Continuing on...
Again, this is just not correct. One does not always expect or anticipate what a "90/10" trade will be. All your trades will be initiated with +EV expectation, and some of them will initiate with higher conviction than others. But you do not know in advance where the "monsters" will be.
A simple example: Short $AUDUSD. This looks like a good risk:reward trade. We are making good money on it so far. But how much profit will the trade generate for P&L at the end of the year?
We don't know, because we don't know how the scenarios will unfold. The RBA could initiate a surprise rate cut, or base metals could collapse at a faster rate than expected, and AUDUSD could turn into a huge trade. Multiple pyramid opportunities could set up along the way, making it the trade of the year.
Or, things could unfold a different way and it could wind up being a modest sized trade, with "ok" gains but nothing fantastic (as happened with short euro in 2011).
The point is, we don't know and this is a common case. The world has too many complex variables for traders to know beforehand how the full story of their convictions will unfold. It is not always clear -- and in fact frequently NOT clear -- which trades will reveal themselves as home runs and which will be singles, bunts etc.
Not how it works -- at least not for the discretionary global macro style that combines technicals and fundamentals, of which PTJ is a leading light. You focus on your best ideas, yes, but you don't necessarily know which ones will blossom from the start.
Again, read Grant... or Invisible Hands by Drobny, a series of anonymous interviews with top practitioners.
If I recall correctly "The Equity Trader," which I'm fairly certain is Steve Cohen, speaks further to this.
Yes! You started off correctly here... it's not quite "logically bet the same size for all trades," but it is "logically bet the same size for MOST trades" (relative to certain benchmarks and equity curve considerations having to do with the state of one's portfolio and the current market landscape - as always glossing over some important nuance for the sake of time).
So where does the "varying size massively" come from? It comes in as conviction develops.
This is exactly the point I have been trying to communicate all along. The great traders start small, wait for premium situations to develop, and then "vary their size massively" as a favorable scenario unfolds and the market tips its hand.
Think of a graph in which the Y axis is size and the X axis is certainty.
The idea is to start in the bottom left quadrant of the graph -- small size and low certainty. You often have to start here because, by the time you have a great deal of certainty, so do plenty of other market participants.
This is precisely where the skill of the great traders, and the value of this technique, comes into play. The great trader has excellent information and excellent intuitive skills, but he does NOT have some magic crystal ball that always tells him in advance what the biggest moves are going to be.
What he does have, is the ability to "vary size massively" as you put it, by dialing up from small exposure to large -- sometimes very quickly -- as his OWN certainty develops, thus moving from the lower left quadrant of the size / certainty graph to the upper right.
Great traders don't think this way at all, for all the above reasons stated.
You are always looking for the big trades and needle-moving themes -- but they come about by way of a powerful methodological process, not a decision to "only" go for the top 10%. If venture capitalists could "only" invest in the Facebooks of the world and movie studios could "only" produce the Avatars, I'm sure they would do it that way too.
Again, this is just not correct. One does not always expect or anticipate what a "90/10" trade will be. All your trades will be initiated with +EV expectation, and some of them will initiate with higher conviction than others. But you do not know in advance where the "monsters" will be.
A simple example: Short $AUDUSD. This looks like a good risk:reward trade. We are making good money on it so far. But how much profit will the trade generate for P&L at the end of the year?
We don't know, because we don't know how the scenarios will unfold. The RBA could initiate a surprise rate cut, or base metals could collapse at a faster rate than expected, and AUDUSD could turn into a huge trade. Multiple pyramid opportunities could set up along the way, making it the trade of the year.
Or, things could unfold a different way and it could wind up being a modest sized trade, with "ok" gains but nothing fantastic (as happened with short euro in 2011).
The point is, we don't know and this is a common case. The world has too many complex variables for traders to know beforehand how the full story of their convictions will unfold. It is not always clear -- and in fact frequently NOT clear -- which trades will reveal themselves as home runs and which will be singles, bunts etc.
Not how it works -- at least not for the discretionary global macro style that combines technicals and fundamentals, of which PTJ is a leading light. You focus on your best ideas, yes, but you don't necessarily know which ones will blossom from the start.
Again, read Grant... or Invisible Hands by Drobny, a series of anonymous interviews with top practitioners.
If I recall correctly "The Equity Trader," which I'm fairly certain is Steve Cohen, speaks further to this.
Yes! You started off correctly here... it's not quite "logically bet the same size for all trades," but it is "logically bet the same size for MOST trades" (relative to certain benchmarks and equity curve considerations having to do with the state of one's portfolio and the current market landscape - as always glossing over some important nuance for the sake of time).
So where does the "varying size massively" come from? It comes in as conviction develops.
This is exactly the point I have been trying to communicate all along. The great traders start small, wait for premium situations to develop, and then "vary their size massively" as a favorable scenario unfolds and the market tips its hand.
Think of a graph in which the Y axis is size and the X axis is certainty.
The idea is to start in the bottom left quadrant of the graph -- small size and low certainty. You often have to start here because, by the time you have a great deal of certainty, so do plenty of other market participants.
This is precisely where the skill of the great traders, and the value of this technique, comes into play. The great trader has excellent information and excellent intuitive skills, but he does NOT have some magic crystal ball that always tells him in advance what the biggest moves are going to be.
What he does have, is the ability to "vary size massively" as you put it, by dialing up from small exposure to large -- sometimes very quickly -- as his OWN certainty develops, thus moving from the lower left quadrant of the size / certainty graph to the upper right.
Great traders don't think this way at all, for all the above reasons stated.
You are always looking for the big trades and needle-moving themes -- but they come about by way of a powerful methodological process, not a decision to "only" go for the top 10%. If venture capitalists could "only" invest in the Facebooks of the world and movie studios could "only" produce the Avatars, I'm sure they would do it that way too.