Inaugurating The Next Cycle: Understanding Your Future
The Champagne Flows But The Danger Grows.
At the AXIA trading desks.
Monday 20th January 2025.
London, England.
13:30 – TRUMP TO LAY OUT TRADE VISION BUT WON'T IMPOSE NEW TARIFFS YET - WSJ.
BANGBANG! Max Size.
You lift 250 Spoos and 250 Euro—Go!
They scream higher; you soar onside—
——P&L: 40–60–£100,000!
——
—Wait!—
—–P&L: Flat! Zero!
Oh God, Why isn’t this going? It just flashed back in like three seconds! I’ve missed something here…
You cut some of your size in Spoo and Euro but still hold a big chunk. Article–story… what does it say?… nothing weird! These markets are really about to go…
You add back into your Spoo and Euro positions. Do more markets: CAD!
You lift two clips in 6C… man I think I just bought the high here; fuc—it’s not extending! Hold it. What else? Chinese markets—they’ve got miles to go.
You put some big size into Yuan futures. Then it starts taking out the lows of the first move, and you sell some more as it slices through.
What else? This should be deflationary—bonds! You start buying some Bunds. These should go—the U.S. Bonds have already popped and gone, Bunds to follow, surely!
What else? Spoos has started to accelerate, but this DAX is lagging. You lift two clips in the DAX too. Do EuroStoxx too!
You start to manage the positions. Be dynamic. You add and contract positions like an accordion; scalp around in all of them—but hold the core positions. 6C—this CAD—has gone through highs; but Peso hasn’t—buy Peso! You lift the Peso and scatter some offers up the price ladder, and you then do the same for the Yen.
You manage and manage for about an hour; in, in, in,—out, out out———
14:30 – TRUMP OFFICIAL CONFIRMS WSJ REPORT THAT HE'LL STOP SHORT OF IMPOSING DAY-ONE TARIFFS.
Not a Denial—but Confirmation! The markets bump their highs and lows and extend the moves. You let this last pulse and flow ping the remaining part of your limit orders. Done.
You glance at that little window that holds great power. First ever multi-six fig day; a personal best. Perhaps it’s even a close contender for execution—skills best.
You take the PB, but that’s all you do. It’s Trump’s Inauguration Day, and you have a long week ahead. There is no Triumph, just the usual 7 a.m.–9 p.m. shifts. Little would you know that in the next few days, you’d pull multiple near twenty-hour shifts… just waiting on Trump and the headlines dropping—as another trader reminded you—“the most beautiful word in the dictionary.”
Debrief
Such was the mind of our good-lookin’, dark-haired, deep-voiced, hard-workin’ English lad on Monday, 20th January. Readers have already encountered him trading the events on 19 November 2024 with the ATACMS missile strike. This young trader is iterating, emerging away from his foundational smash’ n’ grab skills to dynamic market navigation. And this was the key to accessing January 20.
Why have you outperformed in this instance compared to other scenarios you have personally traded before? Was it simply a matter of an increase in size, or was there an enhancement of your skills?
“I outperformed from the sheer aggressiveness with which I hit the comment. I was very prepared for this—upside, downside, tariffs-on, tariffs-off. I knew it was all the market cared about. I had a very clear plan of the two markets I wanted to hit. [S&P, Euro]. I knew I had to get as much size away, as quickly as possible, at the best prices. And I did—which gave me a lot of room. Before, I would either smash ’n’ grab it or just snatch the P&L. I flashed onside £100,000; before, I would have banked it and thought—great trade! But it all came back in seconds. Before, I wouldn’t want to fight or compete with the market with any form of size, But this time, I was willing to stick around. I knew I had to sit in it. Because this is exactly what I discussed with [our precariously tall Englishman] the night before—about not puking the big ones. We both learned our lesson, having done it on [Fed] Waller’s dovish comments a few days ago. The market pulsed yet collapsed back. Then it ground higher. Yet we both puked most of the size on the collapse and only held a tiny size as the markets ground away later. We were kicking ourselves, and I had to make sure I wouldn’t repeat this.
So I still had decent size on [S&P and Euro] when they finally traded higher, regardless of cutting some of the size when it came back. I did that because when it comes back like that, on a two-sentence headline, knowing there is a full story or article behind it, you have to think: what have I missed? What’s in the story? Why has it reacted like this? So risk management has to kick in here. But as soon as the S&P and Euro started to extend the move highs, I started to build big size across the board, like Yuan and CAD, then smaller clips in DAX, EuroStoxx, and Yen.
Overall, it was a combination of aggressive sizing and willingness to stick with the trade, where normally I wouldn’t have waited as much.”
Since this was a confirmation, not a denial, how did you trade this differently? Did you hit the WSJ headline and prepare for denial, perhaps by storyboarding and considering each possibility? And once you received confirmation, did you act differently or take profit, for instance?
“Because this a story based on ‘sources’ and not confirmation off the bat, I was a lot more scared that a Denial can come anywhere, anytime—social media, newswires, TV—especially when I had so many positions on. It made me scale some of the size quicker than I would have liked. I was too fearful of how aggressive and quick the moves on the Denial would be. But I hit the initial headline all the same. Yet, after five minutes in, I thought I either had to prepare purely for denial or trim some positions and keep a core size on. That is so I can cut and reverse fast and effectively if a Denial does come. I was, at one point, holding positions over eight markets. And—like I said before—I’m quick, but not that quick! Can anyone reverse eight markets that fast?
But I was storyboarding in my head—What could the Denial be? Where can it come from? However, my big mistake was not thinking that confirmation could be a great trade, too, and when it did come out, it put something of a three-minute bid across the markets. It topped you out but gave you a decent move. There I should have re-sized and used that as the final, big, flush-into-the-highs kind of trade. I used the flush as an exit rather than adding—such was the mistake.”
Was the approach different between this Jan 20 WSJ-tariff trade and the Nov 19 ATACMS missile strike?
“The difference was how they were managed. The ATACMS trade [Nov 19] required you to ebb and flow with the market until it decided to release. If you traded it, you might remember that S&P was locked in a horrid chop for a long time. In the moment, nothing showed you it really wanted to go. Yet, on this WSJ-Tariff [20 Jan] trade, you knew it had to go. This allows you to wait, persevere, and hold the size. I knew I would just have to grin, bear it, and assign a specific risk. To say, ‘If this goes against me, and if this becomes a one-in-a-hundred-chance dinger—where this trade doesn’t work—so be it. I would just have to take the loss on it. Either way, I would take this kind of trade each and every time. Because it is cut and dry, you’d do this trade every day of the week if you could.
However, with the ATACMS [Nov 19] trade, you are also unsure how far the moves can go. Conversely, with the WSJ-tariff [Jan 20] trade, you have a rough idea of where markets have already come from and how far we’ve priced various markets, which tells you the overall potential.
So, both performances came from the sizing. With the WSJ-Tariff [Jan 20] trade, I sized aggressively from the start and tried not to cut, but to hold the size. Whereas for ATACMS [Nov 19] I sized in aggressively but had to cut a lot of the size quick, and later built up to a decent position across markets. By that time, the markets released, which allowed for the performance.”
Opportunity & Payouts
Let’s review January 20 firm-wide, as there was a stark difference between performances. In other words, a trader likely had a milestone day in various ways or close to it. And those that did not were virtually flat or at a small loss. Usually, traders firm-wide would fall anywhere in between from small-up to…well—big-up! This anomalous difference is exactly what must be investigated. And to the learner—a gift.
The main differentiator? Navigating the spike. Alex Haywood explains it best through what he refers to as “opportunity profiles” in the context of trading these lone injections of volatility: headlines, comments, data points and so on. These diagrams illustrate the shape of the market move itself, as well as the P&L curve of a trader who executed these three different moves almost ‘perfectly.’ As contentious as this ‘P’ word is in all performance pursuits, we shall borrow Haywood’s diagrammatic illustrations and explanations.
Consider the afternoon of 6 January, the Denial—chronicled in A Tale of Two Truths. The market reaction and execution from the outset put a trader straight ‘on-side.’ They were never challenged by going ‘off-side’, that is, to be in a negative open P&L position as the market was trading against them. And for a trader who goes all-in, holds, and exits all-out, they applied that skill at the perfect opportunity. The exact payout for the precise opportunity can be summarised in Diagram 1 (D1):
This looks very similar to both the aggressive Denial moves themselves—and the P&L of trading this directionally.
Of course, there are other types of market reactions—and many can be characterised as ‘slow-burn’ moves. These do not place the trader under significant P&L pressure; rather, it is just a sheer unnerving experience. You flash on-side and off-side many times. The market ought to be reacting! But it isn’t. Why? Am I right or wrong? Staying in this P&L purgatory is frustrating at best; time for various forms of second-guessing and emotions to surface and dominate. At worst, it can bleed P&L profusely as the trader enters, exits, enters, exits the market—I’m getting chopped up!—often with the trader merely makes back what they just lost. This can be summarised in Diagram 2 (D2):
It also describes the choppy nature of the ATACMS missile strike on 19 November. These situations demand more dynamism, sizing in and out of the markets, necessitating a framework to remain in the trade, leveraging up and increasing exposure at the right time. As Haywood mentions, these opportunities elude the trader who lacks either the experience to execute this or may not have positioned to take advantage of time. Or, rather, to not be hurt by time exposure. That is, those who exit as fast as they enter are mismatching the skills needed to trade market flows like D2, because the time spent in the trade is far longer than they expect.
Now, we arrive at a close cousin of D2; a type that has featured many times in the past few months—the market spasm; a whipsaw. Diagram 3 (D3):
It is the most insidious type, because trading this—for who anticipate, and only trade moves like D1— it will feel as if they made each decision and reaction at the worst possible time.
This is due to a tactical dilemma. The whipsaw, this spike, lies in the future; it remains unknown—and as our young trader demonstrated—it requires one to strike first and navigate thereafter. If it’s big—it should be going! Wait. Why is it coming back?
You can’t wait for the whipsaw to pass altogether, as that will forgo the best prices, and the trader will often end up with a weak hand; any mere pullback will force them out. Instead, one must grab best prices, then hold the trade, to withstand the intense pressure of flashing off-side and to avoid ‘puking’—that is, to liquidate all together, often at a small loss.
This remains true even when observing one’s open positive P&L evaporate in mere seconds or when slipping into a negative P&L for the day while holding significant size. One can see this on the risk screens, as Haywood says, as he points to the spike in D3: “That is where many traders paid down here. So many people hit this that when the markets flashed back. Kyriacou [AXIA’s risk manager] told me we were down, as a group, multi-six figures for a few moments.” You must endure the opening salvo, because as Haywood said, that was the last time many traders that day tried trading this headline—explaining the stark contrast in performance.
Further, D3 type moves require not price action confirmation, or flow confirmation; but another reason altogether to stay in the trade. Perversely, price action as a validator or invalidator of trades—which works so well for D1 moves and skills—is precisely what makes the trader exit at the worst moment during a whipsaw.
So, navigating much of this, as our young trader said, is recognising it for the wider contextual opportunity and being willing to take a hit blindly. As if—almost—to be stubbornly inactive, hunker down—hold!—and then let rip violent action—to go from two markets to eight in mere moments when the whipsaw has been cleared. Best prices allow you to do this. To state: it is preferable to take the hit than to forgo the best prices. That is how much a tactical advantage is valued. So speaks a pure market asymmetrist. That is what happened to our endearing young trader; the early prices gave him room to manoeuvre, even allowing him time to scrutinise the details of the Wall Street Journal (WSJ) article.
In an image: our young trader evolved from trading purely D1 opportunities to learning how to navigate and assess situations in D2 and D3. As the markets evolve and change at warp speed to Trump 2.0, in the coming months, it will demand a wide-skill set of trading everything from D1-3 and more, whatever strange market manifestations are yet to occur. That is, our young trader demonstrates how to survive ‘the shakeout’ both in an individual trade and career-wide. Because the next shakeout is coming.
Shakeout: The Coming Cycle.
The Inauguration Day naturally generates discussion of what comes next. But we will not discuss transient trades—but something far more important. We move upstream—why revel in the great trades to come when an entire career minefield is around the corner? The following outlines some of the most consistent patterns one might observe in our strange landscape; observations exchanged between the author and Haywood.
As the Immortal Cypriot observes and navigates, the nature of opportunity will change—dramatically, brutally so. Trump’s effect on the market and the emerging ‘Tariff Theme’ will warp and evolve over time, regardless of how long it takes. Some of the best practices now—aggression—will later become the worst practices. Moreover, as with every theme, if there are no relatively swift developments, the market will grind these trading opportunities into dust, taking many traders with it. It will dismiss what used to be damning headlines. Consider Russia-Ukraine, Covid-19, Trump 1.0 with China, post-Brexit EU deal-making; trading these in the same manner at the beginning and end of the theme was—and will be—a disaster. Yet, that is precisely what most traders will do—retail and professional alike, all across the experience spectrum. The key skill is identifying the change in environment and changing what will become a reflex and habit that worked so well in—what will become apparent—in an expired market environment. To now shift instantly to the opposite reflexes and practices. Will you be able to do it? Many traders will end up giving back everything they’ve made and then some. In the end, it is what you keep, not what you make. So echoes the Immortal Cypriot. And man—can that guy keep! He kept his way to eight-figures and counting. Thus is one market cycle—a shakeout, a purge—summarised.
Wider afield: high volatility conceals, but low volatility reveals. All the low-hanging fruit generated by the rising tide of increased opportunity and volatility will result in a P&L surplus not collateralised by skill. In a phrase, it will “make average traders great again,” says Haywood. However, the market is here to close spreads—and it will close that P&L–skill spread with extreme prejudice.
Moreover, high volatility permits slack and laziness; it allows for no structure or practices to build the ‘boring’ part: routine, reflection, debriefing, and the like. There is no time for the boring when the champagne starts flowing. The next mass exodus from this thing of ours will be those who begin trading in this high-opportunity period. Woe betide a trader unfortunate enough to start in a high-volatility, high-opportunity landscape, as was the case in early 2020 and in 2022. How many managed to keep the gains of March 2020 through the brutal summer of 2020? How many retained the gains of 2008 or those from 2011-13 into the crucible, low-volatile grind of 2014-2018?
Empirically, AXIA’s core performing cadre were painfully lucky to start their careers in low-opportunity conditions. Give it your all for scraps, yes? It is imperative for these new or perhaps returning traders to realise that they have been born into an aberration. The market, now more than ever, will collapse volatility and expectations as swiftly as it can. This shakeout has occurred and will happen again for all; especially for those who feasted too well without paying for it.
Another cycle emerges: many give up and quit just before a new set of explosive opportunities. Count on it. Unfortunately, this was also the scene among some new graduates—fresh intakes of traders—among the AXIA ranks from Q3-Q4 2024. As in so many cycles, these traders endured the low-opportunity pains of early 2024, and 2023, built their foundations, hoisted their sails, then tore them down and quit just before the wind came. Among them were also those who showed great potential. Numerous veteran traders have noticed the same patterns, as if on cue—a signal. One trader, in particular, recalled how many older traders at his first firm left in the midst of volatility heat death in 2015, mere weeks before the Bund collapsed so rapidly and aggressively that it shattered his novice understanding of what is possible in this strange landscape. And that was also how he went from negative to big-up on account for the first time. He built the sails for the first two years. He is now an eight-figure trader.
Take one last cycle and pattern: a trader is not made in this cycle but in the next. Our young trader, whom you’ve read about, developed his skills, increased his size, experimented, iterated, and made mistakes in a market environment—cycle—that best suited his ‘edge’. He allowed for enough opportunity for scrappy experimentation for skill development; for R&D—as Haywood says. He did not let abundance excuse laziness, thus avoiding the invaluable opportunity to grow. But here comes a potential trap: the conducive market environment allowed for size growth—but the environment will, by definition, change just as they have increased their size, firepower, and leverage to an all-time high. The same trades, now less potent—or loss-making—can blow a hole in their account faster than ever. That is why the ability to consolidate is a marker of mastery. Will he—and others in his position—survive the next low-opportunity purge? To keep most of it as others give it all back? Can he consolidate to survive the next time the market cleans house?
Because, if he can, that means he can keep the firepower and the leverage and hit the start of the next best opportunity cycle with his biggest size, alongside the grizzled razor-sharp street fighting tactics of surviving on low opportunity scraps. This hungry trader would become a dangerously effective practitioner, waiting for his moment to reap the next low-hanging fruit environment. He has built the cannons and hoisted the sails—and when the wind comes next, may he feast like a King; the world is yours.
Acknowledgements, Permissions & Disclaimer
Grateful acknowledgement to AXIA for granting access to their traders.
The photograph, provided by Axia Futures, is used with their permission, and they retain full ownership and copyright over the image.
Disclaimer: Do Not Do Stupid Financial Decisions. This Is Not A Game.