© Ed Seykota, 2003 - 2007 ... Write for permission to reprint.

Ed Seykota's

Frequently Asked Questions

FAQ Index & Ground Rules  ...  Tribe Directory - How to Join

TTP - The Trading Tribe Process  ...  Rocks  ...  Glossary

  TTP Workshop  ...  Resources  ...  Site Search  ...  The Trading Tribe Book

TSP: Trading System Project  ...  Breathwork

Associates Program  ...  Chart Server  ...  Contact Us

 

July 1 - 14, 2007

 

<==  Previous  |  Next  ==>

 

 

Questions

(Quotes from Ed in Red)

Answers

Sat, 14 Jul 2007

 

Multi-Disciplinary

 

Ed,


It amazes me to see a "master commodity trader" (as if you weren't so much more), teaching skills to lead a successful life touching upon subjects r/t: philosophy, psychology, metaphysics, evolution, health, and happiness.

 

If I didn't know better, I'd think the idea was crazy. Instead, I've developed a snap shot of me continuing my education at the October Workshop. Looking forward to seeing you.
 

The principles for Trend Trading seem to apply to all areas of life.

 

Go With the Trend

Stick with Winners

Cut Losses

Manage Risk

 

While the principles are simple, few people seem willing to engage them consistently, particularly when they hold them as advice or rules.

 

FAQ chronicles the lives of many brave people as they strive to live by these principles; TTP and the Rocks Process are methods for implementing these principles as automatic gut responses.

 

Some of the things my "students" teach me is that the "problem" is invariably mine, willingness is the essential solution and that the best, perhaps only, way to teach something is first to master it in my own life.

 

 

 

 

Mohandas Karamchand Gandhi Gandhi

October 2, 1869 - January 30, 1948

 

A popular story about Gandhi has a woman travel several days with her young son to get Gandhi to tell him to stop eating so much sugar.  Gandhi tells her to go home and come back in a month.  She does so.  On the following visit, Gandhi receives the son and then tells the mother that her son is now sugar free. When the mother inquires about having to travel all the way home and back, Gandhi tells her that he had to first give up sugar himself.

 

Clip: www.facade.com/celebrity/

Mohandas_Gandhi/

Sat, 14 Jul 2007

 

Rocky II

see directly below

 

Ed,


Yes. I feel it is rather difficult, tricky and stressful. As these relatives were major "care givers" in my childhood and transferred a lot of their rocks to me, I find it rather hard to deal with them. Yet I also feel I have made some progress over the past few years. Your FAQ mentoring and Pia Mellody's "Facing Codependence" have given me a lot of material and insights to work with.

As an example I think that they still have some "control" over me. I feel that my inner peace and balance is disrupted when I meet them or talk or live with them.

 

The good news is that I do spot the process going on, but I still don't have the complete inner freedom I wish to have. I confess I do feel better if not having to deal with them and I tend to reject the person.

 

Sometimes I do "lower the standards" in an effort to deal with my own response patterns and also help them get in touch with their feelings.

Thank you for sharing your process.

 

You may be able to gain inner freedom by advising your relatives only when they ask for your advice; otherwise advise them by setting an example.

 

 

 

Teaching, Playing and Sharing the Joy

 

sometimes converge

at the beach.

 

 

Clip: http://sichantalpo.wordpress.com/2007/

05/07/12-tips-on-how-to-be-a-great-dad/

Sat, 14 Jul 2007

 

Dealing With Rocky Relatives



Ed,

 

Do you have any suggestion on how to deal with relatives who seemingly live in a state of deep frustration, conflict and anger, and who continuously try to install rocks on those they live or get in touch with?

Yes. 

 

Don't deal with them.

 

This may be difficult if you are already carrying medicinal rocks that lock in to those of your relatives.

 

Your move, then, is to replace your own medicinal rocks with pro-active ones.

 

In the Rocks Process, we replay a critical incident and when the donor offers the rock, we refuse to take it.  We give it back to the donor.

 

We call this act "forgiving the rock."  In this way we can reject a response pattern and not a person - and we do not have to lower standards for accountability.

 

 

 

In Trading and in Life

 

the best move

 

is sometimes

to simply walk away.

 

This may be difficult

if you have medicinal rocks

that lock you in to losing positions.

 

 

Clip: http://journal.boblycat.org/gallery2/

main.phpg2_view=core.DownloadItem&g2_

itemId=10786&g2_serialNumber=2

Fri, 13 Jul 2007

 

Execution Issue
 

Ed,

 

I have a problem with my broker, about a stop for one contract of sugar, and I don't know what to do.

 

Here is a letter from me to them and their reply:

 

-----
 


07/13/2007


Dear Sir,

I enter a buy stop order for Oct. Sugar at 9.88 on
July 12, 2007 before the market open. Today, July 13, 2007, the market opens at 9.92 and stays between 9.92 and 9.95 for minutes, but I get a fill of 10.02. I would like to have your explanation on this.



-----
 

13 July 2007

Response from [Broker] at 2007/07/13 15:47 EST:

Sugar is totally illiquid. You were filled at the first offer price of the day.

 

Hmmm ... Sugar seems liquid enough to fill a one-lot order on the open.

 

The chart below indicates a fill somewhere between the open, 9.92 and the high in the first five minutes, 9.95.

 

You might consider asking your broker for a "time and sales" report. 

 

You might also consider taking your feelings about deception to your Tribe as an entry point.

 

 

 

October 2007 Sugar

July 12 - July 13, 2007

Five-Minute Bars, PST

 

Thu, 12 Jul 2007

 

Laughter

see below: Love and Health


Dearest of all Eds,

Thank you so much for your help!

Fred worked on the picture already (LAUGHTER).

We are eager to work it out a little bit more in the tribe.

Thank you very much.

OK.

 

 

 

Laughter

 

Pretty good medicine.

 

 

 

Clip: http://www.olsoncenterforwellness.com/

programs/lifestyle-programs.asp

Wed, 11 Jul 2007

 

Using Numbers in Snapshots

see below: Snapshot Questions
 

Hi Ed,

Thank you for the answer. I understand the importance of measurabilityin the commitment process towards our snapshots (e.g. I commit to running 3 miles in under 30 minutes, 4 times a week for the next 2 weeks).

Do we encourage use of numbers in the snapshot?

 

I see that one of your examples is "I weigh 185 lbs." If I recall correctly though, I thought putting actual numbers (e.g. I make $1 million) may actually be a hindrance, no?

Your Tribe can help you ensure your numbers contribute toward defining right livelihood.

 

 

 

One Way to Make a Million Dollars

 

is to wait until

$1M is a day's wage.

 

 

Clip: http://www.amazinggiftfactory.co.uk/shop/

images/toys/million_dollars.jpg

Wed, 11 Jul 2007

 

Love and Health

see July 10, 2007: Back Ache



Dear Ed,

Your response seems true.

 

In my workplace three of five colleagues had to do with slipped discs and I with this slipped vertebra.

 

I am really glad I am out there. Apparently, you need months to recover your body and your spirit. But this is history, actually. Yesterday I saw those brown eyes and wow this somebody says that he thinks that in 20 years world will be ruled by love.

So I hope that this is not a silly question: Do I ask the foot where the tingling pops up or the lumbar spine (slipped vertebra)?

Yes. Groups of people tend to entrain the same behavioral patterns - even to the point of developing similar back problems.

 

You might consider taking all your symptoms to your Tribe as entry points.  Your foot and your spine may have subtle connections.

 

 

 

Foot Meets Back

 

 

Clip: http://www.nbmassage.com/workpics029.jpg

Wed, 11 Jul 2007

 

Snapshot Questions


Hi Ed,

We have four new members to the tribe and we were doing snapshots in our meeting last night. There are a couple of questions we have:

1. One member reports difficulty in bringing up emotions from a still picture. He says if he "runs a 5-second clip" then he can get a much better sense of how it feels. Therefore, he wonders if it is better for him to use a movie clip rather than a still picture snapshot. Any advantage / disadvantage for movie over still picture?

2. Another member uses a metaphor in his snapshot. He sees himself with a tall, healthy, grown tree (which resembles his company), and feeling deeply satisfying and even feeling goose bumps. While we all understand that a snapshot does not have to be logical per se, other members reflect that they need some conscious mind processing to get connected to the snapshot, and wonder if a metaphor adds extra layers to distance us to emotionally feel the snapshot - like they can't envision how one can ever "realize" a metaphoric snapshot at all.

Can you please share your thoughts on them? Thanks.

Overall the snapshot process goes well and everyone seems to learn a lot from it. We then set our commitments, and several members already report getting a variety of feelings when they make the commitment (e.g. worry about not able to keep it, or feeling a little frustrated that the snapshot isn't even clearer). We acknowledge and validate those feelings, and we plan to take those feelings to the hot seat in our next meeting.

1. A snapshot is measurable and enables accountability; a moving target is generally more difficult to measure.

 

Movie

Snapshot

Getting married.

I have a wife.

Losing weight.

I weigh 185 lbs.

I'm trading.

I'm long beans.

 

You might consider asking Hot Seat to develop the form of "difficult to bring up emotions from a still picture."  This might lead to commitment issues.

 

2. Again, metaphors are inherently non-measurable. 

 

 

The snapshot process is a way to locate issues, emotions and forms that stand between you and right livelihood.  These are likely to be uncomfortable.  In this sense, making Hot Seat sweat a little may have a positive intention.

 

 

 

A Little Sweat

 

can help locate forms.

 

 

Clip: http://www.infoimagination.org/ps/humor/

images/sweaty_anna.jpg

Tue, 10 Jul 2007


Thank You

 

Ed,


It's been over 3 years now and I continue to look forward to the new FAQ postings. It makes me feel good to know you're here mentoring me. Thank you for the insight and direction.

Tue, 10 Jul 2007

 

Wants a Trading Mentor


Dear Ed Seykota,

I recently joined a private investment club which I will benefit a lot from but I want to learn and understand why things happens in the market and see when to enter a trade and when to get out. I have a plan to day trade for a living and have found out that day trading E-mini Futures "S&P 500 E-mini" can give very good profits a day.

In my view, fundamental analysis and day trading are generally both forms of medicinal behavior, the function of which is to mask deep and painful feelings.

 

You might consider reading through FAQ to get more details and examples of these notions.

 

 


A Nineteenth-Century Physician

administers chloroform prior to surgery

 

Ether is one of the earliest anesthetics. It  requires considerable skill as it typically induces choking. Recently, anesthesiologists use thiopentone sodium; it acts within 30 seconds of intravenous injection. To maintain unconsciousness they may then use nitrous oxide, halothane, enflurane, and isoflurane - and / or a combination of barbiturates, nitrous oxide, narcotics, and muscle relaxants.  Maintenance strategies are generally safer than giving a one-time and very large dose.

 

Note: Humans do not need drugs to go unconscious.  They learn to use Medicinal Rocks (automatic response patterns) to distract themselves from experiencing their feelings.  Medicinal Rocks also interfere with taking effective action to remedy the underlying situation.  In the Rocks Process, we supplement medicinal strategies with a Pro-Active Rock so the subject instinctively deals with the underlying situation as the effective way to relieve the symptoms.
 

Clip: http://www.scienceclarified.com/

AlAs/Anesthesia.html

Tue, 10 Jul 2007

 

Fatigue

Hi Ed,

I seem to recall that you once say that fatigue is just another feeling. As such, instead of nagging about it, one can choose to experience the feeling, enjoy it, and it tends to disappear.

Fatigue seems to serve a purpose in providing us information. It sends a signal that says "Hey, your are over the limit of what you body can handle. You need some rest." This is to protect us from over-working. There are cases where football players die from exhaustion after practice.

But there seems to be another side of it. There are people who report having "runner's high", where they push it and push it, and at some point, that exhaustion transforms to some kind of "high" feeling. It sounds like how you say about when one fully experiences the feeling, they can come to celebrate it and get to the Zero Point.

So the two path seems very close, yet one leads to death while the other leads to a "high" feeling. How does one distinguish which path he is taking?

In particular, I am working on my conditioning and endurance. I am running hard, and I feel winded. I am grasping for breath. I want to keep running but all I can manage at that point is to drag myself.

 

I don't know how else to experience the feelings more other than to keep grasping for breath, with a vague fear in mind that I may collapse if I keep running. I don't "dislike" the experience per se but I am not thrilled about it either. Definitely doesn't feel like a Zero Point.

You seem to have a unique talent in experiencing ALL feelings and actually ENJOY them, including what many would classify as painful or difficult. So how do you do that? Can you share some of your experience of how you feel when you go on a strenuous workout? Thanks.

Getting to the zero point includes identification and implementation of the positive intention of the feeling.

 

If you vigorously experience a feeling, the feeling tends to dissipate.  In this sense, you can experience a feeling medicinally, to "make it go away" rather than to do something about it.

 

In the Rocks Process, we locate and amplify troublesome and recurring feelings in order to identify the medicinal strategies the subject employs.

 

We then supplement the Medicinal Rock with a Pro-Active Rock so the automatic response to these feelings includes employing effective strategies for treating the underlying situation.

 

A medicinal strategy to deal with frustration and rejection might be to shut down, turn off, pout and turn your back on your partner.

 

A pro-active strategy might be to tell your partner how you feel and to ask your partner for what you want.

 

The Rocks Process implements the pro-active strategies on a deep, automatic, reflexive level; the pro-active responses occur naturally, well  before the subject becomes consciously aware of behaving differently.

 

 

 

Runners who Commit to Running Marathons

 

celebrate the burn.

 

 

Clip: http://www.coloradorunnermag.com/

news/EstesPark_2005.html

Tue, 10 Jul 2007

 

Anger and Frustration

see  19 June 2007: Losing Money as Medication


Hi Ed,

I see you hit the nail on the head.

I see actions I take are to distract myself from my feelings of depression rather than address them (medicinal rather than pro-active).

Although I am not taking my trading medicine anymore I have found some substitutes that do the same job and although my dramas arenít as expensive as trading I they leave me feeling as depressed as I was before.

I wonder what might constitute a Ďproductive activityí as a lot of my dramas result from my trying to Ďdo something productiveí:

1. Throwing myself into my new job seems to lead to me getting angry and in turn frustrated and depressed.

2. Taking on lots of home improvement work in my new house seems to me getting angry and depressed.

3. Trying to Ďhelpí other people leads me to take on their issues and get dragged into the same anger and frustration.

4. Trying to Ďbe more relaxedí leads to short term relaxation followed by frustration that Iím not Ďdoingí anything to get out of debt.

Maybe I need to accept I wonít achieve (financially) what I hoped I would, perhaps I just donít want to be what I tell myself I do and this is why I stop myself?

Iím struggling now; I hoped quitting trading would make me feel better and the way to go would hit me as obvious.

Thank you for sharing your process.

 

You might consider taking your feelings of frustration and depression to your Tribe as entry points.

 

Typical medicinal approaches to frustration include shutting down and showing passive-aggressive behavior; pro-active approaches include problem solving, sharing feelings and cutting losses.

 

 

 

Frustration

 

can help you

identify the problem.

 

 

Clip: http://www.ayende.com/Blog/

archive/2006/12/13/7025.aspx

 

 

Tue, 10 Jul 2007

 

Back Ache

see June 26, 2007 Frustration


Dear Ed,

Thank you so much for your FAQ of Jun 26 with the great picture of a young and healthy girl with a magnet. Fred likes the picture very much. At the weekend somebody gave me an Audio-CD with an exact description of the Law of Attraction. Looks like some theory that exactly fits your processes. What a coincidence!

One day after the big upset I accepted the misery of family constellation as part of my history. (It was more the misery of having not in my life what I saw in other constellations as it was the process itself which actually resembles TTP).

Coincidentally or not, my back ache is gone now. I have some strange feelings left but the ongoing pain is gone. The osteopath actually said to me that I have to accept that I am ill for the rest of my life ... NOW the pain is gone but I still have those strange feelings right NOW. What if it comes back? So I just hope that NOW lasts longer than NOW (Laughter).

This is not exactly a tribal process but now we have the manpower to get on with TTP :0)

I hope you survive this hot summer and all is well.

Thank you for sharing your process.

 

In our Tribal work, back pain may indicate a lack of emotional support - someone holding back on love.

 

You might consider consulting your "strange feelings" to find out what they are trying to tell you.

 

 

 

Aches and Pains

 

may indicate a desire

for human touch.

 

 

Clip: http://www.backpaintreatments.biz/

images/backpain.jpg

Mon, 9 Jul 2007

 

Bottom Picker

 

Ed,

 

I have given some thought to what is standing in between me and trading these systems. 

 

Hereís whatís standing in between me and trading these systems:

 

1.  Lack of knowledge about systems and specifically these system.  As a trader I tend to make money by knowing what I know and knowing what I donít know.  As a trader I tend to make money by NOT doing dumb things rather than doing really smart things.

 

So, as a trader with a strong desire to make money I can tell you this: I canít (for the moment) determine what I know and donít know about these systems.   My intention to avoid mistakes is certainly in between me and my and trading these markets. 

 

Please understand that Iím not talking about doing something that makes me look foolish.  I do things that look awfully silly sometimes.  But this is quite different from acting without adequate knowledge and preparation

 

I donít know how to test these systems to determine if they are good ones. I donít know what makes a system good.  I donít know if I currently possess the knowledge to make an informed judgment on a system test someone else has done to these systems. Indeed I donít even know if the test to test the systems really measures what it is supposed to!

 

I have already begun to gain the knowledge needed to analyze, test and trade these systems.   I thought reading a few books on the subject might help.  I bought a dozen and read about half so far.  Iím working my way through ďEvidence Ė Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading SignalsĒ by Aronson and BINGO Ė this guy has something say. 

 

He walks us through the whole thought process: The role of logic; the correct form for conditional syllogisms; sampling and frequency distributions; the null hypothesis and data mining. 

 

Iím beginning to understand the framework for quantitative trading strategies. In his book of the same name Paul Wilmott says that quantitative analysis is all about treating financial quantities as random and then choosing the best models for that randomness

 

I can choose to use a strategy, model or system (and have a very good chance of sticking to it) if I understand why it may work (the idea behind it) and if there is empirical evidence to support it; my opinion of price randomness notwithstanding. 

 

2. I donít have a trading partner or group to work with.  Drafting and testing systems requires a lot of precision. I learned this whilst following along in the Trading System Project. To work in a group or with another to confirm results seems vital. I thought asking other system traders if they want to work with me would be helpful. I approached a private systems consultant and programmer.  It appears that he is only interested in working with me when he has the spare time. I also asked a guy I met in one of the workshops but I havenít heard back from him.   Of course I appealed to you for entrance into the associates program. 

 

This brings me to the second part of this response. 

 

Thank you for asking for my results and optimizations for the Exponential Moving Average Systems for Nikkei and Dollar Index futures.  Attached is the code for software called Mecanica written by Bob Spear, the trades and my bliss matrixes. 

 

This last part is a summery of my trading style.

 

I believe my trading style can be broken down into two parts: Market selection and operating plan.

 

1. Market Selection

 

Futures:  Every expired futures contract has a contract high and a contract low.  I want to find the contract low.  Impossible you say.  Well, maybe if Iím trying to find every contract low for every commodity every year. But, maybe not if Iím trying to find a couple of lows per year.

 

Letís say I am looking for the low in Chicago December Wheat in the calendar year. Letís say that it is the last week in July and the price of December Wheat made new contract lows 10 days ago - in fact it closed down 9 consecutive days in a row at 20 year historical lows.   Letís say the cash price of wheat is 2 dollars over December and rising fast and letís say that September wheat is gaining on December. Further assume that Corn, Beans, Bean Meal and Oats are all in raging bull markets.  In light of all this I see that December Wheat has just closed above 25 day highs.  I look back in history over the last 30 years and find that when I see 25 day closing highs in December Wheat in late July the price will move up the equivalent of 2 margins before falling 2 margins far more than half the time. I also know that the monthly average price of Cash Wheat has a very strong tendency to rise after harvest and that this easily quantified.

 

Iíd say the odds of my picking the contract low in July in this case are much greater than random chance.  And this is great for me because I want to know where the price wonít go.  Now of course the above situation may never happen. Yet more reasonable versions of this model occur from time to time.   And perhaps you disagree as to whether my odds of picking a bottom have increased at all.  Nevertheless this is what I do. 

 

Stocks: A stock can only go to zero. And the closer it gets to zero the less it can drop.  Or course everyone knows this.  Iím looking for the ones that wonít go to zero.  Once again I am trying to find out where the price wonít go. 

 

Many stocks enter and stay in bear markets for quite a long time.  They find a bottom and stay there for a while. And then they just fall again to a new level.  They will stay there for while and then fall again. Sooner or later the sock will hit zero or start to go up. 

 

Stock are real. They are not derivatives. The assets and income of a stock can be measured.  And I stress can be measured. I donít believe it is possible to measure all stocks.  But out of the thousands and thousands of stocks in the world many can be.  Stock screens can be used to calculate what the common ratios are. Further winnowing can be achieved via ascertaining the current market value of many things that the company owns.   I think itís important to see if the company is ďbleedingĒ or losing money.  Further it is important to prove that companyís management is not dishonest.  But this can often be done. I find that personal character at the extremes is rather easy to identify; if thatís what Iím looking for.  When the entire capitalization of the company exceeds the quantifiable liquidation assets of the company minus the debt by factor of 2 or more there is a good chance the stock wonít go to zero.

 

In summery I look for extremes (on the downside) that are just not tenable.  Iím looking for markets that simply canít fall anymore. I have similar ways at looking at many different futures markets and individual stocks. For futures I have a library of trades that I watch for at certain times of the year. Iím constantly looking to add another trade to my library. The current markets in Sugar and the Dollar are rather typical markets I looking for. Buying next yearís delivery Sugar off contract lows in mid summer is petty routine.  Sugar could easily go down and take out contract low next month Ė perhaps setting itself up for a second signal in August or September. Anyone who has traded Sugar for the last 20 years knows this and even the market knows this!  The Dollar index is coming off contract lows also.  Itís not uncommon to see a change in trend in currency in May. It seem less likely that contact low for the $ will be taken out. If it does happen I doubt we will have a 2nd signal to buy again for a long long time.  My Operating Plan (more on this later) will specifically address these types of scenarios which clearly exist only in my imagination. 

 

Iím not currently interested in a market like Soybeans.  They may go to the moon tomorrow but they simply donít register very high on my market selection criteria. I canít trade it off the contract low. 

 

For stocks I have a watch list.   Iím constantly searching for stocks to put on my watch list. I recently added a few spin offs that could fall in half soon setting themselves up for me to trade one day.  I am wary of anytime I go outside of my library or watch list to make a financial commitment. My risk of doing something really dumb goes up dramatically.  My past winners have almost always come from something Iím already acquainted with that sets itself up for my style of trade. Remember I told you that I was looking to make the same trade over and over again?  This game (to my mind) works only on the downside.  There is a wall on the downside that does not exist on the upside.  I believe I can use this wall to great advantage.  I believe much of what I discussed can be quantified.  My current models are more Main Street and common sense than higher math and abstract risk analysis. (Yet Iím not against getting this quantitative stuff into my program)

 

Now once a good candidate is identified I will make a time and financial commitment to trade it long. Iíll write down my commitment: (for example) Trade this market long risking x percent of you capital  as per the operating plan until Christmas next year or until it moves 80% of its 15 year average contract range or until your operating plan tells you to quit.   

 

 

 2.  Operating Plan

 

Unlike Market Selection I am looking to use little to no judgment in my operating plan. Ideally I write it all before I begin.    I just tell myself what Iím going to do and address as many contingencies as possible.  I try to answer all the hard questions.  

 

I trade off signals and 85% of the time I use the same signal.  It a 25 day closing high. (give or take a couple of days- which is the other 15%) The older I get the more homogenous my plans have become.  Hereís a typical example:

 

Buy 1 unit after 1st signal.   Set stop below contract low. If stop loss hit reenter at 1st close above highest high during trade.

 

Buy 1 unit after 1st signal in the next calendar month.   Set stop below contact low. If stop loss hit reenter at 1st close above highest high during trade. 

 

If  $2500 profit on both units then move up stop to breakeven. Put on your seatbelt and just watch until have $5000 per unit profit or are stopped out at breakeven.

 

If stopped out on breakeven trade - begin again with reentry using $1500 per unit stops. Repeat original entry technique

 

If you are stopped out again Ė just give it up - you have just lost 15% of your allocated trading capital.  If at any time you lose 15% or more of youíre money allocated to this deal just get out and leave it alone.  

 

If by October or before you have $5,000 per unit profit move up stop so as not to give back more than half of your gains while you attempt to hold until delivery month or November or whatever.  If still long in November and profit excursion reached $5000 or more per unit then move up stop to not give back more than 25% of open profits.  Well you get the idea.  I give myself very little wiggle room.

 

Iíll often include some subtle reminders like:

 

DO NOT ADD TO YOUR POSITION AFTER YOUR SECOND PURCHASE. 

 

RISK NO OPEN PROFIT IN ANY OTHER DEALS

 

In summary I take my Selected Market Commitment and just wait for my signal.  If my signal never comes I donít do anything.  If it does I start to work my Operating Plan which is basically scaling into my line on the way up, gradually moving up the stop to break even.  I have well defined reentry instructions.  I define when and how much to move up my stop to lock in profit. My method of getting on board usually works better in stocks than futures. I always trade the most deferred future I can find with even just a little bit of liquidity.   In stocks for an objective I usually have an action point which is a price level where new risk reward bracket are implemented. 

 

I have a very good idea as to how much money will be in the investment at each stage of the operating plan. Since Iím involved with very few deals at once Iím not too worried about any hidden correlation risk. Most of my sleepless nights are spent waiting for my 1st signal when I ďknow itís going to go up anyway!Ē As with any trading venture   I may lose 15% (or whatever my commitment is) of my allocated trading capital but Iíll know exactly how I did it. And if I followed my plan and didnít do anything incorrectly or break my own rules I can accept it. Iím a trader. This is what I do. 

 

Thank you very much for your help. And thanks for listening to me.  I very very much appreciate it! 

You seem to like:

 

1. To have a good understanding of the markets before you trade.

 

2.  To pick bottoms.

 

3. To anticipate a change in trend.

 

Your Trend Trading system (buy 25-day highs) seems incongruent with the above: using fundamentals, buying on dips and anticipating trends.

 

Even if you succeed in back-testing a Trend Trading Trading System, you may have  conflicting feelings about following it.

 

You might consider taking your feelings about Trend Trading to your Tribe as entry points.

 

 

 

Bottom Picker - Standard Trading Position

 

 

Clip: http://www.myspaceantics.com/

images/funny/ass-no_head.jpg

Mon, 9 Jul 2007

 

Wants Reasons to Trade


Hi Ed,

I have seen a lot of reasons why not to pursue trading for a living in this FAQ, mostly related to unresolved emotional issues from the past. Are there any good reasons to take the risk and go for it?

Thank you,

FAQ does not tell people what to do - see ground rules. 

 

Some people may see FAQ as discouraging trading; others may see it as a path to developing emotional aptitude. 

 

You seem to want some encouragement and / or permission to trade.

 

You might consider taking your feelings of wanting encouragement and / or permission to your Tribe as entry points.

 

You might also try an experiment: When you feel like asking for permission, to ask for parmesan or persimmon instead.

 

 

Permission

 

 

 

Parmesan

 

 

 

Persimmon

 

 

 

Clips:

http://www.mead.k12.wa.us/BRENT/Buddington/

Images/Help%20Items/permission.gif 

 

http://www.lifeinitaly.com/food/parmigiano.asp

 

http://www.all-creatures.org/

recipes/i-persimmon.html

Mon, 9 Jul 2007

 

Dilemma

see June 18, 2007: Commit to One or Two

Hi Ed,


Re: my posting 18 Jun 2007, thanks for your suggestion of exploring my feelings about dilemmas.

 

Problem is [Country] is far from a tribe. I have searched the FAQ archives for notes on dealing with dilemmas, but found none. Any other resources you can recommend for implementing your suggestion, apart from starting a new tribe?

You might consider examining your feelings about commitment.

 

I am planning a Workshop for October 2007.

 

 

 

Mťnage Š Trois

 

provides many opportunities

to explore feelings

about commitment.

 

Clip: http://www.geocities.com/puppetregimeusc/

menage.JPG

Sat, 7 Jul 2007

 

Incline Trading Tribe


Hi Ed,

First, my goal if accepted into the IVTT is grow personally and be part of a win-win group in which I can both give and receive feedback. I believe I'm at a pivotal stage of my life in which I am ready and open to change and want nothing more than to grow as an individual. I believe you can read many "personal growth" books but nothing beats being exposed to an environment with real people, real situations and witnessing positive transformations firsthand.

I have been to your website numerous times and have gone through the different sections and read several of the FAQ's. I will do whatever you request of me which I believe would be to do the following: Order your book, "The Trading Tribe" ASAP Attend a workshop, if you have any availability since I have never been to one Read through all the FAQ section of your website as well as all other sections In terms of my experience with personal growth methods, this may sound odd but I did set the "curve" back in college in my psychology class (i.e. although it was just PSYCH 101). I have always been interested in improving myself and know that ultimately I control my own destiny through either productive habits or destructive habits. However, other than reading a couple Tony Robbins books, I would say that I'm definitely not a veteran with regards to personal growth methods. On a side note, I have to say that the section of your website titled, "Going it alone or Joining A Tribe" hits close to home for me personally.

Please let me know how you'd like me to proceed from here.

Watch for an announcement for the October 2007 Workshop.

Fri, 6 Jul 2007

 

Associate Research Paper

Hey Ed,

I ran some initial tests (attached) trying 2 different portfolio selection methods:

1. Trade first come first serve basis of price breakouts and trade the opportunities with highest % above 200EMA.


2. Rank daily breakouts by (Price today - Price 200 days ago) / price 200 Days ago.

On a database of 1000 Canadian Stocks from 1996-06, seems to suggest that portfolio selection is way more important than I originally thought!!! The system that uses the #1 method had one of the worst MARs (.83)

The next strategy I am trying before testing out my expo stop / opportunity cost of money idea is to rank the entire list of North American equities on a daily basis using the above #2 selection method, filter out the bottom 80% of stocks, then purchase breakouts that occur in the top 20% and see how this goes.

Running these tests gives a really nice intuitive feel for the real issues that affect the nature of returns and risk. I now realize that I initially looked at only the breakouts that occur on some particular day, then sort this small "breakout list" for strength and pick the strongest breakout which quickly fills uses up all my equity like you stated. I think to myself, just because a stock is breaking out today doesn't mean it is trending the strongest historically on a relative basis compared to other stocks. What about all the other stocks that are trending way faster but may breakout the next day and are much higher in strength rank in the total list of equities!

After testing the above, I am planning to apply your Lake Ratio directly to individual stocks after filtering out the bottom 80% of the stock list and see how this affects MAR.

To Formalize:

1. Rank all North American Equities by price strength over 200 days.
2. Filter out the bottom 80%
3. Filter out stocks that are not breaking out today.
4. Apply Lake Ratio to stocks that are in the top 20% and breaking out.

PS. Do you know of anyone that has applied a systematic long term trend following system to the entire world's 30,000 equities? This is the mission I am on! Time to get a quad core PC.

Thanks for all your help Ed.

Yes, many theoretical stock market tests (and actual stock fund managers)  tend to engage most of the trading capital soon after start-up. 

 

In this way, performance is likely to show start-date dependency.

 

Furthermore, absent a purge strategy, the fund may then depend upon attracting a new crop of investors in order to buy anything fresh.

 

 

 

Charles Ponzi (1882-1949)

 

Proponent of the eponymous scheme.

 

The basic scheme

relies on a continuing new crop of investors

to keep performance rolling along.

 

Clip: http://www.bostoninnovation.org/

bostoninnovation/ponzi.htm

 

 

Fri, 6 Jul 2007
 

Associate Research Topic


Hi Ed,

Please find my research proposal attached. Please let me know if this is a topic you would like to advise. If so, please let me know if there are any changes you would make to the issues I want to explore.

Thank you for your continuing support,
 

-----



As I work to develop my system in C#, I am wondering what the minimum amount of investment capital that I will need to begin trading might be.

 

I feel that one of the more important topics in developing systems is managing risk. Understanding equity and margin limits is integral to risk management.

 

On your website, I notice several emails on the ďReader FeedbackĒ section are discussing Equity and Margin issues. I also notice, in light grey, that the next topic on your TSP webpage is ďAcknowledging Limits: Equity and Margin.Ē I think understanding equity and margin limits is a very interesting topic.

I might start my research by finding out what the margining requirements are for various contracts. I also know that there are granularity issues about rounding position sizes that are too small, so perhaps I should further investigate this issue. I hope my research will lead me to determine a minimum contract size for positions.

Complicating the issue is cross-margining. Since the systems I intend to trade are long / short / flat systems, there will be times when I am long and short different instruments and this should affect the amount of margin that I am required to post. I am choosing [Brokerage Firm] to execute orders. I will get in touch with them to determine how they margin futures contracts. One problem may be that they use margining rules that are different from other brokerages.

To begin this research project, the topics I intend to investigate are:


1) Margin requirements for each contract I might trade
2) Cross-margining issues
3) Minimum position size


As I determine the possible answers to these questions, I will be able to further develop the other questions which require consideration in determining minimum capital requirements. I feel that this is a general topic that would be of interest to many people and might turn into an article for publication.

Yes, this topic seems worthwhile.

 

My work indicates that if you trade anywhere near full margin, even if you have the stomach for it, your trading tends to become more volatile and less profitable.

 

You might consider optimizing a trading system and then producing a graph to show the trading performance and the percentage of margin you use.  You can then increase the heat of the system by 25% and show the same graph.  Same for a 25% reduction in heat.

 

 

 

Risk Management

 

has to do with

maintaining an optimal

level of risk

 

which might not mean

trading at full margin.

 

 

Clip: http://www.vanbirgelen.com/cms/

images/banana_peel.jpg

Fri, 6 Jul 2007

 

Prediction Right on Target

See previous,  Intuition


Ed,

Your seem to have very good intuition.

 

Your prediction of a 2% success rate seems to be right on target!!! ;-)

Yes.

 

Guessing a card is a 2% kind of thing.

 

Predicting that the distribution for thousands of card guesses is around 2% is more of a "sure thing."

 

Having to be "right" on a single trade is iffy.

 

Being right on the aggregate of a large number of system trades is easier.

 

 

 

You Can't Predict

 

the position and velocity

of any of the air molecules

inside the balloon.

 

You can predict the balloon

maintaining a round shape,

and not going flat

one one side or on the top.

 

Clip: http://www.bryancounty.org/events.html

Fri, 6 Jul 2007

 

Rocks = Magic


Ed,

I do not understand what all the fuss is about with this Rocks process, in my experience, it is just MAGIC!

Ed, thank you for running this amazingly powerful process. [Name], thank you for such a comprehensive write up and for your contributions during the process.

Here is [Name]'s draft of the Rocks experience to which I make just a few edits -- putting the resources in first person and adding a couple of resources. Like [Name], I have some difficulty in recalling what all happened. One of the things that I do recall is being almost physically unable to give up my medicine rock. And when I set it down, feeling lost and blank, not knowing how to act or almost who I was. This medicine rock feels like a deep part of my survival strategy.

I do know that people now seem different in a way that I cannot explain. I know that I am the one that is different, but it sure seems to me that it is those around me that are changed. People are nicer to me. I say what I want and I get it. Amazing!

I understand that I socialize people to react to me but since this happens below the level of my consciousness, I do not know of any other way to directly modify myself other than Rocks.

 

For years I hear that for things to change I must change. And after every Rocks session I have direct evidence of this working. Within 24 hours of this session in which I work on issues with an ex-girlfriend, I run into her for the first time in almost a year! Amazing!

Thanks again.

 

-----

 

Write Up by [Name]

Interesting Tribe meeting last night. Only 3 people attend Ė Ed, Q, and me.

After the meeting, it is my intention to submit a detailed write-up for FAQ's. But as with every other Rocks session, when itís over Iím not sure quite what happened, and this is particularly true tonight, since the Hot Seatís issue resonates soundly with me. Iím left only with strong impressions that are difficult to articulate.

We start with snapshots. Q is the first Hot Seat, and presents a picture of his dream home and ideal relationship. The issue that quickly emerges is, he doubts heíll ever be able to get what he wants.

Ed process-manages, sometimes questioning the Hot Seat, other times encouraging forms, at all times drawing out emotions and deep-seated beliefs.

Hot Seat recognizes that he sets up dramas and enters into relationships that ensure he doesnít get what he wants.

During the life review, it becomes clear that he even enlists an anti-support team to deprive himself of joy: ďThe love of my life ... I pushed her away ... I sought advice from someone who didnít support me in getting what I want.Ē

One way or another, he gets what he wants ... by making sure he doesnít get what he wants.

(As I sit at a coffee shop composing this, the song ďYou Can Get it If You Really WantĒ plays in the background.)

The Hot Seat says, ďSomething feels right about keeping myself stuck.Ē He believes:

You canít get what you want,
but you can hope for it,
and think about the future.

His medicine Rock is:

Accept the circumstances
Make the best of it
Shut down
Go numb
Hope is the core medicine
Imagine a great future.

The medicine is to leave the Now, go into the future and imagine that it is great, it is all going to be wonderful.

Ed checks for willingness. The Hot Seat wants to change, but finds it almost impossible to part with the medicine Rock. The Rock runs his life, and has served him well. Hot Seat finds it frightening and physically painful to relinquish it. When he finally drops the medicine Rock, he is a blank slate with no identity. At this point, the Hot Seat is in a deep, glassy-eyed trance, waiting to be reprogrammed.

Ed serves as PM and Messenger. He also participates in role play both as the giver of the Medicine Rock, and later, as the father.

We run a number of role plays. At various times, I play the father, grandfather, ex-girlfriend, current girlfriend, and myself.

The process is robust. Despite the fact that Ed and I assume multiple roles, this does not confuse the Hot Seat in the least, and each role play proceeds with clarity and authenticity. Because the issues hit so close to home, Iím drawn into the process, and even though itís not my Hot Seat, I receive the benefits by osmosis. Itís a little hard to describe.

When it comes time to build new resources, neither the Hot Seat or I are in a position to contribute much, so Ed leads the way.

Here are the new Resources:

- Share my feelings about what I want.
- Ask for what I want.
- Ask for support and encouragement.
- Recruit a good support team - get really good support people Ė to help me get what I want.
- Accept pleasure. Feel the pleasure and joy, and stay in the now with the pleasure.
- Take a deep breath, and think of cool things to do, to get what I want.
- Be on the lookout for ways to help other people get what they want.
- 5% of the time, when confronted with danger: shut down (withdraw), think about the future, and hope for it (this is the old Medicine Rock).

After we install the new Pro-Active Rock, we rerun the role plays. They are dramatically different this time around, and with much more satisfactory outcomes.

The new resources kick in automatically, and with great authority. It is an amazing transformation. The Hot Seat is learning to actually enjoy getting what he wants. Before long, he is completely comfortable experiencing pleasure and joy. Now, he likes getting what he wants.

I get a major Aha when Ed has us note that at the subconscious level, we dictate the way the people around us behave.

Ed further memorializes the new Rock: ďEvery time you use this new Rock, it becomes more and more useful ... as the child delivers it to the adult thatís here in the moment of now ... and notice that now in 2007 youíre the creator of this process, and you bring a lifetime of experience to the adult in this room. Around and around ... the circle of life continues ... ouíre used to this, this is your history. You know this well ... this is your past, this is your now ... this is how you run your life.

We check out, and the Hot Seat releases us from our roles. Then, we do a final check out.

This is a powerful session.

Ed, thanks for working with us, and sharing your knowledge and wisdom.

Thank you for sharing your processes.

 

Your reports inspire others to move along the path.

 

 

 

Magic

 

is  pretty much

anything we don't understand.

 

 

Clip: http://drnicwilliams.com/wp-content/

uploads/2006/08/magic-hat.jpg

Thu, 5 Jul 2007

 

Long Fuse

 

Hello Ed,


I have a funny story for you.

 

About 4.5 years ago I emailed you the following email:
 

Most of my trend following knowledge has come from trading literature and courses. I wonder if you could share some of your knowledge because I am sure your database of knowledge from 35+ years of 'Very Successful' trading and teaching experience is extraordinary.

I believe that building from established and proven principles can create an excellent foundation and accelerate the learning process.
 

I was coming from 4 years of day trading.
 

This was your response to me:


1. Trade with the trend.

2. Ride winners and cut losers.

3. Manage risk.

4. Keep mind and spirit clear.

You might like what Old Turkey has to say in Reminiscences of a Stock Operator.

Within the last few months I have basically arrived at the same conclusion, then yesterday I found your response from Feb 2003 - you basically gave me the answer but I had no clue what you really meant - or was not ready to listen. It's truly amazing that I was given the answer I was looking for over 4.5 years ago and I didn't have a clue

Thank you for sharing your process.

 

 

 

Long Fuse

 

The positive intention

is risk control.

 

 

Clip: http://www.cannon-mania.com/images/

fuse/red-fse.jpg

Wed, 4 Jul 2007

 

Funnymentals


Hi Ed,

I notice a bizarre and paradoxical phenomenon at the moment.

On the one hand people shouting from the rooftops about the coming "credit crunch". These kind of alarmist stories are increasingly in the high quality press. Here is an example today from the UK's national Daily Telegraph: 'Credit crunch will shred investment portfolios to ribbons'.

On the other hand, prices just keep going up. And you have taught us, quite rightly, to sit on our hands at times like this.

You've been in the market a lot longer than most of us. My questions are:


1. have you seen this kind of paradoxical situation before? e.g. during the 1970s or 80s rallies, or is it a strange as it looks.


2. do you have a perspective on these super-bearish headlines. (I know that you are interested in magazine covers, etc. as indicators')

Sometimes analysts say one thing and the market does another.  I do not consider this to be a paradox; it merely indicates the results you are likely to get following analysts' predictions.

 

Prediction (responding before the event) - unreliable and inaccurate.

 

Postdiction (responding after the event) - more actuate and not timely.

 

Simuldiction (responding during the event) - gives you a fighting chance.  You can implement simuldiction with Trend Trading.

 

 

 

Simultaneous Yawning

 

Trend Trading

includes learning to yawn

with the market.

 

 

Clip: http://www.ccjonesphotos.com/PS/pages/

Simultaneous%20Yawns%20of%20the%20

Black-backed%20Jackal.htm

Mon, 2 Jul 2007

 

Tahoe Fires

Hi Ed,

I just wanted to see if you were ok with the wildfires?

My wife's uncle works with the post office in South Lake Tahoe and they made it through ok although some friends lost their homes.

I hope you and your friends made it through unscathed.

Thank you for your concern.  So far I do not notice my home, myself or any of my friends on fire.

 

A number of people who now own charcoal homes are experiencing the results of the test between:

1. The Environmentalist Method: Cut no tree to preserve nature.

 

2.  The Fire Chief's Method: Thin the forest pro-actively before mother nature does it. Metric: leave ten feet between tree crowns.

Despite a wealth of evidence that The Fire Chief's Method prevents forest fires and protects wildlife, homes and the lake, the Environmentalist Method, finds enthusiastic support in many heavily medicinal societies.

 

 

Sometimes You Kill Things

 

by being unwilling

to experience the feeling

of letting them go.

 

 

Clip: http://www.starspangledicecream.com/

new/nutty.htm

Mon, 2 Jul 2007

 

Intuition
 

Dear Mr. Seykota,

You state, and please forgive me if I paraphrase incorrectly, that traders cannot accurately predict future market movements because the future does not "exist."

 

Instead, trend-followers advocate "going with the flow," i.e. waiting for the trend to become evident and playing it. However, a question comes to me: Why would the intuition that comes with trading experience - albeit of varying degrees among traders - not be considered predictive of future price movements?

 

This intuition involves determining the trend before it occurs rather than waiting for the trend to become evident. Moreover, if a trader develops a reliable intuition, s/he could outperform a trend-following system where entry/exit rules rely on evident trends that are determined by moving averages and other technical indicators.

 

Or does it go that with time the trader incorporates his/her intuition into the trend-following system, where the rules for determining a trend are governed by intuition?

Perhaps, I overestimate the power of such intuition. Also, I know very little about the technical indicators used for transaction signals so that maybe my idea of an "evident trend" is inaccurate.

As an accompanying thought, intuition that predicts future price movements is not inconsistent with your idea that the future does not "exist." Intuition is a sophisticated product of the unconscious mind where past, present, and future are all enfolded in one.

 

When the unconscious and conscious minds are attuned, a premonition of the future can manifest in the present. You may already be familiar with this.

I would greatly appreciate your thoughts.

In the system model, we have no "causality."

 

Non-existence of the future does not "cause" anything, including trader inability to predict.

 

Traders, analysts and commentators can and do indeed predict market movements. Some use charts, some use fundamentals, some use intuition, some use tea lives, some use stellar transits.

 

Some occasionally get it right, at least for a while.

 

Curiously, I do not know of even one case of a predictor compiling a track record of all his predictions, his subsequent use of them to manage an account and a computation of attendant performance metrics. 

 

The non-existence of even one such track record is consistent with the suspicion that "guess-a-mental" trading is little more than medicinal behavior. 

 

Your self-fulfilling premise, that a trader can develop "reliable intuition" defines that he has a unique ability to outguess the markets. 

 

Even with guess-ability, the trader still has to ride profits, cut losses, manage risk and trade in the direction of the trend.

 

My guess (intuition) is that you find these basic Trend Trading  requirements emotionally difficult and you are looking for a way to avoid your feelings of having to buy high, sell low and deal with "mistakes."

 

You might consider taking your feelings about sticking with Trend Trading principles to your Tribe as an entry point.

 

 

 

 

Ed's Method

for Testing and Developing Intuition

 

1. Shuffle the deck.

 

2. Make a prediction and write it down.

 

3. Pick a card and examine it carefully.

 

4. Write it down.

 

5. Repeat from step 1, 5200 times.

 

6. Note the number of correct predictions.

 

7. Compare with Ed's "prediction" that you get about 100 correct, averaging about one in 52.

 

8. Repeat the whole process 100 times and use all your intuition and inner wisdom and thinking of ways to succeed until you can get closer to 100% right.

 

9. Compare this with Ed's prediction that no mater how long you keep doing this, you still get about 2% right (about one in 52).

 

 

 

A Mechanical System

 

can improve your chances.

 

 

Clips:

 

http://filebox.vt.edu/users/gslota/

Pictures/WebPages/deck-of-cards.gif

 

http://www.myspaceantics.com/

image-poker-cheating-device.jpg.html