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Trade Like a Hedge Fund, by James Altucher

November 28th, 2008
Trade Like a Hedge Fund James Altucher

Trade Like a Hedge Fund James Altucher

Buy From Amazon:
Trade Like a Hedge Fund: 20 Successful Uncorrelated Strategies & Techniques to Winning Profits
by James Altucher
Published in 2004

Key Takeaways
In this post I summarize what I believe are the key takeaways of the book. If you like what you see, I encourage you to buy the book.  The book is a technicians guide with several different systems for buying low, selling high.  Mr. Altucher primarily employs counter trend strategies.  The book illustrates how a professional hedge fund manager thinks about the markets to take advantage of irrational ‘breakouts’ and ‘breakdowns’.  There is a lot of data, but the book is not overly technical in any respect.  The book has some great ideas to take with you when you trade, but I wouldn’t follow them blindly.  For example, I felt his stance on risk management was a little weak, often suggesting you should hold on to losing positions longer than I think wise.

Page 15 – Swing Trading the Gap

  1. Buy a stock when the stock is down the day before, AND your chosen reference index (e.g. S&P500 or Nasdaq) is gapping down more than 0.5 percent, AND the stock is gapping down more than 5 percent
  2. Hold the stock at least until the next morning
  3. Sell the stock when the stock goes lower than the prior day’s close.  Not to be confusing, note, this means you could hold the stock for several days, as long as it keeps opening higher each successive day.
  4. Cut any loss at 3 percent

Example:
Stock CIEN closed at 51.51 on April 16, 2001  The next day, April 17, 2001, it gapped down to 48.11 when we bought it.  It then reversed that same day and closed at 53.09.  The stock then gapped up on April 18, 2001 and kept gapping up at the open for two ore days before finally stalling on April 20, 2001.  Since it opened that day lower than the close the day before at 67.30, the trade was stopped out at the open at 67.09 for a 38.22 percent profit.

CIEN 4-17-011

CIEN 4-17-011

Basically, this is saying buy a stock when the stock AND the market are oversold.  At the very least, down the day before, then gapping down sharply the next day.  Then sell it when the stock starts to stall.  Obviously this strategy doesn’t work every time.  But his book shows that executing this trade 500 times on NASDAQ stocks (using a bit of leverage) during 2001 yielded 373 percent annual return.

(be sure to scroll through the additional pages below)

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