108: John Netto – Being a Versatile and Adaptable Trader, While Testing Your Comfort Zone

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How are you doing folks? You're listening to Chat With Traders. I am your host, Aaron Firefield. What you're going to hear very shortly is my interview with John Neto. John, a former US Marine, describes himself as a high velocity cross asset class trader. He connects the ability to be versatile. adaptable and interpret large amounts of information to be his greatest edge for making lucrative returns. These are all things we cover during the interview, which includes discussion about process.

research strategy, macro and market regimes. We also talk about the benefits of stepping outside of your comfort zone, why there's a need to embrace growing pains and when emotion can be an ally. And just a quick heads up to let you know on the next episode, being 109, I have Edward Thorpe on the podcast. So Look forward to that. But right now, here is John Netto for episode 108. Thank you so much for listening. Fair enough. Yeah. Cool man. Well let's uh let's just get into it. So

John, I understand that um your interest in speculating began at a pretty young age. Do you want to share with us where this all began for you? Sure, I would say that um I I placed my first sports bet when I was eight years old. And uh it was a you know, NFL game here in the United States, American football. And uh and it was just something that, you know, the idea of of of having something at stake based on a yet to be determined outcome was very intriguing and very um alluring.

And uh as a result of that I ended up, you know, developing quite a quite an interest in in how to predict more accurately.'Cause that first uh you know, they normally say like the worst thing that can happen is the first bet you place is a winner. 'Cause it kind of hooks you and it gives you this adrenaline and you think that this is beatable. Well actually I lost like

the first couple bets that I placed. So in that regard it's it's interesting just to see, you know, how that how that whole thing evolved. But I didn't take no for an answer. So I kept on kept on sports betting and I would say that um while I don't do that anymore It's something that uh it's something that that that sort of was in my blood and this inherent desire to take on risk and then ultimately, you know, esta with a process and a discipline, um, began at a very young age.

So I mean that's that's not normal for an eight year old to take a sports bet. How did that sort of come about? Was that something you picked up from your father or or where did that come from? Ironically my father's very conservative. However, he did um he did really impress upon us like the importance of investing and saving and and really s putting money away. He always followed the stock market. I I remember very distinctly in junior high in seventh grade it was

October nineteenth, nineteen nine nineteen eighty seven, the day of the big crash and the Dow fell whatever five hundred points. And I I live on the west coast, so I'm three hours behind New York City, so we were driving in at seven.

forty five A. M., which is about ten forty five A. M. in New York, and like the radio was going on talking about the Dow was down two hundred and fifty points now. The Dow's down three hundred and fifty points now. And my dad talking about how much money he was losing on the market. And I just thought it was absolutely fascinating watching his market sell off, which probably loves

explains why just uh why I think why a lot of traders, you know, love make money being short the market. Um and and there was just something fascinating about a big market crash. And that was I was thirteen years old when that happened. Also

This is around the time of course, I mean the Oliver Stone movie, Wall Street and and and when I saw that movie I was gosh twelve or thirteen as well. Um, and just knew right away that that when I when I saw all the the scenes and most traders out there who were in their forties, I'm forty two.

are very familiar with the with the final scene of the movie when he's down on the floor and he's he's trying to save his father's company by bringing in another corporate raider to do to outbid Gordon Gecko, then ultimately dump the shares and then and then really, you know, have Gecko lose a lot of money. Just the intrigue, the the the the Machiavellian style with which that movie was constructed, you know, Oliver Stone intended, he sees he has said many times.

to really depict corporate greed at its at its worst and then to show just, you know, how how uh how nefarious, you know, finance the financial industry can be. And instead, you know, paradoxically he actually turned on a number of people to the financial industry and in A young John Nettle being one of them. Yeah, no doubt. That's uh it's such a classic movie, that one.

In high school, I presume this was probably just a few years after, you were a bookie. Now I I can't remember where I read this, but No, well hold on, hold on, hold on, hold on. I provided liquidity for those wishing to prognosticate on the outcome of sporting events. Let's make sure we have our semantics correct here, Aaron. All right. Now some people might call that a bookie. I was a liquidity provider though, and provided lots of exotic derivatives bets.

to make that to make that possible. And so my high school career taught me a lot of things. Actually that was in my that I talk about that a lot um um that experience sort of how I created the netto number. And the first sort of version of the netto number was was when I was a bookie in high school.

to use your terminology, uh when I was providing liquidity in high school, um, to those, you know, who wanted who wanted some action on on on American football games, which is the most popular sport to bet on here in the US. And I came up with what was called a progressive point spread, um, at the age of sixteen, where most American style betting is is a binary outcome, meaning you either win or you lose the entire amount.

And the progressive point spread provided context, albeit a cap on that context would seem to make more sense. So If a team, you know, is a seven point favorite and they win by fifteen or they win by eight. the way American you know, the most American bets work now, which is still to this day the case.

You're going to win the same amount of money. However, with the progressive point spread, um, I had to model it around NFL games because NFL points, um, like three and seven is a very powerful point. Um they occur more frequently. So I had to model out how I work those payouts. Um, if a a you know, s a team won by seven, laying a dollar ten to win a dollar, meaning you bet a dollar ten, you get back two ten.

then they win by eight, okay, you would get back, you know, a dollar sixty, all right, because that seven to eight is worth more. If they won favored by three and they won by four, yet it's a non normal distribution in the sense that Going to eight to nine doesn't have the same increase. Going to eight to nine where seven to eight will pay you a dollar sixty, you know, eight to nine only pay you a dollar seventy two, you know, and nine to ten will then pay you another big leap up to

Um, well then pay another big leap up to, you know, a dollar ninety seven. You know, then ten itself will pay you, you know, two oh seven and then from there you get your full money.

So that I mean that so so football was unique in that regard. Basketball's is much more linear than football in terms of the the model behind that. But nonetheless These are things I was working on in high school while while I had pretty poor grades, um, was just how to be a better liquidity provider, and I just learned a ton of lessons.

Um that ultimately it was this spirit that I ended up creating the netto number to provide better context on performance. The netto number is what I use today, is is is the equivalent or tantamount or analogous. The progressive point spread, which I used twenty-five years ago as a as a bookie in high school. Right. Okay. So you might have lost me a little bit, but what do you mean by you were a liquidity provider a as a bookie?

Yeah, I mean like what bookies inherently do is that they don't pick the side necessarily that someone bets on, just in in the way a market maker doesn't pick the side. Uh someone comes and you have I don't know how you how familiar you might you might be with American football, but the the New England Patriots are a very popular team. The Dallas Cowboys are a very popular team, okay?

And so I don't tell people who they get to bet on in the same way that a market maker doesn't a market maker you go to a market maker and my job to make a market make a market uh for an NYSE stock, okay, let's say Alcoa, all right.

It's my job to keep an early market and provide liquidity for both buyers and sellers. Okay. So being a bookie has the same skill set. I'm there to provide liquidity for people who want to bet on that team or bet against the team. I'll make a market for them. If you want to bet on the Dallas Cowboys, you gotta lay seven points minus a dollar ten to win a dollar. Okay. If you wanna bet against the Dallas Cowboys, you also can get seven points, all right, for minus a dollar ten to win a dollar.

So bookies are very much liquidity providers because They simply are facilitating order flow for people's desires based on what they expect to happen in the future. And so in high school, I was facilitating order flow based on peop people's, you know, prognostications around sporting events. And that's what that's where I was drawing the analogy. Right. So this sounds quite advanced for a sixteen year old to be doing. We're we doing this, just out of your bedroom at home or

Great question. So I I grew up in the Bay Area, East Bay Area, San Francisco, small city called Panul. Uh Pennell, California. I'm on a California native, uh East Bay area, right near Oakland, Berkeley, very close uh on Interstate 80 for those who are familiar with with some of the interstate geography in the US.

And on Sunday nights, the Stardust line the the Stardust is a very famous casino back in the late eighties and and and nineties and really in terms of big pioneer when it comes to a lot of the sports betting and odds making that went on for uh sports investing. And so I got uh this really powerful um radio line that would come in that I'd pick up down in my bedroom and I would record all the all the opening point sprints, okay?

And then I would listen to this sports and all they would talk about every night was just sports betting. And so I would like listen to all these handicappers and do everything and go to school, I'd print out these parlay cards at my high school. Then I got then I got other sort of people to work with me from other high schools as well.

And I built up a pretty sophisticated operation. Understand that I was still not eighteen years of age, which in the US is when you can be tried as an adult for for doing something against the law. With a full understanding that that being a bookie was was against the law or or I should say facilitating order flow. Um sports investing is not was not legal in California at the time. It was only legal in Nevada.

And even then you needed to have a license and at sixteen I assure you that I had no license to do what I was doing. But nonetheless, I didn't let that stop me from my entrepreneurial desires. And, you know, worked at primarily football, age sixteen, seventeen, even some of fifteen, my sophomore junior and senior in high school. And then I turned eighteen um in December to uh in December nineteen ninety two.

And uh and then left that and then and then joined the Marine Corps uh eight months later, nine months later. Right, right. So tell us a little bit about your time as a Marine. How long did you serve for? What was that like, etc.?

Yeah, I I tell people this unequivocally that that joining the Marine Corps at the age of eighteen was the most profound decision of my life and it's had the most profound consequences on my life. The uh you know, I was a classic underachiever in high school, had a lot of self esteem issues. Um, really wondered if I'd even um be able to get a job, wondered if I was even that intelligent, if I was that smart. So I had a lot of just

you know, issues that th that that permeated throughout my academics and and just a complete lack of discipline. And I was pretty soft as well. Really, really soft and just needed to be I just needed I just need to grow. And and I'd always h held this incredibly high regard for the US Marine Corps. I mean, regarded as maybe the most elite military organization in the world, incredibly stern, incredibly incredibly disciplined.

physically fit, physically demanding, um, and just have that integrity and just have that sense of pride that I could be part of the best. And and again with my poor grades, this just seemed like a natural outlet, you know, um, or or place to go because I wasn't going

to college with the with the grades that I had in high school. I mean, I failed multiple classes, um, and really looked at high school as more of a as as a business than I than I did as like a a place to to learn a Pythagorean theorem, you know, from geometry. So listen

Uh and my first assignment was in Japan and I I established a passion for the Japanese language. So in 1994 I went to Japan, spent two years there at Iwakoni. I worked in weather, weather forecasting, weather observation, briefing fighter pilots.

before they go out on a run. So again, you know, you're talking about something chaotic in the weather, something that requires forecasting, prediction, the use of models. Um this stuff just made a lot of sense to me. And and and and but that was not my true passion when I was there. Like my real passion was really was studying the Japanese language. I loved the Japanese language. And I would spend two to three hours a day in my marine barracks.

studying Japanese, trying to go out in town, trying to meet people. You know, we didn't have this is nineteen ninety four, we didn't have like Google Translate on our on our smartphones. So I just did the best that I could um and just tried to speak to the Japanese nationals that were on base'cause you didn't have to learn a word of Japan because you were on a US base. and totally insulated from the outside. So that gave me a lot of confidence.

that I can learn a language like Japanese after being there for two years. I w then went back to the to the US again, trained to work at the US Embassy in Tokyo, came back, was assigned to the State Department, the US State Department, US Foreign Service. Lived in Tokyo, Japan for two more years, again continued my Japanese study with uh with a lot of the tr the State Department translators that were there, um trained under them till nineteen ninety six or sorry,'til nineteen ninety eight.

And then came back to the US and and it was during nineteen ninety eight that I started trading again, had an e trade account. And uh and and came back to the University of Washington, studied Chinese, and then became the business editor at the University of Washington newspaper. And this is kinda where everything kinda coalesced and And I joined up with a trading firm then um and and broke down and really started helping him develop option strategies and derivative strategies.

Is this stuff just all made a lot of sense to me? Cool man. Well let's break that down a little bit. First of all, how long did it take you to learn the Japanese language and so that you could actually speak it fluently? Fluent's a very discriminating word, and anyone who studied Japanese that's a non native Japanese speaker would probably never use that word fluent. It's it's it's it's very complimentary and I and I spoke it effortlessly and naturally, but it's a it's

I never got to be fluent at it, um, but very effective, very natural. Um, but it took me Studying every day close to nine months. um with multiple, you know, failures along the way in terms of just like thinking that I had progressed and then I hadn't. And then by the end of two years I was pretty good at it. But then I hit another level um when I came back to the US Embassy. So I I say if someone lives there and you immerse yourself, you'll be functional in nine to twelve months.

And then you'll be really developed after like two years, I think, is is a good time frame. It's regarded by the State Department along with Chinese and Arabic. It's what they call a level four language. So they say it takes about twenty two hundred hours.

of classroom instruction to become, you know, professionally competent in it. Whereas something like Spanish or French may take six hundred hours of classroom training, just to give you a context of a level four language like Japanese versus a level one language like Spanish or French. So During your time in the Marines, uh, you opened your first e trade account. Yeah. How did you go once you did that? Not very well. Um this was the during the Thai bot currency crisis.

And it this was this was when tech stocks were starting to rip. Um and uh I put like five or six thousand dollars and I lost it all or most of it. It was, you know, I'd I I was already saving money in mutual funds and and, you know, pulled out of there and and just made a lot of, you know, seemed to be buying at highs and selling at lows and

For as smart as I thought I was at the time, I I had a horrific sense of timing in the markets and and that, you know, didn't work out very well for sure. Okay. So how long did it take before that money was all gone? Uh three or four months. Okay. No, I mean i it was it was again you I'm working full time as as a Marine

And so it's not like I'm like tick by tick and and and watching the charts. It's like, okay, this is up and there was just again, there was no process. It was like, Oh, this looks good, I'll buy that, you know, and and just a lot of impulse of trading.

And and it's ironically at the time, like I think I was so bad at it that I thought to myself, if I could just do the opposite of what I've done. Um, which which is actually part of what have actually developed since then in terms of my own study and why I journal so much today and spend so much time understanding my own self-awareness. is because of what our emotions can tell us. So the a lot of the the things that I still implement today are from like early observations I've had, like wow.

There's gotta be a way to harness my my horrific timing ability to to to make money, which was pretty bad. So so yeah. That's funny. So what was particularly difficult for you at that time? You you mentioned there uh you were very impulsive. Uh was there anything else which was quite challenging and which you can maybe pinpoint as to why you were losing money? No impulsiveness and lack of process.

You know, well I mean coming in and buying something, you know, because it's up or because it's down or because you think it's gonna go down and and just and just the The classic stuff, taking profits really quickly. I mean frankly, throw a dart at a wall. You know what I mean? Like money management can still probably save you, okay? Even throwing darts at a wall and and hitting something, if you're man managing money well and controlling size.

You know, you you could probably still do okay in the long run. I don't know. But if you are consistently taking short profits and letting losers run against you and oh, I I really like this company and you hold on to it, all right.

And this seems like a good company. Yeah, this can grow. But then when it's up a little bit or it's up two or three percent on the day, you book out of it, you know. But if it's down to you five percent, you're cool with it'cause you can hold it for the long term. No, I mean I was I was just classic.

Classic any mistake that any of your listeners have made, I assure you, I have like just mastered it. And I've like done it in a much more spectacular fashion in terms of the the mistakes that I've made. I promise.

So how long did it take until you really began to get the swing of things and actually like see consistent results? Was this afterwards when you left the Marines and went working at a trading firm? I I was doing a concurrent situation. I got in the Marine Corps in O two and and I was working with a with a prop group and that's really kind of where I came into my own. Um the first I'd say

The the it it it wasn't one thing, but there were some important things. One, um, Joe D'Anapoli's book, Trading with Annapoli Levels, I bought in two thousand. That was really important. I attended a couple of technical analysis, just just courses from traders. Um, Rob Deal was one of them. This other guy was just like momentum trader. And so I started implementing candlestick.

technical analysis, having a process. And while I don't necessarily use those exact methods today, um, the process of using Fibonacci levels, I I very much use Dennapolis stuff today. I think he's brilliant. Um his book is brilliant. Uh but um so Dinapolis Fibonacci levels really gave me an incredible amount of confidence. Um and that and and I'd say I I I flipped the switch and

late ninety nine, early two thousand and uh and definitely had some some more bumps along the way. But that's where, like, just ah, I get it. Because discipline Once I understood a process, being disciplined, having been in the Marine Corps was not the issue. Managing risk was not the issue. Making a lay down on a losing trade was not the issue. Once I understood the process, had a process in place and develop that. And for that matter, I mean it's two thousand seventeen and I'm still

always looking to improve that process. So this is, you know, seventeen years into it and not every year since then's been a winning year. I've been a lot of winning years, but not everyone's been been a winning year. And I've gone through some setbacks along the way, but, you know, overall, uh I uh I like betting money on myself in these markets, for sure.

All right, well let's get into a little bit about your your strategy. So first of all, what markets do you predominantly trade uh these days? I'm I'm a cross asset class trader, uh focused primarily on thirty five main futures markets. For example, today everything I did was in the not everything I did, but nearly nearly everything I did was in the act space. Soybeans, corn,

Um, and wheat. Traded a lot of wheat, a lot of soybeans today, traded a lot of options around those p positions as well. We had a very big ag report that had all sorts of nuances to it. Um and today that was where it was at. I also traded some copper this morning, some silver this morning. Um, traded some treasuries this morning as well. So there was a lot going on. It was more about

Where the opportunity for price discovery was. Um, and that that's kind of where I go. You know, I mean I have an eight in a flat panel setup. Um, I have some pretty sophisticated software, both off the shelf and in that I built proprietarily, which helps me make this happen. And I'm very, you know, concentrated on you know what market regime we're in. And so as a result of that.

Um I I'm, you know, very Protean. That's the word, you know, I'm the Protean trader. And then the word Protean means highly versatile, easily adaptable, um, able to take on many shapes and forms. And so for me, Like it's just about what time of the day the opportunities exist, what what the underlying macro narrative is, what regime are we in.

what markets are performing best, you know, based on my netto number, which is sort of referenced earlier, and and then following those markets and putting on trades and and and, you know, fortunately the performance has has been there to to substantiate the process.

Sure. So if I was to ask you like how do you trade, how do you sum up your strategy? Just give us the quick sort of rundown and then we'll we'll um unpack it a little more. Yeah, my strategy is a compilation of strategies and and in essence what I do is is is is allocate to a number of robust strategies based on the current market regime and their probability of success. So

What I do is lever and gear various strategies based on how I think they'll perform in any given market environment. So one day I may have three X exposure on mean reversion strategies. The other day it may be more on relative value, the other day it may be more on premium selling, the other day it may be more on long gamma, the other day it may be more, you know, um trend following, other days momentum, or even within certain asset classes themselves.

I'll take that philosophy and apply that again, it's it's all about understanding what the what the the narrative is and hence the name the global macro edge. And so You know, are are central banks driving things right now? Are we near you know, what what fundamental overlay is happening right now?

You know, um like tomorrow for example, and and you know, part of the trouble with this is we're on a podcast that that you want to be a little bit evergreen, but you know, try not follow my logic here and and it may help sort of open some open some eyes to the process and not so much about this one single event but tomorrow. You know, we've had a week where where treasuries have sort of have rallied and and undone some of this Trump trade. We have

retail sales number coming out tomorrow. It's supposed to represent the the flow of flows of December. We have China um export numbers as well. And these are things that, you know, could potentially move things in in especially right now given the short position. So market position's a big deal for me. So on fixed income if

we get weaker data, I'm gonna lever up my momentum strategies. Okay. If we get inline data, I'm gonna lever up my mean reversion strategies because I don't think we're gonna sell off on Treasuries tomorrow.

And I don't think we're gonna rally that hard either given where we are technically. So, guess what? I want more mean reversion strategies running to fixed income, given where gold is or giv given where that some of the ags are right now, both wheat and soybeans. I'm actually given that their the numbers today gonna lever up more momentum strategies tomorrow and trend falling strategies tomorrow.

and and and and no mean reversion strategy and lower the mean reversion strategies that go. So I developed multiple strategies and I'm constantly tweaking them of where they're at. Then I also run a lot of event stuff as well. So today, you know there's those those big ag agriculture numbers

I just know how to like read and interpret. I have a great network. that I could ping off of and and develop incredibly complex contingency scenarios or even not so complex contingency scenarios around these events, a Fed event, an ECB, a BOE, an AG number, a Trump press conference. But all of it requires a lot of preparation, a lot of work, a lot of diligence, a lot of study, and and and you gotta have a process to do that.

Yeah, I was just about to say that because I mean it sounds like you've got eyes all over the place and you're monitoring a whole lot of things. How do you How do you not miss anything? I mean you do. I mean that's the reality. Well, I mean I I've done my best. Like like you know, I'm I'm a pretty um pretty well thought out um automation process, you know, a way to enhance I mean there's three keys to s to being a successful trader.

Um, you know, operations, analytics, and execution. Okay. And and a lot of people focus on the execution, but there's the analytics and operations that are there. And by analytics I mean you just asked about well, how do you catch all this stuff? I have processed I've hired programmers to build me

spreadsheets that make sure I catch all this stuff. You know, if you're gonna run you know, if you're gonna have three hundred strategies that you're constantly monitoring or even more than that at times, you need to have a complete framework

that allows you to catch all that. And if you use automation, you use technology, it's why I think and there's more opportunities today available to a more diverse group of people. Because while there is a lot of information, those that can you know aggregate, organize and assimilate that information Stand to benefit and the technology's there to do that.

So for me it's a technology issue and it's about committing time to the process of analytics and your operations. Like, you know, I spent a lot of time analysing, you know, my statements, but I can't just look at raw broker statements. Most of'em are pretty crappy. You have to have a system They can import them and give you that that that framework and that skill set. So to or that functionality. And that's I mean, there you go.

Do you have someone who works with you full time? I know you're an independent trader and you're trading your own money, but do you uh hire anyone full time to help out with all of this stuff? Not full time. Everyone does on a contract basis. Um my wife is amazing.

She's she's incredibly organized. She, you know, has access and sees everything and and works with me very closely. Um, you know, I I I I hire programmers to do one off projects for me. So I've hired quite a few programmers and and just, you know Um, work that. I mean I'm I'm I'm a little guarded about some of the stuff I do because, you know, this is my livelihood and I'm

Well I want to share with you guys today. I can't sometimes sort of have to protect, but I I definitely hire I outsource a lot of stuff. I'll I'll just say that. So how do you go about hiring a programmer? Like where do you find a programmer to hire? Um I'm a big word of mouth guy, um, because I have a lot of people try and, you know, do that. But also I would say, you know, d do your own due diligence, look on the internet. Um a lot of software providers out there.

have APIs and so you can ask your software provider, listen, who's been certified to to program on this platform? You know, whatever your platform is, most of them have APIs and so listen, I wanna I wanna hire a guy to to program a blank strategy for me, you know? But even places like Trade Station, a lot of that stuff I mean you c you can do, you know, there and I mean i if you there's a lot of people that program in trade station you can hire. Um the question, you know, the question is

what you want your programmer to see, um, how easily it is you can make the the the inputs and parameters tweakable, things like that. You know, these are best practices that that But I spent a lot of time in a in a journal and documents and, you know. Yeah, that's a really good tip about asking uh your software provider who's like sort of certified or they know of who who works with their software or their API. Uh that's an awesome tip. Um and just to your later point, how do you

How do you address that concern about, you know, not wanting to show your programmer the secret source? You know, how do you safeguard some of the the important things yet still work with them uh effectively? Change the parameters.

It's as simple as that. I mean, that's a good start. You know, you can you can sign, you know, work agreements and everything else, you know, status of work agreements and there's there's all these IP attorneys out there. I've I've I have a few of'em. Um and You know, uh, there has to be a trust factor.

Spirit has to be good. And then the reality is that like you're gonna end up showing them stuff that they're that that's just gonna be proprietary. And that's just kind of what it is. It's just kind of the cost of doing business. If you try and do everything yourself,

Yes, you'll have the benefit of safeguarding it, but then the reality is you're not gonna tap into their knowledge and experience and you'll be missing out on other value add that they could possibly provide if you have the right programmer. I I have some amazing programmers that work with me. that have uh that have some incredible skill sets that I could never even hope to replicate when it comes to their programming prowess.

So I just tend to accept that it's just part of the deal. And ultimately my biggest edge is how I interpret the information, use the tools that they're creating, not the tools themselves. So so they can make me an automated strategy. Um, great, make me three five hundred of them, ten thousand of them, it doesn't matter. Because if they don't know how to lever them based on the market regime, which is what I spend an incredible amount of time developing qualitatively, not quantitatively.

Which I think is what the big key is to my edge, is it's not that I can make a better moving average crossover system or a better RSI sell and buy system. I mean, come on, dude. Like we all can make those. You can buy them off the shelf, but it's I know or I've I've I've demonstrated success In terms of when t when to lever those up and lever those down. And that's the entire I mean, that's the trick.

is when do you go to a mean aversion strategy in this asset class or this product or this part of the yield curve? When do you go to a trend fall? When do you go to, you know, a breakout system? Like that's more important than Oh, let me optimize this so I can use this moving average instead of that moving average. I find that that's done very little. What's more important is what environment that th that they fix in and that's in essence, you know.

That's my edge. Well, this is something that I wanted to ask you about is market regimes. So maybe speak to us a little bit about how you interpret market regimes and how you see them. Market regime sort of come not sort of comes into three different areas technical, fundamental, and sentiment. Um I measure things from a technical perspective.

Major things from a fundamental perspective and then measures things from a sentimental perspective. And those those three right there are what ultimately shape my my opinion of of what a market regime is and how those three things influence, you know, a various asset classes. Are you ready to get serious about trading? Then join Tasty Trade, Investopedia's best platform for options trading in 2026.

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So let's dig a little deeper into your research process because I know that's such a big part of what you do. So what data is most important to you and where do you spend most of your time doing research? I read, you know, ten to fifteen different qualitative sources, um and then do a lot of bespoke proprietary um research as well. Uh I'm big into understanding

You know, hm, how can I say this? I uh I'll just put this I spent a lot of money on bespoke private research and and and and and researching certain ideas, certain themes, how they've played out. Um, you know, Bloomberg is a big part of that. The Bloomberg terminal, which, you know, is it's, you know, twenty six thousand dollars a year for that.

But it's an incredibly powerful tool to go back and and analyze past narratives to to aggregate data. There's a lot of you know, some other people use MATLAB and get data for that, but for me, um Use a use Bloomberg, use CQG. Um they both have backtesting functionality on there w which lets you, you know, import items, particularly in Bloomberg in terms of economic data or or or custom made indexes.

that represent certain trades. Um I'm always, you know, I put together synthetic indexes that They represent what I think the macro theme is, and maybe, you know, long triple A debt.

long copper and long, you know and long uh and long the S and P and long dividend paying stocks could be a synthetic index that I create. And I'm watching how that's performs. I mean and how that's doing on a P and O basis and what that mess what that message is saying. So I just am always tinkering and always playing around and understand that most of the best trades that have a really nice asymmetrical return to risk profile, meaning that like you risk one to make five potentially.

often come with a great deal of discomfort and come with very little historical precedent and require you to understand kind of the uniqueness or novelty of the situation that you're in. And I read in your book that you estimate you spend around eighty thousand dollars per year on on third party research. Sure. Why do you spend so much on that? Like do you get Is that such an added benefit that you couldn't come up with yourself, like, you know, based on your experience?

So you read in my book that I made eighty thousand dollars a year. Did you also read my PL in my book? You spent eighty thousand dollars on research. Right, right. And so so if you read that in my book, then did you read what I make per year trading in my book? Of course.

Okay, so what what did I make trading per year in my book? Well I don't know off the top of my head. You can tell me. Okay, so let's just say six hundred thousand dollars a year. Okay, so if I'm spending eighty K, all right, and I'm and I'm pulling down six hundred K, it's probably a good bet given the level of of thought that I put into things that the research was was paying good dividend. Seems fair. That's that's not totally unfair, right?

No, I'm just curious as to what if you didn't have that eighty thousand dollars of research, but what would your P L be for the year? You know what I mean? Like how much does that actually contribute to your returns? I think substantially. I mean I I'm I'm if I am not researching themes and topics and ideas and and and finding edges

You know, that takes away a lot of the P and L and that has a compounding effect. Okay? So if I, you know, I mean I the research is important in my process, I would say the the thing that I need to improve on, I guess, we all need to improve is is just the scale. You know, a lot of people who make five or ten million a year may only spend eighty to a hundred thousand a year on research. I spend that making five or six hundred thousand dollars a year.

So for me, it's it's it's about okay, I spent that. It's a ton of th there's value on both an absolute basis in terms of what I get. Because that research also contributes to my processes that I'm developing for the next ten, fifteen, twenty years. So so that question's sort of like multi pronged.

Did you get the benefit of it immediately? And then what you know what systems were you able to create for the long term that that that could be beneficial? And so for me, the annual money I spent on research and infrastructure, um that You know, that that has profound impact, not just this year, but in terms of the content I was able to produce for my book. All right. Like a lot of the book, you know, came from is obviously a a by product of my experience.

But that you know, some of the research made its way into the content of the book. So it it's not just about immediate PL, it's that research adds to the process, creates further trading ideas, creates a deeper understanding, a more profound impact to helps you make better decisions. And and that's, you know, and I think that my my performance and PNL for my account, you know, substantiate that. Sure. No, that's a fair point. I mean, I was just asking because I think

You know, for most people who are listening to this podcast, of course, spend nowhere near that much. So I just sort of trying to understand why you do this. You know what I mean? Sure. I I'm but I asked the short term and long term. Like short term,'cause I see the immediate benefit in long term because I see a chance to build even more robust set of strategies and even more robust process. And that just takes money and it takes time and takes resources.

And th I I just want to be as developed and in and and have the knowledge base that I do if I didn't make that kind of investment. Now I probably should have asked you this question a little bit earlier, but you know, you kinda I guess loosely categorize yourself as a macro, global macro trader. When I typically hear the words global macro trader,

I think of someone who's taking really long term positions, but I kind of get the sense that that's not so much the case for you. What's maybe your average sort of hold time? That's not global macro anymore though. Like I mean I you're not correct in your in your interpretation of that. But the reality is that that was the global macro ten or fifteen years ago.

Okay, that was a little macro of the Paul Tudor Jones and Lewis Bacon's and et cetera. They would take these like bets against or George Soros, they would take these bets against these governments and and take on this incredible risk profile and and and ultimately their their macro bet would come through. But that was a much different market, a much different

you know, information was delivered and disseminated in much different ways. Now Global Macro, because of social media, because of you know, you're doing a podcast with me in Australia and I'm here in s you know, in in Las Vegas, Nevada And we're connected by, you know, technology that makes it simple. The way information is disseminated, global macro is now is now big trade ideas that permeated the market and and are processed in a seventy two to ninety six hour timeframe.

And so I'm a high velocity you know, I I call myself a high velocity cross asset class trader that incorporates the macro narrative. Because if I understand how a billion dollar manager thinks, which I do And the network the people the network the the people in my network do as well. And some of them are billion dollar managers, all right.

then my ability to to go after, you know, a market like the like let's just face across asset classes across the board for the last three years have seen some of the lowest realized volatility levels in decades. And so if you're gonna play those low realized volatility levels, those are not that's not conducive for a pure, you know, traditional global macro manager from twenty years ago. That is, however, conducive for someone that is adaptable like myself.

um, who who can follow a market, who can play a market and understand what the macro narratives are and what what headlines or what themes would come out to possibly change that perception and cause an al um a repositioning that would go on and benefit from that repositioning. So with that being said, are you still taking any longer term bets? I don't have to.

So no, I mean I there's no reason to when I can maneuver like I do and generate the returns that I do without taking on what I define lower sharp ratio components. I mean we all have to trade our balance sheet. And I'm not running a billion dollar fund. So I don't need to take on trades that face the same liquidity constraints. Now people out there, and again, you have to find your own style, but if you have a very small amount of capital,

You know, people talk about I don't have enough capital. Well, the people who have a lot of capital bitch and complain that they, you know, face liquidity constraints and can't get out of their positions, have to hold them for a long period of time. If you have a small amount of capital, make your lack of capital your biggest strength.

Okay, and the fact that you can maneuver, you can trade very small size, you can catch edges that bigger funds just simply can't go after because it's not cost effective for them.

Do you feel as though you do anything significantly different from many other modern macro traders? I do a lot of things different. I'm gonna take a lot of I mean, in terms of In terms of how I structure'em, I mean I I trade on my apartment. I trade my own capital, okay? Like like structurally, that that those are two things right there that, you know, I should say my house. I don't have a New York City apartment anymore. But I trade on my home here in Las Vegas, okay? I invest

you know, a disproportionate amount relative to what they do into building my own proprietary systems and my own, you know, um, software. I mean, I have a couple of patents that You know, that that most macromanagers don't, you know, don't file for patents based on on on their process. Okay. So

So I've done that. Most macromaners don't go out and write a five hundred eighty page book, all right, and and most macromanagers don't, you know, have a netto number they call after themselves that redefines investment performance and and and redefines what alpha is and exactly what to pay for it. So there's a lot of unconventional things I do that are very different from fellow managers.

Doesn't make me better or worse, but I would say that I'm I take a lot of non conventional approaches and I'm open to doing a lot of things differently. And I think my PNL, you know, substantiates that. So when you say you have patents on your process, I think it was on your process, what are you actually referring to there? Can you expand a little bit more?

I can't actually. I I prefer not to. No troll. So what do you think are some of the common misconceptions that less experienced traders have um about global macro? The risk management side, you know, gl a lot of global macro guys are really, frankly, some of the sharpest, most brilliant people you'll ever meet. Um, where I think a lot of them have struggled, where there's been a lot of struggle is on the risk management side.

And, you know, you have these great themes, you have these great ideas, but you throw in a dysfunctional Central Bay.

system, not just with the US but with the E C B, with the B O J And and risk management probably becomes the single biggest challenge to effectively executing tha you know, that uh uh a a s a a strong global macro strategy because you're dealing with like in essence an environment that th that that's almost impossible to model in terms of from a longer term perspective and and and dealing with you know, two thousand fifteen was a classic example of the the year of misinterpretation.

So if you're a macromanager, again a long term macro manager, and you're you know, you look you look at how twenty fifteen went in January, surprise from the Swiss National Bank in terms of removing their floor against the euro. Okay, welcome to January, in March. The Fed comes out with one of the most dumbish statements in a long time when they drop their set forecast by a ton. Um

I fast forward to September, the Fed of September fifteenth, the Fed throws in that, you know, China now is a risk in terms of, you know, uh effect uh effectively executing their dual mandate of uh of price stability and unemployment. Okay.

and then throw in December when the E C B you know, when when Draghi, you know, basically tells everyone that they're gonna be able to lower the deposit rate to minus forty basis points and then comes out and says thirty and says we're basically done and the rest of the E C B members weren't go weren't going along with it. So you have this this incredible environment of of total misinterpretation.

Um an incredible an environment where Fed Communications and and Central Bay Communications are incredibly vaccine in what they do. And then you throw on top of that that managers that are trying to place long term bets um are having become more tactical and it's just not a very good environment. So there's a lot of things that, you know, people can misinterpret and and as a result of that you've seen four years of macro returns that are just incredibly uninspiring.

Let's change gears here, John. Um we were talking a little bit uh the other day prior to doing the interview. One of the things you said to me was that you've gotta be You've got to step outside of your comfort zone. You've got to be uncomfortable. I'm really keen to hear your thoughts about why you think this is important to do.

Yeah, I I like I like being in trades where I have a little bit of fear, a little bit of an edge, where I where where the in the back of my mind that like disaster can happen somehow, um, or that something really bad can go wrong. Not that like you constantly need to be looking for the Grim Reaper out there. But

You know, when I get too comfortable in a trade, it makes me nervous. That's kind of my saying. You know, that I have a bunch of little sheet in my uh on my monitor. Kind of reminds me like, you know, listen, just be aware of your emotions, be aware of your feelings, be aware of your instincts.

Um, and that and that often the greatest trades, like if you if you journal this stuff and I journal extensively, okay, and I keep this I have what's called a qualitative self assessment that, you know, I I put up on my, you know, um a a score for the trading day.

And I'll talk and and and I'll grade myself and say, Listen, okay, what's my preparation like? You know, what's my you know, how's my routine? Okay, how's my focus? All right. Then I do a post um self qualitative self evaluation of myself.

You know, in terms of the execution. Did I execute the plan? Did I execute any contingencies? You know, how did I roll? How did I adapt with the market? You know, things like that. So I'm always grading myself and if you if you compile these qualitative notes, not just necessarily quantitative ones. You begin to get a sense of like, okay, I'm not comfortable with this position, but man, I think this lack of comfort is what's going to create this outsize return.

And for me, I try and like just be in tune, be in touch with that. And and that's sort of you know, I th I think most people they wait till they're comfortable to before they get in or they wait till they're comfortable until they do something. That's that I'm not saying that's bad.

I'm just saying it's probably not going to give the same sort of lucrative returns that you want. And to get the look returns the lucrative returns that you want, you need to kind of be on edge. Like it needs to be uncomfortable to hold on to that winning position. It needs to be, you know, uncomfortable to like

I don't know, cost average into a position that you should cost average into to follow your plan. It should be uncomfortable to follow your plan, okay? A little bit. A little bit of eh, you know? When I get that uh and it doesn't stop, even my success, whoever, I mean, the uh means it can't always be there. Like, mm, eh, yeah, go for it. Boom, let's do this. Come on, power through that.

Can you share an example maybe of a recent time when you felt uncomfortable in a trade? Maybe it was as early as today. Yeah, it w was early as today. And um And actually, um the soybean trade that I was in earlier today was uh

was uncomfortable. And uh and I got out I mean I'd had a good good move on to the number the number came out, it was after the number. Um and just it was it just blistered everyone. I caught'em by surprise. I was more focused on wheat actually. Um and uh You know, even this morning, like I was a little like, you know, I was kinda like hemming and hawn a little bit, like, you know, this is

There's a lot of people focus on a lot of stuff. I think there's gonna be a lot of opportunity. I think in the in the in the minutes and even hour that follow, there's gonna be something going on here and uh And and frankly, you know, I caught I got long wheat after the number came out, I got long soybeans after the number came out. Um and was un was a little bit uncomfortable in it and it felt good to get out and I made a really nice profit.

But soybeans if you see char right now, they are freaking screaming. And and uh and and I sort of, you know, that's kind of where I thought like, wow, and and and people kind of thought ten dollar beans was sort of the the area, but now we're like we're at ten dollars and forty cents. And kinda think we're going to ten fifty and and so I need to

Now, execute systems that are trend following on soybeans. And so this morning was an example where had a little bit of where I w where I had this confidence about how trading was gonna go today, but like still had some uncertainty and stuff some easy easiness.

And and I used that when I was in the position to ride it. While I didn't ride it long enough, I still got a very good move by the soybeans. Um, and I did blow out, but I was in that, I felt a little bit uncomfortable and like it was just like, okay, catch yourself, find your breath, find your breath. You're good here. This matches your criteria. You're good. You're good. So I even I'm talking to myself at this stage and this success of the game. And uh and and and there you go.

I mean that's probably not as as coherent as you would like to hear, but that's just coming from the heart. Could this feeling of being uncomfortable be any way interpreted as being a lack of confidence in your approach? No, no, I'm pretty confident in my approach. Uh that's it's more about just understanding risk and understanding um understand that situations that aren't always clear.

um and and and more qualitative need to be need to be appreciated and need to be respected. And and it's that Just this sense of of you have an edge on something, you have a perspective on something that others don't have.

inherently being against the crowd or or or or being early to something is not gonna be comfortable because there isn't there there aren't as many corroborating factors out there. And I would say it's more of the lack of corroboration to to show that you're correct that we still invariably go through because the markets can can be noisy.

You know, that they they can be very noisy and you wanna respect that noise um as well, you know, as well as executing a process. And so I I try and like not get overconfident or not g'cause to me like overconfidence creates complacency, complacency creates mistakes, mistakes create losses

And so it it's it's about trying to maintain that respect for the market, trying to maintain that even if you have an edge, you can do everything right, the process, but it still doesn't work. I lose I lose money all the time. My all the time. I mean net net I make money, but I lose money all the time. Yeah, and that's something you said to me also when we were speaking the other day. You said you've really got to embrace your losses and also growing pains. So why do we need to embrace losses?

Cause if you're not losing money, you're not taking the kind of risk you need to be successful. Period paragraph over. You know, how how are you I mean i i it's it's really simple. You wanna find systems that compound upon themselves, all right? I mean you wanna create a a smooth equity curve, not a lumpy one, because lumpy lumpy equity curves, what I mean by that is

If you gave me the choice to make one percent a day, all right, or make one day of make only five percent and nothing else, I'll take the one percent a day because I can compound that, okay? If you give me the one five percent upshot and and zero the rest of the days, um That's a tougher bet. Okay. That's a tougher that's a tougher prospect. And I can't leverage that as much because the the the the downside lumps can wipe can wipe you out.

But if I make one, make one, make one, make one percent, then lose one, lose one, then make one, make one, make one, that's a very manageable equity curve, and that's far more leverageable than make five, make five, lose five, lose five.

You know. You may have already touched on this a little bit, actually, but for many traders, you know, the psychological aspect is a really big challenge. How do you deal with this aspect? Is emotion an ally or an enemy to you? Emotion's a huge ally. Um, you know, it it's been an enemy in the past, but you know, I've talked about this in terms of understanding the the uncomfort the the the the discomfort that that I have sometimes in holding to a position and and and and um

categorizing those emotions from being discomfort or being outright fear. Being outright, you know, difference between being anxious and panicking. Okay. Difference between, you know,

It's being being confident and being complacent. And so I'm I'm I try and spend as much time as I can, reasonable reasonable time that I can, just being aware of those, being aware of that skill set. And if I and and if I do find myself getting too c too complacent, because I do at times Feel that I can feel my emotional pendulum sort of tilting towards overconfidence and just having that self-awareness.

can be incredibly beneficial. Because we all go through times where we, you know, question whether we're gonna make money again. Even in the last, you know, seven or eight years, I've had times where you go through a month or two and like it doubt creeps into your mind. It happens with all of us. Um in other times we're like

where like not that it's rational, but emotions aren't necessarily rational, where you think like I'm I'm am I ever gonna lose again? Like this is so natural and obvious and expected. Winning is so expected. You know, so

It's about being aware of those things and being aware of what they may represent to your personal equity curve and being aware being aware of what they may represent in terms of my ability to discretionarily execute and assess what regime that we're in and ultimately how to allocate the strategies around that.

Um, John, you recently released a book titled The Global Macro Edge. What's the elevator pitch, man? What can listeners expect from reading it? Yeah, the you know, conventional investing asks what was my return? The global microredge asks what was my return per unit of risk and it's that process of identifying a market, a strategy a manager, you know, your own performance on a return per unit of res basis.

that that is a game changer and and not only assesses, you know, what you how you look at markets, but how you assess where opportunity is and ultimately how to go how to go about taking on that opportunity. And it's a huge book too. It's what, five hundred and eighty pages? Five hundred and eighty pages, eight and a half by eleven. Um it's all over Instagram. You can get a context from our website as well. Excellent. And if listeners want to follow you on Twitter, what's your Twitter handle?

At Johnnetto. Okay. Very good, man. Thank you very much for coming on the podcast, John. Let's talk soon. Thanks a lot. Great being here. Enjoyed the interview. It was awesome. You've reached the end of this episode of Chat with Traders, but rest assured there are more out.