Macro Book

Idea Structuring: The Art of Great Trade Selection

Welcome back to the Macro Book, where we will walk through the key ingredients in an investment process from start to finish. We have already talked about the important aspects of idea generation in two previous articles. This sets the stage from my personal experience in what I would normally seek when developing a trade idea.

Many thanks to those who have opined and written about their experiences and methodologies. We are all individuals, and as such, the generation of investment ideas is very subjective and unique to each person’s frame of reference, experience and vantage point on how one solves the mysteries of our financial markets. Use whatever works for you; there are no limits.

For all new subscribers, here is a little reminder of what we are trying to accomplish within the PAMB framework:

As announced a few weeks ago, I will publish a series of articles about PAMB (Paper Alfa Macro Book). This will encompass all relevant elements of a full investment process. We will cover the following important stages.

1. Idea Generation

2. Idea Structuring

3. Risk / Sizing

4. Portfolio Construction

5. Risk Management

This will be fun and educational, aiming at anyone interested in all the necessary aspects to make this actionable. I will also make it interactive and provide useful tools for those interested.

Finally, we will run a portfolio of trades encompassing any available tradeable, liquid asset class. All subscribers will be able to participate in the idea generation. We can even set up a mini-investment committee to steer the portfolio. It will be, therefore, more strategic than a day-trading vehicle.

Source: Dall-e

In this post, we will focus on the aspects of idea structuring and, in particular, the elements of a trade idea that, if filtered systematically, should increase the odds of success. It’s the hunt for great trades rather than just a good one. What is the difference, you ask?

Let’s explore …