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Hedge Fund Market Wizard

Jimmy Balodimas: Stepping In Front Of Freight Trains

Jimmy Balodimas’s style is so highly individualistic, so dependent on inherent talent, and so poorly compatible to most traders that, they would be better off doing the exact opposite than trying to imitate his approach. 

 

Three lessons can be extracted from Balodimas’s story that is more generally applicable without potential toxic side effects:

 

The need to adapt— While the commonality of human nature provides elements of consistency in market behaviour across time, markets also change, and successful traders adapt to that change. In Balodimas’ case, he noticed that the greater level of market participation by hedge funds was resulting in smoother price moves for individual stocks and much fewer pullbacks, particularly intraday. This structural change made it more difficult for Balodimas to neutralize losses from being too early in a position with profits from trading around the position. It became more important not being too early on trades. Balodimas responded by keeping positions smaller until there was a market change that gave him a high degree of confidence that a turning point was imminent. The idea that trading methods need to be adjusted to changing market conditions is an important concept that can be applied to a trader’s approach.

 

Trading around a position— A key element in Balodimas’s trading approach is adjusting position size in contrast to market fluctuations. For instance, if he is short, he will reduce his position on price breaks and rebuild his position on rallies. Balodimas is so competent at trading around positions that he often generates net profits even when the net price movement of a stock counters his position. The potential drawback is that a retracement to the re-entry level may not occur, in that case profits will be realized on a smaller position. On the positive side, if the liquidated portion of the position is re-entered at a better price, total profits will be enhanced, and perhaps even more importantly, the ability to hold the position will be improved. Whether trading around positions is beneficial or detrimental shall be highly contingent on the individual trader. 

 

Avoid euphoria—  His last advice to traders would be to sell into panic rallies. Very few traders have the natural timing skill and emotional strength to pull this off successfully. Those who are on the right side of a market must book partial or total profits while the market is in a state of panic. They should not wait for the reversal which can be both extreme and abrupt.  

 

Balodimas has been through multiple bull and bear market phases, averaging hundreds of trades a day. The markets he predicts are major tops and bottoms which consistently trend for a long time once they change. Despite this consistent pattern, he only trades a small part of the emerging trend. He feels he could improve his performance by simply trading these markets for a longer time.

 

The point is that even the best traders may not be implementing their strategies in the best way. A trader should consider whether the trading method assigned is best aligned with his edge.

 

Balodimas was extremely dedicated as a trader and used to work long hours with full obsession. However, this level of success was only possible because of his inherent skill, that gives him a sense of what markets will do. 

 

There is no single true path that leads to successful trading. Striving traders should understand that the quest is in finding an approach that fits their personality. Jimmy Balodimas found an approach that suits his personality—independent, strong, contrarian, and very comfortable with risk. However, the same approach could be disastrous for most other traders who have different comfort levels in trading style. 


You cannot succeed in the market by duplicating someone else’s approach because the chances are remote that their method will fit your personality. The answer lies not in copying but in finding your own approach.

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Units 15/17