Elite Trader Insights: Saad Filali
Episode 15: Front-Running News Flow Trading
Each week we try to unlock the collective wisdom of the Trading Elite. Strategies and unique insights from hours of interviews with top traders, sliced into bite-sized pieces and delivered to your inbox for your pleasure.
Saad Filali worked for Goldman Sachs, specializing in Mergers and Acquisitions, then left and became a Trader. Understanding the thinking and trading styles of the many different market players is key to his trading, including those of institutions, sell side brokers, CTA’s, retail, and meme stock traders.
Studying how they trade the volatility and news releases helps Saad to predict market movements and calculate suitable entry and exit points in his trades. Saad now manages his own fund, called Fiat Elpis Macro Fund, and relies on news flow and research. He looks for discrepancies between market pricing and fundamental valuations and considers the impact of different market participants.
Key Learnings and Takeaways from the Interview:
1. Understand Market Participants:
Filali emphasises the importance of understanding who you're trading against. He identifies various market participants, including institutions, sell-side brokers, CTAs, retail traders, and meme stock traders. Knowing their behaviour and motivations can help predict market movements and avoid being caught off-guard. "I'm always trying to understand and study these different market participants... I just don't want to be in the way; I don't want to be a victim."
2. Use News Flow as a Primary Input:
Filali relies heavily on news flow to inform his trading decisions. He dedicates a significant portion of his screen real estate to news sources like Bloomberg and Reuters. "The main input for me is really the news flow. That's what generates trades for me."
3. Focus on Fundamental Valuations:
He looks for discrepancies between market prices and fundamental valuations, particularly in Forex and equities. This approach helps him identify trading opportunities when the market misprices assets. "Identify situations where market pricing diverges from the fundamental valuation for a period of time." He believes that following the sell side brokers is key to identifying potential mis-pricing of assets, given that they are the ones who will be driving future price action in the respective markets as they have the biggest clients (eg Gold - UBS, Oil - Citi).
4. Timing and Quick Execution:
Filali operates on short time frames, ranging from seconds to two weeks. He stresses the importance of being quick to execute trades when new information hits the market. "You need to be in front of the screen and awake when it happens and then you need to click as fast as possible." He also believe that the FX market to be the most efficient, followed by the Indexes, followed by Equities.
5. Predictive Analysis:
He bases his trades on predictive analysis, making bets on future events and their market impacts. This involves understanding how markets have historically responded to similar events. "It's a bet always ahead of an event or ahead of something happening or ahead of a data release." He also cautions that you can be correct in your prediction of the Event, but wrong about the subsequent Price Action.
6. Contrarian Approach:
Filali often takes a contrarian stance when he sees a significant discrepancy between market sentiment and fundamental data. He uses sell-side research to gauge market consensus and identify when the consensus might be wrong. "One of the best ways of understanding where others are is simply to look at the sell side."
7. Avoid Overtrading:
He highlights the importance of avoiding overtrading, especially in environments dominated by algorithmic and momentum-based trading strategies. "You have to understand there are different market participants with different impacts... sometimes you just have to sit out and not participate."
8. Manage Risk and Volatility:
Filali is cautious about managing risk and has adapted his strategy to lower volatility due to client requests. He prefers to keep drawdowns minimal to ensure consistent performance. "My main thing today is to stay alive, increase AUM, and keep returns that make all my clients happy."
9. Discretionary Trading Over Automation:
He believes that discretionary trading will remain in the realm of humans and is difficult to automate due to the nuanced and qualitative nature of inputs. "Discretionary trading is not something that you can replicate automatically at all."
10. Algo’s
Filali gives an interesting take on the Algo’s, or ‘CTA’s’. He believe that the existance of the participants results in momentum being difficult to stop, and it' takes something significant (ie an Event or Data release) to ‘break’ the algo’s and sned them to protect their p&L by covering, resulting in some large moves lower. He also notes that the real market participants such as Hedge Funds & Mutual Funds, hate trading due to the fees they incur because of their size. Their goal is to minimise market impact, so usually trade patiently over several days, basing their prices off VWAP.
While I don’t necessarily agree with Filali on a couple on a couple of points (ie I don’t make any predictions or consider any Macro numbers, I believe Price Action trumps all), his insights offer lessons on understanding market dynamics, leveraging news flow, and maintaining a disciplined, informed approach to trading. His emphasis on studying and understanding market participants was particularly interesting to me.
Cheers
Marto