Abstract — Hit rate is overrated. This article translates Soros’s maxim into a payoff-asymmetry operating system: volatility-scaled sizing, positive skew construction, mechanical exits for losers, staged holds for winners, and liquidity-aware gross/net governors—so P&L depends more on magnitudes than on being “right.”
Most investors chase a high hit rate. Soros reminds us that magnitude dominates frequency. We design the process so losers are bounded and quick, winners are unbounded and patient, and portfolio risk adapts to liquidity.
Asymmetric win: trend + improving liquidity; staged adds; trailing stop locks gains as move extends. Few wins like this pay for many small losses.
Contained loss: thesis fails to confirm; time stop fires; small debit avoided an eventual larger drawdown. Losses remain rent, not eviction.
Soros’s edge wasn’t being right more often—it was being paid more when right than he paid out when wrong. In systematic macro that means: size for skew, cut losses by rule, let winners run mechanically, and let liquidity govern patience. Magnitude beats ego.
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Compliance: For informational purposes only; not investment advice or a solicitation. Past performance is not indicative of future results.
Abstract — This article operationalizes a timeless trading maxim. We turn “cut losses, let winners run” into auditable rules: pre-committed exits, volatility-scaled sizing, drawdown governors, and profit release that protects P&L while preserving trend exposure—conditioned by liquidity and macro regime.
Loss aversion and mean-reversion bias encourage adding to losers and taking profits early. The fix is pre-commitment: define exits and profit management before entry, and automate where possible.
Liquidity compresses/expands risk premia and determines how long trends run. We cap or expand gross/net and adjust profit bands based on a three-channel composite (policy, bank credit, market plumbing).
Edge compounds when losses are small and certain while wins are large and uncertain. Pre-commit exits, trail stops, scale winners on signal not feeling, and let liquidity govern patience. Discipline—not prediction—protects capital and lets the book run.
Compliance: For informational purposes only; not investment advice or a solicitation. Past performance is not indicative of future results.
Abstract — Trend following rewards patience and discipline, but only if exits are as explicit as entries. This article turns a popular maxim into a complete operating playbook: robust trend definitions, bend (reversal) detection, volatility-scaled sizing, liquidity-aware overlays, and checklists that keep winners running without giving back the bulk of gains.
We keep definitions simple and auditable. A trend exists when price confirms on your trading horizon and the tape respects that direction across breadth/time:
Trends end in two main ways: rolling (momentum fades) or breaking (level/MA violations). We codify both.
Expanding liquidity compresses risk premia and extends trends; contracting liquidity amplifies reversals. We enforce:
Persistent trend in easy liquidity: momentum + breadth confirm for months; carry is positive. Scaling entries and letting profits run outperforms frequent profit-taking. Lesson: let the tape pay you; exits are for bends, not boredom.
Sharp bend after liquidity turns: composite flips negative, breadth cracks; MA break triggers staged exits. Preserving past gains beats guessing the top. Lesson: exits must be mechanical.
Isn’t trend “late” by definition?
Yes—and deliberately so. Paying a “confirmation tax” buys higher hit rates and fewer false starts.
How do you avoid giving back gains?
Mechanical exits on momentum rolls/MA breaks, staged profit-taking, and drawdown governors at both sleeve and book levels.
Do signals work the same in all regimes?
No. We scale gross and tighten horizons when liquidity contracts; expansion allows more patience.
Trends reward discipline, not predictions. Codify what “friend” means (confirmation, staging, vol-scaling) and what “bend” means (momentum roll, MA break, breadth crack). Then act without hesitation. That’s how you compound without donating gains back to the tape.
Compliance: For informational purposes only; not investment advice or a solicitation. Past performance is not indicative of future results.
The quote is behavioral, but we make it operational by measuring two things:
Greed = consensus optimism + crowded risk. Fear = capitulation + under-ownership. Both are filters, not trades by themselves.
Compress to percentiles and tag regimes: calm, greedy (high tail), fearful (low tail).
Cap gross/net by the liquidity composite (contracting = low bands). Volatility-scaled sizing; “contrarian” ≠ “big.”
Greed persists in easy liquidity: fading early loses; wait for momentum to crack. Lesson: extremes can persist; let price confirm.
Fear during plumbing stress: attempts to “buy fear” bleed when funding worsens. Lesson: plumbing overrides the heuristic.
Fear with improving liquidity: stabilization + neutralizing liquidity → scale entries. Lesson: context + staging win.
Some ideas are so compact that they read like a koan. “Liquidity moves markets” is one of them. It compresses a century of experience into a single operating rule: prices are set at the margin, and the marginal buyer is funded by liquidity. Yet slogans can seduce. The craft is to take the mantra and forge it into rules you can audit—a composite of observable inputs, a regime map that sets expectations, and a sizing framework that protects capital when the tide goes out.
When net liquidity expands (policy + bank credit + shadow funding), risk premia compress and carry/momentum work. When it contracts, respect cash/duration and cut gross. Track the tide, not just the waves.
Liquidity is not a single switch. For practical portfolio decisions, break it into three interacting channels and observe the rate of change in each:
At Serapis Global, we fuse these into a small, robust composite. Each channel contributes a score (−1 / 0 / +1). The composite doesn’t chase precision; it disciplines behavior: expand, neutral, or contract. Complexity lives inside data engineering; decisions stay simple.
Multiple expansion is financing math. When funding is easy and balance sheets are elastic, investors can pay higher multiples for the same cash flows, and carry premia compress. That’s why risk assets often levitate before fundamentals catch up.
Transmission beats narratives. Markets are flow-to-stock machines; the marginal unit of funding frequently leads valuation regimes. Traders who respond to observable transmission mechanisms—rather than to ex-post stories—tend to survive the long run.
Risk management is cyclical. The same idea that is reckless in a liquidity contraction is acceptable—sometimes optimal—when liquidity is expanding. The mantra is less a price forecast than a risk budget governor.
Liquidity isn’t destiny. Earnings, supply shocks, and fiscal dynamics can overwhelm a mushy liquidity read for months. When this happens, price verification (momentum) and positioning must temper your conviction.
Optical proxies can lie. A single central-bank balance sheet chart is not “the tide.” Use a basket: policy stance ROC, bank standards and realized loan growth, funding spreads/collateral signals. Build redundancy; avoid false comfort.
Lags and path-dependence bite. Plumbing stress appears first in obscure places (basis, haircuts) before it bleeds into spot prices. Your process needs tripwires that force de-gross even when narratives still look benign.
We translate the quote into four programmatic components: composite, regime map, sizer, overlays. Each component is auditable and deliberately parsimonious.
Each channel maps to −1 / 0 / +1. The sum defines the state: expanding (+1 to +3), flat/ambiguous (−1 to +1), or contracting (−3 to −1).
We don’t forecast a specific price; we classify the environment across a small set of macro regimes. Liquidity is a conditioning variable that adjusts playbooks in each regime (reflation, disinflation with growth, tightening slowdown, stagflation, etc.).
Gross exposure scales roughly from 0.6× to 1.0× as the composite moves from contracting → expanding. Net exposure stays conservative in contractions (|net| ≤ 0.25). Position sizes are volatility-scaled (vol parity) with pre-committed drawdown caps.
In expanding phases, we favor quality carry and trend sleeves in assets with benign funding tails: major equity indices with supportive breadth, curve-sensitive duration where appropriate, selective FX carry with hedged tails, and commodity structures where roll yield is positive. Take-profit bands are looser; diversification still matters.
In contracting phases, we shrink gross and hunt convexity with tight risk: higher-quality duration/cash, defensive factor tilts, relative-value spreads with known plumbing exposure, and a bias towards shortening holding periods. We reduce correlation across sleeves and demand cleaner catalysts.
Liquidity upswing without perfect growth data. The composite turns positive before consensus upgrades. Trend confirmation across equities and credit says “press,” carry premia tighten, and realized volatility falls. The playbook allows higher gross and looser profit-taking bands. The lesson: funding conditions often lead improvement in multiples.
Plumbing stress during a narrative lull. Official policy reads neutral, but cross-currency basis and repo haircuts spike. Tripwire triggers, gross is cut, and exposure skews to duration and cash while waiting for normalization. The lesson: the plumbing can ambush risk; if the pipes rattle, step away.
Liquidity can be tight while markets grind higher. Profit growth or fiscal impulse can offset funding headwinds for a time. Solution: run smaller, not zero, and shorten horizons.
“Abundant” liquidity with adverse supply shocks. Energy, shipping, or geopolitics can invert typical asset betas. Solution: rotate to beneficiaries (e.g., select commodities or shipping exposures) instead of blanket risk-on.
Composite complacency. Any index can fail. Maintain a small set of out-of-distribution alerts (e.g., simultaneous curve re-steepening with credit widening) that force a reassessment.
Is earnings irrelevant if liquidity rules?
No. Liquidity sets valuation bands. Earnings and growth determine where within those bands prices settle. We treat liquidity as the conditioning variable, not the destination.
Should we anticipate policy or wait to see it?
We classify regimes from observable data and react. Anticipation invites overfit and narrative drift; pre-committed reaction accelerates decisions and reduces regret.
Can one metric summarize the tide?
No. Use a compact basket—policy stance ROC, bank standards + realized loan growth, and funding/collateral signals. Redundancy beats precision here.
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Internal Links: Methodology, Regime Map, Liquidity (Glossary), Investors, and the structural explainer Permanent-Capital vs Hedge Fund.
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