What systems do many large hedge funds trade? Many of the hedge funds trade using the low win rate, high risk reward system. Part of the reason is that they don’t know how to capture the better trades. But the bigger reason is that they are trading with much bigger positions to the tune of hundreds of millions and billions of dollars, thus the type of trading system that can accommodate such liquidity constraints and still generate a decent amount of signals is the low win rate, high risk reward system.
Frequency of Trades
I have trading systems for all of the above. They are all highly discretionary but still are systems nonetheless.
You need to realize the frequency of the trades to be expected.
The trading system that fires off the most signals is the: Low Win Rate, High Risk Reward System.
The trading system that fires off an average amount of signals is the: High Winrate, Low Risk Reward System
The trading system that fires off the least amount of signals is the: High Winrate, High Risk Reward System.
It makes sense right? The system that fires off the most signals is the one with the lowest profit potential. The system that fires off the average amount of signals is the more profitable trading system. And finally the system that fires off the least amount of signals is the most profitable one.
I trade the low winrate, high risk reward systems and they keep me occupied and busy while I await for the chance to go for the jugular on the high winrate system trades. That is my trading philosophy.
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