Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

 

Home

Write to us at: (address is not clickable)

Department of Connections

Fighting and the Market

6/9/2004
Andrew Moe

From time to time, I feel as though I'm on the receiving end of one roundhouse bomb from the Market after another. No matter what I do, I seem to step directly into the path of every haymaker thrown my way. Taking one shot to the head is bad enough - a few in a row can send you reeling to the canvas. A little research led to the following advice from boxers, fighters and martial arts experts around the world.

  1. Roll with the punch. By rolling your head in the direction of the punch, you limit much of its force. In the markets, this translates to going with the flow. Be able to switch directions in the face of overwhelming opposition.
  2. Move in close to cut the power. A counterintuitive move that's especially good for limiting body blows. But beware, as you don't want to walk into an overhand right. Averaging into a losing position can dampen your losses, especially for the infinitely bankrolled.
  3. Cover up and deflect the blow. Get defensive and let your opponent punch themself out. Options going the other way can provide a layer of protection against a big move.
  4. Shrink into a small target. Carve your positions down to a minimum to limit further downside exposure.
  5. Move away. Get out and move on to another trade.
  6. Take a standing 8. The worst thing you can do is stagger into an an onslaught from a fresh opponent. Better to take a breather and regroup before rejoining the battle. Take some time off before resuming trading (as covered in recent posts).
  7. Prepare to counterpunch. By taking a punch, you can often open up an opportunity to strike back. I am reminded of the story of the trader who "paid" for information on losing trades, only to reverse with a bigger position and end the day positive.  

From one of the greatest fighters of all time -- and also the most quotable -- Muhammad Ali:

After losing his first fight to Ken Norton, March 31, 1973: "I never thought of losing, but now that it's happened, the only thing is to do it right. That's my obligation to all the people who believe in me. We all have to take defeats in life."

"There's nothing wrong with getting knocked down, as long as you get right back up." "Only a man who knows what it is like to be defeated can reach down to the bottom of his soul and come up with the extra ounce of power it takes to win when the match is even."  

 

6/9/2004:
A
Black Belt Spec responds:

Andrew Moe wrote: 1. Roll with the punch.

There are a few ways to deal with an attack. Interestingly, at the moment the attacker commits to his move, he is the most vulnerable.   That is the time to do either of two things, launch an immediate counter attack, since while punching, his face and abdomen are unprotected, and are vulnerable...anticipate the opportunity during the attack and use the opening caused by the punch to your advantage, by penetrating, or kicking under, thus scoring a point, in a defensive scenario.

Second defensive strategy.....different theory, the attacker has committed himself and is 'moving forward".  The defender, moves like water, matching the attackers chi, with a soft move in the same direction as the attack, so rather than fighting or opposing the onslaught, thinks zen, empty mind, and instead of opposing the attacker's momentum, or blocking, or absorbing the hit, use the attacker's own momentum by stepping back at the moment of attack, grasping the attacker's wrist, and pulling it straight, in the direction of the punch, pulling the attacker off balance.  Once his balance is lost, you straighten the arm, give a slight twisting the arm, locking the elbow, and pulling up, ...crack...it will instantly disable the attacker.   

The key here is to empty the mind, use, zen mind, keep loose physically and mentally, and once aware of the markets move, move like water, and flow with the market. Be aware of the center of gravity or mass of the market. Move with the flow.  Same with trading, be like water.  In the market, once you sense that you've lost your center of mass, and the trade is moving against you, empty the mind, and instead of opposing the momentum, use the opposing momentum and reverse directions.

2. Move in close to cut the power.

Any any matched fight, the grappler's tactics will almost always win.  Once within the inner circle, the puncher and kicker has no more power, and the grappler has bound the attackers arms, wrists with his holds, and wrapped the legs around the attackers, thus neutralizing the attack.  Eventually the match will end in a choke out or a joint lock ending the fight.  This strategy will not work on someone with much greater weight and strength.  So unless you are trading for quantum, you had better not try grappling with the market.

3. Cover up and deflect the blow.  Get defensive and let  your opponent punch themself out.

Did you see "When We  Were Kings" a fascinating documentary about the 1974 "Rumble in the Jungle" title bout between heavyweight boxers Muhammad Ali and George Foreman. At the time, Foreman was world champion, and 32-year-old Ali was thought to be past his prime.

Ali was out powered, out reached by Norton, and a punch could have ended it.  In a masterful move, he invented Ropa Dopa.  Leaning back, using the spring of the ropes to absorb the shock of the punches and the pushing, let Norton punch himself out over 9 brutal rounds, taunting Norton the whole time.  He used psychological tactics in a boxing match!  .  Once Norton's was tired, Ali came out swinging and did a confused Norton in.   Masterful genius.

4. Shrink into a small target.

When you go down, cover your vital organs.  When you see an opening run like hell.

5. Move away.

When you score a point, or disable your opponent, don't stand there like Mohammed Ali and gloat over your fallen opponent, waiting for the cops to come, run like hell!  When you make some money trading, get out, take your money and go buy yourself a tuna fish sandwich.    Don't' give it back.

6. Take a standing 8.

Never get "behind" your breath.  Runners must know this too.  You can go so far before you suffer oxygen deprivation and start huffing and panting.  Pace yourself to avoid huffing and panting.   Punching and kicking takes a lot of energy.  If you over do it, you will get weak, and the opponent can press you, when you are weak.  So don't overtrade and use up too much mental capital, pace yourself.   Also if you take a hit... take a few hours or days off trading. Catch your breath.   

The key strategy in going into the fight is preparation before hand, days, weeks, months, years of hard training and knowing you are mentally and physically ready for the engagement.  If you are off physically or mentally, you will lose. The other fighter has trained harder than you, is bigger than you, is faster than you.  But you are smarter, You have strategy.  You see fighters staring each other down at the beginning of the fight.  You can often tell by the eyes which one has the conviction to win.  The market lets you pick the time and place of the fight.  You can back out anytime.  The market can be a fair opponent if you use proper strategy. Don't feel good, don't trade.  Crappy market, angry market, pass.  Live to fight another day.   Let the other guy go first. Trading is a physical thing.  Its not just a mental, emotional activity, its very related to our physical posture, state, health.       

This discussion is only half the story, the defense strategy. Offensive strategy is another whole world.  

6/9/2004:
Kim Zussman Responds:

James wrote: "Ali was out powered, out reached by Norton, and a punch could have ended it.  In a masterful move, he invented Ropa Dopa.  Leaning back, using the spring of the ropes to absorb the shock of the punches and the pushing, let Norton punch himself out over 9 brutal rounds, taunting Norton the whole time.  He used psychological tactics in a boxing match!  .  Once Norton's was tired, Ali came out swinging and did a confused Norton in.   Masterful genius."

Interesting analogy Ali; arguably the most athletic heavyweight boxer, ethnically defiant champ, now suffers from advanced Parkinson's disease. His condition the likely result of ability to frustrate powerful opponents by taking hundreds of their best shots and still standing.  Might I suggest that this type of heroic end-game, not unlike Livermore's and others who could endure supernatural punishment, is more inspiring to read than live.

Besides, when is this opponent gonna punch herself out?

6/9/2004:
A Chess Grandmaster Spec responds:

Chess is safer still ... from a wallet perspective. And the worst physical damage sustained by a Grandmaster was when Nimzovitch got lost in thought, wrapped his leg around the chair leg and then absent mindedly stood up. Never done this myself, but it's easy to see how it can happen...

But the big thing in chess and boxing is to try and avoid being hit in the first place. Find out what your opponent likes to do so that you can see the danger coming. Stay light on your feet, don't press so hard that you lose your balance and present a moving target. All covered by Lasker (Lasker's Manual of Chess) of course: "What is immobile MUST suffer violence".