The Seven Deadly Sins

[10/04/26]

6th Century Christian theology and the ever-continuing behavioural traits translating to trading errors in the modern world, whether discretionary or systematic process:

Pride [Running stop losses] - Believing a market or trading thesis to be correct, whilst being unwilling to admit defeat, when it is served by the price action. This sense of ego or pride is heavily linked to the loss-aversion bias. The premise of which is that traders fear losses more than they value equivalent gains, which leads to disobedience of stop loss levels, re-entry of losing trades and ultimately throwing good money after bad. Ultimately: ill discipline, not admitting you are wrong. This is something I have been battling with in recent years. More recently, not the stop-loss side of the equation, as the accountability of the Macro Blog helps me stick to the levels I suggest at the outset of the risk deployment and there have been many occasions that I have cut risk and been wrong this year. I also buy options a lot to gain leverage, which of course have a natural depreciation floor. However, when I am not getting stopped-out, I have been tending to book profits early. My desire to succeed in a new venture is ruining the risk:reward ratio designed, hence is a form of pride creeping into process, which will ruin my sharpe and therefore my results, in the long run.

Greed [Not booking profits/sizing too large/concentration risk in the book/trading before the tech level breaks] - Greed takes many forms within trading - four of the more obvious occurrences aforementioned. The former is of course a good problem to be having; the latter three can be terminal in the long run. A good example of this is the recent JPY long that I have been circulating. High expected value is leading to over-sizing, which when wrong - which it currently is - can be painful. I recently had three trades on that were all derivatives of a JPY higher thesis, so had to temper my excitement and stop out of a portion of the risk. The wall street adage ‘greed is good’ is problematic and cycle after cycle it is proven incorrect. FX trading in particular is a game of inches and I am increasingly learning, when trading my own capital, that it is only discipline that leads to survival and stems bleeding. Focusing on Y/E results is not conducive to steady returns and a honed process. Of course, compensation structure more generally within the buy-side in particular can breed emergence of greed or personal payout asymmetry when deploying capital, which is why firms and risk managers enforce soft and hard stop-loss limits on PMs. Another manifestation of greed within trading or portfolio management, which is very easy to model, is the mean reversion in P&L following multi-sigma positive days. ‘Giving back’ is real and is evident on most P&L graphs. Reducing a book into a profitable market move will always feel counterintuitive; a blend of greed and FOMO.

Lust [Trading ultra-high-vol markets/collecting TRY-esque carry/selling vol] - When things break, liquidity is at a premium and careers/years are made or lost in these moments. It is incredibly difficult to stand aside and watch XAGUSD or Crude trade 10-20% in a session, as both have done in Q1 this year, without getting involved. Similarly, vol-selling in either outright form to harvest yield by selling contracts, or implicitly by collecting carry at the risk of sharp nominal devaluation, are examples of the siren call of heroic returns, at great and often understated risk [see more on the latter below]. Risk managers, desk heads, nominal position limits and VaR calculations are all designed to regulate, however the attraction is difficult to resist and is ultra-important for retail traders, when these mechanisms don’t exist. “Have I got enough in it?” is as dangerous as the desire to sell the high/buy the low, in a bid to ‘drive the perfect race’.

Envy [FOMO] - This is a big one, and is evident almost daily, when you follow a market closely enough. Markets that are CTA or model-dominated will contain coalescing of activity or order-flow through key levels, which meld with the human/voice trader activity and the triggering of stop loss orders through said inflection points at the same time. Similarly, liquidity vacuum surrounding Tier 1 data prints often leads to high activity within a wide price range, with mean reversion common. The psychology of human traders chasing in either direction in the same moment is an amplifier. Both scenarios, requiring FOMO to be personally managed or accounted for (staggering entries, for instance) are on a shorter time-frame, however the same FOMO exists on the broader macro moves, as a component of every thematic momentum trade. Bitcoin, precious metals and AI stocks are as great a demonstration of FOMO and compounding interest as the famous historical bubbles studied. The point is that it is always difficult to distinguish FOMO from fundamental, but checks and methodology can be introduced to suppress the former, whilst guaranteeing some form of participation in the latter.

Gluttony [Over-trading one instrument] - The overlap with greed is clear, however here I want to focus on the bias of repeatedly trading one product or instrument. Sure, you can have an edge in concentration and product knowledge, however the further you move from the ‘inner ring’ of interbank specialised trading, to the own-account/PA trading model, the edge shifts from information asymmetry to variety of product and freedom of process. In a seat with a broad mandate, focussing too much on one trading instrument can mean inefficient mental capital deployment and ‘missing the wood for the trees’, i.e. missing-out on some very clear and high EV setups, with meaningful stop-loss levels, because you do not zoom-out enough (which in turn aids your macro puzzle-building) or leave your comfort zone, or you simply do not have the remaining capital to deploy. When trading a margin account, as I am, another manifestation of gluttony is over-leveraging. Margin utilization is clearly measurable and net exposure coverage comes down to one number, however the concept of readily-available intraday borrowing to maximise exposure is something incredibly tempting that needs to be kept in check. This same concept means that MTD/YTD returns are amplified, when not correctly divided by the leverage ratio, as they should be, which can also introduce an overconfidence, mistaking leverage for trading returns on a normalised basis.

Wrath [Revenge trading] - ‘Uncontrollable anger, hatred or the desire for vengeance’ is the biblical description. In the sphere of trading, I think revenge is the manifestation. Believing the market is wrong or taking a loss personally can lead to ‘revenge trading’. This was one of the earliest emotions I experienced in my career as a trader. Repeatedly stopping and re-entering the same position, being unable to walk away, only to ultimately destroy my average entry on a trade or amplify a drawdown unnecessarily. Sometimes, I find that taking a few days away from the market when I am ‘cold’ or clearly not seeing things correctly can speed up the closure or recalibration phase of the post-trade autopsy and allow me to reset my view on the world through a risk-free lens. Acting with mental clarity at all times, with emotion not only impossible to decipher externally, but also in-check internally, is the ultimate goal.

Sloth [Hesitation/bias to sell vol] - Two interpretations come to mind here. The first is slow adaptation to critical new information. Tier 1 data that invalidates a thesis or a regime-shifting headline that you question the validity of, only to miss out on a great trade or conversely cost yourself by watching said headline drive your open risk towards your stop-loss. A great recent example of this were the German fiscal headlines of March 2025 that catalyzed a >6% rally in EURUSD from 1.0350—>1.0950. The second is the rather opportunistic human trait to do little/achieve lots. “Work smart, not hard” is the positive format. Cutting corners or ignoring clear risks of taking shortcuts to “the easy way out” is the negative. Economic concepts such as the poverty trap accentuate this. In trading, I think the ‘picking up pennies in front of the steamroller’ adage is the most appropriate. The recent example of this, from exactly the same month as the prior example, is short USDTRY exposure. Implied carry of +30/40% annually was an attractive proposal. You only required a small exposure to hit year-altering yield/return levels. I can confirm that this allure was tough to resist; in fact it was often only risk manager/position limit constraints that prevented further progress towards the siren’s call, for a period of more than 18 months. Unfortunately, ignoring the danger of the potential adverse movement of a centrally-managed currency saw a c.15% drawdown in a single trading day cause unimaginable pain to these previously rather comfortable ‘long carry’ positions, wiping out any forecasted returns and more, whilst forcing crystallization of the losses.

I still make a good deal of these errors myself and am focusing this year on minimising biases, hence the train of thought spawned whilst reading about recency, anchoring, confirmation and loss-aversion biases. The market comprises human behaviours, given the nature of the agents - either acting directly, contributing to investment committees, or engineering programs. Keeping the above ancient biases in check can of course help with decision making and thus refining your process… although it feels to me that this is a lifetime of mastery; perhaps an impossible task!

Setup Series #2

[05/03/26]

Setup Series #1 was aimed at identifying crucial price inflection points using technical analysis alone. If that was the science, this is the art. The market we are currently in this week is ‘fast’. High volatility and incredibly headline-sensitive prices make it difficult to trade. You have to be quick to cut anything not working [T] or give anything longer-term [S] more room, whilst vol-adjusting your sizing lower. Fading Middle-Eastern war (or the prospect of) in its infancy has in the past been a profitable strategy. The market attempted this on Monday and has come unstuck; price action since has been incredibly messy, with correlations not always ‘traditional’, given that risk-reduction (sometimes referred to as a VaR shock) and the reversion to flat of portfolios can lead to some divergent cross-asset moves that do not backtest well. This cocktail of fast price, correlation breakdown and unique fundamental read-through of the unknown energy market disruption tenure is leading me to trade - or at least monitor - the market in a way that I often find useful and will share the live example:

Simplistic thesis: “I expected the market to buy JPY as a safe-haven. I know Japan is a net energy importer; also a global manufacturing hub, ergo the higher input costs are worsening the Takaichi-policy-driven JPY weakness that has been evident. Nevertheless, I had expected the current US/Iran conflict to shift market driver decisively from idiosyncratic policy RV > global risk aversion flows”.
My core fundamental belief is that a much weaker JPY as a result of this conflict and the crude/LNG impacts will mean it is EVEN harder for the Japanese MOF/BOJ to put the genie back in the bottle if they end up intervening at 160-165. The runaway weak JPY train is leaving the station and may leave quickly if this risk aversion phase has not seen it appreciate. My belief is that fair value in USDJPY is closer to 140-145 by year-end and I was hoping a broad move lower in the USD, followed by a normalisation BOJ monetary policy (April hike) would get this move underway. I am not fighting the JPY move meaningfully at the moment, as it is not trading as I had thought it would and I do not want to get caught on the wrong side as said train leaves. I have a couple of options, but am looking for a signal to engage in cash.

The method: basket monitoring. Rather than monitoring or trading USDJPY, I scribble down the XXXJPY lows that look relevant pre-post conflict outbreak. I have highlighted the EURJPY lows around 182 for two reasons. A) this level is relevant in the micro-term both last week and this week. B) this is in a way an RV cross to monitor in the sense that both the Eurozone and Japan are heavily dependent on energy imports and their currencies have been hurt through this outbreak. These five crosses should therefore vary in terms of unique risk sensitive characteristics and the net position the market has on in each in a VaR-reduction phase. The aim is to reduce noise, trade a JPY view without dilution and enter at an opportune moment, by diversifying the expression and increasing expected value via selective entry.

The levels can be used individually, whilst still harnessing diversification:

(1) Selling a basket of 20% size in each CCY cross and adding to the exposure only if/when the pair crosses the support.
(2) Selling technical breaks if/when any of the below cross their support, with trailing stops.
(3) Buying short-term put options on the break of respective supports, limiting downside.

However, I think the real power in this method, and how I will use it here, is for signal generation. I referred to this technique in my ‘Preparation’ post with the G10FX monitoring grid. Using a traffic light system here can help provide the signal for a larger position or higher conviction in the more liquid and level-critical USDJPY - also the likely vehicle of any intervention.

Red = 1x cross below s/t support
Amber = 2x cross through s/t support
Green = 3x cross through s/t support including EURJPY below 182

On green, you may have missed the first X% of a multi-% move in USDJPY, but in my view the expected value of the trade is then high enough to spend the money on the premium and to be more comfortable that the ‘noise’ has been silenced to distil the JPY-specific signal.

Homework #1

[25/02/26]

Before I begin - I have absolutely zero relationship to the content providers. This isn’t an affiliate push; I’m not a Macro Hive subscriber and I do not know the interviewee, Alex! I’ve just bought the book myself… full price :).

Quite a few subscribers have reached out independently to ask for any recommended reading on macro trading more broadly. Outside of the ‘big 5’ markets books or Hollywood film, it can be tricky to source and a minefield of unqualified tuition. As pledged in the bio, if I read or learn something along my journey, I’ll share it. This is one of those moments.

Last night, a friend recommended I listen to the below podcast (Apple & Spotify links to follow). Five minutes into the podcast, I paused it to buy the book. This is abnormal behaviour for me. I own just three trading books in hard copy, despite reading as much as I can online. With zero prior knowledge of interviewee Alex, nor any desire to fact-check the introduction or dig deeper, it was the chapter titles that were précised in the interview that struck a nerve. The pillars of macro trading. I try to both think and present my own thinking in blog form in a similar way, yet am far less qualified/successful than Alex. The first few principles referenced (no spoilers) were ‘swimming with the tide (trend or carry)’, ‘getting chopped up’, ‘stop usage’, ‘portfolio paralysis’, ‘failing to make money when you have the correct view’, ‘risk of ruin’ and ‘the psychology of FX option usage’.

View affirmation/correlation, nor the lion’s share of the subject matter re AI and lower rates in the US were the main point of interest for me. In fact, I only listened to the podcast because of trust in the person recommending it to me. It was, in entirety, the structuring of his thinking and his personal opinion of the main pillars of trading psychology and the difficulties faced when pushing yourself to be uncomfortable in your risk taking - that I already know from my personal experience - are absolutely spot-on. I found myself needing to know what else he believed to be crucial learnings of his investing career. Genuinely wanting the knowledge and requiring confirmation that I had also experienced these opinions.

I find his stance to be refreshingly direct and pragmatic. His view on how to manage his own psychological biases and those within the housing infrastructures of the industry, from own-account to macro pod, are in my opinion correct. I think you only get these specific opinions by learning the hard way. There’s immense value in that.

Please enjoy at your leisure, whilst we await a tradeable USD theme or clear break in equities!

Ep. 346: Alex Gurevich on US R… - Macro Hive Conversations With Bilal Hafeez - Apple Podcasts
Ep. 346: Alex Gurevich on US Return to Zero Rates, AI Productivity, and Managing Portfolio Paralysis - Macro Hive Conversations With Bilal Hafeez | Podcast on Spotify

A sporting analogy

[12/02/26]

A recent combination of partial profit-taking and user-error with a new brokerage platform left me with a short vol position in an instrument that had rallied 400% during the past nine months. As of Jan13, I was short 90 calls in XAGUSD (thankfully, not in fate-defining size), with spot at an ATH of 85 upon inception (green circle) and two weeks of exposure pre-expiry to manage (Jan28: red circle). During that time, as a result of minimum-unit constraint and broker spread, it was not possible to immediately flatten the position and take the loss - instead I would have to hedge a short gamma exposure throughout the coming fortnight - in essence, I would have to buy XAG incrementally as it rallied, only to sell it back out again if/when XAG fell (represented by the directional arrows).

For anyone less familiar, the cash-flow looked like this:
Jan13: Erroneous XAGUSD 90 call sale. Premium X received from buyer.
Jan13-Jan28: Scaling into long XAGUSD position during a move higher in XAGUSD, given that upon exercise (XAG>90), I would be left short XAGUSD at 90, so needed to buy the underlying back.
3pm GMT Jan28: If XAGUSD is above 90, I sell XAGUSD to the buyer of the call at 90, having ideally already covered said exposure in the market. If XAGUSD is below 90, the option expires worthless. Premium X is kept in either scenario.

Of course, when you sell an OTM call option, the best case scenario is that the price never trades higher; upon expiry you keep premium X and no hedging is required. Doing nothing throughout the life of the derivative risks ruin (imagine if XAG was to rally another 400% pre-expiry) and is not an option. The issue with ‘delta hedging’ i.e. the activity defined by the arrows below, is that the losses and transaction costs associated with the repeat buying/selling of the underlying during unprecedented intraday volatility can quickly balloon; becoming far greater than the premium initially received. The process is enormously energy-intensive.

This, by definition, was therefore the worst case! Not only did the price rally; the volatility was face-ripping and the direction was anything but singular. XAG rose 43% in the first 12/14 days, then fell 25% into expiry on the 14th and final day. This was one of those ultra high energy expenditure trading periods during which the culmination of sleepless nights was a small loss, yet a feeling of enormous satisfaction that I had not hesitated to pull the trigger during any of the hedging and had actively traded and covered the risk throughout.

This was not my first time managing a short volatility position, nor my first time trading an instrument realising 100% volatility or trading a liquidity vacuum. It was, however, my first time doing this outside of a traditional financial institution, without high-tech risk warehouse tools or cross-time-zone colleagues, and got me thinking about how and why this felt so different; ergo how I could shape this into some form of advice or experience-forwarding.

I reflected upon how much easier managing a short volatility position was at a bank. If I was to compare it to speculating on a football game; when you’re trading at a bank, you’re on the pitch in the starting 11. You have occasional access to the ball. You’re the beneficiary of sensory overload and heightened communication. You know what/where/when is happening on the pitch and can even focus on the ball and use your ears to distinguish the areas of the pitch (trading floor) action is occurring on. You perhaps even have a VR goggle-equivalent in the form of AI-assisting tools to help you play and place bets upon the game. You have direct earpiece connection to players of other sports in adjacent stadiums and those on your team playing in other countries, and can converse with other major football speculators and game-strategists in real time; not to mention world-class timely commentary of all things football and beyond - even psychological coaching. Why does this make it easier to play and speculate upon the game/manage an intraday FX position (which a short volatility position invariably is)? Zero delay, world-class technological assistance and direct communication and coverage from team members in all time-zones. Essentially, first-person visceral playing.

So, if a bank trader is the player on the pitch, what is the Hedge Fund PM? Somebody sitting inside the stadium, with very good seating and communicative access to the players, high-stakes speculating upon the intra-game and league outcomes. The same googles, earpiece and research-backed edge; coupled with the vantage point and direct feedback advantage - particularly relevant for intra-game calls.

Finally - the experience I describe above - the retail trader or independent money manager. These are people outside the stadium, watching the game on a big screen whilst speculating on the game. The score is always in view on the screen and most information is public, however unless the phase of play is within single-shot on the screen, there can be difficulty following all aspects of the game at once. Action must be sought-out and is not presented to you. Commentary must be purchased. Technology is now sufficiently great that the risk warehouse (systems) substitute, pricing, trading commissions and delay-minimization have all served to make this as immersive an experience as possible, but you’re certainly not benefitting from visceral game-play or stadium access.

This is not a begrudged realisation; rather a view on edge-retention. Taking bets upon the number of throw-ins, corners or possession stats in said game is without-edge when you’re outside the stadium. Laying those odds, even less-so. In fact, I would argue that outside of penalties and free-kicks, during which binary events you’re able to distinguish an edge through research, modeling and deep-thinking, you’re better-off avoiding betting on intra-game nuance.
Outside of the stadium, you can adjust your trading to compensate for latency and the lack of visceral participation. Obsessively following teams and betting on player performance, scores, league outcomes and occasionally identifying the asymmetry into a penalty shoot-out is edge-retention. I would argue that with a healthy network of football fanatics and academic research, the disadvantage during greater time horizon speculation is minimal. The learning for me: bet only where you know your edge isn’t depleted, whilst using resources wisely. Day trade only when you’re certain you have an edge or when that trade forms part of a longer-term strategy. Entering short volatility positions will not form any part of my strategy. Unless attempting to pre-emptively enter a spot position at a desired level (see B.T.A.D), hence not planning to delta hedge, I will be net vol buying only.

Setup Series #1

[01/12/25]

I will save the debate surrounding the merits and application of technical analysis for another time/post, but a fitting starter for this series of trade setups is the use of lateral/horizontal support and resistance levels to dictate range breaks and identify trading opportunities. Exploring this foundational theory as I believe it to be a solid starting point, with no prior macroeconomic knowledge necessary. I am focusing on lateral support and resistance levels, as opposed to upward/downward sloping trend lines and channels. The logic is that the former are easier to recognise, are often strong signals and can be monitored clearly on either an intraday or closing basis. A clear strategy and parameters can be set around them, with little debate as to the levels.

One aspect to consider here is the mechanics of the setup, i.e. what is actually happening. At a certain price point, a single buyer(seller)/group of buyers(sellers) are transacting in a way that prevents a further movement in the price, which then reverses. There is no visual difference between a self-fulfilling setup (i.e. herd mentality of market participants and systematic traders aligning to engage repetitively with buying/selling of the instrument at a certain price point) and an orderflow setup (one large market participant transacting at a certain level - for example a corporate or central bank). Crucially - despite the pattern recognition, charting analysis and trade execution being identical and therefore differentiation irrelevant, it can be argued that you are more likely to successfully trade around the level if it is of the orderflow variety. A brief moment in the multi-trillion dollar market puzzle, in which activity is sufficiently large enough to unveil one piece of that puzzle. Therefore, important to know that when monitoring an index or basket into these levels (eg, BBDXY ‘dollar index’) it is harder to rationalise the continued rejection of a specific level as an ‘orderflow setup’. However in a single transacted product (i.e. EURUSD, single stocks, copper futures) or an equity index that is traded as a product itself in futures form (i.e. Nasdaq), then this mechanical orderflow can absolutely be the reason for the price congestion, followed by an impulsive break. There is, therefore, logical reasoning behind trying to identify these set-ups in specific traded cash instruments as you familiarise yourself with them, as opposed to baskets. A) the chance of identifying an orderflow-level is higher (more impulsive move through the level once the order is filled and B) the instrument to directly implement your trade idea is both liquid and accessible via most brokers, as opposed to trying to construct your own basket or synthesise the product.

Upon recognition of the level (3x hold of a single price point or channel, for example), trading setup can be take many forms, with the common thread being risk-reward. Let’s assume the level we are monitoring is a support level.

1) Buy ahead of the support level. Cut on what you consider to be a ‘clean/true break’ of said support level. Ensure the target take profit (TP) level ensures the risk of the potential loss between your entry level and your stop loss (SL) on break confirmation is worthwhile.
2) Wait for your confirmed break level to be breached, then sell through this level. Set a SL level where you deem the break of support level to be invalidated; this is your risk. Set an appropriate TP level and target for the trade.
3) Buy above; flip short beneath. This requires much higher confidence that the level is crucial. The first component of the strategy is a mean-reversion play. The former is a break-out play. The support level is the pivot for regime change and you’re approaching the market with the view that the level is SO important that either OR both strategies will work.

A great book on this is titled Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders. C Faith, 2007. It’s probably not worth reading the entire book (a trading reading list to follow), but I think researching a precis of this style of trading that is a very systematic and simplistic method of recognising and monetising range breaks would be helpful. The book, written by a subject of a 1983 systematic trading experiment, details the systemising of a simple trend-break strategy and demonstrates that this setup can be deployed with minimal financial markets background or cross-asset analysis. A rudimentary form of algorithmic trading strategy.

Workable examples:

EURSEK 11.12 lateral support break, followed by formation of 11.09 resistance. Strategy 2 effective.

USDJPY longer-term band of 139.57-140.25 holding 3x as major support. Strategy 1 effective.

USDZAR 17.50 pivot with 2x false breaks highlighted; otherwise holding. In this example, Strategy 3 would have been problematic.

Drawdown Management

[24/11/2025]

A few tips for psychlogical and risk management when it all feels like it's falling apart.

1] Flatten the book and rebuild. I've learned this lesson the hard way a few times. You're trading a hyper-liquid asset-class, so should be unafraid of using the cheapest 'eject' button of all. When a line item morphs from a plan to a prayer, it's time to regroup. Clear book; clear mind. Helps to eradicate unhealthy biases and instead of 'digging your way of out of a hole', the mindset can be 'starting again from... now!'.

2] Simplify the process. Return to cyclical trade lifecycle. A: Think, research, chart. Consider about the cross-asset rationale. Plan the idea and levels. B: Execute the trade; stick to the desired entry levels. C: Cut the risk; profit/loss. Ensure you preserved the risk-reward ratio as this is ultimately the only thing that will safe-guard your process as the data series builds. You're just experiencing a temporary probability distortion as the data series is not yet large enough. D: This, for me, is the most important and the quadrant often missed, which can interupt the cyle of deep thought. Closure. Analyse the trade; why did it work? What could've been done to improve it? Which of your trade-planning assumptions were correct and which were not? Journal this part; it can help minimize recency bias into A#2 and serve as an antidote to 'revenge trading'. Repeat.

3] Filter for half-baked ideas during Stage A. Use a star system. Only if >3/5 stars are satisfied; execute.

4] Actively eradicate human bias. Stare at the price panels with a neutral mind. Write all of the support/resistance levels out with equal effort attributed to all instruments. Don't resort to the products you've had your biggest wins with or are most familiar with. Your adge is in your identification of asymmetry and opportunity. Sure, you've got to be comfortable, but these multi-trillion dollar markets are sufficiently liquid and populated that you may be overestimating your single-instrument edge.

5] Take time away from the screen. It is unlikely that the next 4/5* idea, for which youve thoroughly completed the quadrant A process above, will present itself to you within hours of you just taking a large loss. Even days. The benefit of you approaching the next capital deployment with a clear mind and lower absolute stress level will by far outweigh the opportunity cost of the hours or sessions spent spectating vs participating. 'Chopped up' is the devil.

6] It happens to everyone. Every risk taker, every asset class. The difference is in the humility of the response, in my experience, as well as how far it's left to run before step 1 occurs.

7] Don't forget to breathe. I've planned to write a post with this title, and will do. Relaxing into it; realizing most of the pressure is coming from yourself and the desire to succeed in what youre pouring all of your waking energy into. Above all else, realising you've not yet lost your seat and you’re still in the game. It doesn't take much to get back on track!

Drive the perfect race

[28/08/2025]

Three quotes/concepts that were revelations, in hindsight.

(1) A bank market maker once described trading as an endless quest to drive the perfect race. Formula 1 fan or otherwise, it’s difficult not to relate to this as a risk taker. The analogy is apt - essentially a complex sequence of (mental) movements, timed to perfection, supported by technology and with a heavy layer of participant/peer behavioural psychology and game theory, in order to win what is essentially a competition on repeat. All while battling every human bias in the book.
The reason this explanation sat with me is not because of the sporting comparison, but the second derivative. The psychological traits required to participate and the psychological impact of pursuing a perfectionist endeavour that is knowingly as good as impossible. The asymmetry of outcome satisfaction becomes apparent and can be dangerous. How does a driver (trader) feel when winning vs losing, when the win-type is imperfect. Is the payoff of short-term self-flagellation net-beneficial when it dilutes victory satisfaction, with the life-long aim of sharpening the skill to eventually ‘drive the perfect race’? Are the losses meant to hurt and the wins meant to buzz in equal measure? What is the enlightenment-akin happiness payoff expected, if/when achieved? Is satisfaction possible without it?
"Shokunin" (職人) is a Japanese term that signifies a craftsman or artisan, but its meaning goes beyond a simple job title. The term signifies the life-long pursuit of perfection; a person who has dedicated their life to mastering their craft; possessing a high level of technical skill and knowledge gained through years of rigorous training and apprenticeship.

(2) The comfort-zone is defined by a number of parameters when professionally trading within an institution. Non-exhaustive: product suite, peer performance norms, end-goal management/career aspirations, relative exposure to industry high performers, salary/bonus split, time of year, team/individual VaR budgets and expectations, intra-firm politics, lifestyle expenses, tenure in role. I’d defy anyone preaching that they are constantly pushing the envelope, but I recall a conversation that changed the way I thought about trading during an interview. The interviewer, who had traded on both sides of the buy/sell-side fence, and whom I looked up to, told me that 15 years into his career, he actually started trading to win. What he meant by this was that he had forced himself to transition from majority-market-making, where you’re often trading intraday from a position of strength and attempting to enhance and leverage an expected ‘book value’, bound by many of the parameters above, to a mindset of trading to maximise absolute returns. With that came additional drawdown risks and a profound shift from a defensive to an expansionary mindset, accepting the seat-insecurity that accompanied such a shift and the career uncertainty that followed, but targeting and harnessing the uncapped progression and gains that can accompany a successful transition. The reason this concept stuck with me was the notion that the learning doesn’t finish, which dovetails nicely with Shokunin.

(3) Finally, a trifecta of thoughts for all participating in the field. An ex colleague, when training me, often repeated the mantra “discipline wins the day”. Whilst not mutually exclusive from quote (1) above, I believe that in a world of endless styles and horizons, this is the pillar of trading that is fundamental for long run success. I’m very often guilty of ‘sloppy’ phases of play. In its rudimentary form, this can mean hesitating with a stop-loss, sizing-up too quickly or getting greedy with an idea. Distilled: not planning, or not sticking to the plan. The quote “the person who does best is the one with the panic button furthest from his keyboard” (Chase Coleman, Tiger Global) can, if followed, elicit moments of brilliance (limiting market involvement/position liquidation amidst times of stress and dislocation), but in the same way as a vol-selling or mean-reversion strategy, it works until it doesn’t; sometimes with disastrously unlimited consequences. I don’t share this for fear-mongering purposes, but as a simplification model. In a binary world, the ill-disciplined aforementioned approach makes for a stressful and emotional existence, requiring faith and calm above all else. The polar opposite is a highly disciplined and downside-protected approach, whereby losses are an expected part of the game, trades are planned and plans are adhered to. I’ll leave you with one final quote - incidentally from the same mentor and former colleague: “there are old pilots and bold pilots, but no old, bold pilots”. Do with that what you will!