Tom Basso: RM: How to Build a Trend Following System - PursuitOfEdge/podcasts GitHub Wiki

https://www.youtube.com/watch?v=7v6DQ4qyYIo&t=1304&ab_channel=RichardMoglen

  • started out as a Chem E. at Clarkson, ran investment club at school
  • just started managing money as a college kid?
  • thought going long in a bull market, then going to cash in a bear market was too 1D and didn't like that
  • 1973-1974 the stock market went down -50% and volume dried up to 10m shares (they are about 200m today)
  • mostly does futures and FX, known mostly as an FX trader, retired 2004
    1. says people obsess over the buy/sell trigger, but they should focus more on position size
    1. being undercapitalized
  • "the leverage that you take leads you to the size of your positions"
  • it's a good trading day as long as you followed your process
  • used to drink a couple pots a day of coffee and be on edge and stress himself out, but realized you can't last that long, you'll burn out
  • was inspired by Larry Hite - "every trade we take we're trying to take the same bet size"
  • not the same dollar size, but as a percent of available capital, did everything by percent of equity, which handles volatility by itself
  • in futures he did it by dollars of margin just cause futures has weird cases
  • put on at least 1000 trades before you start to worry
  • always be trying to attack and fight the risk
  • doesn't like how when he was long only, he knew about the risk e.g. a -50% down market, so he had to do something about it and trade short or else it would've drove him nuts
  • "i set up indicators based on an inventory of myself"
  • the keys to success are: good principles, process, risk management
  • "it's just about getting your indicators to buy low, sell high"
  • stopped caring about fundamentals and just focuses on price
  • "only price pays" "earnings, good or bad, don't really cause risk"
  • says the core of profits is just a big trend
  • recommends Laurens Bensdorp "filling the hole"
  • Jack Schwager "degrees of restriction"
  • 10 MA > 50 MA => buy, other way you sell (2 degrees)
  • "you will pick up every major up swing in the stock market in all of history, and you will get out of every major debacle eventually after taking a hit" - so there is robustness / a lack of restriction
  • likes Keltner Channels: 21 EMA, 21 ATR, 2.0 multiplier - we have a moving average that goes with the trend and volatility adjusted, expanding volatility = stops further away, quiet volatility = stops closer
  • return to risk is the most important metric (Sortino Ratio and MAR ratio)
  • thinks Sharpe Ratio is ridiculous and bad because we don't care about upside volatility, it's always good
  • a lot of the traders in Market Wizards aren't around anymore, they burnt out. you gotta design for yourself