Stamina: A Multi Six-Figure Japanese Election Trade

Among the AXIA trading desks.
Thursday 26th & Friday 27th September 2024,
London, England.

Oh, that immortal Cypriot!

“It’s actually madly insane, Bog. Spooky even. You’re some kind of anti-jinx now,” he wrote.

It turns out that my interspersed appearances on the London floor this year consistently coincided with that rare, succulent, volatility ambrosia; trickle-down positive variance. Eight out of eight.

Consider exhibit No.6: My first day back from a long and special sabbatical—31st July. Now look at the performance of any significant futures market over the following three days. After some dry six months, even your hardcore rationalist stats-cruncher would start to fidget. But, of course, our Cypriot put up a seven-figure fortnight before the dust settled. Something—finally!

“But we can’t abuse this special power of yours, though,” he continued. “Funny thing too—something else happened just as we caught up yesterday—because last night… it went like this…”

Reader! Join me—let’s rewind the night and break all sense of fourth walls and the laws of physics. Why? Because I can.

We drive onwards to Park Lane. The streetlights glide across the windscreen and fall back, the electric drive hums in the background; only the Cypriot’s white collar survives near total darkness.

Going out on a Thursday night? Incredible!

“What are the odds, right?” he says. “All of a sudden, the Japanese decide to elect their next Prime Minister this coming morning. But you know, I’ve been feeling homesick lately, and I need some proper Greek vibes to shake it off. So I am not missing the concert, but I can't miss the election results either; it looks like I might have to pull an all-nighter and be at the desk by 4.30am. I’ve got no choice!”

“It started as a knowledge virus,” says Alex Haywood, who has just spontaneously materialised in the back seat! Somehow, at six-foot-four, he manages to fit in the back. Ah, realism, yes, yes.

“A trader posted in the Teams group; it was like a ripple effect, then a few more eyes joined in. In twenty-four hours, everyone knew everything they had to know about this Japanese election,” Haywood continues, craning his neck. “But it started as a whisper—like an organism that wakes up—these connected minds pulsating with energy; curiosity that later transforms into conviction.” And what else is trading but unleashing monstrous conviction with pirouette-like delicacy?

The Taycan comes off the roundabout at Hyde Park Corner.

“And that article was about one of the candidates—Takaichi—and she said that it is stupid for the Bank of Japan to be raising rates for now,” our Cypriot explained. “There we go. We have a potential PM that is against normalising policy which the Bee-Oh-Jay has begun to do.”

The Cypriot turns to me as the Taycan rests at a red light. “Bog, you should do that magazine Q&A style for the next bit, it’s going to get dense.”

Right you are.

So what does this mean for the markets?

“Although central banks bang-on about ‘independence’ from government, and claim their actions are never guided by politicians, we know that this is not the case. You assume that a PM, who has an entirely different view of what the central bank should be doing, would have an impact. And the markets will pay attention to it, either way. Central bankers are appointed by politicians, at the end of the day; push it far enough, they can be fired and replaced. This relationship between Japan’s government and the BOJ has grown increasingly robust. For over a decade—under PM Abe and BOJ Governor Kuroda—a joint declaration solidified their commitment to ‘strengthen policy coordination and collaborate to overcome deflation swiftly and achieve sustainable economic growth with price stability.’

Now we have a potential mega-dovish candidate, Sanae Takaichi, that can potentially put an end to BOJ’s policy normalisation. As traders, we want to simplify: If Takaichi wins, we sell Yen [futures] and buy Nikkei.

How about the JGBs? [Japanese 10-year bond] Takaichi apparently advocated for massive fiscal spending and stimulus, which should, theoretically, be bearish for bonds. [Yields higher] But we don’t want to think too far ahead, and be too smart, it can come back to bite you. We have to stick to the flows that we’ve been seeing which are strongly correlated from the recent BOJ’s hawkishness. That is: Yen [futures] UP; Nikkei DOWN; JGB [bond futures] DOWN.

I’m oversimplifying, but for this trade, this is what we need to do.”

And what about the other LDP leadership contenders?

“We dug around in the past few days, and concluded the following—

The issue is that Ishiba and Koizumi are only hawkish relative to Takaichi. [Relative is the key word—got that, Grads?] The pair just want the BOJ to continue as is. So, will there be a massive market reaction? Probably not. Only if Takaichi wins. As she is the one the market thinks who could potentially affect the rate hike path.”

What other details did the team research?

“We figured out you have a first round of election where all the candidates can participate. If there is no majority in the first round, a run-off is held between the top two candidates. So two of three candidates will make it to the second and final round. Results of the first round are expected 5-6 a.m. London time. It seems like it is almost certain that there will be a second round, with results expected one hour after the run-off. About 7 a.m. London.”

“I’ll come back for it later on the weekend,”

the Cypriot said as he locked the Taycan. “It’s probably going to be a boozy all-nighter.” If presence—complete immersion at the desk—separates our traders from the civilians; then stamina is the other wing of this beast: the trader. And don’t you know? This Cypriot has a Super-A Plus Grade-Stamina directly funnelled into his veins, from the Gods themselves. Believe it.

“Before you go,” I said, “this is going to sound weird—”

“—Bog… Alex just appeared out of thin air in the back seat of my car. Just so he can talk to you reading this right now! So what you mean, weird now?”

“Well—weird because we’re going back and forward through time… breaking continuity… I digress. I just want readers to jack-in. You know, The Matrix style, right into the back of your head—so they see, feel, think, learn—through you for what is about to happen.”

And our Cypriot, compelled by the infinite power of the author, obliges:

Your head is absolute murder; your body begging for sleep. Filopappou…Lampadiaris… Athens—Argiros is stuck in your head now, he started and finished off that three hour concert with that banger! What could you do? You said you’ll get home early. Ha–Ha–Haaaa————

————well it didn’t happen. Great night and great company! But then that after-party…

3 a.m. now; back to business. That means an hour or two to sober up; power nap…

5 a.m. glares through the screen, it beams hell right into your eye sockets and through them, filling the room with light. Rapture.

You hope a couple of Dioralyte sachets and a strong freddo espresso will do the trick.

And now: the desk.

You are surrounded by monitors, all featuring price ladders, some charts and news feeds—

Some order flow already! In the Yen, Nikkei, JGBs—dovish flows. You message the team, but they report no real news, except chatter that Takaichi will do well and advance to the second and final round of voting.

In fact, these markets are trading like this for a good half-hour already, trending with dovish flows—Yen selling off, Nikkei and the JGBs grinding up. It seems the markets are already betting that Takaichi might win. They keep extending over the next hour.

6 a.m.—and Takaichi makes it to the next round! And she has the most votes, now to face Ishiba in the second round.

You hit the Yen and lift Nikkei…

…but the moves are already large, tactically speaking, this is a weak place to be. It’s getting choppy, your P&L thrashes around from green to red.

But then!—they extend highs and lows but… they retrace.

No-joy; no real P&L here.

*

Your breathing changes. Short draws and loud sighing; frustration creeps in. Ha! Of course, why should it happen. Why should anything ever work? You darken, feel the elephant on your chest, and that dark bile of hate seeps into your guts and liver. It’s just all chop! Gamo!—You slam the desk with your mouse. Do something!

You put some orders in, take some out; floating around on the flow, the real showdown is yet to take place.

The markets continue their dovish drift, yet we’re already off some seventy ticks in Yen futures since 4.30 a.m., over a hundred in Nikkei and up thirty in JGBs—

The results are now imminent.

And you know one thing: if the market gets this wrong about Takaichi then it’s game on. Prime time financial violence—you’re going to smash, and smash BIG, every bid and offer that comes your way.

Because all these moves will unwind and then some, when everyone gets caught out; they puke and that adds to the self-reinforcing vortex that will pull the markets the other way. You will have milliseconds to max-out; full size. Will you do it fast enough?

That’s the plan—but if Takaichi does win, you know from experience that the moves will instead be choppier and slower. It’s merely confirmation of what the market is already guessing, and not a surprise. Trade management and execution will be different—less of an opportunity—less exposure. More sitting through pain and chop.

And the JGBs are soon to shut for thirty minutes—7.00–7.30 a.m.—so it will be closed for the voting result announcement. So there it is: you’ll be trading just the Yen and Nikkei.

You watch the voting take place on news terminals… in Japanese.

But you’ve traded foreign language situations before. You know that for a couple of seconds Japanese speakers will have the edge; the translations take a couple of seconds.

Results seem imminent…

Plan adjustment: If you see volume and order flow in the next few seconds, you’re going to trust it and do a few clips. Piggyback off the Japanese speakers trading this. Then you will add to the position if you are right once the English translation kicks in.

This is it. Finger on the mouse. Your adrenaline is riling up your guts; it’s the best hangover cure on the market.

Breathing… shallow; fast. Spasmodic.

ISHIBA IS THE NEXT PRIME MINISTER.

This is it! Another clip! 240 in the Yen—now! Do Nikkei———

But the Yen ladder explodes off the screen, a massive move in seconds. Now the Nikkei has just come back to life—out of the vol stop—and the liquidity is anaemic, but you sell it again.

And again! Short 120 lots now. And there it go—————

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———oooooes!

You go straight onside as it collapses off your screen.

Okay, I’m hugely onside on two big positions in seconds. I just need to see it through and scale out.

The flows keep coming and coming; Yen bid and bid, Nikkei sinking. You constantly feed in one lots all the way up and down the price ladder to scale out, creating audio cues each time they get hit.

Yen has taken the highs—up a hundred ticks since the announcement!

You cut your positions aggressively. And you glance left for the first time:

Just over $450,000 in two minutes.

That was… unexpected. A gift from above.

You slowly cover the remaining parts of the trade and lean back into your chair.

JGBs about to re-open.

And it’s gapping seventy ticks from where it closed! Huge for this market. Do you go for it? Or maybe these prices are too low?

Your fingertips light up; the left mouse button just aching for one more tap…

You offer a few clips on the netting as the market is set to re-open.

But that was the low. It’s blipping higher against you.

I knew I shouldn’t have taken this stupid trade—I knew it was way too low! Puke the whole lot.

…what is the damage? Okay, not bad.

But that is how you operate, a loss is always better than missing the action. Move on.

Time to relax.

“This was an unexpected but pleasant surprise that happens every now and again,” the Cypriot said to us.

And we’ve just re-materialised right into his living room!

He’s talking about the election result, of course, not the random apparition of people between the coffee table and the couch.

“By unexpected, I mean that this big day doesn’t come from a big market theme that we have been following, or anyone could have predicted the scale and the magnitude; the velocity of these moves that ended up happening,” he continued. “The way the market traded in the hours before the result is what made it extra special and allowed for a big day. I was even unaware of the names of these candidates two days before it happened, or what it meant for the markets, and so on. It’s funny—normally you put maximum effort into visualising all these different scenarios, doing research, stressing loads leading up to the event. Then you end up losing and making nothing. Like that over-hyped Fed rate cut meeting last week. Max effort; zero reward is the base case. But, as we know, it’s something you have to go through to make it in this game. And then—just sometimes—God comes around and gives you a mega trade out of nowhere,” he said.

And sometimes, if a trader dares to imagine, they might even think they deserved it, the Cypriot conferred.

“Even so,” Haywood added, sitting next to us, “this is to demonstrate how you should not be at the mercy of the past.” He explained how it had been a dry six months for the team, this year has not been the best for some, and neither for our Cypriot.

But!—all of a sudden—the action in early August, and today’s trading, had changed that quickly. To trade, as Haywood said, opportunity for opportunity’s sake. The top traders can make their whole year on just a handful of big trades. Our Cypriot has demonstrated this many times in the past, and “he also does not need ‘confidence’, to build it up on minor trades. He can shift into sixth gear at the drop of a hat,” Haywood continued. “That is his strength, coupled with his non-linear sizing according to the opportunity. He will be frothing at the mouth ready to do fifty times the size if he has conviction and the opportunity is there.”

What does that say to your 1:1 risk-reward trades?

And that, readers, is a demonstration of stamina over twenty-four hours, but also over a entire career. Stamina and presence to let rip overwhelming outsized winners when the rare opportunity surfaces. Because it will always happen when the second last person has given up. That is the nature of the long-volatility business we are in. Power to the explosively patient.

“……It’s actually madly insane, Bog. Spooky even…,” the Cypriot messages me a few hours later at Friday midday.

“What is most mad is how you are not sleeping yet.”

“I can’t, I have to pull through. I’ve got plans for tonight,” the Cypriot replied. He’s grinning, I know it!

“Sunday is for sleeping.”

And so it was. Even God rested on Sunday.