Brent Week

[Nella Mcnairy]

50in50uses 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.

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!)

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.

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).

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.

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.

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.

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?

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.

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."

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.?

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.

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.

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?

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.

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