Adrian Reid argues that trading portfolios must be built around an individual trader's objectives. He gives concrete objective examples (limit number of systems, smooth equity curve, cap drawdown to 10%, maximize return with zero leverage) and explains that knowing objectives guides capital allocation and rules out incompatible systems; without clear objectives traders keep endlessly 'fiddling' and never stop.
Chapters
We all have our own objectives. You might have an objective to be trading about 10 systems and probably not much more. And that might be just based on your level of activity you want or level of capital you've got or whatever it is. But if that's an objective, then when you're going through the capital allocation, you're seeking to meet that objective and get the best returns possible. Whilst meeting that objective makes sense. Another person might say, I don't care how many systems I'm trading, I just want the smoothest equity curve possible. Another person might say, I only want to trade five systems, but I want to make sure my drawdown is not more than 10%. Another person might say, I don't care how many systems I'm trading, I just want the maximum return possible, assuming zero leverage. So the first step is, okay, what do I think my objectives are? And if there's some lifestyle objectives, like I don't want that many systems, or I really don't want to trade the North American markets because I don't want to automate and I don't want to be up in the middle of the night to place the trades or whatever it is. As you're going through the capital allocation, you might automatically rule a system out because it doesn't meet your objectives. If you know what your objectives are, then you'll know when you've met them. If you don't know what your objectives are, what happens?
You keep fiddling and fiddling and fiddling and fiddling and fiddling, and you never know when to stop because you don't have any objectives to measure against.
