macrocephalopod

I’ve mostly run big quant portfolios for institutions so a lot of what I say is not relevant for independent traders (in particular risk target often dictated by the mandate, decision whether to add/withdraw at hwm or in a drawdown is not mine etc) but I can try.https://twitter.com/goodalexander/status/1461381646683361294 …

A lot depends on your time horizon. With long hold periods stuff like correlations, market neutrality, factor/sensitivity exposures matters a lot. This applies to long/short equity books, options portfolios, swaps books … anything where you hold for weeks/months.

For fast trading (hold < 1 day) that stuff matters less because you get diversification from the number of bets through time, rather than diversification from making cross-sectionally independent bets.

With very fast strategies where you are in/out multiple times per day you might literally treat every market as independent, perhaps keeping an eye on overall delta and hedging it with something cheap.

I try not to make any of my decisions contingent on whether I am in drawdown or at hwm. I don’t believe that’s informative for how the strat will perform in the future. The one exception is that if you lose/make a lot of money quickly it *may* be a sign that one of your

assumptions is wrong and you should revisit everything, and it *may* be prudent to cut risk while you do that.

On trade sizing I think sizes should be proportional to confidence and inversely proportional to risk. That assumes you can meaningfully distinguish confidence levels! If not then equal weight or risk-parity weight is better than overthinking it.