots.

Consistent trading discipline

Learning a language, finishing a marathon, becoming a Zen master. They all require one thing: discipline. And trading is no different.

But discipline is difficult (how many Zen masters do you know?). By automating the trading process, however, bots ensure consistent trading discipline even in volatile markets when fear can lead you to sell or luck can cause you to buy. Because of pre-established trading rules, bots optimize long-term performance without the short-term costs of emotional human interventions.

Size doesn’t matter

Successful hedge fund managers know that trading small can be just as difficult as trading big. Until you can trade a small account successfully over a long period of time, you won’t be able to trade a larger account successfully. In fact, there is a body of research that suggests smaller funds might even be more advantageous: “small hedge funds outperform large hedge funds by 2.75 percent per year after adjusting for risk.” Whether big or small, don’t get caught up in a numbers game.

Here’s what really matters.

  • Keeping your emotions in check.

  • Trading with discipline and consistency.

  • Implementing a simple, yet highly effective trading strategy.

  • Automating your trading with crypto trading bots.

Upgrade your trading with Trality

At Trality, we believe that the most successful trader is an informed trader, which is why we spend so much time creating what we like to think of as thought-provoking and useful content for our readers.

“The most valuable commodity I know of is information.” Gordon Gekko

Remember that quote at the beginning of this article? It’s from Sun Tzu’s Art of War and I simply swapped one of his words (“warrior”) with one of my own (“trader”). In the same book, he also writes that “Opportunities multiply as they are seized.”

So what are you waiting for?

Whether you’re a casual trader, python guru or an absolute beginner, Trality offers the most comprehensive array of user-friendly tools to help you achieve your trading automation goals. With our easy-to-use UI/UX you can create algorithms, backtest and trade like a professional.