Start with the undeniable fact that the core unit of production of a l/s hedge fund is l/s spread. Everything else is opinion but that is fact. There are two types of spread you can capture - intra sector or inter sector. If you care most about idio footprint you are dialed into intra sector spread. If you try to capture spread in a kelly green sector you will almost assuredly lose a lot of absolute dollars on your shorts and get squeezed most on yellow to green or darkening green shifts. If you try to capture spread in amber red, you get the point. Pretending every sector is always yellow and always prime for spread is a fallacy. The first step is to decide if the sector is yellow and if so then hunt for spread. Accepting exposure to non fundamental risks is required to capture the most abundant spread - the inter sector spread. The best way to capture that spread is to identify the color of every sector and what the second derivative change in colors is, either absolute or just the changing intensity of color. A portfolio should have a few longs and shorts perfectly balanced in yellow sectors and several longs along a continuum of lessening red to darkening green sectors, and the opposite for shorts. At times you will also have great shorts in dark green sectors as an obvious loser emerges and sometimes a great long in an obvious darkening red sector. But that is less abundant.