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February 16 - 28, 2010

 

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Contributors Say

(Quotes from Ed in Red)

Ed Says

Saturday, February 27, 2010

 

Trading and Marriage and Dating

 

I want to make something clear for you. It’s the elusive obvious – meaning it will teach you something about yourself, it’s right in front of you, and you probably wouldn’t make the connection it’s pointed out to you.

How you trade and how you live your day-to-day life are connected…they’re the exact same.

To clarify this for you, let me ask you a few questions.

When do you know that a relationship you’re in isn’t working out?


Do you set a stop loss? (ex. If John doesn’t call me by Saturday I’m moving on).


Do you except whatever behavior your significant other chooses to exhibit – blindly holding on because you know that things just haaaaave to improve?

Do you see high number of girls and pursue the ones that are going well and quickly cut the ones that aren’t?
…or do you only see one girl at time that you’re very serious with?

The answer to these questions can be found in your trading charts and your profit/loss statements. Observe yourself in trading and you’re observing yourself in life.

Look at your trading style and see if what I’m saying is true- look at your relationships and notice the similarities. How many positions do you normally hold? How long do you hold a trade for? How much of a loss do you normally take before you sell out?

Most people never sit down and think about doing things profitably. They let blind luck shine on them every blue moon and wait outside in the cold the rest of the time. They buy stock XYZ because some guy on t.v. said it should go up or some guy on the subway said he’d just bought 1,000 shares of it. Drifting from trade to trade they go on whims- never a conscious thought about the system they’re using to play the game. (Which in this case would be: listen to the guy on t.v., buy when he says buy, sell when…..Oh S---, I’ve lost a ton of money).

By designing your own trading system, you become aware of the process. You stack the deck in your favor. You consciously set things up to get rid of the losers and stay with the winners. In trading – you bring in buckets of money as if money was water at the bottom of a well and you knew its location. In life- you have the quality of girl you want calling you all the time wanting to come hang out- it’s your choice.

The point you need to take in is the two are related. If you sit down and explore the best possibilities available to you by designing a system, then you just might find your wallet fuller and your dating life more satisfying than you could ever imagine.

Thank you for presenting the metaphor.

 

You might think of trend trading as "marrying" your trading system and then "dating" the instruments that come and go in your portfolio.

 

In practice, some traders date this and that system and marry their positions.

 

 

Saturday, February 27, 2010

 

Likes ChartBook 95

 

Hi,

I used to use ChartBook 95 for quite some time. I got away from trading for a while and then returned and traded short term. I really desire to get back to trend following and longer term trading. As I said I used to use Chartbook 95 and absolutely loved the simplicity and ease of use. I have been looking around and most of the programs I see for an end of day charting and data are so bloated.

Anyway I noticed your TT Chart Books and charts on the site and they look terrific (just what I was hoping for) and was wondering if there is something for use for an individual trader like myself. Also I still have the entire database I purchased from Technical Tools when they had a subscription service for Chartbook 95 and would like to be able to use this.

Any help and direction would be much appreciated.
 

Thank you in advance,

Thank you for your inquiry. 

 

The Technical Tools data format uses 3-byte longs for volume and open interest - and  2-byte unsigned integers + a conversion factor for prices.  The resulting 16-byte record length has some advantages in the days when memory is expensive and machines can store only around 5 megabytes of data.

 

These days you can get memory for a "buck a gig" so the compactness advantage is moot and data vendors serve prices in much looser formats with longer record lengths.

 

I do not know of any services that currently use the original Technical Tools data format.

Saturday, February 27, 2010

 

Wants Acknowledgment of Receipt

 

Hello Ed,

I just wanted to check if you got my solution to your exercise.

Thank you for following up.

 

I generally respond to emails with questions or that express progress along an ongoing growth process.

Saturday, February 27, 2010

 

Wants a Response

 

See Previous

 

Dear Ed,

 

I noticed I got an answer on FAQ.
thank you.

I'm wondering if you've just read the upper part of the mail and thought it was all, or if you just showed me you wanted to respond only to the latter e-mail.

thank you for sharing your process.

 

-----

 


When I first know about you, I was eager to know which was your method, but now that I found my own one it is not important anymore.


Anyway, I still have a curiosity:

why didn't you disclose your method?

ok, the question maybe looks silly, but I'd like to know, if possible, which are your motivations.


I found few:

1- I'm jealous of it
2- your clients would not be happy
3- you fear that bigger (i.e. more financed) traders could hunt your stops
4- you fear that if everybody starts using your same system it will
decrease its efficacy
5- it's basically a Donchian Channel & moving average cross system, and if anyone is so interested in the market and make some test with this methods and use the "Essential rules", he will find something very close to what I use.
6- you like to receive mails from people asking this
7- you would not look so smart if everybody knew what you do....
8- if you don't say anything many new traders will be good students of markets and traders community will grow! if you tell about your system, everybody will be lazier...
9- well, Dennis revelead its turtle system and after a while it stopped to be so good. mmmm...
10- if there's no secret anymore, you would not recieve as many invitation to traders expo!
11- you fear traders tribe would not see you as a guidance anymore, since you would be less misterious...
12- I want to share this only with people I know are very similar to me and I can trust.


well, there are obviously many other reasons.

I would bet on a mix between 2, 3, 4, 5. but maybe that an "hidden" 1 or 11, 12 is the real reason.

in my own case (the reason why I don't reveal MY system) the motivations are: 1,3,5, 12. and, by the way, "no one asked me".

I hope to receive an answer from you!

Thank you for your inquiry.

 

In general, the search for "reasons" presupposes the Causal Model.

 

The System Model notices that everything influences everything else, that there is no ultimate "cause" except as a conceptual contrivance, useful during manipulation of others and that searching for causes may interfere with trend trading.

 

You might consider that your actual trading system comprises some math and also some philosophical principles and character values that guide the implementation of the math.

 

FAQ is, in many ways, an attempt to disclose these principles and values - including the principle that you might do well to find a mathematical system that fits your own personal preferences.

Friday, February 26, 2010

 

Don't Taze Me Bro

 

Hey Ed !

This not a best-seller like the Whipsaw Song, but think you might enjoy the banjoing

http://www.youtube.com/watch?v=

617F3sbppHc

Thank you for the link.

 

If you don't like the tazing,

don't do the teasing.

Thursday, February 25, 2010

 

Fractal Quilt

 

Hi Mr. Seykota,

I wrote to you a few years ago concerning your poem about fractals. I was planning on making a fractal quilt for our son who had just gotten his PHD in Math and I wanted to include your poem in the quilt.

 

Unfortunately, it was not logistically possible to have the poem printed on the back of the quilt, but I did include a copy of it when I presented the quilt to our son. Enclosed in the attachment you will find pictures of the quilt. Making it was a long and involved process with much thinking, praying and, at times, swearing at my sewing machine! It was a labor of love, and he has proudly hung it in his office at Northwestern University in Chicago where he is currently teaching.

 

Thank you for giving me permission to include a copy of your poem with the quilt.

 

Thank you for the update.

 

Thursday, February 25, 2010 

 

Making Progress

 

Hello Ed,

I hope you are well. It must be several years now that you were good enough to meet me in Cambridge prior to one of your seminars in the UK . Things have gone well at my end over the past few years and I have filled in a bit of time by writing a book (A Practical Guide to ETF Trading Systems ) and published several articles including one called Tuning Up the Turtle for Active Traders Magazine and Equities Without Tears for the Spectator in the UK.

I also have a [City] based regulated fund now which keeps me quite busy.

How did your research into trend following on equities come along? As we discussed, the tough bit is certainly position sizing and how to avoid unwanted margin in back testing.

In any event, do write back with your news if you get the chance,

Thank you for the update. 

 

So far the best way I know to trade stocks follows the Will Rogers method:

 

"Buy some stock that's going up and hold on to it; it if doesn't go up, don't buy it in the first place."

Tuesday, February 23, 2010

 

Creates a Fulfilling Relationship

 

Dear Support Team,

I make a significant amount of progress with my second wave and spend very little time on my first wave. I think that my cumulative efforts on wave 2 begin to take hold a few months ago and the measurements steadily improve since my last update.

 

I have a powerful hot seat in early December that removes some k-nots that I live with for many years. With my new resources, I re-learn how to have feelings-level conversations with women. I notice that having these conversations enables me to quickly make great advancements toward achieving my stated intentions. My attitude about these conversations changes, instead of dreading and avoiding them, I look forward to them and think that they are really useful. Around the same time, I also start to have fun and enjoy the process of meeting and interacting with women.

In the end of last year and the beginning of this year, I go on dates with a few different women. They are all much closer to my ideal mate than women I have gone out with previously but not quite what I am looking for. Recently, I meet another girl that I think is a very good match for me and we are now consistently dating. We relate on a feelings level and I notice that many other things I learn in TTP (accepting others the way they are, not wanting to control her) are very useful. Also, I bring to fruition the snapshot that I create for this wave roughly 8 months ago. I experience the exact same feelings as those in my snapshot. I am amazed and feel fulfilled.
 

Thank you for sharing your process.

 

 

Sharing Feelings

 

can be a powerful

 

 aphrodisiac.

 

 

Clip: http://www.reuniting.info/images/

couple_kiss_bed.jpg

 

Tuesday, February 23, 2010

 

Impact of High-Frequency Trading


Ed -

 

what is your opinion on high-frequency trading and it's influence on the markets and prices? It is a significant generator of orders and volume these days. This is a factor which was not present 10 or 20 years ago. I don't think they influence the long term trend, but may increase the short-term volatility -> false breakouts etc. They do provide liquidity though.

What is your take on that?
 

Full article from FT below.

Size of share orders cut in half on global markets
By Jeremy Grant in London
Published: February 21 2010 18:19 |

Last updated: February 21 2010 18:19

The average size of share orders on the world’s exchanges has halved in the past five years, highlighting the inroads automated and “high-frequency” trading has made on global markets.

The finding, in research carried out by Mondo Visione, a consultancy, and commissioned by the Financial Times, comes amid concerns over the ability of exchanges and brokers to supervise a surge in orders and data flowing through trading and risk management systems

The research also shows how the trend is driving the growth of “dark pools”, with traders interested in executing large orders shunning exchanges and seeking to carry out those types of trades on specialist platforms.

Order sizes are being sliced into smaller sizes amid a growth in algorithmic trading, a technique used by high-frequency traders at banks, hedge funds and specialist high-frequency firms. Via software programs, algorithms decide when, how and where to trade certain financial instruments without human intervention.

High-frequency trading uses algorithms to trade at ultra-fast speeds – often 1,000 times faster than the blink of a human eye – seeking to profit from fleeting opportunities presented by minute price changes.

Exchanges have also been reducing “tick sizes” – the increments by which a price can move – partly in response.

Mondo Visione asked 14 exchanges to chart how this had affected average order size by value. It found that this had fallen by 52 per cent since 2005.

The fall was most pronounced at the New York Stock Exchange, Nasdaq and theLondon Stock Exchange.

On the NYSE, order sizes fell 67 per cent to $6,400, from $19,400 in the period, while on Nasdaq they dropped by 68 per cent from $44,600 to $14,400.

In 2005, an average order on the LSE was worth £20,472, but has fallen 63 per cent to £7,394.

On Deutsche Börse, the German exchange, the decline was 57 per cent. In Asia, average order size on the Hong Kong exchange fell by 28 per cent from HK$121,300 to HK$87,300.

Herbie Skeete, Mondo Visione’s managing director, said the trend was “a mixed blessing” for exchanges.

“Falling trade sizes means more trades, which offsets the impact of lower trade fees, but it also means increased network traffic to contend with.” That would require more “market surveillance, in ‘real time’,” he said, adding that there had been tighter spreads on exchanges “leading to better markets”.

In general, high-frequency trading has little effect on long-term trends.

Tuesday, February 23, 2010

 

Wants to Visit

 

Hi Ed,
 

Hope you are doing well.

I want to ask if I can visit your IV tribe (I am a workshop graduate).

I currently do not have an active Tribe. I am looking for an opportunity to take the hot seat and experience the rock process.

I have an “unhealthy” attachment to my mother. She is a domineering mother. I am in my late thirties and I notice that I like to be under her control (intention = results). Last week, I decide to express my feelings about this issue to her. I feel ok expressing my feelings. I wonder if I am running in circles so I always have to come back to her.

I am far from IV, but I can arrange a visit.

I am willing to support and help your Tribe during my visit.

Thank you for your offer to visit.  I am relocating to Austin Texas.

 

 

 

One Positive Intention Of A Controlling Person

 

might be to help you get

where you want to go.

 

Clip: http://www.dubairentacar.ae/images/

Car/big/Chauffeur_Services.jpg

 

Tuesday, February 23, 2010 

 

Dear Ed,

 

I have started a new tribe.

 

Welcome

Gorakhpur

India

Tuesday, February 23, 2010


Dr. Doom or Mr. Realist

I had an interesting conversation last week with a potential investor. I described my thoughts on the US economy, explaining that in our (my firm’s) view the current strength of the US economy is significantly boosted by steroids graciously provided by the US government in the form of stimulus. (I’ve written about it in this article.) I explained that since stimulus exaggerates the true performance of our economy, we’ve positioned our portfolio through stock selection for a subdued, low-growth type of recovery.

Then I shared my concerns about the Chinese economy – it has tremendous overcapacity in the commercial and residential real estate and industrial sectors (see this presentation: "China – The Mother of All Black Swans"). As the Chinese economy painfully readjusts and chews through the excesses, Chinese demand for industrial, energy, and commodity goods will be significantly lower. Thus in our portfolios we have reduced our exposure to these sectors.

And finally, I explained our views on Japan. As you’ll see from charts in the attached presentation (“Japan – Past the Point of No Return”), Japan has an enormous amount of debt (second only to Zimbabwe), a stagnating economy, and the oldest population in the world (this explains why the savings rate has declined from the teens towards zero). These factors will lead to significantly higher interest rates.

As an unbiased analyst it is hard to come to any other conclusion about Japan, and I am going to put it lightly: Japan is screwed! As a consequence, we believe higher interest rates globally are unavoidable, as Japan, now the largest foreign holder of the US Treasuries (together with China, the second largest holder), turns from buyer of Treasuries to net seller. So in our portfolio we are making sure that our companies have strong balance sheets and / or significant free cash flows to pay off debt, if (more likely when) interest rates rise.

With every country mentioned the potential investor got paler and paler; and before I got to the EU, a union that was created, as my friend John Mauldin put it, for prosperity not adversity, he exclaimed, “You are Dr. Doom!”

I don’t have a PhD, thus I can only be called Mr. Doom – but I am not that either. A joke told by Warren Buffett comes to mind: a patient, after hearing from a doctor that he has cancer, tells the doctor, “Doc, I don’t have enough money for the surgery, but maybe could I pay you to touch up the x-ray?” Hope and self-deception are not a strategy. I analyze and accept the conclusions of my analysis, no matter how painful they may be, and adjust my actions according to my findings. I am neither a pessimist nor an optimist, I am a realist. So at my firm we look at risks and constantly ask ourselves: What can we do to avoid them (or benefit from them) in our clients’ portfolios? So don’t call me Mr. Doom, call me Mr. Realist.

Thank you for sharing your views.

 

You might consider including in your presentations some mention of (1) the theory of discount and (2) the proclivity of central banks to buy bonds as part of their effort to compensate for a weakening economy.

 

You might also consider taking your feelings about <doom> to Tribe - or considering the positive intentions of the type of doom you envision.

 

 

Ants ...

 

 

 

... and Buzzards ...

 

deal with doom

in a re-cycling way.

 

 

 

 

 

 

 

Clips:

http://img1.eyefetch.com/Portfolio%5CAntonio

%5C111433.jpg

 

http://brimacombs.net/graphics/pictures/

kenya/buzzards.jpg

 

Tuesday, February 23, 2010


Publishing a Book and Music


Dear Ed,

It's been 13 years since that memorable day I spent at your home in Incline Village. I've been a long-time admirer of the Trading Tribe Process as I believe it is a powerful process that helps to evolutionarily catalyze the planet, as more and more people join trading tribes. I am part of a Trading Tribe in [City] and have experienced first hand its beauty.

[Name] and I have been diligently working on our book on investing and personal optimization that will be published this fall, "Trade Like Bill O'Neil: How We Made Over 18,000% in the Stock Market in 7 Years."

 

There are seven chapters, one of which is a chapter on teachings that help one reach their potential. I am leading the chapter with TTP, and will also discuss teachings by Eckhart Tolle and Esther Hicks with brief honorable mention of Wallace Wattles.

 

The other chapters focus on

 

a) causes of success and failure in the markets which are underscored by personal psychology,

 

b) research discoveries (pocket pivots, handling gap ups, selling techniques, etc) we have made since leaving O'Neil's firm many years ago,

 

c) my market direction model which has been a big force in my trading since 1991 which employs the concepts of risk management, pattern recognition, and trend following,

 

d) the best things we learned from O'Neil having worked with him intensively for several years,

 

e) short selling techniques as [Name] was up 187% in 2001 primarily by going short, and also capitalized on the dramatic slide in 2008.
 


I wanted to know if you would write the foreword to our book. We have written over 320 pages so far and are in the final stages of completing the manuscript.

In the world of music, my piano song 'Bloodshed' will be used in the battle scenes in the upcoming epic based on Homer's The Iliad. Have a listen:

 

 http://www.youtube.com/watch?v=NCE-SUSxk6c

 

I have been doing much composing and performing on the piano the last several years which culminated in my debut CD 'Teardrop Rain' which is now being distributed through Amazon and iTunes, and is available in close to 3,000 stores across the US.

I also plan to launch my site by April. It takes the same name of the site I started back in 1995.

I am still here in [State] and plan to return to [City] in April.

Thank you for sharing your process.

 

I'd like to see the manuscript before I consider writing a forward.

Tuesday, February 23, 2010


System Optimization Details


Hi Ed,

I completed the exercise to code "EMA crossover system" and must say, it was very educational!

It gave me the chance not only to think about systems development from scratch but also to get my feet wet with optimization which in itself is a major issue, especially when it comes to "intelligent optimization" etc. I implemented these algorithms without giving much thought to what they actually do. I didn't prefer one over another at this point.

Like some others, I also have to report a minor rounding issue: for instance in the 15/150 parameter set, my ending equity is off yours (in case of 15/150) by 0.25 USD. I include a trade list for the 15/150 combo.

You may want to include the following explanation of my software developer to clarify the "rounding mess" for amateur programmers such as I am:

Code written in ANY language is subject to FPU (floating point processor) accuracy limits.
This is world-wide IEEE 754 standard. Program may use either 32-bit or 64-bit floating point numbers.


All computers and all programs work with it and all codes regardless of language used using same FPU (part of your computer CPU).

AmiBroker's internal equity calculation uses 64-bit IEEE and that's why it has extended accuracy, i.e. matches your results to the penny. Any code written in Amibroker´s proprietary language AFL is (to my knowledge) at this point 32-bit IEEE and thus me always be off a few cents.

Regarding optimization, an important decision to be made at first is to set the parameter's data range and step size. In our case in particular the length of the two EMA´s. This not only has implications on computer running time but also on the frequency with which the system enters/exits trades.

I tried to attack the problem by coming from different ankles.

At first, I arbitrarily selected two data ranges for the the EMA´s. I realized too late that they overlap, so I ended up with some redundant testing/optimizing.

1./ fast 10 - 150, step 5 slow 50 - 400, step 10
2./ fast 10 - 400, step 5 slow 200 - 900, step 10

Then, I experimented with fixed heat (at 10 percent) versus various heat levels.

Additionally, I also used exhaustive search versus "intelligent" search algorithms (particle swarm and differential evolution).

While doing that, I realized that the optimal bliss value is roughly at 0.5. I found a few parameter sets which return this value.

The following outlines various optimization runs with their respective results:

1.
fast EMA 10 - 150, step 5
slow EMA 50 - 400, step 10
heat fix 0.1

optimized for CAGR/max. DD

exhaustive search

optimum:

fast 90
slow 320

bliss 0.2

2.
same as 1. but optimized for ICAGR/max. DD!

optimum:

fast 90
slow 320

bliss 0.21

3.
fast 10 -150, step 5
slow 50 - 400, step 10
heat 0.1 - 1.0, step 0.1

optimized for ICAGR/max.DD

intelligent algorithm (combo of PS and DE, see above)

optimum:

fast 70
slow 370
heat 0.8

bliss 0.5

4.
fast 10 - 400, step 5
slow 200 - 900, step 10
heat 0.1 - 1.0, step 0.1

optimized for ICAGR/max.DD

intelligent optimization algorithm (PS and DE combined)

optimum:

fast 78
slow 420
heat 0.9

bliss 0.53

5.

took appr. 10 hrs. on my old machine!

fast 10 - 150, step 5
slow 50 - 400, step 10
heat 0.1 - 1.0, step 0.1

optimized for ICAGR/max.DD

exhaustive search algorithm

sensitivity-directed optimization

range tested for sensitivity + / - 30%
sensitivity increments 5% (i.e. 6 ranges to the left and right of actually tested parameter)

optimum:

fast 70
slow 400
heat 0.8

bliss 0.5

6.

took appr. 2 days on my machine!

fast 10 - 400, step 5
slow 200 - 900, step 10
heat 0.1 - 1.0, step 0.1

optimized for ICAGR/max.DD

exhaustive search algorithm


optimum:

fast 80
slow 420
heat 1.0

bliss 0.51

I should add that I excluded parameter sets that would result in a mean-reverting system (see exclusion in buy rules) because testing these was not part of the exercise.

While optimization run # 5 (sensitivity-directed search) is the most robust solution from the two data ranges I tested, there may be other criteria that could cause the trader to choose not to trade this system (distribution of profits, outliers...) - at least with these parameters - to modify the bliss function (factoring in other criteria such as max. DD) or to choose another bliss function altogether.

Plus, from running a sensitivity test (see histograms attached), it seems that even this solution is not too robust at least at a single-instrument level! Trading a whole portfolio of instruments may add to robustness.

In any case, it may be necessary to do a walk-forward on a portfolio of instruments to verify the system generates the returns suggested by in-sample optimization.

Optimization run 7 may also turn out to be a looser in walk-forward analysis and particularly in real-time! But even if it weren't, I would not trade this system: always betting 100% of the stake (i.e. no losers/always winners assumed) may be a sure way to the poorhouse...

I included some charts that show how max. DD, ICAGR and bliss changes as heat changes (for my optimum solution found, i.e. optimization run # 5).

Also, following up another person's remarks one should compute from the day of first trade initiation rather than from first day of back test, I included a metric called "ICAGR since first trade" for comparison reasons. But since the first trade is being initiated after 93 days, there is not that much of a difference in the metrics.

If you don't mind, I'd like get your take on how to "properly" capitalize a trading system. Since, as Mark Twain, states "History never repeats itself but it rhymes", precautions may need to be taken if real-time max. DD exceeds back test results. Thus, a higher capital base may suggest itself.

I'm sure I speak for many others out there when I say that it would be highly appreciated if you'd spend a few words on the other topics originally outlined on your page (Margin constraints, dynamic portfolio selection, dynamic risk modification et. al)

Incidentally, you stated that "thinking" about the results besides hunt-and-peck- and steamroller approach would be likely the best approach to come up with the "best" solution. But if a system has more than three parameters to optimize (especially on a broad range of data), I can't think of any other way than using "intelligent optimization" at this point since plotting a 2d or 3d graph becomes impossible.

Thanks for the lesson!

Thank you for sharing your process.

 

Per how to back-test a system of many variables, you can try pair-wise optimization; you optimize two variables, freeze them and then optimize another two.

 

Then you can go back and repeat the series.

 

You might note that with five variables, you can write an equation to draw an elephant; with fifteen, you can draw a Christie Brinkley.

 

With ten, you can get an arbitrarily high MAR, although such a curve-fitting exercise is unlikely to be very successful in actual trading.

 

 

You Can Model This Model

with fifteen variables.

 

 

Clip: http://www.askmen.com/women/galleries/

model/christie-brinkley/picture-1.html

Monday, February 22, 2010


Analyzing and Experiencing Emotions

 

Dear Ed,

Excellent week. I spend over 15 hours creating systems. The most of any week so far. I feel that I am on a strong trend toward Right Livelihood, with the occasional pull back. This week I have a lot of "Ahas" Most have to do with the balance of feeling and thinking and gaining more confidence in my total inability to control the future.

I watch Lindsey Vonn crying after she won gold, crossing the finish line on one ski. I want a snapshot like that. Historically, I view her emotions as conditional. She wins gold this causes her emotions to spill over. Now, I realize that is who she is. She would be crying and over come by emotions with a win or a loss. She gives her all and sacrifices everything to define herself. I ask myself, right now, am I overcome with emotions at my success and failure? No. I now realize this is my choice rather than a result of me winning the Olympics. This is a source of inspiration.

The week before last, in my attempt to experience my lack of motivation, I have some "Ahas". I realize I try to process my feelings by identifying, labeling, understanding, and caring about them. All of this blocks them. As a result, I am not that successful in experiencing them. It is counter-intuitive to me that trying to understand feelings is not feeling. I experience how all of these intentions are only successful in preventing my emotions from being received by me. I am able to spend some time emoting and experience the now. I find it easier to go with the flow. My rule of thumb is that if it is word then it is not an emotion.

Emotions are fast. They're in Now. I feel a sense of being overwhelmed and then feel some hesitation in experiencing them because they create action ("Wait. I have not had time to think."). Historically, I associate thinking with action and feeling with inaction (meditation, long walks). Plan it, think about it, justify experiencing the emotions and then try to understand the emotion so I can better control it next time. It is amazing to experience the raw power in not understanding and simply experiencing. This is the first time I see I am intimidated by my potential inside me and block it (Powerful). This is very different from my potential being outside of me and always wanting it (Powerless).

Thank you for sharing your process and your insights.

Monday, February 22, 2010


Workshop


Hi Ed,

Do you plan to schedule any workshop this year?
Are you going to make any workshop in Frankfurt / Germany?

Yes, I am planning a workshop for April 15 in Reno, NV.

 

I have no plan at this point to deliver a Workshop in Frankfurt - although I have happy memories of that city.

Monday, February 22, 2010


Temple Grandin


Ed,


After reading a quote from an interview with Temple Grandin, I think of you and FAQ. The quote is "When I was younger I was looking for this magic meaning of life. It's very simple now," she says. Making the lives of others better, doing "something of lasting value, that's the meaning of life, it's that simple."

I also like her take on cows: "they deserve some respect."

Monday, February 22, 2010


Your Unwillingness is Your System

Dear Ed

I am writing to share with you, and the readers of FAQ, a recent experience which helped me better understand one of your insights.

I spent several months at the end of last year reading through the Trading Tribe website. Thank you, and all the other contributions to FAQ, for all the valuable resources and insights that are available.

I was particularly struck by the following insight:

Ed says: “The feelings you are unwilling to experience are your trading system.”

Although I could understand this statement at a conscious rational level when reading it at the time, I must admit that I did not really understand until now.

Background

I trade using a group of systems that I designed which have rules that are mechanical / algorithmic in nature, but which I still execute manually at present in order to develop a feel for how to trade with them.

One system recently signaled to go short coffee (Liffe Robusta March 2010). I followed the signal, the market dropped slightly and then consolidated. No signal to exit the position has occurred up to the time of writing this e-mail (02/22/2010) but the March contract will expire shortly and I need to roll-over the position.

In addition, for various administrative and IT reasons relating to my trading account with my broker, I must close out all my positions and delete all orders for a few hours sometime this week.

So, at the end of last week (Friday 02/19/2010) my conscious mind was well aware of two reasons to potentially distract me from following the system rules: “Roll-over” and “Admin”.

Both are normal and are expected from time to time so there should have been nothing particularly unusual about the situation. However, my mind had the chance to explain this situation to myself and provide reasons to justify me paying particular attention as to how I should close out the position and roll it over.

Feelings that I was Unwilling to Experience

At the end of last week, still I had a few days to close-out the position.

But on Friday (02/19/2010) mid-morning (European time), I suddenly got a mild feeling of fear or apprehension as the market continued to drift back down towards the recent lows. My mind started to focus on the unusual “reasons” surrounding the situation and I started to consciously think of scenarios where the market moves back up against me and the need to protect myself – especially as liquidity starts to dry up near roll-over – and I imagined regretting taking the breakeven trade implied by my system defined exit point if the market started to reverse direction. I started to consciously focus on the then current market situation in coffee much more closely. By late afternoon I closed out the position but did not roll over in to the next contract as I had convinced myself that I should: take a small profit on the closed-out leg; wait and clear up my “admin” issue with the broker on Monday; and then wait for a new shorter term continuation signal to develop in the following contract.

The feelings were not really strong, but I recognized that there was definitely a “form” to my behavior and actions in that situation: more conscious attention or focus on the short term market behavior; lots more conscious thoughts, reasons, and a priori justifications running through my mind; eyes starting to “pop” out of my head more; slightly squinting eyes; overall tension in my face and chest; generally, just lots more effort and energy was focused on the situation.

But thinking of Ed’s insight, I realized that I did not want to feel the imagined feeling of “failure” when taking the breakeven trade in the reversal scenario that I had created and focused on in my mind. I imagined “regret” at only “scratching” the position without any profit.

These mild feelings appeared to be a signal to myself to try to make me avoid those potential feelings of failure and regret – they were signals trying to make me avoid feelings that I was not willing to experience.

Of course, by closing-out the position early I appeased the mild feelings (which stopped).

Ironically…
On Monday (02/22/2010) March coffee jumped down even further. So now I had every opportunity to feel “regret” and “failure” – a self fulfilling prophesy - just not in the manner I envisaged in my mind on Friday (I was so focused on the short term reverse scenario and protecting myself from it). (Ed says: “Everybody gets what they want out of the market”.)

Learning

This experience gives me a much better understanding of Ed’s insight: even following a purely mechanical and algorithmic rules based system, being unwilling to experience feelings that I consider to be “bad or negative” can override the formal system rules and result in being the de facto rules of my overall trading behavior or “system”.

Looking at this experience from this perspective, I remember that that it is not the first time that I have experienced this type of trading behavior – this kind of “form” with mild feelings of apprehension, tension, and much more strenuous conscious focus. I remember that it can sometimes be a precursor to “off-plan” or “outside system” trading behavior especially when I am tempted to justify to myself getting out of trades too early.

But this is useful to me. Rather than trying to avoid these mild feelings, I resolve to accept them, accept their positive intention (to help me avoid potential failure and regret) and then use them as a signal to myself to have the confidence to stay “on plan” and execute in accordance my trading system rules. That way I avoid failing to execute my system properly and avoid the regret of getting out of trades too early.

Thank you for giving me the opportunity to share my experience with you and the FAQ readers.

Thank you for sharing your process and insights into the important roll of willingness in sticking to a system.

Sunday, February 21, 2010


The Great War of the Toothbrush


After talking with [Tribe member] and Ed, I come to realize that the struggle about brushing teeth is more about the *struggle* and less about the *teeth*.

Since I am substantially responsible for their well being, if I think clean teeth are important, then we will have clean teeth. It's not a big deal that requires lots of yelling and screaming.

Ed's response to my original FAQ post says,

 

 "if you brush your teeth,

they'll brush their teeth."

 

 Since I already brush my teeth (and said so in my original post), I found this puzzling. But I came to see my kids struggling as learned behavior from watching me struggle with my wife.

 

This realization is an important ah-ha for me. Now, I am struggling less, more accepting and more patient as a result. I didn't raise the threshold below which I was accepting (and above which I would lose my temper) so much as surrender to the situation.

I have lots of feelings and judgments about my own struggles, the struggles of my elders and the victimization / exploitation of various groups of people around the world. I am starting to accept my feelings and not struggle with them as much.

Thank you for sharing your insights.

 

 

Sunday, February 21, 2010


Ayn Rand


Hi Ed,

Just watched an interview with Ayn Rand.
 

http://www.youtube.com/watch?v=FzGFytGBDN8



I believe you share strongly her views, as I do, but what is your position regarding her refutation and dismissal of anything that's mystical.

 

Where does the under-Fred network, being in the state of trance or deep breathing experiences fit into all this.

You might consider asking Ayn (or one of her proxies) to explain how she rationalizes her feelings about wanting everything to be rational.

Saturday, February 20, 2010


Wants Transparency

 

Dear Ed,


A number of mostly larger investors / institutions have asked me if they could see their accounts and or the funds investments on a daily basis - positions, etc.

This would need to tie in to our existing site so that once someone is logged in they could see this.

After Madoff, people want to know that you are actually investing their money.

I have been asked this more than once by institutions.

any ideas?

Yes, I know of such software - I intend to discuss this more fully at the Workshop.

 

Saturday, February 20, 2010


Wants to Buy the Book

Hi Mr. Seykota,

I would like to introduce my self that I'm a new trader, I have been trading Forex for around 2 years but right know sometimes I feels empty or not satisfied my my life or just bored with trading I don't know, so after looking around at the internet I found that your book is explain mostly about psychology not only just about trading but about how to pursue happiness and that is all I need , how to improve my life in general and trading.

So Mr. Seykota , I would like to buy your book , but I don't know whether you can deliver to it [Country] or not, and how much is it?

Many Thanks , and please forgive me if my English is not very good.

The price is $125, anywhere.

 

Friday, February 19, 2010


Health and Uncertainty

 

Dear Ed,

Two of our four members are unable to attend last night's meeting. As chief, I consider either cancelling the meeting or suggesting an informal dinner... but I do not and notice a feeling of awkwardness.

After drumming, I feel very alive and energized & I take the Hot Seat. I say I want to describe two current issues. During a recent and rare 8 day internet and phone outage, I take apart my entire trading method, like a child spreading out his building blocks all over the floor. I feel a big question mark within me - I actually visualize it within me - as I realize I have not put my building/trading blocks back in a usable form & cannot therefore trade.

 

I also describe a health issue : tomorrow I receive the results of a biopsy for a possible melanoma. I have a deep sense of not-knowingness that somehow leads to clarity and calmness. Throughout this extended story - my hot seats usually quickly display cathartic forms - my receiver keeps encouraging me to display the forms that I am displaying : mostly expansive arm, hand & body waving, flexing, moving. Everything feels very gentle and very deeply, wonderfully OK, even though my logical mind seems to think I should be very afraid.

I tell how I clearly see my vulnerability if I receive a bad prognosis : it's the thought of leaving my 9 year old daughter without her father. Again, logical mind says "Wait for the results", but during my early morning meditations in recent days, I shed a lot of tears. I keep moving my hands and arms as I talk and my receiver keeps up his support for my forms - everything is OK and I feel so supported. I have an image of myself being carried out to sea by a very powerful tide with my daughter standing on the shore crying out for me, but I know I just have to let go. It all feels so poignantly perfect and I am somehow not worried.

It feels like such a wonderful gift to be so alive in the moment and I see that the right livelihood for which I have been searching is to fully live and experience this wonderful gift of life. I realize that trading is occupying - or rather, pre-occupying - an inappropriately large part of my life.

 

I choose to change this.

 

I recognize that this and other "negative energy issues" that I must face as part of living do not have to drag me down : sometimes you just have to walk through a bog and get all muddy, sometimes you can walk around it, and sometimes "walking on water" just happens !

I feel great joy & enormous appreciation of my receiver, my Tribe, TTP and my family.

Thank-you.

PS. This morning I speak to my doctor : my tests are clear.

Thank you for sharing your process.

 

 

 

In The Overall Scheme of Things

 

your relationship with your daughter

is pretty much essential for both of you.

 

 

 

 

 

 

 

 

 

Clip: http://on2ndthought.files.wordpress.com/

2009/02/black-father-and-daughter.jpg

 

Wednesday, February 17, 2010


Great Drums

 

Dear Ed,


Where do we get some great drums?

You can check with the Great Drum Vendor.

Wednesday, February 17, 2010


Wants General Advice


Mr. Seykota,
 

Please accept this email as a first correspondence because I am a new trader and know nothing of your business yet, only book knowledge and a sim account so far.

 

As a military officer, in the rank now of Lt Col, for the last 24 years I have known the ultimate risk and built discipline into my life as I currently fly the F-15E Strike Eagle and recently returned from the war in Afghanistan---during my time in the Middle East over the last few years I have been studying the art of Trend Following and will execute this tactic after I retire but I am starting to build my small trading business now and will have only my family to support with a small account so don't hold that against me--it will grow!

 

Controlling risk, emotions and exercising discipline are key to this business and I feel that the military career has put me in a perfect position to implement this smartly. A bit about myself---my wife and I live in [State] but are taking our last command assignment in [State] shortly, we have 8 great kids (6 girls and 2 boys) and the military rank and pay charts are dismal compared to folks like yourself so don't hold that against me either---serving my country Sir has been the most rewarding thing for me to do and it is my honor to defend this great nation at any moment with my life for people I don't even know!

 

Now it is time to make money for my family because they/we deserve the chance and I believe I know how---Trend Following. My first war was Desert Storm and my last is still not decided yet but the career will come to an end in the next 36 months and I am positive that I have changed price in the market a time or two based on the missions I have executed/flown and I am sure you have capitalized on those changes in price. So now it is my turn to capture those swings and day trading is most likely for me at 44 years old and not buy and hold.

 

All the flyers I have trained will now take over and defend me as I pull back my throttles and apply risk in a different direction --the futures markets for a start.

 

Military officers who command others look towards their generals for advice and guidance and upon all of my studies so far you seem to be at the level of a general officer in Trend Following so that is why I ask to speak with you on this issue when able.

Thank you for sharing your process.

 

 

Along with your F-15E training, you might consider logging in some flight time on an LS4 glider.

 

 

 

The Pilot is in Control

and makes the plane go where he wants.

 

 

 

 

The Pilot Goes with the Flow

and may catch an occasional thermal.

 

 

 

 

 

 

 

 

 

 

 

 

Clips:

http://www.defense.gov/dodcmsshare/

newsphoto/1999-03/990218-F-0000L-001.jpg

 

http://www.boeing.com/companyoffices/aboutus

/wonder_of_flight/images/glider_hitech_500.jpg

 

Tuesday, February 16, 2010


Going Live


Ed,

First off, thanks for making the TTP site available -- I've been able to improve my process, knowledge and trading system.

I've extensively tested the system and am happy with its goal and performance.


My question is about the final step in trading, going live. I'm only doing end-of-day analysis and order generation. Is there any way to integrate my system with a broker's? I would like to eliminate the manual translation of order entry.

Are there any references to issues people may have documented in going from theory to execution? By issues I mean practical (order execution, skid, etc), not psychological as I will follow the system.

Lastly, is there a Tribe in the [City] area?

Yes, there are ways to integrate your trading with the broker and to automate much of the process.

 

I plan to provide live examples of this at the upcoming Workshop.

Tuesday, February 16, 2010


Beating Off

 

Dear Ed,

The last couple of weeks have been busy with a vacation, work and getting ready for babies. I have been doing more unproductive thinking and beating myself up in an attempt to bring some emotions out.

 

Given my intention is to beat myself up, I am doing well. The DIM is not that productive and invites thoughts in attempt to control and judge my emotions.

On the same note, I feel as though I am done beating myself up and it does feel like a cycle. In the past at different moments, I would have thought the confusion and disappoint in myself labels me and this time it is something that I know is not serving me and is passing. I am thankful for the support and am looking forward to a Tribe meeting on Friday. My intention at the Tribe is to serve others and for it to be a strong and productive tribe meeting for all people there.

Trading wise, there is a lot of progress with paper trading. I am still in the process of turning my 401K into an IRA and transferring funds around.

Thank you for sharing your process.

Back to the Future

Cow Clip: www.grannybuttons.com/.../10/curious-cows.html