my journal 3

[Yamato]

Replying as I read.

Right, my impulses today are different because I am already in many trades, but right now the dangerous impulse, to be avoided, is to close the profitable trades, so I am still at risk of unprofitable impulsive choices. I feel great great pressure to close these profitable trades. But I know it would be wiser to wait. Closing profitable trades is just as unprofitable as opening unprofitable ones.

Your medical terms make it sound like you've been studying. Congratulations on your research, although I liked it better when you spoke down to earth and told me to eat sweets.

Awesome research and books. Precisely what I was researching a year ago (cfr. posts I cited in a previous post where I referred to my previous research), even though much more superficially, as it lasted a couple of weeks. Besides, I rarely read books anymore.

restrict your trading sessions to times when your willpower is not depleted by earlier exercise

Great point and advice, having discussed "willpower depletion" before.

As a practical example, I come home, frustrated from work or from meeting a rude cab driver, and my willpower is depleted from not killing anyone during the day. Then, as we say, I "vent out" my frustration on trading, which really means I have no willpower left. But compulsive gambling can also come from boredom, so that if I spend all day at home in bed, there was no willpower depletion that I can think of, and yet there's a huge risk of compulsive gambling as far as I am concerned.

Oh, perfect, your second piece of advice solves the problem of boredom as well: "distracting yourself by occupying your time with other stuff".

Yes, I have adopted these approaches already, and it all boils down to not being at home. But this time you clarified to me how important it is to not be at home when your willpower is depleted. I remember very clearly how often I placed discretionary trades as soon as I got home from work.

Thanks for the warning on the risks of using standard deviation. At the moment, I don't see anything better, so I am going to use it.

...

Other than this, today I will definitely need to follow your advice and spend time away from home, eat sweets, and so on, because capital is at 37k and I am feeling trigger happy, such as cutting profits short. The longer I wait, the more money I'll make, presumably. Of course I may get unlucky, but it is wiser to wait than to close these trades. "Wiser" means profitable in the long term, not necessarily on a specific occasion.

Somehow, both due to sugar levels (maybe, as you said) and also due to the risks of "willpower depletion", I am really considering extremely important that advice on eating sweets. If you're a raw vegan, and a polite restrained individual like I am, you might see trading as your only source of freedom and entertainment. If instead I eat sweets and drink hot chocolate, I might feel less like trading is my only playground.

 

[Shakone]

Replying as I read.

I know the feeling of being off-piste, having been spending years on this.

Yes, I could not avoid it because I started by creating the systems, and I came to money management only at the end.

Yes, my burden as far as portfolio theory is much harder than with one strategy, but I have chosen my penance and it doesn't hurt as much. To compensate for this burden, I have the advantage of diversification. My strategies are probably not as good as yours, and I need many of them to compensate for quality, lack of programming skills, and the drawback is that I need much more work on portfolio theory.

By all means I would not discard any more strategies, because these 30 I have selected are quite good, from all points of view.

Oh, capital is not a concern, because my limits on investing is more from the potential drawdown than from lack of margin. Given that these strategies all trade at different times and rarely overlap (less than 25% of them overlap), I will never have any problems of margin.

Furthermore, when I speak of 12 trades, mind you, I am not talking about back-tested sample, which is over 10 years for all 120 systems (including an out-of-sample). I am referring to the forward-tested period, which is at least 2 years for all systems, but sometimes this only means 12 trades, as it is for AUD_ID_01.

Drawdown is a concept that I consider flawed, because it is a function of chance, and the fact that a series of losses piled up at a given time doesn't mean the same sequence will happen in the future (maybe worse, maybe better). I consider the distribution of trades (as measured by the standard deviation) to be much more reliable. In other words, I still consider all trades, but not their sequence.

This could be flawed as well, and it does miss some useful aspects of looking at drawdown, but it consider drawdown's disadvantages to be more.

Thanks for the articles against the sharpe ratio. I will read them, although standard deviation is not exactly the same as the sharpe ratio, and it may still be the most effective measure of the distribution of trades. Also, I disliked it for a long time, but I keep seeing its effectiveness.

It was all very useful. Thank you very much.

There is some great info and videos (as you've discovered) covering a great deal of the maths, but if you have a specific question on portfolio theory not covered by them, then I'd be happy to help if I can.

 

[Yamato]

Thank you for the offer. I wouldn't know exactly how to ask you and would not want to waste your time. For now the most practical way is spontaneous advice.

In other words, feel free to leave some feedback and insights here and there, as you read. Of course, always keep in mind that I am hyper-sensitive to criticism. So instead of "you're doing it all wrong", please write "I have adopted a rather different approach", and so on.

 

[Yamato]

Very interesting and a rare occasion to describe how I am feeling when I have profitable trades open. As I said before, I feel like closing them.

And, also, which I find most interesting, I am afraid of looking at how JPY, GBP, GBL and ZW are doing, and not just because all my profit could be vaporized, but because I am almost afraid of success. I am afraid of seeing too much profit from those trades.

It is almost as if I felt guilty about it. As if I had stolen some money from somebody. Almost as if I didn't feel entitled to too much profit from these trades. That's why I am not looking, because I'd immediately cut my profit short.

This morning my ongoing balance was above 37k. I feel entitled to making about 40k on these trades, but I feel they could easily make 50k.

If I look at the trades, and find them at 40k, I'd probably close them. If I don't look, they will most likely bring my account to somewhere between 40k and 60k.

This feeling of "being entitled" is problematic not just for profit but also for losses, because, if I am in a trade that becomes unprofitable, I will have a very hard time exiting it with a loss.

In brief, I am more afraid of looking at TWS than curious and this is keeping me from tampering with my trades. Extreme fear of too much profit or vaporized profit is keeping me from looking at how my trades are doing.

Usually, monitoring your trades is a good thing, and it helps you make profitable changes to your strategy.

In this case instead, I have such strong feelings and urges to close my trades, that no monitoring is better than monitoring. Because I know I would be unable to refrain from closing them.

Let's say JPY is clearly going to 1.1 and bringing my capital to 60k. Well, it doesn't matter. The minute I see 41k on my balance, I will close JPY, maybe because I am afraid of making too much money or maybe because I am afraid of losing too much money, in the sense that all that profit could be vaporized.

But now, given that I have 4 trades open, it is unlikely that all 4 trades will lose all their profit, especially since they had been falling/rising for months and now seem to have reversed.

I know I'd either close the trades at the first hesitation, or close them at a balance above 40k.

I feel enormous pressure to look, evaluate, and close my trades. But I know, deep inside, that I have more to lose from looking than to gain.

I know that every extra hour of not monitoring means an average profit of 100 dollars.

Every day means an average profit of 2400 dollars.

One week means a profit of 12000 dollars, which is 2400 multiplied by five.

I woke up with a balance of 37000 dollars, and I will go to bed with a balance of 49000 dollars if I haven't touched anything by Friday night.

Every hour without monitoring means 100 dollars made. Let's make that my mantra.

I will reach 50k by the end of this week, provided that I don't turn around and look at TWS, in which case I will be turned into a statue of salt.

...

It is a torture. I need to go get some money and buy some sweets. If I look, I will close the trades for sure. FOR SURE.

I want to look, but I know I mustn't.

Furthermore, the most favorable days for closing my trades are Thursday and Friday, so if I were to look, I should look at my trades no earlier than Thursday. By all means I should not look at the markets from Monday to Wednesday, when my trades are not favored by the weekday cycles.

I will go out now and buy a lot of sweets. A LOT OF SWEETS.

Tomorrow I have my math class, all afternoon and evening.

Today I have swimming and I need to see a lot of movies, A LOT.

I need sweets.

Today is the hardest day probably.

Nope. It might be even harder tomorrow, in case it rises higher. I'll have to turn on the systems every day, so inevitably I will see how I'm doing.

Just one more hour here.

Let's not forget that I waited MONTHS for these JPY, GBP, ZW, GBL reversals. And they're all happening now.

I waited months and I can't close my trades two days after they start reversing. Man, I can't do this. I cannot let myself do this.

These futures have enough fuel and overstretched conditions to keep going for months, and I cannot let myself close my trades after less than one week. I must wait till the end of this week. I must let them run for a week.

...

Feeling tempted again.

How awful it would be if I never peeked all week, only to find on Friday that the reversal aborted and all those futures turned around and my account balance is back at 25k. It's unlikely though, so I should act accordingly. What is most likely is that if I do not peek, my account balance will be near 50k at the end of the week.

You see, I will have a week like today: should I peek or should I not peek? A week of uncertainty and assailing doubts.

For now, all I can say is that I avoided to get through the first 12 hours of assailing doubts. I still have 9 more periods like this one.

During the weekend, when I was assessing things peacefully and from a distance, like from the top of a hill, this is what I thought: let them run until next Friday, and do not close any positions until the overall balance is at least above 40k.

...

Ok, I made it. Now I'll go swimming, and come out at 16.00. Then I'll go a restaurant, hard rock cafe or something, then at 17.30 I'll go to a movie... basically for today I should be ok.

I must not return home before 20.00 for the entire week.

 

[Yamato]

Back. I watched Arbitrage, with Richard Gere. I have to say, it was pretty good, like all movies with Richard Gere. Rarely masterpieces, still commercial, but the best of the commercial movies you can have. Nothing to share with the crap Tom Cruise makes.

I guess I could watch my trades now, but I'd still be very tempted to close them if they were good or bad, so I'll try to postpone it till later, when I'll have to turn my systems on, in about an hour.

...

Holy cow, the guitarist is the taxi driver who drove me home tonight:

The edge of the universe - YouTube

 

[Yamato]

Here's another one by the cab driver and his family (son and brother playing in the same band):

Remember - YouTube

 

[Yamato]

All right. The markets are closed now and I can look.

Yep, not good. Capital was at 37k this morning and now it is at 34k.

Such is life.

Most of the money is gone via the JPY, which was a 1.06 and is now at 1.05.

Some of it left my account via the GBL, which rose like crazy today. But then it also fell like crazy.

The first part of the week is always tough for those who are short on GBL. JPY, we will see.

There is nothing I regret though, because I clearly was expecting a profit above 40k and this was never reached, so there is nothing I can reproach myself. The highest my account ever reached is 38k, so I reproach myself nothing.

We will see if things will keep evolving against me in the following days.

So far so good. Acting according to plans. Only 4 more days to go.

 

[Adamus]

"Feeling entitled" to something from the markets is difficult to analyse in terms of what exact kind of emotion it is. Is it greed? It's obviously irrational, but it would be good to know if it's just plain old greed, or whether it's something with more complicated origins. You won't be able to compensate for it effectively unless you understand where it is coming from (which part of your subconscious).

 

[Yamato]

Yes, good points and very patient analysis of things. Thanks for showing such depth and introspection. This is anything but simple, and I hate it when people say things such as "just do this", "just stop doing that". It's much more complex.

At any rate, today it's my second day of 5 days I must wait without doing anything. Capital is at 34k.

It's the toughest day of the week for my positions, because today is the most bullish day for the Bund.

...

Yep, today is the toughest day. On the other hand it is easy to not close the positions now, because they're not doing as well as yesterday, and the tendency is to close them when they're doing great. I have the problem of not closing them when they're losing.

Also, today I have my math class, from 16.30 till 19.30, swimming from 14.30 till 16.00, so I'll be out of trouble for the remainder of the day.

The days when I'll have to go to the movies, massively, are the second half of the week.

 

[Yamato]

Doing good. Today was Saint Joseph and the 3 Josephs brought some pastries, of which I ate a big one, and then I left immediately the gathering.

This sweetness is good, because it might keep me from compulsive gambling.

Capital is at 33k, but I am doing quite good for a Tuesday. Most of the loss is from my 4 GBL short contracts. But that's a stoplosslessness situation, so I have nothing to fear. It is at 144.23 now but it won't stay there for long. Within the next two weeks it will get back below 142.

 

[Adamus]

OK, now I'm getting on to some interesting stuff in the Baumeister book.

You can recognise when you are "ego depleted" or "willpower depleted".

There is no single signal, rather you just notice stronger reactions to everything. Sad movies seem exta sad, joyful pictures make you feel happier, disturbing pictures upset and frighten you more. Ice cold water feels painful. Frustration is worse, bad news seems worse.

It also affects desires, increasing them: after eating a cookie, you are far more likely to eat the whole packet, when you see a gift-wrapped package, you really want to open it.

your brain just isn't controlling emotions as well as it normally does.

what makes it worse is that the desires are stronger when your willpower is weaker.

 

[Adamus]

Got some more information.

The part of your brain that wires everything together, the prefrontal cortex, is responsible both for short term memory and for emotional management (resisting temptations).

Some Stanford researchers did an experiment which showed that subjects who were asked to memorise 7 items were 60% likely to give in to a temptation (eating a slice of Black Forest gateau) than subjects given 2 items to remember (38%).

Sounds interesting, but I'm not sure how useful the information is to you. It depends on how often and how much you are using your short term memory. There doesn't seem to be an obvious frequent situation, but maybe I'm ignoring a normal part of minute-by-minute thinking.

 

[Yamato]

Replying as I read.

Awesome, recognizing when you're ego-depleted. Heightened emotions and mood swings, I guess. But I can't recollect this type of situations in my own behavior.

Well, with the reasoning on eating cookies, I don't know if I agree, because on the one hand you want to finish something, and on the other hand you're increasingly full.

I get your point though: "your brain just isn't controlling emotions as well as it normally does".



...

second post:

Awesome finding. The harder your life's daily tasks, the less willing you are to resist temptations. I often heard this from my father, when I told him to be a vegan, and my mom, too. They refuse because they say they want to eat something good. I also referred to this concept quite often in my posts.

It seems almost natural that you want some tradeoff for being good, but now you're confirming that it scientifically proven or at least hypothesized.

Well, the way I see it is that it's not at all about the memory in particular, but about the daily efforts required of you. If you have to make a lot of efforts, then you're likely to give in where you're allowed to relax, such as eating food you want to eat.

It's like when you're holding your pissing urges. It works until you're away from home, and then, as soon as you get home, you almost pee in your pants, because something in your mind has disabled your ability to resist and hold it, given that it knows it isn't necessary any longer.

 

[Yamato]

Back home. Markets almost closed.

GBP and JPY doing great. So is ZW.

Capital is only at 32k, because GBL has risen quite a bit and I am short 4 contracts on it. But as I said before, this is totally under control due to a stoplosslessness situation on GBL.

Monday and Tuesday (today) are gone, and I have done a great job at not tampering.

Just 3 more days to go. Believe it or not I am expecting capital to go from 32k to 50k.

 

[Yamato]

Back at the office.

Today is a Wednesday and my positions should turn more favorable to me than yesterday, given that Tuesdays are the most bullish days for the Bund and bearish for all the other futures (most of them, you know what I am talking about).

And indeed today my Bund trade is going better, and so are the others.

But still nowhere near where I am expecting to exit on Friday. This is just the beginning of my run from 32k to roughly 45k in just 3 days.

I have to hold out and be away from home for another 60 hours or so.

The trade that's doing the best right now is ZW, not in terms of profit (I only have one contract on it) but in terms of rising.

I feel ok. Not frustrated, not afraid... it's pretty amazing, given that my capital is only at 32k whereas it was above 37k on Monday.

I think this is due to knowing that GBL (which is causing me a loss of 5000 dollars) is in a stoplosslessness situation and that it simply cannot go any higher than 146. So that loss of 5000 dollars will pretty soon turn into a profit of 10 thousand dollars, and being at 32k is the same as being at 47k. Let alone the fact that JPY, GBP and ZW by Friday will have risen even more, so I might end this run higher than 50k.

 

[Yamato]

Ouch. It's a tough one today.

All my positions are going the right way except for JPY which is hesitating quite a bit. Actually it is already 150 ticks from the peak it reached on Monday. However, dude, if I had closed it on Monday it would have been way too early. It's got so much more reversal potential than just 200 ticks.

I'll go swimming in a few minutes, so all my anxiety and compulsive gambling urges are taken care of, until 16.15.

Then I'll have to find something else to do.

48 hours to go.

 

[Yamato]

44 hours to go.

Briefly at home. No risk of tampering because i have too much to gain from keeping my positions open.

GBL going my way in a big way.

The others going slightly against me overall. ZW still doing great, so is GBP. JPY very very hesitant, but not falling either.

Capital at 34k (thanks to GBL falling).

Going to the movies now.

...

Nope. Going to the bath tub.

Given that there's no risk of gambling today, I can stay home. I'll save the movies for another day, like tomorrow or Friday.

In the meanwhile some jewelry, worth 30,000 euros, has been stolen in my house, and everyone, including the police, is looking for the culprit. In my opinion if you have a safe and you keep the jewelry in a regular drawer, you deserve to have it stolen from you. Furthermore, people here are keeping doors open, windows open while the workers are doing maintenance on the side of the building... bunch of idiots. If you behave like an idiot, you shouldn't bother the police if things get stolen in your house. Furthermore, if you buy expensive jewelry, you're in an idiot in the first place. So disappointing.

At any rate, my parents have always behaved like this: they are good at saving pennies, and they suck at saving dozens of thousands. If there's a bread crumb on the floor, dude, you have to pick it up and eat it, because food is sacred. If instead you have a drawer with dozens of thousands of dollars worth of jewelry, then it's OK to allow the maid to see it every day, to provide opportunities for the construction workers to steal it... everything is OK, as long as you don't waste food.

Much in the same way, these lower intelligence parents of mine have kept renting a house for 3 years, because they have thousands of books that didn't fit in the new house. Eventually, after 3 years and 50,000 euros down the toilet, they gave the books away to a library. Dude, throwing 50 thousand euros away is OK, but you can't give away your books. Some people are so worried about throwing away things that they end up spending much more money.

These parents of mine really make me laugh. The way I see it is this: 30,000 euros worth of jewelry got stolen from you, so no big deal. My mother will be 30,000 euros less likely to do charity in the future. She does charity automatically thanks to her stupidity, in favor of thieves. Naturally she blames me because I take cabs. I should take the subway, save, so I can have whatever I saved, multiplied by 10, stolen from me, every couple of years.

Never marry a good-looking lower-intelligence chick, or this is what you'll get.

And then...

You know, she wanted to fire the maid yesterday. But, look: if you're not positive, you can't even accuse or even suspect anyone. So you should only suspect that your being so carefree and lower-intelligence lower-attention lady is the culprit of these problems. You cannot blame anyone but yourself. Good thing today they managed to not accuse the maid nor to make her feel suspected. I think that if you're not positive, you cannot accuse anyone. You can think whatever you want, but you cannot say it.

 

[Yamato]

Ouch. I am suffering even more. Two days ago JPY was making me 3000, yesterday 1000, today it's losing me 500 dollars.

Capital is still at 33k, because GBP and ZW are doing pretty good, and GBL is not losing me as much as yesterday.

It's really tough to take. But I still have confidence that I will reach 45k with these positions.

At any rate, I wanted to wait until Friday, and I've made it so far to Wednesday. The problem is if I have to hold out an extra week. That would be very hard to take.

The next two days are definitely, statistically, the most favorable to my present positions. I have 48 hours to go from 33k to 45k.

 

[Adamus]

Hi Travis,

no psychology to report this time, just a couple of questions relating to your on-going positions.

Your concept of stoplosslessness begs the question, if "knowing that GBL (which is causing me a loss of 5000 dollars) is in a stoplosslessness situation and that it simply cannot go any higher than 146" is possible, then would you place a stop loss at 146, and if not, why not, beyond your conviction that it won't ever go there?

I'm just trying to formulate what your trading plan should be, given that the only trading plans that have ever worked usually have stop loss orders included.

Assume that GBL did due to totally unforeseeable circumstances reach 146.00 and then carried on higher, would that blow your account if you didn't close out the trade? Would you feel bad enough that it would be worth avoiding that by placing the stop loss?

As everybody says (except me, I don't believe it, I think it's a bad saying) trading should be boring. Your trading certainly isn't boring if it is causing you suffering to the degree you alude to. I believe if successful trading is boring, then not trading is even more boring. But that is what will happen if you blow your account.

What I would like to know is what your basic underlying emotion is when you feel compelled to put on discretionary trades with too many lots for your account size, and with no stop loss. I say "too many lots and no stop loss" assuming you agree with me that this is not the route to success, although I'm not actually sure you think that. Assuming we agree, if you can pin down the emotions that cause this type of trading, you are half way to finding a way to counter-act it and developing a trading plan that works.

I hope like crazy that the trades work out, but as you must know, you don't actually have any guarantee that you'll get your 45K this time - you just have to repeat the process enough and be right more often than not. That's why it is ultra-important that no loss you make can stop you trading again.

PS I hope the thieves didn't cause any more damage than just that theft. Last year someone threw a brick through my front window trying to break in. Dumb idiots didn't realise I was at home.

 

[Yamato]

Replying as I read.

Good question about the stoploss, because Benj1981 told me exactly the same thing. However, guys, what if it goes to 146.01 and then falls sharply back to 144? Do I want it to close all my trades because of it?

"the only trading plans that have ever worked usually have stop loss orders included": same exact thing that Benj says.

Given that I assume 146 is not surpassed, my entire strategy would fall to pieces, because I've been doing martingale all the way to 146. I guess it could even go to 147, but then I would be in trouble. But 147 was never reached in its whole history.

Put it like this: you can die by one trade that blows out your account, but you can also die by a thousand cuts. And I want to avoid all the cuts involved with using stoplosses, especially given that this is the one situation that requires it the least (compare it for example to the nasdaq or similar, where you have no idea how high or low it can go).

"trading should be boring": this is very debatable. Not everyone says this. I also believe there's traders who are profitable who don't practice a boring type of trading (such as the "scalping" traders). What might be true is that "automated trading is boring". But, when it comes to discretionary trading, things start being quite different, depending on the frequency of your trades. One trade per month is boring. One trade per hour isn't boring. One trade every ten minutes isn't boring either, and there's people who trade that much, and more. And I could be one of them. And they're not all unprofitable.

...

I don't trade multiple contracts. It begins with one contract, then if it goes against me, I add contracts, gradually.

Yes, it is not the route to success, but it might take my account from 4k to 40k, to the point where I can stop trading and let my systems take care of everything (they're not as profitable as my own discretionary trading, which has been improving).

Yes, I pinned down my emotions already.

1) I start the trade because a) I am bored, b) I am frustrated from a previous loss.
2) I add contracts, because if I was right to enter the trade at a price, it is even more right to add another contract at a lower price, and given that I feel right (otherwise I wouldn't have placed the trade), I cannot really conceive the stoploss.

"repeat the process enough and be right more often than not": again you could die by a thousand cuts. If you add up enough stoplosses, you still blow out your account, so in some cases, it is better to stick to your trades than to close them and place other trades. Furthermore this time I wised up a bit and only have 2 contracts on each of my trades (GBL is an exception, to to its stoplosslessness situation).

Yes, thieves exist in every country. The problem is really another one: the low-intelligence parents that I have:

1) they have a safe, but don't use it
2) they keep the windows open while the construction workers are there (can get in from the window)
3) keep the door open, for half an hour, because... "they just like to do that"
4) buy expensive jewelry in the first place (which is even against their own preaching)
5) tell the maid "how do I look?"

Low-intelligence people are the cause of most problems of the world. Thieves have the right to try and make a living.