Hedge fund returns… Can You Beat Them?

Hedge fund

Hedge fund returns seem to be dwindling… your return on investment from most hedge funds available are far from appealing. Investing in the S&P beats most hedge fund managers.

Return on Investment

It’s funny that over the years of trading how my views on profit and expectation has changed.

If someone said to me that I could earn 10% ROI when I first started getting interested in trading I’d of likely asked if that was a day or a week. 

But that is the mentality of the new trader. Speed of profits is how a strategy or a system is judged.

It’s not hard to be a successful investor

What is surprising is that if I bought one single stock and held the position for a year (if it was successful and trending in the right direction) a mere 10% return means I’ve just beaten most hedge fund managers. That’s a frightening statistic… although somewhat amusing.

Of course I could buy a stock and lose money, but that could be cut quickly and then I’d look for another stock and another until I was profitable. That is trading. 

A balanced portfolio of 10 stocks that I’m happy to trade over 10 years is more likely to return better profits than most hedge funds. Amazing… so why bother with hedge funds at all?

Well according to this article, the days of hedge fund managers are coming to an end. And it’s understandable.

If you look at this chart you will see that a simple buy and hold strategy on the SP500 has been continually more profitable than the average hedge fund. So without any sort of technical or fundamental analysis you could trade the SP and beat every last breath of BS from your hedge fund manager.

Hedge Fund Returns

Hedge funds sp

So why do people, [and apparently these are smart people] keep investing in hedge funds? It’s normally a minimum of £1 million to get in on a hedge fund, will cost you 2% in fees and a further 20% on any profits made and also comes with restrictions as to when you can withdraw your funds.

I love this explanation from Warren Buffet

Hedge-Fund-Complexity “Most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?”

It’s funny but probably true, being involved in the secret society of wealthy investors that only few are privy to seems to be as good as any reason. It’s like buying a rolex when a Casio does the exact same thing… tells you the time.

The reality of investing

So it seems more than obvious that in today’s markets you are far more likely to make decent returns from your investments by trading your own funds.

If you were making 10% a year from your own investments and in the knowledge that you were likely to beat most returns that professional hedge fund managers can offer you why should you avoid the opportunity? And you’d certainly be beating the returns that your banks interest rate can offer you.

If you haven’t read the book “The Richest Man in Babylon” then you should. If you consider the teachings of the book it will become clear that it is probably one of if not the the earliest books about trading for a living.

Think about these simple investment principles that the book offers

  • Start thy purse to fattening
  • Control thy expenditures
  • Make thy gold multiple
  • Guard thy treasures from loss
  • Make of thy dwelling a profitable investment
  • Insure a future income
  • Increase thy ability to earn

The book also clearly demonstrates that you should not trust others with your gold to invest wisely for you.

As simple as it might be, if professional hedge fund managers read this book applied it’s teachings and invested once again in the S&P 500 instead of choosing their own stocks, they’ll  be likely to have far happier clients who are also far richer.

As for us smaller traders, keeping it simple with realistic returns in mind will be a surer route to success than the delusions of grandeur that any investment specialist is likely to offer us.

Don’t doubt your ability to invest wisely… most will have you believe that trading the markets is a mystery that only a few ever solve. it’s for that reason you’re better of giving your capital away for someone else to invest for you.

The fact is that It’s not the case at all.

It makes me wonder if people that invest in hedge funds need someone to blame when and if everything goes belly up? The chance of making less money from invested funds with someone else is OK as long as they have someone to blame if it sours. That’s fear of failure is it not?

Having a basic strategy that you trust and following the signals is one of the easiest ways to profit from the markets.

Personally I have found that I make more money and better decisions when I do not take any notice of the noise and news.

Doing so can start you off on the road to trading this, that and everything in the middle for a day, week, or minute. All sensible trading strategy’s seem to vanish. Outside speculators are usually only as good as you can be (if that)

Look at this chart of Apple, you could have made profits, and good profits at that by just trading above and below the 200 day SMA.

Apple Chart

So if you’ve got a spare million quid to boot it maybe a better idea to invest it yourself than trust a hedge fund manager. After all you managed to make the £1000000 in the first place… you’ll probably look after it far better.

Buy Gold after Brexit

buy gold

Looking at the markets I had wondered where the first opportunity might arise? Or shall I say where a clear opportunity was going to arise.

I had been keeping a casual eye on gold in my watchlist since the beginning of the year when Vince mentioned it here.

It looks good and Vince clarified my speculation again today and said that he can see this making$1500 by the year end.

An interesting quote from the Telegraph read ‘Buy Gold’ Searches Soar after Britain vote out.

If You Buy Gold and Why will it rise?

Well every man, woman and dog is looking for safety… Understandably and rightly so.  And with the uncertainty of the US election still to come plus the Spanish election the markets may well be choppy for some time to come so gold is getting the nod. As they say, in times of uncertainty buy gold.

So with gold reaching 2 year highs and the planet looking for a safe haven, you won’t go far wrong holding gold. You can of course spread bet it as I have done today.

Wow we’re out of Europe

out of Europe

I can’t believe that we are out of Europe.

It’s a big step, but I’m happy that it is a result that the British people have decided on together… even though it was very close.

Vince Stanzione was on CNBC yesterday and even he seemed sure that the UK was going to stay in the EU.

Out of Europe

I absolutely did not expect us to leave. I didn’t think the UK was in a bad position at all.

However, I’m excited to see how the exit will bring the british closer together as a country.

As a trader I’m glad that I was out of most of my positions since May. I can now reevaluate and decide on what trades to take next over the course of the summer.

I’ve managed to snatch a few points here and there over the last couple of weeks, mainly due to silver’s  gains today. Phew.

Although my stakes have been small I have found all the uncertainty in the markets stressful, especially as I have been trying to solve the day trading mystery during this period.

I will however get back to that challenge again once the markets become less volatile.

Trading Opportunities

For anyone that has been on the fence about trading, now is the time to start learning.

As the world get’s used to the UK being out of Europe,  opportunities will present themselves. So start now by learning to paddle and you’ll be ready for October when the big waves come again.

Of course there are opportunities today, but I’m taking a back seat. You may decide otherwise.

I have no definite views on where the UK will go from here or how we will adjust, other than the fact that we will.

Things may be rocky briefly and over the short term but I feel it is now time to make this decision work for the British people. I’m sure it will.

One thing is for sure though and that is that holidays may prove pricey this year with the GBP weakened… so let’s hope for a good summer.

Also the post I had been writing this week will have to be finished for this coming week. As telling you all about hedge funds doesn’t seem to fit quite right today.

 

Everything you need to know about the Brexit

It’s amazing how many people seem more interested about the Brexit than they ever do about the general election.

Even in the gym last night people were holding court on should we stay or go… Everyone has an opinion on it. Mine is stay, not forever but I don’t think it’s the right time now. That’s my opinion, right or wrong.

But why stay in the EU? Why leave the EU?

Stay in the EU

If the polls are anything to go by we are very equally divided in the debate. The main reasons for staying in the EU are sensible, or at least to those of us that are actually leaning that way. As of today 16th June 2016 this is how it’s looking.

Brexit poll

But all of this means nothing until until it’s over right? Until the fat man sings.

I just can’t and won’t believe all that the papers are saying. Although I do feel that the polls are close, how many times have we seen these polls prove inaccurate come D-Day?

Brexit Leave the EU

It looks like we could be heading out of the EU according the this most recent of polls… but why are so many brits wanting out? Whilst there are obviously many individual reasons that these British folk feel that we should leave the EU, to me it seems that many are basing their decision or vote on the strength of controlling immigration.

Out of the EU

This might be true… Eventually… and I can understand the logic behind this ideal. But it is not going to solve the problem with illegal immigrants outright. Nor is it going to deal with the illegals that are already here.

But can you really trust what Boris J has got to say?

This is serious business for all of us concerned but I find he mocks the realistic outcome.

That is my opinion, anyone for the Brexit will probably disagree.

If everyone is really in a panic over leaving the EU is it really likely to happen?

 

As I have already said and explained, these are just my views. Whatever happens on the 23rd June 2016 will affect all of us one way or another.

As a trader though how can you profit from the Brexit?

Well, I shorted the Euro, Swiss Franc

Sell Euro

And also recently bought Silver, which was one of Vince’s recommendations.

Buy Silver

 

Obviously there are many ways to profit from the brexit, even if only trading the Volatility Index.

Nothing in set in stone though and the markets are volatile at the moment, so trade small stakes or use binary.com

Let your profits run… or not?

Let your profits run

Since hammering away at trying to get a day trading system to work I have noticed that the let your profits run strategy may not be an option on the short term.

Trading over a day or even a week is a really tight zone.

Let Your Profits Run

Whilst I have been practising [with real funds] I have noticed that trying to let your profits run might be futile.

One trade that I let run on a currency pair made almost 90 points [I was using a £1 point stake] profit over a couple of hours but by the time I had traded out using signals I only took £38 profits.

In hindsight, if I had set a target profit I could have taken a profit sooner without further risk.

The problem with letting your profits run when day trading is that you run the risk of sharp retracements that can annihilate all those hard fought for points that you have made far quicker than you gained them.

So it got me thinking that maybe it is a better idea to set a stop loss at say 10 points and then set a profit target of 30 points?

The issue is again with the time frames… Trading short term is just savage when compared to that of the long.

Binary trading

Alternatively it might be a better idea to use fixed odds on binary. As you can spot a movement on the charts and then incorporate to binary. This may well be the road to take.

Overall though I have been enjoying the challenge of finding something that works over the short term time frame; even though it’s tough going.

I still believe it is doable though, but I want to create something that is easy enough to do blindfold, so that anyone that can work a pc can get involved with opportunity if interested.

That’s the real challenge, making a system that easy.

I have read every last piece I can on day trading, yet there a no systems that have been presented that clearly.

For now, think about whether as a trader you’d like to take profits sooner for less than may be possible… or just let the profits run? Or maybe fixed odds are better for everyone? I’ll keep at this though and keep you posted.

Another point to take serious note of at the moment is that the markets are extremely volatile. The brexit situation is affecting price movements and some trades seem a bit of a lottery. This could be clouding and masking any form of true/regular results.

Chill out and wait it out

You might be better off chilling out at home for a few weeks until some sort of normality returns and leave the trading altogether… take up yoga or treat yourself to some spa goodies to relive the stress. These body brushes might help the tension???

Beginners Swing Trading Strategy

Swing trading can be a profitable way to trade the markets on a shorter time frame, when compared to [my] normal style of trend trading that is longer term. Swing trading can keep you busier in the markets if that is your style. A swing trading strategy can last minutes a few days and occasionally weeks but not much more

What is a swing trading strategy?

Swing trading can be explained by when you are trading the price retracements of various levels of support and/or resistance. The support and resistance are commonly lines that you will draw or rebounds off of moving averages that you are using.

The swings can be happening over minutes hours and days. Swing traders rarely look further ahead than these periods.

If you look at this chart you can see that the German DAX has given us many opportunities to be in and out the market swing trading.

Beginners Swing Trading Strategy

 

How do I Swing Trade

Swing trading is relatively easy to get started and can be made more profitable by have predefined entry and exit points that you adhere to religiously. In fact, it is these predefined points that swing trading relies on.

Swing trade example

In this simple swing trade example we can see that I have drawn support and resistance lines in blue.

I have drawn these lines at the lowest lows and highest highs on this 10 minute chart of the DAX

I am speculating that from these lines that the price will rebound and the price will revert. These lines are therefore called support lines. They are supporting the price from moving further down.

I am therefore speculating that the price is likely to retract from this line once reached.

If the price was to breakthrough either of these support or resistance lines this signifies a price breakout.

If we have a price breakout in either direction then what was the support line will become our new resistance line. So what was our resistance line will become our new support line.

When do I enter a Swing Trade

It’s hard with any trading system or strategy to enter the trade at the optimum moment so it is my advice to you that you shouldn’t sweat this too much.

Using our charts from above, a good entry point will be the second candle in the appropriate direction after the retracement from the support or resistance lines.

Swing trade DAX entry points

 

This second candle is a good sign that the price has indeed rebounded.

Also, using this approach of the second candle also gives you the exit point of your previous trade.

This analysis will never be 100% right but it will provide you with more winning than losing trades.

 

An interesting point to note is that on the above chart, many of the entry points come after a candle that looks like this. This is what is called a doji candle. It is used by many traders to signal a trend reversal.

doji candle

Another Swing Trade Variation

Support and resistance line do not just have to be horizontal. Many support and resistance lines can be drawn diagonally when there is a smoother trend.

Swing trading is adapting to the current conditions of your chosen market.   

Any market at any given time has the ability to change. As they are driven by human emotion this is understandable.

Drawing support and resistance lines

When you are going to try swing trading you can easily add support and resistance lines to charts using then draw line feature.

To draw support or resistance line you simply draw a straight line from the last high to the next highest high or from the last low to the next lowest low. I prefer to use at least 2 points [red lines] where the price has retracted to draw lines as this will signify stronger support or resistance.

Drawing support Resistance lines

 

Trading sideways

You can’t really swing trade when the price is going sideways on a 1 minute chart, or 10, 15 minutes. The price range is often far to narrow. Therefore trying to cut a profit is far more difficult.

Although if you look at this 4 hour chart you can see that trading a sideways market can offer many a profitable opportunity over the course of a few days.

Swing Trading reversal sideways market.

The next factor to making swing trading profitable is to manage risk. This is done by cutting your losses.

Cutting your losses

If you have been reading my blog for any time you’ll know that it is cutting your losses quick that contributes to winning more than you lose on any given trading time frame.

When cutting your losses day trading you need to be a lot quicker than when trading the longer term trend. Long term trend trading is far more forgiving to price fluctuations than day swing trading.

If you are trading the swing longer than a day then there is a little more give when cutting any losses.

Using our chart again, you might trade out and take a loss should the price go past and close beyond either the support or resistance lines after opening a trade on the second candle.

So if you opened a trade on the second candle after retracement but the price reversed and break out past your support or resistance line you close out for a small loss.

Swing trade DAX exit points

You can see from the above image that sometimes you’ll find you trade out only to see the price come back under/over your lines.

It’s annoying but that is just how it goes. It happens to everyone and does not mean the markets are out to get you personally, or that the strategy you are using for the first time is crap.

The point is that you do not want to be holding on to a trade should the price move to a full blown breakout… Ouch.

You can see from the chart beneath that the trend was up and reaches resistance. It then retracts slightly before breaking the resistance line only to retract again and start a swing reversal.

Other swing trading indicators

There are many other indicators that you can use to identify price movements. Some are very basic and easy to implement. Others can be ridiculously confusing and to me they seem unnecessarily so.

For me personally you can’t beat a good old Simple Moving Average or SMA. I’m probably leaning towards these as I have been using them since I started trading, but you cannot deny their accuracy.

Others that I have found that can lend some confirmation to entry points and/or trend direction are the Stochastic Oscillator and the MACD.

I find all these other indicators secondary to SMA’s but as said they can help a bit and have a place.

Swing Trading other indicators

Chart styles to use

The best charts to use swing trading are candles. They can give you a clear view of the market in the blink of an eye. You can see that all the charts on this page use candles.

swing trading candles

Using candles will help you understand how the market moves in a simple and accurate way.

You can take the candle chart one step further and use Heikin-Ashi bars instead of the standard candles. These candles are used to smooth out the trend and make trends more visible.

This is a 1 minute chart of the EURGBP using the Heikin-Ashi Candles.

Heikin-ashi swing chart

You can see how the trends are more consistent and regular. These Heikin-Ashi charts are very useful for trading short time frames. You can read more about Heikin-Ashi charts here 

This is the same chart using standard candles.

Candle chart swing

Maximising profits and Cutting your losses

Swing trading off of support and resistance lines or moving averages has the added benefit of giving clear entry and exit points. This process is often referred to as being mechanical.

Having mechanical entry and more importantly exit points can help with emotional trading.

In essence the emotion is taken out of having to exit a losing position as you simply do what the signals tell you to do.

This is easy to do on paper, but is one area new traders seem to suffer with the most. However if you start off with this disciplined approach and learn to trust the signals that you are given you will be far more likely to become a successful trader.

How much to trade and trading banks

If you are swing trading any of the forex markets, at many of the spread betting companies you can start trading from 0.10p. [even less at some] This is great for newbie traders.

So realistically you could open an account with £100 and be trading the foreign exchange within a few minutes.

As always, remember bank preservation is a key point in trading and you should not risk any more [margin] than 5% liability of your total bank size. Far better in fact to limit yourself to 2% or even 1% until familiar.

Remember it is compounding your profits over time that will make you money. It is not all about starting with the biggest bank that you can or can’t afford.

So to recap

  • Swing trading is trading the short term price retracements
  • You can swing trade by drawing support and resistance lines
  • It’s easy to draw support and resistance lines
  • You can use moving averages when swing trading
  • Use Heikin-Ashi candle charts when swing trading
  • Cut your losses quickly when swing trading

 

Is Profitable Day trading impossible

I’d like to explain with images how I felt first thing on Monday morning.

After deciding [a couple of weeks ago] to find a way to make daily profits from financial spread betting I set out to do so in earnest on Monday Morning.

I set aside 3-5 hours a day to trade as my partner has holiday time so can be with our daughter. I have normally been trying to trade from the morning at 9.00 am.

This is how I felt at the start of the week.

positive attitude

 

 

 

 

 

 

 

Fresh, crisp and healthy, I was sharp and ready to crack the code of the day traders. Brimming with confidence and an unquenchable thirst to succeed…

This is how I felt on Friday morning.

negative attitude

Well past my sell by date… battered and bruised from the continuous kicking the markets had been delivering.

At one stage during my frustration in trying to find a winning day trading system I was actually close to punching one of my monitors… no seriously I was.

Trying to day trade has been stressful and then some.

It was like regressing. Everything I have learnt and knew was put to the sword. At one stage I’m sure I started losing my hair.

If I bought, the price went down, if I sold, the price went up. If I tried to immediately follow the reversing trend the price went sideways and then in the opposite direction.

If I saw a pattern it turned out to be an illusion. Somehow trends existed but not when I traded.

I’m supposed to be good at this I thought?

Profitable Day Trading

And then… I had a breakthrough. I started trading 10 minute charts and things became a bit easier. The trends seemed clearer and all of a sudden I started to slowly but surely make a few points profit.

I was trading the DAX, nice and steady the trade had been. Then this happened.

Profitable day trading

From out of nowhere the price crashes 40 points.

I now feel like this…

Apple beaten

The markets have eaten into my very core. I’m gutted, but why so gutted? I know from everything that Vince Stanzione has taught me that day trading is seriously hard and stressful work.

Truth is that I thought with my success at trading the longer term trends that I was going to be able to do this day trading just as easily… I’m not though, that much is clear.

This little exercise so far has cost me £100, OK that’s chicken feed maybe, but the savage fact is that it is actually 10% of the trading bank I am willing to lose testing this out. 10% loss in a week is ahhhhhhh! That’s what has alarmed me more than anything.

 

Learning Curve

Have I learnt anything so far? Well yes… but it’s all jumbled up at the moment.

I think it is doable[to profit from day trading] but I need to really try and get to the heart of this.

As I have said I have seen trends but as small time frame trading is so volatile I just have not found the edge that other day traders must have found and are using.

In the last 3 weeks I have read and read anything and everything I can about day trading. But nothing is simple and mechanical. To make day trading pay, it is this simple approach and system that I am looking for.

So far these are my assumptions on Day Trading

  • A profitable day trading system is possible
  • It needs to be mechanical
  • It needs to use guaranteed stop loss orders
  • The bar charts used can be from 1 minute to 1 hour
  • The trends seem to last from 10-40 minutes on 1 minute candles
  • The trends can last all day using 10 minute candles and up.
  • It can be easier to day trade using heikin-ashi charts

Obviously this is my first week trying this out, but I’ll keep you updated with my results and findings.

If you are going to try this type of short term day trading though start small as possible and use stops. This should help [will help] with bank preservation and that’s key.

I shall spend some more time over the weekend studying and reading… If there’s a way to day trade I’m going to find it.

Until then, you just can’t beat long term trend trading.