This is Week 50
50in50 uses the case study method to go through one real-time trade in detail, about once per week. This Substack is targeted at traders with 0 to 5 years of experience, but I hope that pros will find it valuable too. For a full description of what this is (and who I am), see here.
If you want to learn about global macro in real-time … subscribe to my daily: am/FX
Listen to this as a podcast on the web … or Spotify … or Apple.
It’s hard to believe, but this is the fiftieth and final week of this project. 15,000 subscribers and 150,000 words later, I hope you have found 50in50 to be informative and educational. I had fun writing it and the process of thinking through all these concepts one by one has even helped me unlock some new ideas and approaches myself. I hope you too were able to extract some useful framework upgrades.
The lessons presented by 50in50 are self-contained and mostly speak for themselves. Each week, I tried to pick a particular concept and focus there. But while each lesson on its own contains much specific learning, there were also some broader lessons.
I try to keep each week of 50in50 to around 3000 words or less, and my post-mortem and takeaways are almost that long on their own. And I want to conclude the series with some bigger-picture thoughts on the existential aspects of a career in trading.
Therefore, I will put the post-mortem and takeaways as the conclusion to the Fifty Trades in Fifty Weeks book. That also puts some original material in there to motivate people to wanna buy the book. It will actually be two books because there is too much content to fit in a single book (lotta words and a lotta charts!)
Turning 50in50 into book format is not meant to be a cash grab. I wasn’t planning to make a book out of this, but I have had many people suggest and request that we do so. So why not! We’ll price the softcover fairly and make a more expensive hardcover version for enthusiasts and collectors. And the Substack will stay up and remain free.
Also, FYI, we are going to be launching a slightly more formal markets education series soon. It will be called Spectra School, and should be up and running by the end of the summer.
Analyzing the Results of Fifty Trades in Fifty Weeks
One big takeaway from the series is completely unsurprising: I don’t have an edge doing fifty random trades in asset classes where I have no specific expertise. This was not surprising to me and I wrote about this a few times at the start of 50in50. The sample trades in 50in50 are designed to highlight a particular topic, and most of them had no intrinsic edge.
On the other hand, my FX trading P&L is consistently profitable over many years because I have an edge and tons of experience in FX and macro. When I traded NASDAQ stocks full-time during the dotcom bubble, I also had a defined edge (bid/offer capture in the direction of futures momentum + front running Level 2).
But in 50in50, when I put on a sample trade in oil, ARKK, BTC, or some other asset class in order to demonstrate a particular concept… I am unlikely to have a huge edge. The P&L on the entire exercise was extremely close to zero, including estimated transaction fees.
I am still bearish TSLA and Ford, but for a clean finish here, I am going to mark everything to market and shut it down. No new trade this week, just some big-picture closing thoughts about trading for a living.
Here is the detailed P&L spreadsheet:
Zooming in on the summary statistics:
Perhaps more telling is the breakdown by asset class:
I focused a lot on single stocks in 50in50 because it’s easiest to tell a simple story in stocks, while in FX and other asset classes, you very often need to provide much more background information. I also didn’t want to do much global macro because that is what I write about every day in am/FX (my real job) and it felt like there would be too much duplication.
Logically, the macro trades (equity indexes, FX, and bonds) did the best while the single stocks, commodities, and crypto did the worst. That makes sense! I have an edge in macro but not in trading US-listed common stocks.
Like I said in Alpha Trader: The most likely path to success in trading is to choose one market and master everything you possibly can about that market. Pick a market and master it. For me, that market is FX.
This comes through in the P&L of my real-time trades published in my daily newsletter, am/FX. Here are the results of my am/FX trades going back to the day I started at Spectra Markets (September 2021). These trades are all published and marked to market in real-time. The risk is $100,000 on each trade.
I publish the am/FX trade results, in detail, each quarter, but the detailed xls with all 92 trades won’t fit in here so I am only showing the summary stats. These stats are consistent with my performance over many years in FX. I started keeping track in 2006 and most years I put up something close to a 50% win rate. Historically my daily avgWIN$ / avgLOSS$ = 1.8. For more on P&L tracking and analysis, please see Chapter 11 of Alpha Trader.
As mentioned earlier, there will be a more substantial analysis of the hits, misses, ups, downs, and takeaways at the conclusion of the “50 Trades in 50 Weeks” book. Estimated publication date is late summer.
Three Existential Questions
When it comes to trading for a living, three existential questions pop up most.
When things are not going well, how do you know when to quit?
How do you deal with bad managers and bad trading environments?
How do you deal with making a ton of money from a pursuit that adds no value to the world?
The third one is obviously one of those high-class problems that will sound stupid to some people, but it’s relevant and important. There is a weird existential angst that can invade your psyche when you receive huge financial rewards for pressing buttons and watching numbers go up and down on a screen. This issue can feel especially acute if you come from a lower or lower-middle-class household, as I did, or if your parents did societally-beneficial jobs that involved some combination of make, protect, or teach.
Let’s take these questions one by one.
1. When things are not going well, how do you know when to quit?
The word “quitter” has a strong negative valence. Society hates a quitter. They make posters like this to remind you:
But this is bullshit. In fact, good traders quit on trades every day. That’s what stop losses are for.
You must cut your losses in trading and there is a time and a place to cut your losses in every facet of life. Whether it’s a single trade, a particular trading job, or trading as a career, there is definitely a right time to quit. Quitters win by quitting the game where they have no edge and picking a game they can win.
The ability to stop out of a bad position is a learned skill that makes you better at trading and better at life. Sticking around in a bad trade, job, friendship, marriage, or investment for too long can be disastrous.
Thing is, though, switching costs are high. You can’t stop out of a marriage or a job the first time something bad happens. You incur risks and costs every time you change your mind, whether that’s transaction costs, reputational risk, or alimony. But eventually there is always a line below which you should stop out.
One of the most frequent request-for-advice emails I get goes something like:
I have been trading for 2 years. I am gross positive but net negative. I feel like I can do this, but my wife is getting antsy, I have a 2-year-old about to start daycare and I just got offered a tech job that pays $77,000/year. Should I quit trading? Or keep pushing to get over the hump and become the trader I know I can be?
This is hard to answer!
One trader that worked for me who did not have the x-factor told me, a few years after he pivoted to a job that fits him much better, that he wished someone had told him earlier that he wasn’t suited to be a trader. He could have moved on to a new career that fit his personality and skills more quickly instead of wasting five years in a trading job that he and I probably both knew was not the best fit.
This is a useful insight. Not everyone was born to be a trader… Even if they successfully complete a sales and trading analyst program at a major bank.
I almost gave up. A few times.
In December 2007, I was beaten down and frustrated. It was my worst trading year ever and it looked like I might finish negative on the year. When you work in a market-making seat at a bank, it is uncommon to have a down year and I was proud of never having finished in the red. After this long and frustrating period, all I wanted to do was finish the year in the black. Even by $1.
Every time I got close to zero P&L, I would lose money again. By mid-November, I had gone from down $2.5 million back to $250,000 in the black and was thinking about making one last push to finish with a number that might be at least respectable. I finally felt mildly optimistic for the first time in ages, after almost an entire year of battling repeated cycles of frustration and despair.
Then, a brutal turn. A salesman slinked over to me with his tail between his legs and told me there was an outtrade in my book. Negative $700,000. That put me back to minus $450,000 with less than two months in the year. Gross. I grinded out the next few weeks and was finally up tiny YTD, about $200k, on the very last day of the year.
At 10 a.m., our toughest client called and wished me a happy new year by ripping my face off to the tune of $600,000. Despite what felt like a heroic effort to the very last day, I ended the year in the red.
This is impossible. I am the worst trader in the world.
I e-mailed my wife: “This is impossible. I don’t think I can do it anymore.”
I walked out of the office miserable that day. But the sun came up on January 1. Slowly, the frustration dissipated a bit, and the prospect of a new year gave me some hope. Despite that exhausting and disappointing year, I hung on and kept going.
Twelve months later, I was staring at my best year ever: Over $50 million of P&L. Sometimes the thing is just to keep going. As Joe Mauro said in his classic 2016 e-mail to the Goldman Sachs analyst class: "Keep running."
But the thing is, that’s a survival story. There are so many traders that do not succeed, that it’s important to be realistic.
Unfortunately, there is no correct answer here. Think about the musician or artist who toils in obscurity for 10 years and then finally makes it big. The baseball player who toils in the minor leagues for years, never quits, and gets called up to be the hero in September at age 31. Trading can be like that. It’s nonlinear. Most people never make it, but the few that do are rewarded big time. And you need hella grit to get over the hump.
Since not everyone is cut out for trading, part of the decision-making process for many traders is figuring out when to quit. When you have invested significant time and money into your trading career, how do you know when enough is enough? This is a hard question to answer because success in trading only comes with extreme perseverance and experience. Therefore, by its very nature, trading rewards those who refuse to quit.
You have to recognize that for most people there will never be a clear sign from the heavens that tells you exactly when enough is enough. If you have been trading for more than two years and you are not making significant progress, that is a bad sign. I would say that anyone who has been trading for more than three years and does not feel confident that they are on the right path, is probably on the wrong path.
Not everyone can succeed at trading. If things are not working out after two or three years of effort, think about what comes next. Can you parlay your trading experience into another job or pursuit? Investing, financial planning, research, etc.?
I realize my answer to Question 1 could feel unsatisfying, but it’s a personal question only you can answer. If one day you find yourself thinking: “Ermmm… Maybe I suck at trading… Maybe I should do something else”… Set a deadline or establish clear objective metrics for when you will quit. That way, you have a clear exit strategy and you don’t just keep trading until you blow up.
Say “If I’m not X profitable by date Y, I’m done.” This will help keep you rational and avoid the constant repetitive loop where you ask yourself the same question over and over.
Deciding when to quit a career is hard. There is no way around this fact.
2. How do you deal with bad managers and bad trading environments?
I answered this question in Week 13: The Most Important Trading Decision. Give that a read later. Here is a short summary:
Trading is hard. Your odds of success are heavily influenced by the seat you choose. I have worked as a retail trader, as a market maker at a bank, and as a hedge fund PM. My decision to switch jobs was usually driven by a failure on one of the metrics I describe below.
Here are common features of the best places to work as a trader.
Healthy trading environment (this is the big one; I go into detail in the post).
Your manager believes in you and gives you enough runway to screw up now and then. You will screw up at some point and what goes down between you and the firm at that point is critical.
No micromanaging. A great trading manager who trusts his peeps checks the P&L once a week, not four times a day.
The company or division you work for targets revenue growth more than cost cuts. It’s much more enjoyable to work for a company that is trying to grow, not one that is trying to cut. And you’ll get paid better.
Passionate peers and a mentor who all love trading as much as you do.
Filled with people that are hungry, smart, and humble.
It is almost impossible to succeed in trading without a healthy trading environment.
3. How do you deal with making a ton of money from a pursuit that adds no value to the world?
First of all, let me address the fact that there is an implicit assumption in that question. The implicit assumption is that trading doesn’t add value to the world.
Some will disagree with that and make arguments about liquidity and price discovery and all that. Sure, financial markets do that as a whole, maybe… But financialization has morphed so cartoonishly over the past 25 years that I am pretty confident in saying that financial services are a rent-seeking operation more than a societal value add at this point. It’s fine if you disagree. This is just my subjective opinion.
Here is what Paul Volcker had to say on the subject:
I hear about these wonderful innovations in the financial markets and they sure as hell need a lot of innovation. I can tell you of two — Credit Default Swaps and CDOs — which took us right to the brink of disaster: were they wonderful innovations that we want to create more of? You want boards of directors to be informed about all of these innovative new products and to understand them but I do not know what boards of directors you are talking about. I have been on boards of directors and the chances that they are going to understand these products that you are dishing out or that you are going to want to explain it to them, quite frankly, is nil.
A few years ago I happened to be at a conference of business people, not financial people, and I was making a presentation. The conference was being addressed by a very vigorous young investment banker from London who was explaining to all these older executives how their companies would be dust if they did not realize the joys of financial innovation and financial engineering, and that they had better get with it.
I was listening to this and I found myself sitting next to one of the inventors of financial engineering who I did not know, but I knew who he was and that he had won a Nobel Prize, and I nudged him and asked what all the financial engineering does for the economy and what it does for productivity. Much to my surprise he leaned over and whispered in my ear that it does nothing. I asked him what it did do and he said that it moves around the rents in the financial system and besides that it was a lot of intellectual fun.
Now, I have no doubts that it moves around the rents in the financial system, but not only this as it seems to have vastly increased them. How do I respond to a Congressman who asks if the financial sector in the United States is so important that it generates 40% of all the profits in the country, 40% after all of the bonuses and pay? Is it really a true reflection on the financial sector that it rose from two-and-a-half percent of value added according to GDP numbers to six-and-a-half percent in the last decade? Is that a reflection of all your financial innovation or is it just a reflection of how much you pay?
What about the effect on our economies [taking] all our best young talent? In Britain, I was just talking to a high-tech company about the immense attraction to go into finance when both Britain and the United States are suffering from a basic inability to produce things competitively.
The most important financial innovation that I have seen the past 20 years is the automatic teller machine, that really helps people and prevents visits to the bank and it is a real convenience. How many other innovations can you tell me of that have been as important to the individual as the automatic teller machine, which is more of a mechanical innovation than a financial one?
I have found very little evidence that vast amounts of innovation in financial markets in recent years has had a visible effect on the productivity of the economy, maybe you can show me that I am wrong. All I know is that the economy was rising very nicely in the 1950s and 1960s without all of these innovations. Indeed, it was quite good in the 1980s without Credit Default Swaps or CDOs. I do not know if something happened that suddenly made these innovations essential for growth. In fact, we had greater speed of growth in the 1960s and more importantly it did not put the whole economy at risk of collapse.
Anyway, it’s debatable, but my view is that trading is great for the successful individuals, but at best net zero for the world at large.
Losing money on purpose?
If you are uncomfortable with trading as a career because it conflicts with your beliefs and values, you may find that you self-sabotage as a reaction to the dissonance.
“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.”
- Ed Seykota
I remember first reading about the subconscious desire to lose money trading in Mark Douglas's book Trading in the Zone. I was 27 or something, and I thought “That’s stupid. Nobody does that.”
Now, I understand how wrong I was.
When you trade, a huge percentage of the mental processing that happens goes on in your subconscious. If your dad taught elementary math and made $44,000/year and you make $48,000 in fifteen minutes arbing the S&P rebalance… Your value system and beliefs can feel a tremendous dissonant burden. On the one hand, you are consciously ecstatic, but on the other hand, your subconscious may be screaming:
“THESE BE ILL GOTTEN GAINS! Rewards like this require hard work. You just pressed a few buttons. This is nonsense. Begone ill-gotten gains!”
And then you find yourself going into some random trade, and losing 33k for no reason, and you leave the office still up 15k, but furious with yourself.
When I hired new grads to come work for me on FX trading desks, I always gave them small limits to trade for real right away because I don’t believe that paper trading works. Taking real risk requires different skills than watching markets and putting on theoretical paper trades. Most of the hard part of trading is psychological and there can be some crazy stuff going on in your head when you take real risk.
So the first thing you need to do once you start making money is come to terms with it. It’s OK. Capitalism divides up the money in really weird ways. Place kickers in the NFL make millions of dollars every year. Kim Kardashian is rich for being a celebrity by being a celebrity. Mr. Beast is 1000X richer than the best teacher in the world. Life isn’t fair. Get over it.
Then, once you accept the initial weirdness of the disconnect between hard work or tangible output and income… You start to find out other things about success and financial gain.
I am “successful”! What does it all mean?
I just found a million dollars that someone forgot
It’s days like this that push me o’er the brink
Guns ‘n Roses, Pretty Tied Up, 1991
Once you start to achieve persistent success in trading, remember three things.
a) The money is great at first, but it will become less meaningful over time. Money/happiness is a non-linear curve that flattens out fast.
b) Now matter how good you are at it, trading will not give your life meaning.
c) You only need to get rich once.
a) Money vs. happiness
Don’t be surprised if your overall happiness doesn’t change much as you get richer. Half your baseline happiness comes straight out of the box, and the impact of money on the remaining part of your happiness is small and nonlinear.
Happiness has many inputs. Money is a small one.
The money vs. happiness equation is critically important to understand. Know your money vs. happiness curve. This is such an important topic. I wrote about it here and will excerpt a bit below.
Your personal money vs. happiness curve will depend on your values, your beliefs, where you live, your family size, and other things. Think about it in specific detail. Where will your money/happiness curve start to flatline?
In aggregate, the curve looks something like this:
The race for more money is a race you can never win because if your goal is just “more”… You are this guy:
It’s a weird feeling the first time you make life-changing money. You are beyond ecstatic for a few days and then you gradually revert back to however you felt before. Emotions, including the positive feelings you get from making money, are almost completely transitory.
Joy, like pain, is mean reverting.
Think about your history (childhood and young adult years especially) and how it might influence your trading performance. For example: if your dad was an electrician and your mom was an entrepreneur… Your subconscious might have trouble with the idea that in trading you magically pull money out of thin air without any traditional hard work and without producing or creating anything. You might find your subconscious repeatedly sabotages you in an effort to divest what it perceives as ill-gotten gains.
Many traders from blue-collar families struggle with this when they first find success. It is a strange and sometimes surreal feeling to generate huge income without producing anything tangible. Trading is not the only job where this is the case, but the sometimes sudden and gigantic income from trading makes it different from most other professions.
Believe it or not, there is more to life than trading. Think about the long game and your entire career. While it is fun to trade all night and live a fast and exciting life, you cannot do that forever. Trading on its own does not offer a path to meaning, no matter how much money you rake in. Financial freedom is one facet of happiness. Most research shows true happiness comes from: Health, relationships, family, friends, and a feeling of purpose.
While it might feel like your P&L ups and downs are a matter of life and death — they are not. Traders spend way too much time thinking about P&L and money and all the things it might mean to them. Focus on trading when you are at work and focus on relationships and activities you love when you are not.
If you have a good day, feel good about it. Be happy. Go celebrate. Order the Château d’Yquem. But don’t celebrate until you have taken profit! Celebrating while in a winning position is a recipe for disaster. Take profit, then go be happy.
Always remember…. Hills and valleys. Hills and valleys. Don’t let yourself get too high or too low. Regardless of your P&L, the sun will still rise tomorrow, your kids will still love you and even in the most extreme situation where you end up losing your job as a trader, life STILL goes on.
At the end of the day… It’s only money.
b) I’m a successful trader! What does this mean?
As you become successful in trading, look for other sources of meaning. If trading is the main thing that gives you excitement and fun, you are going to overtrade and possibly gamble at work. Trading must always be about the relentless and rational pursuit of profits, not relief from existential boredom.
For me, accepting that trading is a kind of meaningless but satisfying way to exist in the world, make money, and get paid as a writer was an important step toward finding peace.
Life does not automatically come with meaning. The meaning of your life is whatever you decide it to be. But don’t decide on money. If you think the meaning of life is to make as much money as possible, you will never be happy.
The meaning of my life is to love my wife and grow and learn and teach and spend time with my kids and spend time with my friends and write books. That’s my meaning. You need to find your own.
Making money allows me to pursue these other things I care about, and I am able to make the money in a job that is perhaps meaningless, but definitely fun, interesting, and intellectually satisfying. And through my writing, my job also gives me the creative outlet I need.
Think about your meaning of life and figure out how to use trading to move towards it. Trading doesn’t have to be the source of meaning. It can be the grease that allows the wheels of meaning in your life to turn freely. It can be the thing that gives you financial freedom and mental peace so you don’t have to worry about paying the rent. It can move you to the middle of Maslow’s hierarchy of needs, but it can’t take you higher.
c) You only need to get rich once
The final thing to consider is this: Once you have a good idea of your money/happiness curve and where it flattens out… Aim for that and reduce your downside risk when you get there. If you make $4 million dollars punting crypto, there is no excuse for giving it all back.
Buy some hard assets with $2m and keep trading the other $2m. Orient your life away from MOAR MOAR MOAR and towards things you care about like music, or art, or friends, or writing, or whatever. Optimize for life satisfaction, not money, once you get to the middle of Maslow’s pyramid. This graphic is another way of looking at the money vs. happiness curve.
Trading is fun, and it can be incredibly profitable. But it is very unlikely you will find the meaning of life in a high Sharpe ratio or a successful USDJPY pyramid after nonfarm payrolls, or even inside a bank account stuffed with millions of dollars of P&L. Money can be part of your life equation, but for a huge majority of people, it’s not the most important input.
Even if you believe that trading has no societal value, you can use trading as a means to a greater end. Trading can give you the intellectual stimulation you need and it can give you enough money to provide the freedom of choice to do those things that will give your life meaning. It’s not the money or the trading that have meaning, it’s what you do with the freedom and opportunity they provide.
Decide the meaning of your own life. Then move in that direction by taking massive, courageous action every day.
That’s it for this week! That’s it, period! 50in50 is over.
I hope you had fun and learned some new frameworks, tactics, strategies, and ways of thinking about markets and about life.
Oh, and hey… Don’t forget to sign up for Friday Speedrun.
My global macro daily is here
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DISCLAIMER: Nothing in “50 Trades in 50 Weeks” is investment advice. Do your own research and consult your personal financial advisor. I’m putting out free thoughts for people who want to learn. This is an educational Substack. Trade your own view!
The entire series has been great and this post tops it off! Thanks for sharing your work, I hope to read more of it in the future.
Listened & read every week and learned a lot. Great stuff, thanks Brent.