Going long-only
As I mentioned in previous posts, I have been involved in proprietary trading from a young age, both professionally and personally. My journey began in the early 90s when I secured my first job in investment banking, largely thanks to the trades I documented during my undergraduate years at the London School of Economics. I recall those times fondly—no mobile phones, real conversations, and a reliance on quirky, strange smelling telephone booths for trading between lectures.
My trading methods have always been discretionary, with some flexible rules. However, during periods of emotional vulnerability, such as the one I am currently experiencing, discretionary trading becomes problematic. The emotions associated with it can lead to a deteriorating equity curve. Therefore, I have transitioned to systems trading.
My long-only equity system is housed within a well-funded tax wrapper. It's long-only not just due to regulatory constraints on shorting within tax wrappers, but because shorting is inherently less tradeable. The system begins with a fundamental analysis filter. After years as a fundamental analyst in the City of London, I can easily identify stocks with a higher-than-average chance of success. Coding these criteria and running the scan takes minutes, though developing the knowledge to know what to look for took years. By hard coding these criteria, I eliminate discretion.
The secondary filter focuses on market situational awareness, specifically the interactions of ETFs such as $IWM, $QQQ, and $SPY. This filter is also hard coded for specific technical characteristics, requiring no discretion.
In addition to being a qualified fundamental analyst, I am a certified technical analyst. When I received my Diploma in Technical Analysis with distinction, I realised that much of what I learned was unnecessary for effective trading. Many traders suffer from "indicatoritis," an overreliance on numerous indicators. In my experience, simplicity is best.
With strong equity fundamentals and detailed market situational awareness, I have developed and backtested a robust long-only system. Each stock receives just 5% of the current account value, which might appear sub-optimal for short-term systems, but is designed to capitalise on long-term outliers. My systematic trade management and adaptive trailers aim to capture these statistical outliers.
In essence, I have built a robust system that minimises losses during unfavourable markets and excels in favourable ones. Importantly, everything is hard coded and computer-generated, eliminating the need for any discretionary decisions.