DOAT Chapter XIII: I avoided a bloodbath

Steadying the ship after a car crash trading session.

Good evening valued subscriber,

The build up to last week was filled with anticipation: After shaking off illness and settling into temporary accommodation, I was re energised and ready to attack what was supposed to be a favourable schedule: the start of Summer test cricket kicked off with the test Championship final between Australia and South Africa, followed by the 3rd golf major of the year, the US Open.

The test opened to a fiery start with South Africa bowlers containing Australia to 212 runs. A sub par 1st innings at Lords and a golden chance for S Africa to apply the pressure. They halved in price to evens before the last 2 wickets and we backed them. Despite shortening to 1.8, they drifted back to evens before the 1st run was even scored: Mitch Starc opened his account with hostile bowling, getting the ball to swing early and didn’t take long for S Africa’s top order to succumb to the pressure: Their opener Aidan Markram out for a duck. Rickleton dismissed for 16. Mulder out for 6. Stubbs for 2. 4 wickets down and price out to 4.0, I was forced to exit for a 50% loss on my stake. Despite some mid/lower order resolve from Bavuma, Bedingham and Verreynne, they were all out for 138, firmly living up to their reputation as chokers.

Lords tends to flatten out and get easier to bat in day 2 so with a 74 run lead, all signs pointed to a hefty Aussie lead going into the final innings. We backed Aus at 1.2, only for South Africa’s bowlers to run riot again. We re backed Aus at 1.52 with Smith at the crease but the onslaught continued. We were forced to exit for a further loss at 2.32.

7 wickets down and a sub 200 lead, South Africa bowlers had reswung momentum back in their favour and it was another golden opportunity to quickly wrap up the innings and chase down a relatively low score. At 1.8 odds, they would’ve easily collapsed to sub 1.5 and early runs would’ve pushed the price into 1.2 territory. But the tide continued to move against us as Aus lower order seemed to be the only players capable of constructing an innings in hostile conditions. Despite Australia’s depth, it was Starc, Lyon, Hazlewood and Cummins that contributed 82 of the 207 runs second innings, giving Aus a comfortable 282 run lead, setting up what would be the 2nd highest chase ever at Lords and only the 4th succesful chase in breach of 200. During the lower order run fest, we backed S Africa again at 3.0 as their price settled at 4.0 for the final innings. 1 unit down with 1.5 unit total exposure. Every move incorrectly anticipated. I was on the verge of my worst test cricket loss in 3 years which coincidentally, also came from backing South Africa!

Whilst a 1.5unit loss is disappointing, it’s manageable. The frustration was more down to the unpredictability of how the game unfolded. Volatility is welcome. It’s unpredictability that kills us. Lords typically flattens out over the course of a match but the unpredictable bounce threw this match into complete disarray. Whilst the tail end batting in the 3rd innings moved the price against us, there was a glimmer of hope: Australia’s lower order resolve was aided by what appeared to be easier batting conditions and that was enough justification for me to hold my trade.

It was a nervy final innings, anchored wonderfully by a lifetime performance from Aidan Markram as South Africa romped home to a historic victory, resulting in a very manageable 0.6 unit loss.

It’s an odd feeling, being happy with losing but such was the state of affairs given how dire things looked at one point!

Going into the final innings, I was already at peace with whatever happened: It was going to be a red book either way. The damage was done early and there was no way of evening my book without taking substantial risk. Risks that would’ve cost me weeks worth of profit. Dozens of hours of good work, thousands of pounds steadily accumulated from process driven execution. I could’ve laid it all on the line in this chase. The temptation was there. And I would’ve been right. But I’ve worn these clothes before. I’ve been there. And it’s paid off…until it didn’t. Getting away with bad trading is only delaying the inevitable. You WILL eventually lose it all trading this way.

If you cannot bite the bullet when things go against you, you have no business playing this game. Losses are an inevitable business expense. The nature of risk taking fundamentally means leaving things to chance. It doesn’t matter how well you’re doing or how heavy the odds are in your favour, you will lose bets.

When you accept that losses are inevitable, you stop ‘trying’ to lose. Instead, you’re focus shifts to ‘managing’ their impact. You can’t avoid bullets but you can mitigate their impact and this trade was exemplary of that.

Though I was left licking my wounds after the game, I did rally back some what with a few well executed trades but it was the US Open to which my attentions turned. Traditionally the toughest setup across the majors and this year’s edition lived up to the billing: Oakmont left even the worlds best players with their tale between their legs. Despite my preparations, I was once again navigating a minefield. The brutal course setup coupled with rain culminated in a final day trading rollercoaster. Players were dropping shots like flies. Tiger Woods once said that the US Open does NOT reward aggressive chasing. It’s more of a war of attrition: just stay around, hover in contention long enough without doing anything stupid and you’ll be the last man standing. His words were prophetic as JJ Spaun, literally parred his way to victory as Adam Scott and Sam Burns, the 2 overnight leaders were at the receiving end of some bad breaks which they could not recover from. Burns was not granted relief from water leading to double bogey. Scott’s narrow misses with irons landed him in Oakmonts notorious rough too many times.

Our initial bet was Thriston Lawrence who made an early charge in round 3, halving in price only to give his strokes back, trailing by 4 going into the final round. Despite a spirited effort, he could not close the deficit on the final day. Our 2nd bet was on Adam Scott who entered the final round trailing by 1. Given the ruthless nature of the course, 2-3 shot swings were not out of the ordinary. At 5/1 and with his level of experience, it was a calculated gamble on a flip to odds on. Despite some silky ball striking, the precarious weather conditions worked against him, leaving him in 12th place, 7 strokes off the pace. Our saving grace was a gift of a price on JJ Spaun, for whom the stage was set: he only needed a par on the last to all but guarantee victory. At 1.5 and with Scott and Burns trailing by 3 shots, it was an outrageous price and one that we jumped on. He hit the green which pushed his price into 1.2. An act from the golfing gods meant Viktor Hovlands ball fell just infront of his, thereby giving him a read on a breaking 65 ft putt. In sensational fashion, he held it, closing out the win in style and landing us enough green to bump our final position up to near evens.

This week was extra ordinarily difficult to navigate and easily could’ve ended with a loss. Either way I would’ve been at peace. I don’t feel like I did much wrong. All I can control is my decision making: did I stake correctly? Did I overtrade? Was there reasonable rationale for my entries? Perhaps I could’ve been more disciplined with my entries on the US Open, which would’ve been limited to my final trade on JJ Spaun. A difficult ask, given that the final trade was not one I even imagined would materialise. We are human and prone to mistakes but as aforementioned, the goal is not to avoid, but to manage. Don’t shy away from losses, just be ready for when they come.

I play golf as my main hobby and the longer I play, the more I realise the similarities between golf and trading: up to a certain level of skill, the biggest needle mover is decision making. Up to a certain point, it matters little how accurately you can read a trade, the same way it matters up to a certain point how far and how flush you can strike a ball. Once a competent level is obtained, your success boils down to your decisions in the heat of the moment: did I stake correctly? Did I overtrade? Was there reasonable rationale for my entries? On the golf course I ask myself the same line of questioning: where can I afford to miss? Is it worth attacking the pin or should I aim middle of the green? Should I club down, lay up or attack? Erroneous decisions can lead to double bogies or worse which can be fatal to a final score. Regardless of all the good work that preceded it. Similarly, one bad trade can undo months of good work. Not every profitable opportunity is worth taking on. Not every flag is worth shooting at. Every decision has to be weighed up against the potential downside. Whilst we are fundamentally playing an attacking game in both endeavours, the key is ‘controlled’ aggression: we’re trying to execute aggressively and decisively, but at conservative targets.

Playing golf is a brain exercise in and of itself that works in tandem with how I make a living. Whether you’re at your desk, playing a hobby or deciding where to eat dinner, try to be consciously aware of your decision making until it becomes second nature. Strive to make as many good decisions as possible and let the chips fall where they may. Trade with this is in mind and over the long term, your profits will take care of itself.

Speak soon.

AT