This episode explores the unique perspective of a discretionary energy trader, Bill Gebhardt, who transitioned to building a fully systematic trading firm, 10Dynamics. Against the backdrop of his extensive experience at firms like Koch Industries and Deutsche Bank, Gebhardt reveals how his fundamental and discretionary background informs 10Dynamics' systematic trend-following approach. More significantly, the discussion delves into the firm's risk management system, designed to mitigate the pitfalls of over-optimization—a recurring theme in Gebhardt's career, exemplified by the Long-Term Capital Management collapse. For instance, 10Dynamics utilizes multiple timeframes (from 30-minute to weekly) to balance return opportunities with drawdown control, with shorter-term signals acting as hedges against longer-term drawdowns. The firm's unique approach involves binary signals, prioritizing robustness over precision, and a risk budget that scales naturally based on signal strength, rather than forcing full deployment. In contrast to traditional trend followers, 10Dynamics exhibits minimal alpha decay across various five-year periods since 1990, potentially due to its focus on less liquid, trending markets like European energy and its unique risk management strategy. This highlights the potential for innovative systematic strategies informed by deep discretionary trading experience, offering valuable insights for both systematic and discretionary investors.
