Category Archives: self-loathing

The final blog post – concerning Ivan Drago, and an accounting of the similarities between myself and the real Caravaggio

(My main blog can be found here)

In Rocky IV, Rocky Balboa is in Apollo Creed’s corner watching Creed get absolutely pummelled by Ivan Drago, a stone cold Russian killing machine. Creed is under-trained and over-the-hill and Rocky knows it, but he can’t bring himself to dropping the towel and calling an end to the fight until it is too late – Drago delivers a literal killing blow with no remorse, famously commenting ‘If he dies, he dies.’

Rocky, sorely racked with guilt and anger, desperately needs revenge. He heads out to Russia to train in the mountains and fight Drago on his own turf. Up against the odds, Balboa achieves the impossible. He  succeeds in defeating Ivan Drago, winning over the hostile crowd in the process. Let’s get one thing straight: this is Hollywood. Rocky Balboa was in the wrong. He should have dropped the towel and let Creed’s pride take a hit. Balboa let his friend die and there is no coming back from that. Beating Drago in a revenge match may bring some sense of justice but the responsibility still lies with Balboa. We can also make the case that just as Creed shouldn’t have fought with Ivan Drago, nor should Balboa, despite all his training and despite the victorious outcome. Of course, that may not have made for a very exciting movie. Hollywood is filled with such underdog stories and they make for enjoyable viewing but we must remember that if you fight the odds all the time in the real world, they’ll eventually catch up with you. (1)

Here we have one of the most important learnings from the game of trading: process trumps outcome over the long-term. It is because of this idea that I am making the decision to throw in the metaphorical towel. For all intents and purposes, my trading life is over. It was inevitable.

Just as we should consider the alternative outcomes that never materialised in Rocky IV, so we must do the same with our trading. I know that I have died many a death in the alternative histories that never happened but that could have happened had the gods of chance not been so generous with the roll of the die. My capital is pathetically low (an affliction suffered by most traders) and I wanted to build up my equity to the stage where I could enact the right trading processes. I knew it was only then that I could start trading properly. But the paradox is that in order to get there I needed to take outsized risks to build up the capital in the first place. It was a classic catch-22 situation, one where I had to follow the wrong path to get to the right path. I crashed and burned, worked my back up, burned again, and partially recovered. But it is not sustainable. I cannot keep on fighting the Drago. It is not healthy and conducive to practising the virtuous life.

My passion for the financial markets remains undimmed but this is my last blog post for the foreseeable future. I hope it serves as a useful record of a solitary trader’s efforts. The journey has been worth taking in every respect and I thank you all.

In this section, I compare my trading life with that of the real Caravaggio.

Caravaggio the artist lived from 1571 to 1610 and what a life. He was a supremely gifted painter but Caravaggio was not a nice person to be around. Rebellious to the extreme and prone to outbursts of excessive aggressiveness, Caravaggio was always getting in trouble every where he went, trouble that would often included a burst of violence along the way.

I don’t model myself on this guy but there are similarities. My antics in the market place were often akin to Caravaggio’s pointless brawls and arguments, usually ending with me the worse for wear and filled with gloomy self-loathing. By the time I started this blog I felt I had a much better control of my emotional trading faculties, but just as Caravaggio was left badly wounded after he fought and killed Ranuccio Tommasoni in a knife-fight in Rome, I too was left with permanent scars from these pointless battles. These tumultuous events were pivotal in both lives. The artist had to flee to Naples as the authorities in Rome had put a price on his head (a pena capitale). In my objective mind I knew my days in the trading arena were numbered, but I tried to run from this reality. Caravaggio the artist continued to paint. I continued to trade. The lives we made for ourselves caught up with us both.

The desperate search for redemption is another tie that binds. Caravaggio, somehow hearing that Rome was likely considering granting a pardon, made his way back to Chiaia in Spanish Naples, where it his thought his first patroness may have been able to help in influencing the papal authorities in Rome to issue to the pardon on his behalf. Alas, it is here that the artist was so brutally attacked and mutilated by unknown assailants that word spread of his death. In Simon Schama’s ‘The Power of Art’, Schama notes that Caravaggio stayed in Chiaia and kept painting. He says of these paintings they ‘were images of redemptive suffering and, yet again, decapitation, as if he couldn’t get the image of his own pena capitale, his capital sentence, out of his mind.’ My brush with death came this February, and it was a dangerous one. My self-loathing hit a new high, made worse that the fact that my capital sentence (a shortage of capital) was of my own making. I equated redemption with getting back to break-even – this would be my pardon from Rome – but I now realise that it is not here that redemption lies. It lies in being true to oneself and stopping now.

David with the Head of Goliath, 1610

It is during Caravaggio’s time at Spanish Naples that he painted David with the Head of Goliath, pictured above (2). The painting is widely thought to be a form of double-self portrait; at the very least the decapitated head is surely Caravaggio’s. As with almost all art, the exact meaning of the piece is open to interpretation but right now the message that resonates with me is one of a deep understanding of the self, of the idea of redemption by making a clean break of the troublesome Caravaggio of old, and lastly, there is a heap load of self-loathing (see David’s disgust with what he is holding). Schama says of this painting, ‘You see something that had never been painted before and would never be painted again: a portrait of the artist as ogre, his face a grotesque mask of sin’, describing the young slayer of the giant Goliath as the ‘most conflict ridden David ever to be imagined in either marble or paint.’ I can relate. There have been times when I felt like David and the market was Goliath, and other times when the market seemed the true David and I the ogrish Goliath, but the long standing truth is closer to idea of the double self-portrait, that I am both characters, and that today I officially severed the wicked head of my alter-ego (3). There will be no more half measures.

Rebirth denied – Caravaggio met with a tragic end. Still seeking redemption but now with a pardon apparently on the way, the artist boarded a boat for Rome, taking with him a collection of paintings he intended to give to people of influence and win favour. However, when the ship pulled in at the port of Paulo he was arrested for unknown reasons. By the time Caravaggio got out of jail the ship had sailed off with his paintings still on board. Some think that Caravaggio actually saw the ship sailing away and that, in a frenzy, he gave chase. What we do know is that Caravaggio made it as far as Port Ercole but there he collapsed on a beach with severe fever. In this pitiful state, he was taken to a local hospital where the troubled artist died. So near and yet so far.

As with Caravaggio’s near redemption, my ship has also sailed (4). In the place of the important payload of valuable paintings are valuable trading secrets that could lead to success in the market. These are the product of several years of relatively intense trading and they will stand me in good stead when and if I ever return to trading with a reasonable level of capital. Of course, they are not secrets of the ‘key to riches’ variety, simply crucial lessons that I noted from my experiences trading the markets. My full-time trading career is over. I still plan to trade in extremely small size, seeding my two trading accounts with £500 each, but this is only to maintain an active in the markets until the day I am ready to return, if ever.

Saint Jerome in Meditation, 1605

These introspective paintings of Saint Jerome and Saint Francis touch on ideas of contemplation of the self, mortality, and man’s role in relation to the world. It is apt to end with a famous quote by Socrates:

‘The unexamined life is not worth living.’

Saint Francis in Meditation, 1595, Saint Jerome Writing, 1607, Saint Francis in Meditation, 1603

The End

(1) Later Rocky films address this issue, with the writers giving Rocky Balboa permanent brain damage as a direct result of the thunderous blows delivered by Ivan Drago. Rocky also experiences a humbling of his financial status that forces the boxer to give up his extravagant high-life and return to his old neighbourhood.

(2) Wikipedia observes the letters H-AS OS inscripted on David’s sword, an abbreviation for the latin phrase ‘Humilitas occidit superbiam’, or ‘humility kills pride’.

(3) The non-Caravaggio me lives on here.

(4) Given my chosen trading name of Caravaggio, the question of whether I subconsciously expected this fate hangs over me. Fortunately I don’t delve that deep.

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Swissie is no longer carry positive

Many years ago, I burned up an FX trading account with Oanda. I left a mere £70 in the account as a reminder of my shame.

Well, I’ve recently been playing around with this account, and have doubled the equity. That’s a one hundred per cent increase in a matter of months … damn, I’m good*. There’s no magic involved here: I’m short gold and generally trade from the long USD side because that’s my predisposition, hinder me that it may! Anyway what’s the point here? Oh yes, I recently added a small long USD/CHF to the book because this trade always pays out a little in interest. Alas, to my surprise it was carry negative. This is shocking because for as many years as I have been in the FX mkts, USD/CHF has always paid out on the long side. I guess times change.

The word ‘idiot’ is derived from the Greek ‘idiōtēs’, meaning a ‘person lacking professional skill’. I qualify as a first class idiot for not paying any attention to US and Swiss policy rates crossing over.

* Sarcastic self-congratulation.

John Rambo teaches trading

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Because we are shaped by our environment, it is important to remember that the longer we spend in the company of the market, so our perception of the market (eg: as an ecosystem, a battlefield, an unequal competition between players, a fight, etc) becomes important in defining us around the edges.

Sarah Miller: You know you never told us your name.
John Rambo: John.
Sarah Miller: Lived here a long time?
John Rambo: Long Time.

He who would fight monsters must take care not to become one. – Nieztsche

Low probability trading

The trader behind ‘High Probability Trading‘ loses $31 thousand (around 80% of equity) over the long weekend. Warning: this video contains pretty much nothing but the f-word:

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Stock Futures Trader Having Rough Day

In his blog entry, the High Probability Trader says:

Good Bye………I hope you all have a nice life. I need to be to work in 2 hours, and I can’t manage this position, I have to sell out. About 40k in 2 days,,,,,,,,,,,,gone. Speechless. One bad trade, is all it takes. 2 and a half years of trading thrown down the drain on 1 trade. Who would’ve thought the Futures would tank as much as -500pts on YM with the US markets closed. I didn’t, and I never really wanted to be in this position, but I couldn’t accept the small loss.

And so it is that the High Probability Trader (HPT) gets wiped out by a low probability event.

I can relate to HPT on several levels:

– Before I started this blog, I had been trading full-time for over a year and was experiencing a peak-to-trough drawdown in the region of 85%. While I had a strong edge over this period, I simply pressed to hard and too often as a variety of psychological problems took hold.

– See how HPT shouts at the market to keep going against him? I also experienced similar feelings of self-loathing and have willed self-harm after taking positions (the market obliged). When all hope is lost we can turn on ourselves. (Remember ‘Billy’ in the film Predator? Midway in the film Billy says ‘we are all going to die’, and toward the end he stops running from the Predator and sacrifices himself on the bridge.)

– In the first few months of the recovery process, there was a very strong chance of getting completely wiped out. I also took outsized risks but I was lucky. Now, If I get hit by a tsunami that blows a hole in my equity, I feel I am psychologically ready to deal with it.

What can we learn from HPT’s experience?

The longer we stay in the trading game, the greater are the chances that we will get hit by unexpected, low probability events. Looking at the history books provides some guidance on what to expect, but history provides only the finest slither of the infinite possibilities that could have occurred. So it is that traders must tread extremely carefully, always balancing the upside with downside, appreciating that extreme, unexpected events will probably net out over the long term. Its all about navigating through these squalls and staying alive to trade another day. These days, I am more comfortable with my relationship to trading uncertainty. My risk per trade is still too high by most standards but it is much lower than it used to be. I don’t hold FX positions overnight and based on current risk taking, a 200pip gap in an exchange rate shouldn’t cost me more than 25% of my equity.

horsement.jpg

It can serve us well to imagine that the horsemen of the trading apocalypse are just behind us.

(Hat tip to Trader Eyal for pointing out this story)

Stephen Fry on addiction

I have a great deal of respect for Stephen Fry and am happy to find that he has started a blog. In his latest entry, he tackles the issue of addiction:

At fifteen I find a new substance to feed the ravenous beast within. Tobacco. “A cigarette is the perfect kind of perfect pleasure,” Wilde said. “It is exquisite and leaves one unsatisfied.” I thought at first that this was just Oscar talking all pretty and silly. But of course he got it right. A cigarette is the perfect instrument of addiction. Perfect. It has no function, no point, no quality other than to make itself needful to the smoker. It doesn’t taste pleasant, it doesn’t modify mood (except inasmuch as it quells the need for itself) it doesn’t offer texture, elation, hallucination, bouquet, nourishment, calorific value, anything. And ultimately, as Wilde pointed out, it never satisfies: it is always necessary to have another.

Imagine that one day someone hit himself lightly on the head with a parsnip. Instead of stopping (for this is a foolish thing to do) he carried on doing it. When he eventually did stop he went about his business but discovered, much to his surprise, that he had a sudden unconquerable urge to hit himself lightly on the head with a parsnip all over again. So he did. And the more he did it, the more he needed to do it. The act of doing it gave him a tiny surge of joy, a little rush of pleasure that had to be elicited, never mind what a twazzock he looked, parsnipping himself on the head all day.

Smoking is no less stupid than that. In fact it is a whole bicycle-shed more stupid, because it’s smelly, unsociable, carcinogenic etc etc etc. But the principle is the same: smoking has absolutely no point other than to stop the misery of not smoking. Smokers claim that it aids concentration, soothes the nerves and so on, but we know really that it only does those things because it’s tobacco addiction that messes with concentration and jangles the nerves in the first place. Tapping your head lightly with a parsnip would aid concentration too if not doing it made you all jumpy and desperate.

The cost of £1

After reading about JC’s (NYSE Scalper) tough trading day, I thought I’d share my own tale of woe.

Toward the end of the Wednesday’s trading I had profited by £149. There were no more opportunities but I wanted the extra £1 so I could finish the day with a full £150. I figured I’d place a very small trade on GBP/USD and so long as it moved 4 pips in the money I would close out with my £1 profit. Is that really too much to ask? I had no trading signals to trade off, but I knew that cable moves this much every five minutes, so if I set a comfortably wide stop, GBP/USD should eventually hit my take-profit level. It was just £1, after all.

I was trading with all the wrong motives, essentially taking an uneducated punt on the market. Of course the probability of making my £1 was very high, probably around the 80% mark, but the expected return (probability x payoff) was negative – even though my stop-loss was placed far away from the spot price, if it got hit my loss would be around £49. If the market is random, the expected return of this type of trade is negative because of the commission/spread.

Of course, I was shown the error of my ways when the price immediately moved against me and never came back. Even though the loss is negligible in the grand scheme of things, the experience serves as a useful reminder of what trading is not about.

Conditioning optimal trader behaviour

Steven Berkoff (torturer): What is this?

John Rambo: Okay, okay, it’s the3500 road map.

Steven Berkoff: You haven’t followed it. You are pathetic, a weak soldier! You lack discipline. You must be punished!

A recent post by Globetrader on ’emotions in trading’ got me thinking about the trader’s journey of self-discovery, and the meaning of my road map. Personally, a large part of my journey is about using will power to condition myself to be a better trader, about killing off those behavioural gremlins that pop up every now and then and send me in to a vicious circle, where perspective is lost and losses mount. Actions I have taken include taking more breaks, eating and drinking correctly, and regular exercise. These activities have helped my discipline and general emotional balance. My road map also includes reminders of the the ugly side of trading (addictive trading, seeking instant gratification, challenging fate), as well as reminders of the positive characteristics to continue to develop (patience, discipline, being humble). The general aim is to nourish the positives and starve the negatives. What it boils down to is will power and an openness to change.

Recently, I’ve been thinking about whether I can speed up this development process. Some of the negative behavioural responses in my trading can be thought of as Pavlovian, in that they sometimes feel like predetermined natural reflexes to certain external stimuli that have been transposed on to my market behaviour. Whether these responses are hard wired or not, the point is that I should be pro-active in trying to modify my conditioning by promoting positive behaviours and punishing my negative behaviours. Previously, I wanted to use will power alone, reasoning that this would have represented the ultimate journey. However, what comes to mind is a comment that Brett Steenbarger made a while back, that trading should not be about seeking ‘validation’ as individuals. This is very important. Trading is about finding the best way of making money. Using the market as a testing ground for one’s will power is dangerous and reckless.

So, how can I condition myself using a carrot and stick approach?

A few days ago I was thinking of some pretty extreme solutions. These included self-harm such as cutting myself when I committed a behavioural foul; keeping a knife next to my PC would be a good reminder of the forthcoming pain. Instead of this extreme measure, I thought about ‘paper-cutting’ my finger (less blood, but more annoying, lingering pain). This could work a treat. At the very extreme, I envisioned myself hooked up to an electrode that sensed my brain pattern and electrocuted me with jolts of varying strength. The great thing about the last method is that I could be electrocuted before I even placed a trade. This ‘Minority Report’ style pre-crime punishment is not actually as far fetched as I thought – a few days ago, it was reported that:

A team of world-leading neuroscientists has developed a powerful technique that allows them to look deep inside a person’s brain and read their intentions before they act.

The team used high-resolution brain scans to identify patterns of activity before translating them into meaningful thoughts, revealing what a person planned to do in the near future. It is the first time scientists have succeeded in reading intentions in this way.

Professor Colin Blakemore, a neuroscientist and director of the Medical Research Council, said: “We shouldn’t go overboard about the power of these techniques at the moment, but what you can be absolutely sure of is that these will continue to roll out and we will have more and more ability to probe people’s intentions, minds, background thoughts, hopes and emotions.

Pretty cool, but back to reality. I have decided that if I continue to trade in the months ahead, I will ring fence a small portion of my profits for ‘treats’. On the punishments side of the equation, I am still not sure what is best. Actual self-harm is too extreme, but I need to have some kind of consistent punishment that sticks in my mind long after the event.