Notes on the Laws of Trading
Reading Your Book Review: The Laws of Trading
I'm still working my way through commodities demystified, but while I was reading it it reminded me of a book review (Your Book Review: The Laws of Trading) I have in my to-reads so I read through that for more context of trading first
As a whole the review didn't give me the enlightenment I was looking for (maybe the book is better and the review just didn't do it justice), but it did have some choice quotes I thought was worthwhile to share
The "gap" between reality and a better reality is often not fancy models but human psychology (which is why we have to understand the actual mechanisms of something instead of a mathematical abstraction):
Before Sam Bankman-Fried was the face of Why Effective Altruism is Bad, before he even founded FTX, he made money arbitraging the difference between Bitcoin prices on Japanese and American exchanges. I’m reminded of that trade here. It isn’t a particularly elegant trade, it doesn’t require deep technical knowledge or any models. It was a schlep. It was all operational work: figuring out how to open a Japanese bank account, transferring money between the US and Japan, standing in line for hours every day at both US and Japanese banks (presumably this wasn’t the same person).
On the importance of other people:
His colleagues who kept their office doors closed made progress on their research in the short-term, but hit stumbling blocks. Those who kept their doors open didn’t seem to make much progress initially, but eventually outpaced the “closed door” scientists. They had new ideas and research directions based on all the interesting conversations they were having with others.
This is kind of obvious, but it's a pet peeve of mine, since I REALLY like WFH and cross-pollination of ideas is often used as an argument against WFH:
Ping-pong tables and nap pods don’t replace a true culture of cross-pollination of ideas in a boring cafeteria.
I don't think I've ever read anything that systematically describes the mechanics of cross-pollination of ideas, so if you know of one, you can recommend it to me 😝
My vague handwavey guess is that:
Everybody involved must be capable of generating ideas (even if they are just a very enthusiastic junior engineer with not much skills - it's more of an attitude of learning something and playing around with what's learnt, trying to break it, trying to build stuff with it etc.). If you input something, something must come back out, which is then input again, to keep the machine going
Everyone must be somewhat aligned, such that there's a >30% chance of an interesting interaction (number is made up, but if the chance is too low people will naturally not bother with interacting)
There must be some kind of social activity, otherwise the group will be too competitive/people feel like they have to prove themselves. This is something I realised when I go back to the office now and then. I feel way more willing to bug my colleagues with stupid questions after I hung out with them and had a good talk, since I feel I have more social capital to spend on stupid questions. It's much easier to get social capital (you can even do it as a junior!) than knowledge capital, and social capital can be traded for knowledge capital
This is probably something that's I'll be remembering for a while cause it's so unimaginable today and I would LOVE it:
Second, an emphasis on continuing education. This blew me away: Bell Labs developed a syllabus of graduate-level courses and taught it to any interested employee. They didn’t outsource the curriculum or the teaching.
The important of apprenticeships:
trading is one of the few true apprenticeship systems that remains for white-collar work. You can career switch into the technology industry without a degree. There is a clear educational path to becoming a doctor or a lawyer. But trading is a bunch of dudes (and it’s almost always men) behind closed doors working on intellectually challenging problems
A recommendation for a book I might want to read in the future 🤔
The book actively used by traders is perhaps the driest thing that Nassim Taleb has ever written: Dynamic Hedging: Managing Vanilla and Exotic Options.