Amrit Sall: The Unicorn Sniper

Amrit Sall has one of the best track records of 337% average annual compounded return over a 13-year career. His return/risk numbers are simply astounding: an adjusted Sortino ratio of 17.6, a monthly Gain to Pain ratio of 21.1, and a daily Gain to Pain ratio of 3.6. These numbers are ten times that of excellent performance.

 The Sharpe ratio’s primary hook is that its risk component (the standard deviation) penalizes large gains equivalently to large losses. For a trader like Sall, who has many spectacularly large gains, this penalty is severe.

Sall’s incredible success combines three essential components:

1. Trade Research and Planning— Successful trading is a matter of hard work. Sall prepares diligently for every trade. He has compiled notes in thousands of pages, recounting all his past trades. For each of these trades, he recorded his trading plan, the details of the relevant event and market response, and what he got right and wrong. These trade notes, which are categorized, allow Sall to identify and study historical illustrations to prospective trades. Using this personally assembled research library, Sall prepares a highly detailed write-up for each trade. It is a plan that incorporates a wide range of scenarios as to how the trade might unfold in real-time. Sall also carefully watches the newswire all day for any unexpected events that might offer trading opportunities.

2. Trade Execution— The “unicorn” types of trades, as termed by Sall, require instantaneous voluntary decisions. It accounts for the vast majority of his profits, there is no time for reasoning and analysis. Even using a minute or two to think over the trade would result in missing the opportunity. In addition, Sall engages in picturization and mental rehearsal as to how he will respond in different circumstances. He also gets into meditation and breathwork.

3. Emotional Calm— Sall considers maintaining an appropriate emotional state of being calm, centered and focused. These traits are absolutely essential to being a successful trader. He is meticulous in avoiding a negative mindset or allowing a loss/mistake to impact a subsequent trade opportunity.

He believes that generating profitable trades is challenging, but doing nothing between the genuine trade opportunities is even more difficult. Being patient to avoid such temptations is important for two reasons. First, these trades will be net losers. Second, the negative impact of these trades may result in missing the really big trade opportunities. The lesson is to only take trades that fit your rules and avoid the insignificant trades.

Sall explains that the markets don’t provide opportunities regularly. As a result, a goal of making profits every month will tempt traders to take trades that are based more on hope than methodology. This in turn will make traders act in the opposite diametric of patience. The two essential characteristics of the trades that Sall has the patience to wait for:

1. These trades have a high probability of moving in the anticipated direction.
2. They are asymmetric trades where the potential gain is far more than the risk taken.

Sall takes large positions on these high-conviction trades. The wide variation in his position sizing is an essential factor for generating outsized gains.

Sall always places a stop loss when practical because placing stops at the entry will have a high risk of getting stopped. This is because he trades large quantities based on extremely volatile events. Instead, Sall waits for the market to move enough in his direction so that his stop will only be triggered if the trade idea fails. In case the market moves against him before placing a stop, he quickly liquidates his position.

Winning propagates pride. When traders perform well, they tend to become negligent with their trade entry and money management. After one such winning period, Sall too fell into this trap when he placed positions in three highly correlated markets on a marginal trade.

The risk manager’s intervention helped him to avert a significant loss. Still, the experience helped Sall learn a valuable lesson to stay cautious after an extensive winning period.

Confidence is an inherent trait and Sall provides a good example of this. Even after having a negative account balance in his first trading year, he was still confident of succeeding. Resilience is another trait required for becoming a profitable trader apart from having skills and confidence. One should never give up.