Path to Starting a Hedge Fund

Authored by: Certified Equity Research Professional - Research AssociateCertified Equity Research Pro

iOxiris

Senior Chimp

PT

9mo

I developed three strategies for futures trading, mostly based on order flow and price action. For example, one of my strategies is to buy/sell pullbacks on the 1 minute chart after economic data release, which has a high chance of working out and great risk to reward. Another strategy I have involves using the VIX. For example, if the Nasdaq and S&P futures are selling off, but VIX is also weak (typically VIX futures should move somewhat inversely) then that suggests the market is likely to bounce. Using that context, I’ll typically try to buy in places where I know other people are getting short/stopping out of longs (ex. break of previous low or key level) as a reversal from this level will have shorts stopping out and adding to the move.

greyarea23

Senior Orangutan

PE

9mo

Groundbreaking stuff lol

Authored by: Certified Private Equity Professional - Vice PresidentCertified Private Equity Pro

mtnmaster1

Almost Human

AM

9mo

Most Helpful

As a fundamental guy I don't know a ton here but can share my perspective - someone else can correct if wrong. My impression is that not many strategies out there are purely discretionary based technical trading. There is either a bit more fundamental / global macro / arbitrage / relative value / capital markets / market making knowledge in there, or it is more momentum / quant based processes. So the background you need starts to fall more so under the camp of teams that have a little fundamental training working in market making with some prop positions on the right products in S&T, or its the more momentum + quant based strategies and CTAs (which requires a more extensive math background - although both sides are requiring more and more math and stats capabilities for data manipulation and analysis anyways). I would focus on learning the processes behind different funds and strategies that already exist out there today, as it will help you to understand what kind of strategy resonates with you the most and what path fits that mold the best + what you still need to spend time learning.

The problem is if it is purely technical, the real work is in proving why this is repeatable and scalable, quantifying the riskiness of it, etc. - so that is the quanty and momentum CTAs path. And if not proven out by quant models and it is more discretionary, funds will want to see a more experienced knowledge rooted in fundamentals, + the ability to assess market depth and structures, which you can get from different trading desks - but it generally tends to be more fundamental based knowledge and analysis in the process than just being a straight technical strategy.

Or maybe there is a different group all together of prop shops that allow for this, but I'm not up to speed on those. To start a fund or run any strategy, you will need to demonstrate specifically why the strategy is successful, repeatable, and scalable, as well as what the risks are, etc. Pure discretionary technical tends to not fit that model well, but maybe I am ignorant of some teams at that multi-strats who do it well. I don't think so, but ya never know! I think the last one I read about that was sort of similar was the index arbitrage teams, but even that is a little different from your strategy as it it is more rooted in fundamentals, and I think they all stopped being so profitable as everyone caught on lol.