A trader story, chapter 1

Most probably I had the trader bug since I was born. Do you have a memory about your early adolescence that you are not sure if it happened for real? Obviously this only works if you are Gen X like me or older. I was not 100% sure this was a real memory until my brother mentioned it during a speech for my wedding. In the early 90s my parents used to bring our family for an European Country car tour during summer: we did France twice, Germany, Croatia and then I think they got more bored than us and stopped. Now imagine a world where not only there is no internet, there are no mobiles as well. During breakfast in a random hotel in a random country where everybody speaks a language you do not understand, there is not a lot going on to occupy a kid mind. My father used to buy the Financial Times (or the Italian equivalent) so I had the last page open in front of my face 15 minutes every morning as a distraction; lucky for me, back in the days the last page was something comprehensible in every language: a list of names followed by a lot of numbers. One day I asked him about it and he told me it was a list of companies and their share prices (now, I do not really know how deep he went with the explanation but I think me and my brother got a good sense of it). He then invented a game for us on the spot: why don’t we pick a name and we see which one will have gone higher by the end of trip? I picked the last name of the list: Zambia Copper.

The experience itself was quite anti-climatic, at the end of the holiday ZC was some % lower compared to the start of the game, nothing memorable happened. The important part was that my father put the existence of the stock market on my radar.

I will use another example to explain how access to information, or the lack of it, was a defining aspect of those years, especially if you compared it to what we experience now. I started playing basketball quite late compared to other kids, around beginning of high school; we are in a small town in Italy, basketball is a passion some people have but few are vocal about it, kind of a secret society. One game, the opposing team starts to use screens and everyone in my team is stunned, no one had any idea what it was. Why? Because it was the first time we saw it. There were only three ways someone could have seen it before:

• on tv: Italy was (and is) a football nation, all the sport airtime was dedicated to that. Plus there were only few channels, not like now that you have in the hundreds
• by watching pros: a National League team was playing just 30km from my home, which is a trivial ‘space’ distance. The issue is that if no one puts on your map the fact that you can go indeed to watch a match, like your parents or your friends, you do have that idea out of the blue.
• by your coach: the only way to play was in a formal, team context. There were no playgrounds or pick-up games. Again, due to the cultural environment; I could and I did play random football games sneaking into closed fields because other kids did. Our coach never taught us about it simply because he thought we were not ready yet.

My 2 years old daughter has already watched more basketball on tv that I did in my first 20 years…and she does not like it. I bet you discovered that one of your friend has a particular interest because you saw it on a social network, not because he explicitly told you about it during one of your conversations. All of this to say that my story is as much about what I was born, my innate interests if you want, as the environment I was growing into as the information available at that time. Change one of the ingredients and the final result might be completely different.

Malcolm Gladwell wrote about this in a book called ‘Outliers’. You might have the right skills and the right predisposition to work hard on those skills but the final outcome is heavily influenced by elements outside your control. I want to tell you my story in the same manner. I considered trading as a closed chapter in my life, seeing the stats I did not want to write about it because…you should not do it neither! But I always ‘kept an eye’ on it, Corey Hoffstein is great at re-ignite your interest even if he is a quant, and recently someone else asked me some questions (which might lead to my audio and/or video debut), which made me think..and think…and here we are. Take it as an AA session where I will confess my sins and hopefully will help you to at least make more informed decisions…because there is always that 10% who actually makes it via trading.

Magic the Gathering

Since I started to recall my story, I realised how many things I forgot. It was probably again my father that introduced me to drugs MtG: he noticed the drawing of a dragon on a pack at his favourite newsstand and thought “this is going to be better than those footballer’s cards”. MtG is a Trading Card Game…which should be enough information to fulfil any questions on the reason why I am talking about it on a post about trading. The trading aspect is not central to the game per se but it is still a very central part of the experience; MtG taught me the concept of ‘value’ and how that concept is more often than not context-related…it also taught me at a very young age about scams and thieves. I will not go more in detail on this because if you played, you know what I am talking about and if did not…I am sorry for you. It was not hard to find people that were part of the game and never played a single game, they were just interested in the financial aspect of it; successful traders, guys that started from a card that was almost worthless and through a sequence of exchanges managed to own a premium card, had a real standing in the community.

My desire to succeed in the game pushed me to learn two ‘skills’ that later became instrumental for my trading journey: English and finding information on the web. In the early days of internet, there was a huge informational arbitrage to exploit; Magic was played all over the world, if a person or a team found a ‘tech’, a card or combination of cards that worked, you could copy it and use it in a local tournament against unaware players. The Magic community was like small local clusters distributed everywhere that developed local knowledge: the only way to ‘connect the dots’ was internet. Information was travelling at a very low speed compared to today and you did not have tools like Google to easily find it, even if you knew that information was out there, you had to create a process to read it. And to understand it, you had to go way beyond those few notions of English you were thought at school.

I was 16 and buying cards on American websites when the only way to wire money to the US were arcane systems like Western Union and I learned how to do it by myself. There was obviously a price arbitrage to exploit as well, but to do it successfully you had to understand what an exchange rate was, why it moved and the commissions involved in the transaction. And do it while 99% of the people around you would consider safer to cross an highway by foot than use their credit card on The Internet.

Despite my declared primary focus was on winning tournaments, at the end of my ‘career’ I definitely had more success on the financial side of the game than on the game itself. A year after I retired to devote myself to study the other great mystery of the universe, one of my closest friend became the highest ranked player in Italy. Turns out that doing some real practice and not going to tournaments with two hours of sleep and 10 vodka lemon in the stomach is actually useful in an activity that involves your brain. The hole in our process was that we always looked at the outcome of some moves but we never discussed our decisions; I never asked my teammates why they made a certain play, I always tried to decipher everything by myself; we never thought in probabilistic terms.

While Magic would probably not increase your dating chances, it is as good as poker to build a mental mid-set that is useful in trading. And it is not a myth, lots of banks/HF use poker as a training tool. Does not mean that putting on your cv that you won a some tournaments on PokerStars will grant you a job at Citadel, but for example in my case I realised that I do not have a natural predisposition at being focused for a very long time or have a very good memory. I will describe this deeper in a later chapter but for a year I traded FX on the desk of biggest (at the time) bank in Italy; our desk was more an hybrid between trading and sales, we were put in the market based on the orders we received by our clients (if the client wanted to buy USD, after the sale we were short) and in few occasions we initiated a position by ourselves. As in poker, you spend a lot of time sit down being inactive (passing away cards that do not represent anything valuable) and then suddenly you receive a call (a AQ) and the game is on. While there are definitely moments where your adrenaline spikes and you feel a real excitement, the boring parts were the killer for me. Granted, proper day trading is something different, still you have to wait for the right set up to materialise and if you are not able to sustain the grind, you will start to look for action where there is none (playing shitty hand just to bluff) and auto-sabotage yourself.

Anyway, Magic is a great game and cannot wait the day my daughter will be old enough to use her as an excuse to play again.

The computer

My first computer was a Commodore 64. My parents never allowed me and my brother to have a motorbike or…wear long pants before we were 10 but for the same unknown reason they always believed in the educational value of computers. The difference between the C64 and a console like the NES is that you have to WORK before you can play; you cannot blew a cartridge, stick it into the console and play, with the C64 you had to first learn whatever operating system commands it was using and then wait an hour for the tape-loaded game to run. Yes, one hour.

I still remember the first time my father showed me Excel (I also still remember years later when a friend at university showed me how to drag the same formula through multiple cells, I saw it like a miracle). Imagine an early teenager being genuinely impressed by a spreadsheet. At a certain point we had computers everywhere, because my parents were working on them: a Mac to draw, a 286 to play…even consoles! Yes, I know that reading this now will seem kinda obvious but we were closer to the years where you could smoke inside hospitals, to give you an idea (or watch the first season of Stranger Things, Italy in the ’90 was as technologically advanced as the US in the ’80s). My math teacher at high school taught me how to code in TurboPascal…and at the time I was making fun of him with my schoolmates! Excluding my self-thought English, that would represent the most useful skill I have learned. Forget TurboPascal itself, once you learn the logic behind coding, then you are set. Years later I would start to play with TradeStation, back testing trading systems. How do you think I managed to code them? Thanks to him.

It’s a Nerd Thing

Magic, PC strategy games, coding, hacking (with a friend I went into that rabbit hole as well) were just interesting problems to be solved. As a teenagers, I also realised I was not a natural leader; I did not have the charm and I was not even particularly funny. My parents reserved all the artistic genes for my little brother.

Trading for me was another puzzle to solve. And probably the only chance to be successful. People around me were distracted by the many flashing lights of Milan, they wanted to be ballers, DJs, singers, designers. They were running a sprint while I was laying the foundations of my plan. The not-so-poetic reality was that I had to plan for the long term because, if you want to design a t-shirt, you need a pencil but if you want to trade, you need capital. And I was broke.

The good thing of having a long term plan is that you have the time to study. The bad thing is that you build fake confidence. Everyone has a plan until they get punched in the mouth. A year ago a young lad joined my team; when he was a teenager, he played in the Tottenham and Arsenal academies, and later for other smaller but still relevant clubs. He stopped one step below turning pro; this is not one of those stories where the kid was a huge talent but he blew his knee. He simply did not have the character. In between lockdowns we went for a beer and he told me he played with this and that pros. I asked him what he thinks is the factor that allowed those guys to make the jump; even when they were 15 and playing against guys older, faster and stronger, they had no fear. Most of all, they had no excuses for themselves. Months ago I watched the Tony Parker doc on Netflix, same story, the kid was a quarter the size of the opponents and still was walking taller than them. I know it because I have been there. Not at that level but making excuses for myself. That person has started before me so he has more experience, he is stronger, he is taller, yesterday I did not sleep well, tomorrow I have a big test.

I did not have anyone around me to push me the right way…and definitely I was not build to push myself. I played so many sports, had so many coaches and they all had the same attitude. As long as my grades were fine at school, so was my father. When no one tells you that is not just about the talent, you life becomes a sort of inverse check-list, you go by exclusion trying a little bit of everything until you find where your talent fits. And once you find it, it’s all about riding that wave, easy peasy because look at all those other guys: once they found their thing, to succeed came so easy to them. When I was 13 I read the Lord of the Rings in one month, in summer. If school gave it to me as a holiday homework, my parents AND ME would have concluded that I was so fu***ng good at that, so smart. The reality is that I found something that interested me at that point of my life. The issue is when the fun stops…and it always stops, whatever you do. You should expect the grind, your should embrace it; you see Jordan smiling after another bucket and you think ‘so easy for him’, while he was bloody food poisoned the evening before. You do not see the 5am practice at the swimming pool, you only see your schoolmate falling asleep in class at noon and think he is a weirdo.

Trading was my thing, trading had to be my thing.

TO BE CONTINUED…