Greg Coffey Trading Style

Greg Coffey is an Australian hedge fund manager known for his exceptional trading skills, particularly in emerging markets. 

He gained prominence during his time at GLG Partners and Moore Capital Management, where he managed billions of dollars and earned a reputation as one of the industry’s top performers. 

Coffey is known for his intense work ethic and his ability to generate significant returns. 

Moore Capital’s founder, Louis Bacon, once described Coffey as “the most impressive trader I’ve ever seen.“

In 2018, he returned to the hedge fund industry by launching his own firm, Kirkoswald Capital Partners, after a brief retirement period.

We discuss his trading style in this article.

Key Takeaways – Greg Coffey Trading Style

• Personal Aspirations and Background:
  • Coffey grew up in a challenging environment but had the aspiration to own a house on Sydney Harbor, which he achieved early in his career.
• Belief and Confidence:
  • No one fully believes in themselves.
  • The market constantly teaches you how much you need to learn.
• Risk Management vs. Risk Appetite:
  • Coffey’s approach to risk has evolved over his career.
  • Initially focused on making money and taking large risks, he now prioritizes not losing money and managing risk conservatively.
  • He emphasizes the importance of managing losses and allowing profits to run, though in practice, risk managers often restrict long-term gains by cutting positions too early.
• Career Evolution:
  • Early in his career, Coffey tried to accumulate gains through active trading and large positions.
  • Now, he focuses more on risk management, building sensible and strong portfolios.
  • He talks about the importance of taking smaller positions to avoid significant drawdowns, thus allowing for long-term gains.
• Market Adaptation:
  • Coffey adapted his trading style as markets and technologies (like algorithms) changed.
  • This included shifting from day trading to holding positions for entire market cycles.
• Psychological Resilience:
  • He emphasizes the importance of not being stopped out by psychological limits or investor constraints.
  • This involves managing position sizes to stay within comfortable risk thresholds.
• Trading Philosophy:
  • Coffey prefers to establish large positions early and reduce them as they become profitable, rather than gradually increasing positions.
  • He advises young traders to trade smaller individual position sizes and let trends run longer.
• Personal Strengths and Reflections:
  • Coffey identifies risk management as his biggest strength.
  • He finds motivation in the enjoyment of the job and a fear of failure.
• Advice and Reflections:
  • He suggests that young traders should focus on managing downside risk and maintaining discipline.
  • Coffey avoids overly reflecting on or changing past decisions, believing things worked out as they should.

Greg Coffey discusses several topics in the following clip, including risk management and his personal journey. 

Here are the key points:

Personal Aspirations and Background

Coffey’s humble beginnings instilled in him a strong drive for success, which manifested in his trading career.

His early achievement of owning a house on Sydney Harbor demonstrates how his personal aspirations influenced his ambitious approach to trading.

Belief and Confidence

Coffey’s trading style is characterized by a balance of confidence and humility.

He acknowledges the constant learning process in trading, which likely contributes to his adaptability in the markets.

As he says in the clip:

“The markets are there to teach you how bad you are at your job. Any time you get some type of self-confidence that you’re good at it you learn you get taught very quickly you aren’t as good as you think you are.”

Risk Management vs. Risk Appetite

Coffey’s trading approach has evolved from high-risk, high-reward strategies to a more conservative risk management style.

He emphasizes the importance of preserving capital and allowing profitable trades to run their course, though he recognizes the challenges of implementing this in practice.

This follows the arc of a lot of traders who in their early years like to take more risks and run more concentrated positions.

Over time, preservation and risk management become more important, which typically leads to smaller position sizes and more diversified portfolios.

Career Evolution

Over time, Coffey transitioned from aggressive trading for wealth accumulation to building more resilient, risk-managed portfolios.

His current style involves taking smaller positions to avoid significant drawdowns, allowing for sustained long-term gains.

Market Adaptation

Coffey has shown flexibility in adapting his trading style to changing markets and technologies.

He shifted from day trading to holding positions for entire market cycles.

He mentioned that short-term trading was easier back then before algorithms could out-execute human traders.

Coffey asserts he believed the drop in his day trading skill was just a phase. But when trading payrolls (as an example) the algorithms were digesting that data a lot faster than human discretionary traders could hope to do.

This flows from what’s mentioned above, where day trading tends to be more common among younger traders and longer-term passive holding is more common among more experienced traders.

Psychological Resilience

A key aspect of Coffey’s trading style is managing position sizes to stay within comfortable risk thresholds.

This approach helps him avoid being stopped out due to psychological limits or investor constraints.

Trading Philosophy

Coffey prefers to establish large positions early and scale them down as they become profitable.

He doesn’t believe in scaling into positions as they go in your favor because you become big late, which means it’s easy to lose all your profit off small drawdowns in your position at that point.

Instead, he’ll be “big early, small late.”

Inherently, this makes sense.

For a value trader, if a stock is earning $4 per share and trading at $40, you’d want to be bigger at that point than when the stock is earning $4 per share at $50.

So he might start out at a 200% position size, then go to 100% (normal full position) once it’s already profitable, then scale out if it goes further in his favor.

Naturally, taking such a large position so soon might necessitate tight stop-losses.

Advice for Younger Traders

He advises younger traders to trade with smaller positions and allow trends to develop over longer periods.

Personal Strengths and Reflections

Risk management is central to Coffey’s trading style.

This is generally true for all traders who make it a long time.

His motivation comes from a combination of job satisfaction and a fear of failure.

Advice and Reflections

Coffey’s trading style emphasizes managing downside risk and maintaining discipline.

He advocates for focusing on these aspects rather than dwelling on past decisions, believing in the importance of forward-looking strategies.