Overload
I promised one member in a PM a few days ago I’d be posting on the topic of differentiation yesterday. So why is this post today then titled “Overload’? Because in order to make good my commitment to this person, I had to do a great deal more than I expected to have to do in the same period of time to maintain my schedule and deliver – to them and to myself. I don’t say this in any way to blow my own horn, quite the opposite. What happened to cause me to overload and my estimates to get busted? Life. Things occur and need to be fixed, to be sorted, to be addressed. Doesn’t matter how much contingency you build in. As an aside, always planning in contingency is an unnecessary overhead, it leaks energy, time and profits – avoid. When you don’t use a contingency that’s been formally planned in and formally costed in, it rarely goes back into the pot. It just dissipates. Waste. Far better to plan to tight timescales and estimates and expect occasionally be forced to push the boat out and hire in the gang. More gets done that way. Just a personal view based on experience using both methods. But Life keeps happening. It’s always going to be that way. For me. For you. Strength of Character. The more you get to handle the better you get at handling. I’m not banging on about just stepping up to the plate or any other macho type statements with which us traders are ‘supposed’ to resonate. I’m talking about quietly and efficiently getting on with what needs to be got on with – and doing it with a good heart. If my expressions seem a little old fashioned that’s because nothing better has come along since. Having finally completed the writing and about ready to go on-line with this post yesterday, it occurred to me to not do so – and to turn it into an exercise by its non-appearance.
Anyhow, differentiate. I’m also going to cover a number of other issues of key significance in a way that will I hope be subtle enough so that after you’ve read this post you wont necessarily feel the need to consciously remember what I’ve discussed with you and you’ll move on, quite comfortable with the fact that you have hopefully taken enough of it on board to have made your own effort worthwhile. Completely and utterly off at a tangent, I wonder if I can ask you all a favor? Should that have been a question? After all , I was just wondering and not asking. What is it that drives us to ask the Who, What, Why, How and When of most situations yet when we come to trading most don’t. If you can figure this out, do let me know.
Differentiate. What does this mean? I could go down the path of describing the various meanings of the word in the physical sciences. Potential Difference in electrical energy, kinetic energy, gravitation, pressure, temperature, time, gradient. But you’re all already too well aware of these aspects of the meaning of differentiate and difference to need to think it thru, now. How about the math slant within the area of calculus. Differentiation. Ever tried differentiating your indicators? Guess where you end up. Forget Liebniz. Most of us do. What about the Greeks? Delta, Gamma, Theta, Vega, Rho. Now that is Differentiation almost as a pure art form in itself. Low volatility/High volatility. As a trader you’ll encounter many Greeks. Some are more useful than others. Delta and Gamma will do you just fine - although they do tend to change over time. Why do options writers have all the fun? Because they’re at a premium. They were just a couple of low volatility jokes. Differentiate. You need to learn to differentiate before you will learn you can learn skills to control what needs to be differentiated, unconsciously. That needs restating – often. Most set about trying to learn how to differentiate before they decide how to determine what needs to be differentiated. Catch-22? No. You’re using your conscious mind – that’s the problem. It’s the decision that makes it wrong.
In order to have you experience what it is I mean by differentiate, just take a moment to consider the difference between awareness and perception. You’re sitting on your porch in the cool morning air – actually, it can be bracing morning air this time of year – and you feel a zephyr of a breeze gently brush the hairs on your arm. What’s awareness and what’s perception? Don’t cheat. STOP. I asked you a genuine question. Think about this and come up with something you’re not ashamed of in terms of having a reasonable stab at an answer before just passively reading on hoping I’m going to tell you. Because I might be wrong. And how stupid will you be to just take my word. Think. What’s awareness and what’s perception?
What is the point BETWEEN awareness and perception? What happens there? And who is the who that is doing the ‘thing’ that happens there? At the risk of sounding like a random question generator, last one for a while now, what is the purpose of the activity that converts awareness into perception?
Raw information is presented to you from innumerable sources every second of your waking, and sleeping, life. You don’t process it all consciously. You couldn’t. How do you choose what to take notice to and what not to? And who is the ‘who’ that takes notice? OK. Answers. The you that notices things is the conscious you. A useful, vital even, component of your personality. It nods knowingly when expected and laughs in all the right places at jokes. It also dodges out of the way of speeding vehicles and moves appendages away from things that have got way too hot for it. It also thinks it thinks. How does your conscious mind decide what it needs to process? Ever wondered? If the conscious mind does THE thinking, what decides what the conscious mind gets to think about? I’m on commission for the number of question marks I can put in this post. Seriously though, what is the ‘thing’ that decides what’s going to enter into your conscious domain and what is not? And what happens to the stuff that doesn’t make it into consciousness? Attention. That was a response not a command. Your attention decides what gets passed up to your conscious mind for conscious processing. So where does attention live? Can’t be in the conscious mind, can it.
Clarity and depth of thought from those doing the exercises. Like a snowball, starting off slow and small, rolling down the slope, gathering speed, momentum and mass. There’s a relationship. More and more. Faster and faster. They’re enjoying the ride, but that’s only because they don’t know where they’re going yet. While I’m up here in the high peaks, I’ll keep the snow metaphor going and suggest what you may ultimately be looking for (and that’s why you and me are here, now) is the mental avalanche, the letting go, the breaking away, the splitting which is, or causes, the mindset you need, to do what you want to do, at a level of pure excellence. That sudden breaking away. The splitting off. I have no other way to describe it. If that were just my experience in striving to develop excellence in trading I should just keep quiet about it. But it seems the experience is a common one based upon those few I have talked to who have also reached the high plateau of their art. This isn’t just traders. I mentioned previously the close kinship master craftsmen in the arts have with master traders. And with master physicians and master scientists. You can read up on any of the greats in any field of endeavor and find they all point to the same experience of breaking away – a splitting off – in the development of themselves in their chosen career or path or discipline. Prior to this breaking away event is the period of the most absolutely desolate discomfort, unhappiness, depression, weariness, nausea and mental strife bordering on madness. If you knew what was coming after (and now you do to some small extent) you’d be a little less unhappy – or perhaps not. Perhaps it is that very cauldron of the emotions that is vital in the process. This is what I feel you may not wish to experience. And who would blame you? Who in their right mind would deliberately seek such a state? Many (most?) will prefer to continue the way they are and trade the way they do. And good for them. Decision made. But for some, a very few, and this is not elitist in the slightest, just honest fact, a very few will be aware, but thru no common thought process, that what they are hoping to experience is a growth of awareness about their chosen area of specialty. For us – it’s trading. And they are willing to exert themselves to achieve it. Come what may. I want them on my team.
Many reports of those seeking enlightenment thru Rinzai Zen which makes use of Koans (paradoxes which must be ‘solved’) for the single purpose of enlightenment, allude to the days, weeks, months or even years preceding that moment of enlightenment (of which incidentally, reports are also remarkably similar across the board) as almost identical to that which I am discussing here. Those involved in testing the physical boundaries of the body, once it is realized the block, the brick wall to greater physical achievement is only a mental one, rather than physiological (body) or physical (universe out there) one - also confirm of the same experience. It appears almost, and only almost, a universal given that this process which leads first just to an appreciation of what it is that can be achieved, and then an irrevocable, unstoppable avalanche which propels you with breathtaking speed (but in only an instant of time) to a quite different level, is a required apprenticeship of sorts. Once achieved, you simply know you are operating from the only place that makes sense in your new environment. That single central point within you from which all things spring. A universal experience. I have no idea if this is a purely mental experience, or physiological or both – or neither – or something else completely different. I say only almost all experience this same process and event as I know of one person, just one person mind, who has never experienced any of ‘The Turmoils’ and yet is inexplicably fully connected and totally centered the whole time and operates in the way for which I have failed to ever find adequate description. But we can recognize it. And she is not a trader. For those who persevere and make it, the journey will have been worthwhile. But the level of discomfort and disruption leading up to the event itself is significant. Why am I cranking on about this issue so much? Because I want to put those off who feel they are unlikely to weather the storm of physical and mental discomfort that will be involved. There’s no shame or dishonor in that. It shows an appreciation of limitations and an unwillingness to commit to a line of development for which the probability of a successful outcome it low. Make that decision now and don’t waste your time. I’d want someone like that on my team too. But also don’t plan on a long term career as a consistently successful trader either. I’m not saying you can’t bang on for years at whatever level you’re currently at, many do – most do. And some manage to pay the bills. I’m only addressing those who think it’s worth a shot at excellence. Before I pass from this specific issue, there is one more person I want to mention. He went down this same route of struggling with an impossible schism of a quite different type to that which we are primarily interested in here, today. Nothing to do with trading and everything to do with Quality. I’m big on quality. In any event, he resolved his issue and ended up dissolving his Self in the process. But his description of the same breaking away experience I am finding so hard to describe was as valid as it was, in his case, sad. Unfortunately for him, the process cost him dear. When you have a few low-sunlight weekend afternoons to while away, take the chance to read “Zen and the Art of Motorcycle Maintenance” by Robert Pirsig. I first read it in 1976 which I believe is when it was first published, and have read it many, many times since.
Let’s relax now, just for a moment and consider a different view based on something a poster on another thread asked us all. It was a question largely addressing the whole point of what we do. What was the point of trading. It’s also useful to me in helping to remove you for just a few minutes from the tedium of my vapid musings and to focus on something more akin to what traders really want to talk about. Buying and Selling. Yeah! We’re going to be buying and selling - Hogs and Chickens. In the old days, it was a lot simpler. You had a hog you didn’t need and chickens you did. You agreed an exchange rate and transacted the deal. I gave you a hog – you gave me 5 chickens. The amount of chickens per hog was pretty much fixed. It did change, depending on the availability of hogs, and chickens and how much folks wanted either, but you generally knew how much your hog was worth to you. It got a little more difficult when some folk wanted to buy fighter jets and aircraft carriers. The calculation of how many hogs and/or chickens got unwieldy and quite frankly, the whole hog & chicken barter scenario became a problem. So we invented money. Now we had a thing, let’s call it a Dollar for argument’s sake, and we pegged the value of products and commodities to this Dollar. (I appreciate the US did not ‘invent’ currency, but I’m going to use the Dollar anyhow. Don’t take it personally). A hog was worth $5 and a chicken $1. The transaction rates were about the same for the underlying products. So if you wanted to buy an aircraft carrier for your farm, you knew ahead of time just how many chickens you’d need to be raising. By and large that’s how it still works. Produce and commodities have a very general ‘value’ which makes it easier to buy and sell. I highlight ‘value’ because there is no inherent value in anything – it is worth precisely what someone wants to pay for it and what someone wants to sell it for – or it doesn’t get sold. It is not what the seller values the goods at that makes the price. It’s not what the buyer values the goods at that makes the price. Remember that. There’s not much else we need to know before we go to market with our hogs and for our chickens, except that there are other forces than just supply and demand which determine what we pay for product and commodity. Governments, powerful industrial and commercial interests, black market forces and organized crime (in no particular order because I’m not sure each is any different from the other – or indeed, even other than one) set artificial limits to some products, keeping some artificially high and some artificially low – for their own purposes. The concept of ‘value’ to the consumer is completely out of the window in these cases and you just live with it. Or else you’re out the window too.
What would you do if you wanted to sell your hogs and buy come chickens? You might want to consider if there was any time of the year, any month or even time of day that was better than any other to sell your hogs. Maybe even a better place? You’d maybe do a little research. Ask other farmers (probably not other hog farmers, they aren’t going to let you get their best prices) and maybe read a little. You might even get some charts of live hog prices over the years and see if you can find a pattern, or two. You might even begin to think outside the sty and wonder what might lead folk to want to pay more, or less, for hogs in general. If you were a smart farmer (and there really isn’t any other kind – just degrees of smartness), you’d be putting in the effort to find the best time and place to sell your hogs. You’d do pretty much the same for those chickens you want to buy. Looking to pay the lowest price. Same thing applies. Research. Of course, as your experience increased and as the years rolled by, you’d get pretty slick at knowing when and where – you’d even be helping the up and coming farmers as best you could. But would that be enough? I mean, you wouldn’t want to be getting involved with the cereals and grains as well would you? Or would you? It’s worth bearing in mind that the guy on the other side of your deal is also doing his homework in order to buy your hogs cheaper than you want to sell them to him for and another looking to get a much better price for his chickens than you had hoped to pay him for them. It’s wise to assume you are up against a transactor of equal or better skill than yourself. Your edge in this situation it experience, research and effort. Lot’s of effort. That way, over time, you end up being one of the perhaps top 1% of farmers in terms of knowing your way around the market. Which means you have only a 1% chance of coming up against another guy of equal or better skill. You have a 99% probability of getting a better deal because you’re smarter than 99% of the other people in the market.
The reason you thought you weren’t interested in grain prices was because you’re not growing or selling grain. The crop grower ‘is’ however, very interested in the weather. Rain or wind don’t hurt hogs or chickens. Unless it’s a lot of wind. Or a lot of rain. Or both at the same time. But a crop farmer will be looking real keenly at his met data. However, your chickens will need feed. When do you stock up your feed inventories – now, when you don’t need it and it’s expensive. Or do you wait until it’s at a seasonal low? Maybe you could just accumulate the stuff at a low level. Just a bushel or two now and again. Nothing big. Nothing ostentatious or obvious. You wouldn’t want to attract the attention of your neighboring farmers now, would you. It’s a balancing act between carrying all that low-price inventory and potentially paying a higher price for JIT feed. Maybe you need to have a crop farmers hat on too. Wouldn’t hurt too much. Just a little more effort produces a lot more information. Dig. If you’re thinking that everything is your responsibility – right down to the potential fluctuation in feed prices, you’re going to get into a better position than the farmer down the way who is less aware. They certainly weren’t paying attention.
Why do I feel you might have been interested in all of the above? Because it might help some get back in touch with the basics of what they are playing with. All those instruments, those lines and bars you trade are related in some manner or form with real life exchanges of goods, products, services, commodities and exchanges of risk inherent within those exchanges for forward dates - and abstract upon abstract, the exchange of risk itself and exchange of interest rates and exchange of pure volatility and the exchange of one type of currency for another. This last one probably rates your interest. While I don’t expect you all to suddenly start pouncing on fundamentals, I reckon it does no harm to consider what’s happening in the real world. Not news, that isn’t real. I mean the real, real world where things are grown and made, bought and sold and people live. News is what you might want to consider using to work out what the ’other’ folks will likely plan on doing. The majority. The contributors. Or as some like to call them, the donors. Unkind.
Let me get back to ‘Value’. Value is a derivative of perception. I wish I could find a way to physically underline that last statement. It’s so important. Harks back to what I said about neither the buyer, not the seller setting the price. There is never one side of the deal equation which always, by definition, has control. It’s a dynamic interchange and interplay of relative needs until the pressure is equivalent for both parties. Sometimes the pressure is never equalized and the deal is not struck. Between these two parties. Remember the control of the deal rests with the party with the least need to transact the deal. They control the price until their need to transact equals the other parties need to transact. This control is normally achieved by changing the bid (if they are the buyer) or the offer (if they are the seller). And the changes to bid or offer are motivated by the seller and/or buyer having their perceptions modified – which is real easy most of the time. Level-2 manipulation is a game in its own right. Can be fun too. But it’s not just as the micro-management level of the deal that this manipulation occurs. There are many influences on what cause folk to form and modify their perceptions of the relative value of something - anything. Incredibly, most of the time, buyers and sellers are influenced by the majority of what they perceive as other buyers’ (if they are buyers) or perceive as other sellers’ (if they are sellers) action or inactions. Lack of attention will lead to a false perception and buying or selling at the ‘wrong’ price. (Actually, you can’t have a false perception – that’s a tautology). So how do you get that fixed? If the least need controls the deal – how do you trump complete lack of need – not caring? You need to fix your attention. Not this post. You know, as I write these posts, I get a dozen new things that come to mind that I know I need to write about next. And by the time I’ve got to the end of my post it’s always already way too long to do anymore. Can’t see how I’m ever going to get finished unless I get super-smart and take a shortcut thru the back roads.
Differentiate. What is that and what the heck has it to do with attention? A good place to start is to be unselfconscious. You can’t differentiate if you’re in your own picture the whole time, with your ego forming you a nice, handy, pre-digested perception. However a conscious act of attempting to be unselfconscious completely defeats the object of the exercise. How do you do it? How do you get yourself out of your own picture (and out of your ego) and stop yourself snapping to perception so quickly, or even at all? You couldn’t care less. You’ll need to meditate yourself – on that One. There are some lines from Kubla Khan
“And from this chasm, with ceaseless turmoil seething,
As if this earth in fast thick pants were breathing,
A mighty fountain momently was forced :
Amid whose swift half-intermitted burst
Huge fragments vaulted like rebounding hail,
Or chaffy grain beneath the thresher's flail”
Now I’m not going to suggest you need to puff the same pipe as Coleridge did to get to the place he was at then, and I have no idea if he was letting us know of his own internal breaking away, but he gave us, in his own special way, a descriptions that’s pretty darned close. The act of not caring leads to unselfconsciousness. It leads the attention to considering not the air, the wind, the hairs on your arm or the time of day or the porch. It leads away from all of those things so that your attention can be placed on pure Awareness. I’ll need to talk about Attention and Awareness more fully in a future post, but if you want to get down and dirty and headed off right now on the road to unselfconsciousness, you have to first consider focus, concentration, and absolute and total commitment to, and belief in, your ability and the opportunity at any point in time to control what it is you are going to allow to develop into a perception. You obviously need to be training yourself to do this ahead of the ‘thing’ perceived – otherwise, it’s too late - you’ve lost. Assume the internal and external characteristics of a master (trader), pretend you are that master (trader) with an attitude of mind, maintaining the correct manner of physical and mental comportment – internally and externally and simply not care about any outcome. Unassuming. Modest. Almost serene. Aware. Objective. If you really desire to learn to be able to instantaneously unconsciously differentiate, start small. Just one thing at a time. Train yourself to not perceive quite so quickly what is going on around you. Just let it be. I’d suggest you practice this somewhere quiet where folk wont disturb you and you aren’t going to be needing to do anything – even as much as appearing to be normal, as you wont be able to carry that one off while you’re practicing this. And to not give yourself too much input to ignore. Quiet mountains, woods, forests, deserts and wildernesses are great for this. But you’ve probably already had more than enough of all this totally irrelevant to trading tom foolery and want some real trading type stuff. So, I’m going to suggest forget the ‘somewhere quiet’ scenario (as useful as that would be) and substitute your trading desk. Sit comfortably. Pull up your favorite instrument with your favorite chart(s) and favorite indicator(s) (if you use them). Just sit. Look but don’t plan on seeing anything. You’re certainly not going to be doing anything. And don’t judge. Anything. Even the thoughts that will come into your mind. Let them pass without trying to follow their train. No obvious exercises this post so you can just relax now. You might find it helps to deliberately diffuse your focus. You’re going to watch your screen without seeing anything and without trying to perceive setups or even movement. Allow your attention to be drawn where it will. But do not follow any thoughts or use any effort to prevent them lingering either. You’ve probably inadvertently experienced something similar to this a few times in the past when the market has willfully not done what you assured yourself it must - and you’ve felt a sense of deflation. Close. But this is without any emotion. Or thinking. It’s a weird sensation unless that’s how you normally trade – in which case you wont for much longer because your screen will die as the power company disconnects you for not paying the bills because you never place a trade and don’t make money – you’ll not be able to do it for too long to start with. Persevere. Do you know what you’re going to have to do to tell the difference yet? I said I wont handle attention this post, but if you have the mind to push and understand what it is I’ve been saying, you wont need to read my post where I do. And for those worried about becoming comatose zombies thru ending up never perceiving anything anymore, complete with drool and vacant expression – my posts achieve a similar effect – you need to understand that you do need to learn to differentiate those things and events for which you do need to form a perception for you to function in a conscious way - and those events of pure awareness which are much better left unintellectualized, allowing the real you to use your full range of unconsciously inculcated capabilities and facilities . Of which, you will probably currently have little to no cognizance. If you’ve read carefully, you’ll now appreciate this decision process, this differentiation which is required can only operate quite unconsciously.
