Any regular reader of the blog will know that I am a history buff. I believe that there is nothing new under the sun; the mistakes of today are the mistakes of yesterday with a different cast. I am uncertain as to how it could be any other way due to the repeating fallibility of humans – we are flawed and the flaws we carry throughout history cannot be removed by the disinfectant of evolution. They are the flaws of being human.
Lately I have been reading about the conflict in the Pacific, in particular the period after the Battle of the Philippines Sea where US air power decimated the once mighty Japanese Army and Naval air forces. This battle was so lopsided it has become known as the Great Mariana’s Turkey Shoot. The defeat was so devastating that the Japanese never recovered and marched relentlessly towards implementing Tokubetsu Kogekitai or kamikaze as a means of redressing the imbalance between the two sides.
Two years earlier the outcome of the war in the Pacific was not so certain, the stunning first strike at Pearl Harbor had caught the American napping and the ferocity and speed of the ensuing Japanese march across the Pacific had swept the Western Allies before them. Part of the surprise for the West was how effective Japanese aviation was, both their land and carrier based fighter wings were based around the incomparable Zero fighter, an aircraft at the time that was superior to anything else being fielded in the Pacific at that time. Entrenched Western racism thought that the Japanese could never engineer or fly something so effective. Hardened by years of combat in China the Japanese swept the sky clean of Allied aircraft.
Two and half years after Pearl Harbor the situation was reversed, the US had clawed its way back into the fight. The magnitude of this fight back is often underestimated, it is automatically assumed that the US would eventually win by dent of its extraordinary industrial capacity but this simple notion doesn’t give credit to the remarkable turnaround the US engineered. The battle of Santa Cruz in 1942 had left the US navy with a single serviceable aircraft carrier and the Japanese were still ascendant in the South Pacific. Two years later at the Battle of the Philippines Sea the US navy deployed some 129 warships including 15 aircraft carriers fielding some 956 carrier based aircraft, as well as 28 battleships and cruisers and 69 destroyers. The Japanese could only field 9 aircraft carriers and 450 carrier based aircraft backed up by some 300 land based planes. This was 90% of all available Japanese naval resources but it was still less than half the size of the American fleet.
In the intervening years US aviators had learned how to deal with the manoeuvrability of the Zero and US industry had produced aircraft that were more than a match for it. However, there is a strong cultural aspect to all of this. To counter the capabilities of Japanese aircraft the US introduced a rigorous training program that stressed four foundation skills –
Superiority of Position
Superiority of Disposition
Superiority of Concentration
Superiority of Marksmanship
Superiority of position referred to being in the right place at the right time. For a US aviator this meant being higher than your enemy and between your enemy and whatever target they had in sight. Superiority of disposition meant arranging all aircraft in the most efficient manner. Superiority of concentration meant bringing everyone to the fight at the right time. Superiority of marksmanship was simply hit what you aim at. The US stressed mutual support among pilots, nobody fought alone, and everybody fought together. Each pilot had a wing man who stuck to them like glue.
Intriguingly Japanese tactics underwent very little evolution during the war. The Japanese relied upon the fight descending into a melee where one on one combat would take place. They believed that the fight was an individual contest between warriors. US fighter pilots believed that a fair fight was for suckers and losers. Invariably the Japanese found themselves in two on one fights as US tactics brought maximum cohesion and force to bear during the fight.
The differing approach demonstrate more than differing ideas of how an aerial war should be fought, they show distinct cultures at work. Japanese tactics where in many ways a throw back to the tactics of the samurai. The samurai engaged in one on one ritualised combat where the notion of a single killing strike (ippon) would decide the outcome of the encounter. Japanese fighter pilots believed the same hence their tactics and aircraft were optimised for this sort of encounter. The US had a different approach and it was ruthless and effective – to them war was an industrial process where training, cohesion, support and relentless forward pressure would win the day.
Culture dictates not only tactics but also the psychology behind those tactics. Japanese pilots sought the glory of individual combat with the often suicidal and foolish tactics that this brought with it. The Japanese approach was wasteful and inflexible because it was driven by a cultural and psychological imperative that was inflexible. For whatever faults the US military had it learned very quickly from its mistakes and adapted rapidly. The tactics that had brought disaster in the early years of the war were quickly discarded and new ideas brought on board.
This then begs the question as to the relevance of this to trading. Consider the two approaches highlighted, one seeks glory and recognition the other is industrial and brutal and ask which of these two approaches prevailed. The approach of many traders is more akin to that of the ancient samurai seeking the glory of an individual encounter. Consider the findings of An Analysis Of The Profiles And Motivations Of Habitual Commodity Speculators (W. Bruce Canoles, Sarahelen Thompson, Scott Irwin, Virginia Grace France – Journal of Futures Markets October 1998)
The typical trader assumes a good deal of risk in most phases of his life. He is both an aggressive investor and an active gambler.
[He] does not consider preservation of capital to be a very high trading priority.
As a result, he rarely uses stop loss orders. He wins more frequently than he loses (over 51% of the time) but is an overall net loser in dollar terms. In spite of recurring trading losses, he has never made any substantial change in his basic trading style.
To this trader, whether he won or lost on a particular trade is more important than the size of the win or loss. Thus he consistently cuts his profits short while letting his losses run.
He also worries more about missing a move in the market by being on the sidelines than about losing by being on the wrong side of a market move; i.e., being in the action is more important than the financial consequences.
Participating brokers confirmed that for the majority of the speculators studied, the primary motivation for continuous trading is the recreational utility derived largely from having a market position.
Numerous indications in our survey indicate that they are not trading solely or even primarily for profit, but may be maximizing excitement or the number of winning trades.”
I have added my emphasis to the points that resonate with me when I look at traders. If I were to condense these points into a modern parlance it would be something along the lines of chicks dig scars and glory lasts forever. The approach of many modern traders is more akin to that of the Japanese samurai and in its ultimate bastardised form of expression the kamikaze. This is opposed to the mechanical industrial approach that actually wins wars.