The collection of thoughts in this post might seem a little fragmented as you start to read it, but there is a common thread: Sacred Cow Assumptions.

Case #1

I received an email from Peter, who asked, “Just wanted to know if it is possible to autotrade with the Powertools the e-mini ES (S&P future)? or is it only possible with Tradestation. Do you have backtested results [that show] how much $ could have been made using Powertools with a 10k$ account trading as much contracts as the current margin level allows?”

According to my broker, the current overnight margin requirement for ES is $3,544 while intraday is $2,835. At 1,475.75, one ES contract is valued at $73,787.50. Leverage with overnight margin is 73787:3544 = 20:1 while intraday margin is 73787:2835 = 26:1.

What does this mean? 1/20 = 5%. 1/26 = 3.8%. Therefore, unless the method used by the trader NEVER loses more than 3.8% - 5%, he is assured of bankruptcy. Big hedge fund boys routinely go bust with lower leverage, so should it not be surprising that excessive leverage undermines traders.

In this case, the Sacred Cow Assumption is that a “good” trading system can somehow override insane leverage. Well, it can’t.

Case #2

Last week’s Time magazine featured Mother Teresa on the cover. The article, titled Mother Teresa’s Crisis of Faith, revealed that for fifty years, her private spritual reality was “an arid landscape from which the deity had disappeared.”

That absence seems to have started at almost precisely the time she began tending the poor and dying in Calcutta, and–except for a five-week break in 1959–never abated. Although perpetually cheery in public, the Teresa of the letters lived in a state of deep and abiding spiritual pain. In more than 40 communications, many of which have never before been published, she bemoans the “dryness,” “darkness,” “loneliness” and “torture” she is undergoing. She compares the experience to hell and at one point says it has driven her to doubt the existence of heaven and even of God. She is acutely aware of the discrepancy between her inner state and her public demeanor. “The smile,” she writes, is “a mask” or “a cloak that covers everything.” Similarly, she wonders whether she is engaged in verbal deception. “I spoke as if my very heart was in love with God–tender, personal love,” she remarks to an adviser. “If you were [there], you would have said, ‘What hypocrisy.’”

The “disappeared diety” would hardly surprise Harold Bloom [NPR Interview], who has said that Yahweh “could have been convicted of desertion and abandonment a very long time ago.”

Bloom’s Yahweh is the work of an author called the J writer by German 19th-century scholarship, but though Yahweh is a literary character, he is also, through a semi-mystical Bloomian maneuver, real. He is the “man-God” who appears to Joshua with a drawn sword, the jealous, zealous, hungry, hands-on deity who makes Adam out of a mud pie, picnics with the elders on Mount Sinai, chooses Moses and then, with irrational outrage, tries to kill him as he travels back to Egypt. This God made the redactors of the Hebrew Bible so uncomfortable that he was gradually papered over, displaced by priestly sources and the Deuteronomist, and then finally done in by the rabbis of the Talmud, whom Bloom clearly admires, and in some ways even resembles, though he finds their recasting of God as the merciful, covenant-keeping Lord of monotheism a betrayal of the rough, irrefutable reality that Yahweh represents. — Jonathan Rosen, New York Times

The Sacred Cow Assumption that Mother Teresa made was that the “I Am” found in the current authorized versions of the Christian Bible was not lost (or changed) in translation from the works of the Yahwist. In the same vien, most technical traders have a Sacred Cow Assumption that indicators “work”, and when they don’t, they assume their setting is wrong, rather than question the validity of indicators.

Case #3

I read a post at MoveTheMarkets.com. In it, there is a link to another post where the comments went something like “it takes a few years to become profitable, once you get to know yourself”.

It brings to mind the question of why people flock to trading in the first place. The Sacred Cow Assumptions must be that 1. trading is somehow superior to investing and 2. that with time and effort, trading can be mastered.

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