Poetry & Discretionary Macro Trading
This is the second guest article I am publishing. Once again, I have asked good friends to write an article about anything they want. This time, a very talented young man with a strong passion for writing poems and macro trading overwhelmed me with his very thoughtful piece, which is truly marvellous. I love philosophying about things, but my writing talent can only take me as far. What he has done here goes beyond what I had imagined to be published on Paper Alfa, and I am so grateful and humbled by it.
It is quite a lengthy piece; you should enjoy it on a quiet evening, away from screens. It touches on many subjects I have often written about, namely knowing yourself above all.
He is an aspiring macro trader currently searching for an exciting opportunity within the space. If his writing inspires you and you think there is an opportunity for him, please contact me.
Now sit back, relax and most importantly, enjoy.
"After a certain high level of technical skill is achieved, science and art tend to coalesce in esthetics, plasticity, and form.
The great scientists are always artists as well."
- Albert Einstein
Is there Poetry in Discretionary Trading?
And the traders, who are they?
If poetry is the art of expression in verse, ideas, emotions, fantasies, and all possible feelings, and trading is an activity of buying and selling financial instruments, what is the meeting point between poetry and trading?
Really, can there be a meeting point between an activity that deals with the inexpressible (poetry) and an activity that deals with the most definable thing that can exist (trading)?
Based on the questions expressed here, we will try to trace a path by looking at what poetry and trading have proposed throughout their history. It would be natural to declare that poetry has a longer history than that on which trading on the financial markets can count, but if we consider trading essentially as a commercial activity (which we will do), at this point, the temporal distances between poetry and trading decline and both find themselves able to count on an age that finds its origin, where the birth of the human being also finds it.
Poetry (i.e. the desire to express myself) and trading (i.e. the desire to earn through myself) both follow the impervious pavements of emotion, inventiveness, and sensitivity and transmit themselves through the exposition of an act intimately linked to the primordial need of the human being: going to the bottom of himself with a torch in hand and discovering what is there.
Just as poetry is the pillar of the humanities, trading is the pillar of the economic disciplines and both feed on the vision that their "orators of the spirit" manage to identify within themselves. The orators of the spirit shape their subjects (poetry and trading) by transmitting themselves to what is inside them and then looking with new vital spirit at what is outside of them.
Therefore, if traders and poets are transmitted because of what essentially distinguishes them as human beings (i.e. the ability to feel emotions), we can state here that poets and traders, as recognisers/users/exhibitors of emotions, can be considered artists. Well, by pronouncing the word artist, we are immediately catapulted between the magical canvases of art and the first rudiment that art reveals of itself is its main characteristic: art does not rely on reason as it has its residence in the home of emotions of sensitivity, of fear.
So I ask myself: But isn't this also the house where trading lives? Well, yes, poetry and trading live under the same roof because they are both art forms and, as such, can be subjected to the yoke of criticism, judgment and blame, but considering that they do not present themselves with the typical clothes of rationality, they cannot be subjected to the tyranny of the experimental method.
Poetry and trading transmit the origins of the world at the same time as they transmit their own emotions and contribute to the social growth of the context in which they are expressed because they transmit those primordial bonds/feelings that can only be accessed if one is willing to come blinded by the part of ourselves that we still don't know.
Both the creative act of the poet and the creative act of the macro trader are performed in solitude; looking inside oneself requires that silence be able to dominate the scene throughout the entire creative process. Poetry and discretionary trading embody the experience of learning about oneself, which anticipates any truthful experience of what is outside of me since it is not possible to breathe the air of what is outside without first having become familiar with the air that designates us as human beings.
Since this experience of learning about ourselves is the founding stone of our being in the world, it anticipates any other learning that human beings can aspire to, starting with scientific learning, which, on the basis of this assumption, will always be the servant of learning basic, but it can never come before since scientific learning finds its home in the after and not in the before.
Poetry (i.e. the desire to express myself) and trading (i.e. the desire to earn through myself) are learnings that are breathed and created to be shared in a sensitive way, that is, through emotions that precede words, through feelings that precede their explanations. The human being shapes the world through the desire to express itself (poetry) and through the desire to earn through itself (trading).
Obviously, human beings tend to shape the world also through the constant relationship with other environments and concepts (not just poetry and trading), but in this humble writing, we intend to push our attention essentially towards these two nests of creation.
But now that regarding poetry and trading, we have traced an expository path along which we will route their respective illuminations, we can ask ourselves: what is the first trait d’union that we find in this path on which poetry and trading are aligned at the starting line?
Aristotle sharply distinguishes between history and poetry, saying that history records what has happened, while poetry tells us the kinds of things that might happen1. Well, this distinction between history and poetry is the same that exists between history and trading because, like poetry, trading also tells us the kinds of things that could happen.
Therefore, poetry and trading have just taken the first step on this path we have just traced, and both have recognized the distance between them and the history from which they come. But since we are people who are passionate about trading, interested above all in tomorrow, we now ask ourselves:
But what does it mean: to enunciate the future?
Enunciating the future does not mean prophesying the future. Telling the future means recognizing the future by not describing exactly the clothes it will wear. Saying the future means connecting to the future by recognizing that it does not present itself with the ugly force of time that shouts but with the faint voice of time that whispers.
Now, having recognized in the early days of the world the origin of the emotions that underlie both poetry and trading, what are the points in common between macro trading and poetry nowadays?
There is a close connection between all human activities characterized by a profound desire to get to the heart of the matter. Poetry and macro business are driven by the desire to create an image that accurately reflects a worldview.
At the basis of the trading environment we are about to deal with, there is the need to recognize what we have already stated previously.
Both the creative act of the poet and the creative act of the macro trader are performed in solitude; looking inside oneself requires that silence be able to dominate the scene throughout the entire creative process.
Given what has just been said, now we are not talking about indicators or techniques or scientific methods, but rather about things such as discipline, mental attitude, and emotional control towards everything that represents defeat (loss). We can assert the instruction that is pronounced in a whisper is:
the secret key to winning on the markets is within us, not outside.
Every single market has harmony and cyclicality; our job as macro traders is to become an integral part of this harmony and cyclicality. To be an integral part of this continuous cycle that does not shout its times and intentions, we must put our spirit in a position to listen carefully to its heartbeat and at the same time, we must forget about our own. And if our ego represents our heartbeat, the market's heartbeat is nothing more than the representation of a game that cannot be played but only crossed.
Therefore, in this trading game, it’s not a question of throwing a ball at a certain speed and with a certain precision; it is rather a question of getting on a moving train (which always travels at different speeds) with certain quick reflexes and with the necessary ability to sense adverse winds.
A macro trader is, therefore, not called upon to look for the Holy Grail every time she or he takes a position in a certain market (for example, after having reviewed every single historical series of a certain pattern); if we want to talk about the Holy Grail, this can be found exclusively in the silent relationship that only our inner peace can establish with the rhythm expressed by the market with equal reserve and without trumpet blasts.
The silent market event is always around the corner, and the professional trader is perfectly aware that the movement is about to happen. This movement that is about to happen cannot be intercepted if the trader overcomes it with the visions resulting from his ego and his inner will. The market will never go where the trader wants the market to go; the market will go where it needs to go, as always.
It is exactly on this “where it must go” that the macro trader must direct all her or his concentration. That “where it must go” represents that moving train on which the trader must humbly get in order to make a profit.
Therefore, the trader's job consists above all of this internal predisposition, which is the only one that can free the trader's intuition and give him the opportunity to intercept the moving train.
We can, therefore, say that trading is not comparable to an activity that requires enormous physical effort (for example, weight lifting) but rather to an activity that requires an ability to intercept (skeet shooting).
Macro Trading does not require an effort of the body but an effort of the spirit. As a humble macro trader, I believe that the global macro economy is fundamentally contrarian, even more so if our north star remains the long term.
My contrarian view does not imply being a contrarian by nature about everything. My vision tends to feel a low level of spiritual attraction towards the phenomenon that surrounds me, and as a macro trader, I intend to strip this phenomenon of its shadows and dress it with my vision. I consider reality as a cloud that continually changes shape, and this means that as soon as we convince ourselves, after careful observation and analysis, that this cloud has the shape of a parrot, a moment later, it happens that the same cloud has taken on the shape of the rabbit: and the parrot and the rabbit are not the same animals. Yet, if I did not recognize the shape of the parrot in the cloud a moment later, I would not be able to recognize the shape of the rabbit in that same cloud.
By this, I mean to say that the final result of the first narrative that I construct (i.e. that the cloud has the shape of a parrot) is the fruit of a work that finds its outcome only when this same outcome begins to change into something different (the cloud that no longer has the shape of a parrot but the shape of a rabbit). Well, this means that I define reality only when reality is about to change. Being a macro trader, therefore, means chasing reality, day after day, month after month, in the constant search for that point where the narrative transforms, and from a parrot, it becomes a rabbit. For this reason, the point is not to be a contrarian for the purely ephemeral taste of being a contrarian; the point is to be a contrarian because only in the predisposition to recognize the change that is around the corner can we find the vision of the trade that coincides, from a temporal point of view, with the time in which the cloud maintains the shape of the parrot before transforming into a rabbit.
If I know that things will change, I also know that for a certain period of time, things will remain as they are. The macro trader is not called to tell the world after reality has spoken; the macro trader observes the world while the reality is there on the stage of life, speaking and telling how things are. The macro trader is an interceptor of realities that dominate him.
Why do I think this way? The world of investments, generally speaking, tends to evaluate everything as if the consensus regarding it is essentially correct; consequently, if you want to make a profit, you must necessarily bet against the general consensus. This means that the trader must necessarily look at what is missing, not what is there; he must necessarily ask himself what is wrong in the directive line of each central bank (and there is necessarily something wrong, as even the central bank directives are dictated by human beings just like us in terms of prospects and vital resources), a macro trader must ask herself which countries will have more difficulty in saving their currencies, a macro trader must necessarily ask himself what is wrong with everything in the global social/economic context.
I believe that the macro bet is essentially a bet that can only be successful if it’s a commercial gamble; in addition to being outlined within a risk/return profile suitable for the trader's range of exposure, it is also appropriately inserted into a precise timing and also in line with the trader's ability to stay within a certain operation for a certain period of time.
But what is the link that links the vision we find within us to the one we go looking for outside of us? I think that this connecting link is humility. I think that with a minimum of attention, every enthusiast can learn to calculate, for example, the Black Scholes or any other formula. But the crux of the matter is not calculating a certain formula; the underlying core is how you do it and what the consequences are for your ego after you have performed a certain mental operation. Well, only humility can teach us that our way of doing something (for example, calculating a certain formula) is not necessarily the best possible way but is only one of many possible ways.
This leads me to think that in the macro trading sector, where questions are essentially the beating heart of the profession, the most important thing is not to be right but rather to cultivate new questions daily and with humility, since only from questions that are appropriately linked to the study of the context that we wish to understand, answers can arise that are equally humble and therefore willing to get involved in order to give rise to new questions and consequently new answers. Only the intrinsic humility in the macro trader's modus operandi can encourage her or him to consider the idea that perhaps the cloud no longer looks like a parrot but is becoming something different.
But first of all, before entering the field, it is necessary for the trader to know what type of trader she or he is, and to know this, he must first ask himself the important question:
What kind of macro trader am I?
A defender of a football team cannot ask himself to discard six or seven opponents and then put the ball in the net; a lawyer who deals with civil cases cannot think of winning a criminal case against the most highly-rated criminal lawyer in his country, an engineer who designs water networks cannot think of winning a hypothetical competition announcement from the city of New York which wants to build the tallest skyscraper on the planet. Likewise, a short-term macro trader cannot ask himself to take a ten-year position.
What kind of trader am I? Once I have given myself an answer, at that point, all I have to do is position myself in front of the market (in front of the moving train) with the awareness of my characteristics and my strengths and weaknesses.
If I know what type of macro trader I am, I can create a trading plan that respects my human, spiritual and professional characteristics.
Whatever the concrete form (through the style that I deploy) that I give to the trader that I consider myself to be, from my modest point of view, there is no scientific method capable of outlining with absolute certainty the form that I give to my trading and my being a certain type of trader. I enter the field knowing my trading style but nevertheless with the awareness that my trading style will spread across the market through the strategic union between the trader's natural intuition and technical and fundamental analysis. This union is not called Scientific Method; its name is ART.
Having said this, what is the value of a trading plan if, as we have implied, the market rhythm is the undisputed master of the entire mechanism to which we are referring? What is the point of a trading plan if it can be transformed into waste paper at any moment by the pace of the market? (that market rhythm that transforms the cloud, which previously had the shape of a parrot and now has the shape of a rabbit).
A macro trader does not carry a trading plan because he or she found it in the Ten Commandments; a macro trader carries a trading plan with him for the same reason that an explorer carries a compass and a ship commander carries binoculars. The trading plan is not intended to cover the view but to capture the view. If I know what I intend to do (based on the sound of the market rhythm), I am able to recognize whether my intentions are still the right ones when the market rhythm has expressed another series of sounds.
Having said that, considering that:
The scientific method is based on observation and experimentation, measurement, the production of results by generalization and the consequent confirmation of these results through a certain number of checks
Whatever type of macro trader I am, regardless of whether my experience as a trader is ten years, twenty years or thirty years, there will be no science that I will be able to apply to my trading with the necessary conviction of having just given myself the gift of given perfection by the constant repetition of a certain process.
I understand that the trader's art cannot be accompanied/supported by an applied science, as there is no applied science that can reproduce a perfect constant in trading, but only an applied science that can reproduce a probability. Everything that recalls science (for example, an indicator) can be useful for imagining new horizons and opening new paths, but not for necessarily being elected as the new horizon and a new path to follow. Everything that comes from the scientific contribution is there to improve my observation and my study but not to automatically/miraculously become my observation and my study.
In summary, if the trader is not sufficiently comfortable with her art, she can evidently accompany herself, a little here and a little there, with some determinations of science applied to her trading, but she cannot delegate applied science to carry out the role that falls within the duties of her art.
Having said this, you cannot establish a profitable relationship with the market without the necessary awareness that:
The market speaks, and you listen.
The market unfolds, and you take notes.
The market offers her music, and you cannot take to the dance floor with a dance style indifferent to the music it is playing.
But before even taking to the dance floor with your trading style in line with the music that the market is dancing to, it is primarily necessary that you learn to take your steps, which are not just the technical and fundamental ones (technical and fundamental analysis) but also spiritual and solitary ones (i.e. the ability to resist/overcome attitudes such as fear, greed, pride and presumption).
But why is trading macro closer to art rather than science? Or rather, why is the act of trading based on the flame of art and not that of science? If science represented the founding spark of the act of trading, we would have before us a matter regularized by the constant/predominant seal of the test, that is, the regularized demonstration that a certain approach practised through equally certain processes always gives the same result as the final outcome. But trading, although practised with a regular approach and always the same metrics, never grants the same result since its field of application is not the sum of laws and orders of the cosmos, which is outside of us (universe), but it is the sum of flashes and feelings of the cosmos are within us (a spirit that participates together with millions of other spirits in the same game).
Having established that the field of application of trading (the market) has to do with what is inside us, what can be the path that leads us to it with the necessary confidence to establish a profitable relationship?
The market does not allow itself to be approached (does not offer confidence) to those who approach it with a heavy hand, to those who cross it driving a tank and not on the wings of the wind. The market expects tenderness and sensitivity from its visitors, not slaps, screams and curses. We are not in the market to raise our voice above all others; we are in the market to allow our voice to read between the lines of the market's voice.
So here we have arrived/returned to the founding point of the topic in question: you cannot read between the lines of anything or anyone unless you first learn to read between the lines of yourself. We do not learn to perceive the progress of those who are greater than us without first learning to feel the progress that is within us.
How can you learn to run if you don't first learn to walk?
How can you learn equations if you don't first learn the four fundamental operations?
If the act of trading arises from an observation that goes from what happens inside us, which represents the eye and goes to what happens outside of us, which represents the view, it follows that trading appears to be based on the same founding principle of art: the knowledge of our internal silence (in us) which aspires to become part of the external silence (which is outside of us).
It's not about focusing everything on ourselves to understand whether we're right or wrong after having done a very tiring job of analysis and study; it's about focusing everything on ourselves to understand whether we've seen well or badly after observing with a light gaze and modest what the market presents.
Therefore, the trader is not called to break his back but to open his eyes. But does this mean that the trader is not called upon to carry out serious and demanding analysis and study work? Absolutely not. It means that the work of analysis and study must not be understood as an outlet for one's ego and, therefore, as an ace in the hole to be presented to the market with the significant certainty that this work is our passport to a winning bet. The work of analysis and study serves to learn to observe more carefully what the market offers up until the last moment of its exposure; it does not serve, however, to present oneself to the market with the presumption of having done everything necessary to overcome the bastions of the market and conquer it.
Considering that this approach leads us to consider the market as perfectly organized music, but it is impossible to know which score will be played in the next few minutes, what is the correct approach to the market in order to obtain a profitable result?
Anyone who approaches the market by observing himself in order to learn to observe what is outside of him with a view that is as broad as possible necessarily needs the awareness that the knowledge that is within her or him is nothing compared to the knowledge that it is outside. The need to establish the right distances between what we know and what we don't know puts us in a position to recognize what is most important in the trader's life: risk management. What else is risk, if not the danger of being hit by something bigger than us?
What stops a car from rear-ending the car in front of it? A correct distance.
What is it that prevents a human being from getting burned when he approaches the fire? A correct distance.
Recognizing the right distance is the most important thing a trader can possess, considering that he is an integral and proactive part of an environment with distances and vicinities that are continuously interchangeable depending on changing market conditions.
If we don't want to be hit by something bigger than us, we must necessarily take cover the moment we go hunting. What does this mean? It means that a climber cannot think of climbing Mont Blanc with a pair of flip-flops on his feet. Risk management implies that what we are trying to achieve must be diametrically proportional to our ability to withstand an event that is not in line with what we want to achieve. This means that if I intend to climb Mont Blanc, I must know, even before setting off towards the summit, what I will lose if I fail to get where I want to get. Can I afford the loss I just calculated? Isn't the risk too high?
Risk management is putting down on paper the names of the unknowns that weigh on the head of my intentions. As a trader, I have to manage my risk based on the limits that I set since these are limits that are dictated by the size/metrics of my positions. Only knowledge of the risk that I am willing to take, which is dictated by the limits outlined by my positions, can offer me the measurement of the distance between me and the edges of the market that I absolutely cannot afford to go beyond.
Well, this being the case, there is no trading that can be more artistic than macro discretionary trading, but if I replace the approach that goes from my internal silence to the external one and therefore abandon discretionary trading to embrace systematic trading based on a quantitative approach and on purchase and sale signals that derive their origin from an artificial and scientific automatic matrix software, I then no longer present myself to the market with a human approach (and therefore with its main peculiarity: the ability to feel feelings) but with an automated approach, and this means that I will not knock on the market door with the humble availability of the guest who sits at the landlord's table to listen to his lesson, but rather with the pride of the conqueror who wants to raid everything that appears in front of his eyes.
Trading requires intuition rather than formulas, as it refers to an ever-changing environment that repeatedly repeats itself in ever-changing ways. Music always plays different notes, and although the listener (the market participant) can recognize the style of the music, he cannot anticipate its moves since the notes that the music plays (and will play) will always be different since the notes that come (and they will be played) are the sum of the feelings (fear, greed, courage, prejudice, pride) of those who are part of the game being played and these feelings are always different since they refer to people who are also always different and therefore their actions cannot be predetermined by a formula capable of presuming with certainty what they will do.
Having established the need for a science that is the servant of art and not the opposite, I don’t affirm that science cannot offer its contribution, but if this contribution is asked to checkmate, then we are no longer in the presence of a scientific approach that acts as a servant, but we are indeed in the presence of a scientific approach that acts as the master/final decision maker.
Trading requires an intuitive/accommodating approach and not a presumptive/opinionated one.
One could object that there are mathematical models, such as the Black/Scholes model, and Theoretical constructs such as the Capital Asset Pricing Model (CAPM) and the Efficient Market Hypothesis (EMH), that explain the behaviour of the market, completely setting aside the "principle of inner silence" which looks at the external world and which we have dealt with up to now, and it could be further stated that these models have also achieved a certain success and have also shown that they know how to work.
Well, everything that proceeds according to a defined and mechanized scheme always lacks that final touch that can only be offered by those who have their finger on the pulse of the situation in order to read the “development of this precise moment and not the development of the historical series that led to it up to there”.
The fact that a mathematical model has worked for a certain amount of time does not mean that that mathematical model will work "forever" since the time period is only a small part of "forever".
Markets cannot be completely scientific because markets are like tailored suits cut to the skin of those who are part of them, and those who are part of them are made of impulsive acts rather than reflexive acts, and impulsive acts cannot be transferred into an algorithm because an algorithm for standing needs to be built on dry ground and not on the shore. Is there anything less stable than an impulsive act?
And beyond the impulsive act in the strict sense, isn't it true that anyone who wants to formulate the perfect algorithm precisely must still come up against everything that represents a variable?
Karl Popper said:
“Our knowledge can only be finite, while our ignorance must necessarily be infinite.”
On the basis of this assumption, and considering the thoughts with which we have discussed up to now, I ask myself: Is it preferable to have a discretionary approach that sees its roots in the gaze that observes within oneself even before looking outside, or is it preferable to the quant approach that outlines a network of mathematical and quantum congregations and places upon it the arduous task of catching even the slightest puffs of the market?
Well, considering that the economic revolution continues to overturn the social context in which we live and does so at the very moment in which it overturns itself with a new act of continuous change to which it subjects itself first and foremost, I tend to express my confidence towards an investment style that displays itself through the warmth of its own recognized ignorance rather than through the coldness of hypothetical wisdom.
The secret of the macro trader is the breadth of her or his vision, the scope of the range of possibilities. Well, this vastness of choice available to the trader is directly proportional to the vastness of choice available to the poet at the beginning of his creative process. The poet and the macro trader can both see as far as the eye can see because their creative process is aimed at what is outside of their own internal process. The poet and the macro trader look at themselves with the awareness that initially looking at themselves is the key to seeing what's outside. But what is so special about an investment style like the macro that can grant the luxury of looking at what will be with the humble eyes of those who can really find the truth? Macro/discretionary investing is a strategy according to which investors identify (or think they identify) macro trends that will benefit certain areas of the market sectors and consequently focus on these areas with the declared objective of obtaining significant returns. The discretionary macro trader looks at the principle of each institution (central banks), at the principle of each economic concept (the importance of global macroeconomic data), at the principle of each social variable (demographic data) in order to develop a socio/economic framework that reflects the evolutions taking place and is therefore capable of seeing the possible conclusions. The idea of the discretionary macro trader is essentially to sell and buy everything that can be sold and bought in any financial market worldwide, from Bolivian bonds to nickel futures traded in London to Danish currency contracts.
What then is the perfect method to which a macro trader refers in order to win the market after having won himself, announcing to himself the awareness of himself:
Usually, finance professionals tend to be at the top and work down. They look at aggregate statistics—inflation, unemployment, the money supply—and figure out what the numbers mean for particular industries, such as autos or tech. Here, we propose the idea of doing exactly things the other way around. Whatever the market of interest, the purpose is to identify the buyers and sellers, consequently estimate how much they are likely to demand and supply, and then look carefully at whether our reasoning findings are already reflected in the market price. If there is no immediate correspondence between what we see and what the markets are showing at that precise moment, then the opportunity opens up to carry out a specific operation that takes advantage of the discrepancy that we have just identified. The macro trader bets on the temporal distance between what she or he sees and what the market shows, and this means that the macro trader risks a certain sum of money because they believe that the proportion of buyers/sellers he has identified will be reflected in the market which at the moment is not recognized by her.
I DON'T KNOW, and therefore, I look at myself before looking outside myself the same.
In A Defense of Poetry (1821), Shelley wrote about poets: “They measure the circumference and sound the depths of human nature with a comprehensive and all-penetrating spirit.”
Well. Isn't this also the creative effort of macro traders?
Measuring the commercial boundaries continually created and then destroyed by man and probing with a watchful and tireless eye the depths and feelings of human nature through the uniqueness of one's own self-looking spirit in the awareness that knowing what is inside us is the first step towards knowing what is outside of us.
Append (Poetics 1415 b5-6)