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Why a Mechanical, Long-Term Trend Approach is Best | Scot Billington, Covenant Capital | #25

“Nobody ever started trading a model that didn’t make money in the past. But we don’t know if those things were luck or skill.” – Scot Billington (Tweet)

Our next guest takes a mechanical, long-term trend approach to trading to a new level, and you’ll find out why he thinks it is the better option in this episode. He started Covenant Capital with his business partner in 1999 and has grown it into a profitable boutique firm. But in early 2002 after they ended the previous year down 20%, they really had to grind it out and stick to their guns which ultimately paid off in a big way.

Thank you for listening to the show, and please welcome our guest Scot Billington.

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In This Episode, You’ll Learn:

  • How Scot started his firm, doing the testing by hand.
  • The difference between a discretionary model and a mechanical model and why Scot chose a mechanical one.

“I figured that there may be other ways that one can make money in the markets, but this seems to be the first place that I ought to look.” – Scot Billington (Tweet)

  • How he met his business partner Brince Wilford and started with 3 accounts in 1999.
  • How narrative bias can affect a trader’s decisions.
  • How the firm got through a year that ended with them down 20%.
  • What made Scot believe in his model and stick to his guns.

“I was doing all of this back testing by hand. So, well that’s a good way to not be curve fitting.” – Scot Billington (Tweet)

  • The offerings that the firm currently has, including the differences in the trading models.
  • The pitfalls of investing in shorter term models and not allowing managers to see a full cycles with markets.
  • Why most allocators and investors are chasing 24-month returns on stocks and why that may not be the right approach.
  • About different types of CTA firms, including boutiques, battleships, emerging, and experimental.
  • What to look for in a CTA.
  • How to get investors to share the long-term horizon with his firm when certain markets do very well in the short term.

“I moved into the smallest apartment in Nashville, and cut my living expenses to next to nothing” – Scot Billington (Tweet)

Resources & Links Mentioned in this Episode:

This episode was sponsored by Saxo Bank:

“Our first major change to the model was in early 2002, was basically eliminating short trades and using a volatility filter for long trades.” – Scot Billington (Tweet)

Connect with Covenant Capital Management:

Visit the Website: www.CovenantCap.com

Call Covenant Capital: +1 (615) 678-6742

E-Mail Covenant Capital: info@covenantcap.com

Follow Scot Billington on Twitter.

“More or less, we like to look at trades like, here comes a refrigerator, put in the shelf, here comes a refrigerator, put in the shelf.” – Scot Billington (Tweet)

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