Category Archives: trading parallels

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.

BadBeat poker prop shop and trading the markets

If you were unsure about the similarities between poker and trading, take a look at this interesting article about a metals trading prop shop in London that has started a business backing on-line poker players. Here are some quotes from the piece:

Although online poker sites do not announce what proportion of their customers actually win money, professionals estimate that about 95 per cent of players lose.

Daily loss limits are seen as the cornerstone to developing profitable players. Losing your daily loss limit three times means you move down to playing with half that amount until the gods smile on you again.

The hours a player puts in are also vital to making money. Over time, good players will beat bad players, but luck is a factor. “The one thing employing people to play has highlighted is how little most player play,” says Conroy. “Considering it’s a game of skill and luck, you need to put the time in for the skill to show through.”

How much money do you need to play poker? …when it comes to bankroll, most people don’t have enough. The principle is never go broke. Being well bank-rolled means you never play with ‘scared money’. BadBeat’s John Conroy believes most players (probably 80 per cent) are under bank-rolled. They’re also playing at higher stakes than they should. To play $5-$10 no-limit hold ‘em efficiently you’ll need $40,000 to avoid running out of money after a month’s bad run, with a daily loss limit of $2,500.

In poker, a ‘bad beat’ is when you lose a pot against the odds – a strong hand beaten by a lucky one. The response? You just have to play more hands.

Source – ‘Dealer’s Choice’, FT Weekend Magazine, Septemeber 20/21 2008

Stallone teaches trading, kind of

‘Face it, the old cliché is true: no matter how rich or famous you are, without your health you’ve got nothing.’ – From his fitness book, Sly Moves.

This quote works literally. It also works indirectly, in reminding us that part of trading is finding balance.

Bloodsport teaches trading

bloodsport-van-damme.jpg

In my all time favourite Jean Claude Van Damme film, Bloodsport, JCVD travels to Hong Kong to fight in the Kumite, a legendary, underground fighting tournament that takes place once every four years.

This piece of cheesy dialogue is highly relevant to trading:

Journalist: Why is it that no one will talk about the Kumite? What is this air of mystery? (pause) Why are you fighting in it?

JCVD: It’s personal.

Journalist: You want to prove your manhood to the world?

JCVD: The Kumite is for the fighters, not for the people who read the newspapers.

Lesson: Always remember your motive.

In this clip, JCVD is through to the the final, where he fights Kumite champion Chong Li. Note that Bolo Yeung (the actor who played Chong Li), was 49 years old when Bloodsport was filmed.

Survival of the fittest

fighting-man.gif

When he hear the term ‘survival of the fittest’ bandied about, people are usually referring to contests of absolute strength and think of the Darwinian struggle for life. Trading is often thought of in a similar light.

It’s interesting to note that while Darwin came up the idea of natural selection, the term ‘survival of the fittest’ was coined by economist philosopher Herbert Spencer. What is more, both Darwin and Spencer were not referring to competitions of brute strength, but of best fit. That is, the survivors were those who best fit in to the environment around them. Brute strength is an aspect of this, but it is only half the story. Adaptation to the environment is also required.
Chance and randomness plays a big role in natural selection, as it does with trading success, but we can be sure that regardless of how strong we are with respect to risk management, discipline etc, if we don’t have an edge then we will likely die out. Likewise, an edge and no strength could prove equally fatal. Because the environment of the active investor is dynamic and forever changing, it may be useful to think of the circles below as constantly moving around about other, only rarely intersecting.

edge.jpg

Fighting without fighting

Economist John Kay starts the new year with an insightful article on how we crave heroism in the face of danger, when the wisest course is often to avoid said danger in the first place.

Reading Kay’s article, I was reminded by the Bruce Lee quote of ‘fighting without fighting’: throwing this quote into Google brings up an interesting pdf book by the ‘American Hunt Saboteurs Association’ (wisdom really can be found in all corners). In the book, the author comments:

Why have I written this book? Why have I written a book about the art of fighting without fighting when my claim to fame is probably the fact that I have been in over 300 street fights, where I used a physical response to neutralise my enemy. Why write a book about avoidance when it is obviously so simple to finish a fight with the use of a physical attack? Indeed why write it when my whole reputation as a realist, as a martial arts cross trainer, as a blood and snot mat man may be risked by the endeavor? The reason is simple: violence is not the answer! It may solve some of the problems in the short term but it will create a lot more in the long term.

Discussing ‘avoidance’, the author says:

Avoidance is being aware, understanding the enemy, understanding yourself and understanding your environment. If you are training in a martial art, then avoidance is understanding that art and whether it will stand up to the threat of a real encounter. More than anything, avoidance is having enough control over yourself, your ego, your pride, peer pressure, morality etc. to stop these negative emotions from dragging you into a situation that could otherwise be avoided.

ego.jpg

In trading, I have found it all too easy to get into fights. There is a part of me that equates speculation and risk taking with heroism in the face of danger. This is damaging to one’s long-term goals. The problem is nowhere near as self-destructive as it once was, but I am starting to view my overall trading life as a battle that I perhaps should not be fighting. Just as Tyro Trader has decided that being engaged in the continuous battle of a day trading is not for him, so I am realising that a longer term approach may be in my best interest.

Trading lessons from the road

Driving to and from London is quite boring. Even though the journey only takes about an hour, the monotony of unchanging scenes along the motorway can get quite tedious.  Listening to the ipod and radio helps, but it’s still all too easy to drift off in to a driving daydream.

Driving home from London last night, I turned up the radio and opened the window so the cold air and loud music would help keep me awake. Still my mind wondered off for a matter of seconds … just enough for me to miss my junction. Alas, the next junction is many miles away and my journey length and time was increased by more than half.

Two lessons from the road:

– It only takes a small slip-up to create big negative effects. Conversely, the road to success in many of life’s ventures seems to be more incremental. Think of the engineering behind cars, space shuttles etc. One small error can lead to total disaster, but for everything to work, so many things have to be ‘right’. A related pattern is the  carry trade in the currency market, where returns are incremental as the high yielding currencies slowly appreciate, but when we witness episodes of carry trade unwinding, things are not nearly as orderly.

– Missing my junction would be less of a problem if I was less tired and fatigued, because I would feel less downhearted at having to do the additional driving. However, it is when we have energy and are wide awake that we are least likely to miss our junctions, and we are more likely to miss them when we least want to. This reminds me of insurance not working when it comes to claiming, of correlations heading to one in times of crisis, and of markets being flush with liquidity, only for it to dry up right when it counts.