Solo trading is a different game to professional trading
Ex-prop trader on why solo trading is a different game, and how to win with real edges & portfolios of noisy strategies
Rather than writing an article along with this pod, I think the relevant piece to refer you to is the series I’m currently writing called ‘The Part Time Trader’ because I think it tackles one of the main issues I discussed with Kris in this interview: specifically, how to build a trading business as a solo trader.
I really enjoyed chatting with Kris Longmore from Robot Wealth I have to say, a ‘down to earth’ Aussie with all the right experience. He’s on Substack, so I highly recommend checking out his articles.
I have no doubt that if you listen carefully to this conversation I had with Kris, you’ll pick up a load of great ideas and insights. We covered a lot of ground, and all of it was very productive & extremely insightful!
Here are a few of the highlights, including a peek into the member bonus content (there is bonus content for each podcast in the Collective).
Origins and the prop-firm years
- “What’s your edge?”: the question from a pro trader that ended his aimless data-mining phase
- What transfers from prop to solo trading: the research culture of trying to kill every idea, not the strategies
The solo trader’s game
- Solo trading is not professional trading; it is a game of game selection
- Know your constraints and work within them
- Keeping your job is not a failure metric: withdrawals are an “infinitely negative Sharpe” drag on compounding
- Real trading psychology is the discipline to run boring processes and grind out noisy edges
- Two ways to get paid: hold risk others want to offload, or provide liquidity to price-insensitive flow
- Tie every strategy to a mechanism; know exactly why you get paid
Building the portfolio
- The pyramid: risk premia as the foundation, flow and seasonality trades layered on top
- Realistic single-edge Sharpe ratios of 0.7–1.5; a portfolio of noisy strategies is the path
- Breadth before polish: the fundamental law of active management says add strategies, don’t over-refine early ones
- Five to seven edges is practical; systematic trading is the only way to run them
Strategy ideas discussed
- SPY/TLT month-end rebalance trade
- Bond end-of-month effect (and its 18-month drawdown)
- Equity stat arb: condensing a pairs universe into a long/short book of mispriced legs
- Long volatility into earnings
- The DeFi stale-quote era in crypto, and how quickly such edges vanish
- Cheap out-of-the-money puts as a “don’t lose the house” hedge
Tools and process
- Don’t hunt for unique alpha; test well-documented ideas yourself
- Automate what you need to, not what you can
- Don’t build infrastructure before you’ve proven you need it
- Back-tests explore implementation trade-offs; they are not research
- Machine learning is a tool, not an edge
- The four hats: scientist, engineer, architect and operator. The solo trader has to wear them all – hence trading needs to be understood as running a business.
Members’ bonus segment
- Why holding out data is “a waste of data”, and why data-mining bias corrections can’t save you
- The three research questions: why would this pay me, what should I see in the data, and where else should it appear?
- Do the science first; the rules present themselves
- Markets don’t care about your goals: start with the edge, not a target strategy type
- A slam-dunk result is a warning sign
So, for more on my views on getting started with the right foundations (which seem to very much align with Kris’s, check out my Part Time Trader series)
Get in touch with Kris:
Substack
X
Linked In
YouTube
Website
Algo Collective members get access to the bonus material, the Algo Vault (now over 500 academic papers with code), strategy-research and seriously, so much more. See you on the inside.
Simon