Category Archives: trading results

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.

3 year trading review

Over the three years that I’ve been trading, I’ve kept a rough reckoning of my expenses:

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When I started trading my trading equity was around £18,000. During the three years, my account has produced a gross trading profit of roughly £14,869. However, expenses of over £20,000 mean I am left with a net loss in the region of £5,700.

It’s a hard living.

My worst winning trade, ever

 

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Last Friday, I presented my monthly trading results and said it was a good time to take a break from trading. Despite turning a small profit in January I had broken too many rules. Here is my my dirty little secret: through Friday, I made a series of trades that added up to my worst trading day in years. It was truly horrid. Thankfully, the trades are now closed. Here are my thoughts from the day:

Regardless of the outcome, I know this is the worst trade I have made in years. The relationship between the size of the trade and one’s rationality is only linear to a point. I passed that point a long time ago. I have taken on too much and it is has become impossible for me to step back and think with a clear head. I’m spending the day in a kind of hypnosis, just watching the price action (the ticker and the charts on different timeframes) without purpose. I have too much on the line. I keep on asking myself, ‘What am doing?’, ‘What have I done?’, but I have no answers…what is, is…I can’t leave the charts…why? Something might happen. Anything. I must be here. The trade is a simple one. Todays non-farm payroll data is terrible and yet, after an initial spike in GBP/USD, the dollar has rallied in a big way. I figure this move will be short-lived. It doesn’t add up. Yes, the dollar must sell-off. Prices do not move in straight lines. I have faith. I have bought the pound in size against the usd. I have done this repeatedly but I have been punished every time. Why hasn’t cable followed EUR/USD higher like it normally does?…I would have made a large profit. But no, today, when I need the correlation to stand strong, it has changed. EUR/USD stages a bit of a recovery but cable is not following. The pound is suffering of its own, and I am suffering dearly with it. This is not good. I know prices do not always follow the news in a logical way, but I need to understand what is happening. Are the days of interest rate differential driven exchange rates over? Afterall, themes change in the fx market every few years. But why is the market buying the usd now? What is the bullish theme? Is too much bad news already in the price? Perhaps expectations of higher inflation pulled the usd bulls in to the market. This doesn’t add up. Weak payrolls after a weak GDP print, and stronger inflation expectations supports the stagflation hypothesis, and that can’t be good for the dollar….can it? I realise I only have questions. There are forces beyond my comprehension at play. Fixed exchange rates and the large accumulation of currency reserves in the East and Middle East mean the market is rigged. I cannot expect to understand the flows. I have stops but I move them. The stops get hit. I add more funds to my account and buy more GBP/USD. This time the stops are much wider. The battle lines have been drawn. Market, I know what you are capable of and I have lined myself up accordingly. I soon am in profit, but it is not enough to cover the losses. I look for more, to ‘let it run’, as they say, but it is all hope. My trades turn back to a loss. From here I only ask for break-even. When break-even arrives I ask for a profit, and then to ‘let it run’ again. I have no plan…not here, not now. My plan is the law of chance. With the GBP/USD price closer to my break-even level than closer to my stops, the random walk says the odds are that I will reach break-even, even though the expected return on the trade is negative. When the price moves mid-way between my break-even and stops I realise that the random walk is not something to be relied upon. The odds are now fifty-fifty. But what about mean reversion after a big move? Yes, some snap back is in order. But I only have anecdotal evidence to support this. And then there is the powerful trend, the trend that has been against me all day. I am hopelessly pinned. I fall back on reasons why I shouldn’t be trading, the same reasons that plagued me soon after I started trading. My capital is inadequate. Part of me wants to die the death here and now. To end it all so I can get on with my life. But another part of me wants the trade to come good. That part ask of me ‘what the hell have I done?’. But my mind is numb to the most basic of thoughts. No, the simple fact is that my position is so big that I have become hostage to the price action…emotions fluctuates between positive and negative on every single tick move. Night has fallen. I have been sitting here since I woke up and now it is dark outside. A strong wind is whipping up outside, and I hear of severe storms on the radio. A large ship has been grounded on our shores and the weather is preventing recovery operations. I too, feel helpless. My throat is sore, I need food, I need the toilet, my body hasn’t moved all day and my mind is exhausted, it is not natural … but I must watch, because when I leave something bad will happen … I just know it. And so I sit. But for how long? In a few hours the mkts close. I never hold currency positions overnight, let alone over a weekend. I have read the accounts of HPT (a trading blogger who recently blew-up) and Jerome Kerviel. These are fresh in my memory. I make promises to myself. If I get out of this alive, I will stop trading currencies for a while, for a few months perhaps. There is an emptiness about me. I feel a part of me has died today. I close down my trading platform, leaving only a chart of cable open on my monitor. My positions are left open. I think I know how this will end. It is up to the Gods.

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By the time the markets closed at 9pm on Friday, the few trades that hadn’t been closed out were trading a mere fifteen to twenty pips away from being stopped out. If a freak event happened over the weekend and the market gapped lower when it opened, I would be in big trouble. I tallied up the results. Assuming my trades got stopped out, I would be beyond my point of ruin and my trading activities would be shutdown. I came to terms with this loss over the weekend. Going to the gym helped enormously. I still had my physical health (not too sure about my mental health at this point) and I was thankful for life. Time to move on.

When the weekend came to a close, I returned to the monitor. It was just past midnight and the traders in Tokyo were at their desks. The Tokyo session is usually very quiet and this night was no different. I couldn’t sleep and I watched the screen until around 4am. GBP/USD had barely budged, but at least it had budged a bit higher. I slept for a few hours and awoke to see GBP/USD returning to higher ground. I started off-loading my position as the price edged higher. Using trailing stops in my last few trades, the market allowed me to close the whole episode with a gain of around 5%.

It is the worst winning trade ever, perhaps my worst trade of my life.

This trade reminds me of how I felt after I narrowly escaped a car crash. I was on the motorway, on the way to the airport, and looked up at the signs to see which lane I should be in. By the time I looked down, the cars ahead of me had come to a near stand-still and I was still going at full speed. I slammed on my breaks, locked my tires, and skidded forward, heading for a direct crash with the car ahead of me. I managed to swerve out into the left lane and escape the head on collision, but it was an instinct reaction and I hadn’t had the time to look to the left lane to check for traffic. That instant, I heard a loud horn from a truck that had been coming up on the left. I had missed both the car in the middle lane and the truck on the left lane by fractions of a second. At the next junction, I pulled up and got out of my car. I looked around, totally bewildered. I had narrowly missed a major accident.

I am a forgetful chap but this vivid memory of several years ago stays with me and I try much harder to drive defensively. In trading terms, this episode is a similar ‘near-miss’. May it live in my memory forever.

A longer break

Here are my trading results for January 2008:

 

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I broke too many rules this month, so even though I closed the month with a small profit of £680 (5.6%), it is not what I would call a ‘good’ profit. I think it’s a good time to step back from trading for a few months (I’m on holiday in March anyway) and re-evaluate. I’ll still be blogging away though – can’t get enough of it.

Trading results – 2007

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I won’t be trading (or blogging) in December so this pretty much wraps it up for the year. Much work remains, but it’s nice to finish 2007 on a high note after so many ups and downs.

Wishing everyone a merry, festive season, and a happy new year. I look forward to catching you on the other side.

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Week 54 trading results

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My trading room web cam: “Sir, could it really be true …. yes, it is, we have a new equity high!”

Just as I decide to stop reporting my weekly results on any regular basis, I have a decent trading week with a tidy profit of over 10%.

I’ll present the equity chart at the end of the month, but if I can hold on to these gains then I will have broken through my ‘channel of discontent’, an illusory channel of difficulty where my equity has bounced between £11.5-£12.5k.  The bubbly stays in the basement, however, as I’m still some £5k from break-even.

Monthly results

After reading Trader Gav’s post on reviewing trading results on a monthly basis I realised that the way I report my results is sub-optimal and is in need of a change.

Until now, I reported my results on a weekly basis because I felt that I needed to be held closely accountable to my actions and more importantly, to my trading behaviour. However, reporting one’s trading equity on a weekly basis serves little purpose, especially now that my trading frequency is significantly lower.

From here on I’ll be reporting the change in equity (after expenses) at the end of each month. In order to be held even more closely accountable to my trading behaviours I’ll assign a behavioural score to each trade and present an average of these score along with the monthly results.