(c) Ed Seykota, 2003 ... You may not reprint without permission.

Ed Seykota's

Frequently Asked Questions

FAQ Home and Ground Rules

 

April 20-26, 2003

 

Questions

Answers

Sat, 26 Apr 2003

Tanks a Lot

 
see: Tribe Process vs. Spirituality

Dear Ed,

I am wrong many times when it comes to the markets. The thing about me is I have lost more times on more trades than I win and have still come out ahead for 7 years in a row so far. The wins were bigger than most of the losses. My monthly drawdowns however, have not been so pretty.

The markets are much more chaotic than I ever imagined when I first invested in a mutual fund in 1987 (Two weeks before the Crash).

Thank you for the reminder about "How expensive it can be to prove to the markets I am right." I will be careful not to allow it to be a weakness of mine.

Trying to convince the markets I am right can be metaphorically equated to a person standing directly in front of a forward moving tank. Not a good idea. I am always ready to end or reverse my trade.

I wonder if my way of writing is from my feelings about the many people through books and seminars have helped me and I am sure glad that they put their ideas in writings or on tapes or videos etc. I felt good as a teenager when I started to learn from people like Leo Buscaglia, Napoleon Hill, J.P. Getty Ed Seykota and Victor Sperendeo. I know that they are human also and could be wrong about things but they also had some great ideas that helped me very much through life. I was glad they put ideas out for me to consider.

I love the Bible quotes you post. Luke is one of my favorites.

Thank you mentor again for throwing a little gem to a humble student (growing more humble every e-mail).

Go with the flow ... a basic principle of Trend Trading.

Standing in Front

of a Forward Moving Tank Top

 

Don't even try to convince her you are right ... your best move is to have a plan to reverse directions.

 

Clip: www.badfads.com

Sat, 26 Apr 2003

 

Staying with the Trend


Mr. Seykota,

For well over a year, I've tracked each trade I've made and come up with a recurring behavior that I haven't been able to shake. The pattern is that after a loosing trade, I find myself exiting the next winning trade prematurely, ignoring my actual exit signals and giving into feelings of wanting to "recover" from the previous loss. Usually these feelings seem to coincide at or about the same time that the winning trade has nearly made back the previous loss and is do for a normal natural reaction.

Any suggestions on how I can prepare my thinking during these subsequent trades to feel but overcome the desire to exit early?

Along with preparing your thinking, you might consider exercising your feelings about taking losses and wanting to recover from them.

As long as you suppress feelings in these areas, your subconscious may continue arranging dramas to help you get them out.

When you let your feelings out, they inform your conscious mind, and together they create insight.

Sometimes this process gets a sudden realization or aha, and then a residual sense of peacefulness and well being.  From this state, the original problem typically seems less formidable, less emotionally charged, and the solution more straightforward.

Facilitating this process is part of the work of the Trading Tribe.

Sadness

The mouth pulls down at the corners and may expose the lower teeth, The eyes squint and tear may appear. This feeling typically accompanies loss.

Clip: www.dipaola.org/stanford/

facial/class6notes.html

Sat, 26 Apr 2003

 

Meta - morphosis

Ed,


Thank you for your advice about portfolio heat. Also, thank you for doing the trading tribe FAQ. It's very calming to read. I think it is very generous and kind of you to share your knowledge. There is too little of this type of sharing in the world. I do wonder what you get out of it.

I will soon begin trading a trend system. I've pit traded, day traded, and haven't been very successful at either. Looking back on it, I don't even know why I bothered with those styles - they don't fit my personality at all. System trading is great - I get to indulge my know-it-all side in a wonderfully 'meta' way.

I like framing the "not knowing the fundamentals" part of Trend Trading as knowing you don't have to know it.

Metamorphosis

 

Trend Following caterpillar worries about not knowing what causes stocks to move; as a butterfly, he knows all he needs to know is that he doesn't need to know.

 

Clip: www.butterflybushes.com

Sat, 26 Apr 2003


Entitlement

Chief Ed:

One of the biggest causes of trading losses or limited potential actually results from a fear of success. This fear is related to entitlement - which is our internal reward system for what we feel we deserve.

The market does not give you or deny you money - it is something which you give or deny yourself. How much we reward ourselves is directly proportionate to how deserving we feel we are... When we move beyond our perceived capabilities to a success level that we never dreamed possible, our lack of entitlement may keep us from feeling that we deserve to keep the rewards for our efforts.

The same is true in trading. No matter how solid or successful an approach to the market is, a trader is only going to 'allow' himself as much money as he feels he is entitled to - regardless of his conscious intentions. Taking responsibility for our successes and failures is an important step in successful trading. Because fear, either of failure or success, can carry an unconscious, hefty price."

Over my life I confess the lack of entitlement has been my greatest obstacle in achieving what I desire. Yet entitlement seems to be a natural consequence of commitment and work, as wisely expressed in the Qabalistic maxim:

"If you work seriously, with the means at your disposal, you'll be granted that which you need and don't have, and even more."

I agree that a healthy sense of entitlement can help. The working seriously part also helps.

 

McDonalds (MCD)

 

Traders who consider "You Deserve a Break Today" as an  entitlement get their wish on September 17, 2002 (last day on chart).

 

Sat, 26 Apr 2003

Greetings Mr. Seykota,

Your website is great; I saw it for the first time this week.

I enjoy your mix of Eastern and Western thought.

Speaking of which; a thought came to mind while perusing your FAQ this week.

*First let me say that I am a young trader and just beginning to develop my mind and my skills. I have very little experience in practice. As such, I'd like to hear what an open-minded veteran thinks of the following.

As market practitioners we become so wrapped up in the subjective dualistic
viewpoint of profit and loss that we lose sight of the objective viewpoint of non-duality is which there is no profit, no loss and no market in existence as an independent entities.

 

To truly see this is to have crystal-clear vision or what the Buddhists call thinking with the wisdom mind. As a Buddhist practitioner (or at least an aspiring one) I have found that digging up my "Buddha nature" has been valuable in my market endeavors.

However; I also feel that there must be a balance of the subjective and the objective.

For instance; I try to think of things in terms of expected value I try to get an idea of rough probabilities and magnitudes of wins and losses through both subjective measures and an objective filter. It's far from perfect, but it seems to be a somewhat useful framework to start from and develop
upon.

Dualists claim there are two kinds of everything ... for instance, there are dualists, and non-dualists.

 

 

 

Two Headed Snake

 

One head thinks that if one of them is a dualist, the other must not be one; the other head, of course, disagrees.

 

 

 

Two Headed Coin

 

A working knowledge of dualism can be useful in devising effective betting strategies.

 

Coin: www.prankplace.com

Sat, 26 Apr 2003

Music

Ed,

Your theory about association between the cortex and limbic system is precisely correct. One acts out dramas indirectly in trading because of past experiences (positive/negative).

When I hear a certain song back in the 80’s or 90’s a photographic picture suddenly appears in my head vividly of an event that was happening during the same time that same music is playing.

You might ask yourself if you would rather be precisely correct or profitable.

 

Computations of Pi show a trend toward more and more precision.  Meanwhile, computing Pi does not seem to pay very well.


Ptolemy (c. 150 AD) 3.1416
Tsu Ch'ung Chi (430-501 AD) 355/113
al-Khwarizmi (c. 800 ) 3.1416
al-Kashi (c. 1430) 14 places
Viète (1540-1603) 9 places
Roomen (1561-1615) 17 places
Van Ceulen (c. 1600) 35 places

Kanada (1969) 1.24 trillion places

 

 

Precision does not Predict Profitability

 

Clip: www.grimescartoons.com

Sat, 26 Apr 2003

 

System

 

Using this strategy of position size. Take 20 one percent positions and pyramid up as each position increases 1 ATR (max of 5 units per position). So when fully invested, we would have 20 five percent positions.

Stops we use 2 ATR and 20 day lows. We use 55 day highs for entry plus other criteria.

Is there anything you can add to help improve our strategy?

Be sure to check your simulation results with your stomach, to see if it can tolerate your system.

FAQ does not recommend specific parameters ... see Ground Rules.

Sat, 26 Apr 2003

Losing Streak

Gentlemen

How great is the chance of a losing streak with 10 consecutive loss in row.


If streak can not be avoided, than what of
different kind of algorithm exist for "bet
management " in this streak ?

Example: after losing, bet decreased from 5%-8% to 4%, to 2%, to 1% maximum loss per day 4%-10% maximum loss per month 10-25%

Exist anothers variation ? With complex management of bet,time,volatility,market ?

Autor would very pleased for answer. Excuse me, if my request is not relevant .

If your chance of a loss is L, then your chance of 10 consecutive losses is L10.  For L = .5, your chance is about one in a thousand.

 

You might simulate your performance versus various bet sizing strategies. Your 5-8% might be a bit on the high side, by industry standards, maybe not so high by the standards of John Warne "Bet-a-Million" Gates (1855-1910).

 

J.W. Gates gambled at poker, the stock market, and horse races. In 1900 at a horse race in England he bet $70,000 on long shot Royal Flush and won $600,000. Rumors had him winning over $2 million and said he had bet a cool million, a fabrication that gave him his nickname.

 

 

Bill Gates

 

Sometimes betting big and staying with the trend pays off pretty well.

Sat, 26 Apr 2003

Hello Ed,

I was actually about to send you an email expressing some concerns I had about doing 'The Process' in a Tribe group setting. Then I noticed this morning the process pages are no longer on your site.

Unfortunately we live in a litigious society. I am not a trained psychologist and doing these very powerful techniques in a group setting may carry some potential risk and liability.

I have used Ericksonian Hypnosis and NLP techniques for more than a dozen years and find them very effective. I think you have a stellar record of taking ordinary traders and turning them consistently successful ones. So these techniques do work.

I for one am very appreciate that these personal growth groups are starting all over the country, even without the process there is much benefit that can be gained from them.

I would like to hear your thoughts.

Thanks very much.

The response to the bulletin board suggests a demand for intentional communities.

I provide very little supervision or training, so each group likely has its own processes and procedures.

I do run the Incline Village Trading Tribe, according to processes I have developed over the years. It generally takes several meetings for our new members to catch on.

Some times we seem to create deep and meaningful change, financially and psychological.

Part of the process is to apply it only on a ready, willing and able basis.

You might be the best cosmetic surgeon in town; that does not give you the right to excise a mole from the person sitting next to you on the bus, even if you happen to have a scalpel handy.

Scalpel

Best when all parties agree how to use it.

Clip: www.jaisurgicals.com

Sat, 26 Apr 2003

The Tribe Process vs. Spirituality

Dear Ed,

I feel The Process of the Trading Tribe does not address the spiritual nature of humans.

I believe "The limbic system" and "Cortical system" are not only run by experiences that enter the senses. I feel they are only like a car without a driver.

I think the Spirit is actually what holds everything together and the Spirit gives us high creative ability.

Many of today's "Psychology" books roots and ideas came out of a dark time in Nazi Germany". Things like shock treatment and mind dulling drugs are still used today by "Psychologists".


I feel I want the tribe members to know that they are much more than a Cortex, Bones and Flesh etc. They are an everlasting Spirit that will last long after the body.

I feel I want them to know that they have the power to do anything including trade as good as and/or better than the greatest traders today and/or in the past.

I feel I want the tribal members to be inspired (In Spirit) by knowing they are more than flesh and bones.

I feel I want the tribe members to know they are powerful and can control their destiny.

I feel that inspiration overrides all obstacles. I feel that when a tribe member expresses his or herself they are not freeing their Cortex, they are freeing their Spirit.
You seem to feel a strong need to get people to accept your view of spirituality as the only correct process.

I suggest you fully experience your feeling of needing to proselytize, so you can release the drama about having to convince people you are right. 

It can be very expensive to try to convince the markets you are right.

 

Jesus in the Temple

both listening and asking,

going with the flow

And it came about that after three days they found Him in the temple, sitting in the midst of the teachers, both listening to them, and asking them questions. And all who heard Him were amazed at His understanding and His answers. Luke 2:46f

And Jesus grew in wisdom (mind: limbic, cortex, etc.) and stature (body), and in favor with God (spiritual) and men (social). Luke 2:52

Clip: www.collver.pagemakers.net/

boyjesus.htm

Fri, 25 Apr 2003

 

Buying Pullbacks


Mr. Seykota,

Several popular trading books suggest that buying pullbacks from up trending
stock is a low risk and profitable entry method.


Is it a viable strategy for trend followers?
I think trend following systems mainly focus entry on breakouts and view pullbacks as potential signals to lighten up. Appreciate your comments. Thanks.

You could get some historical data and test your pullback strategy. You are likely to run into trouble in a couple key areas:
defining what a pullback is
finding a strategy for placing protective stops

Many counter-trend strategies look easy in retrospect.

Well Appointed Pullback Buyers

wear a rear view mirror

for perfect hindsight.

Clip: www.sheldonbrown.com/eagle.html

Fri, 25 Apr 2003

Preferences

Trader has $100,000 capital to trade with. In the case of stocks, do you recommend:

a) One stock
b) 5 stocks at 20K each
c) 100 stocks

Using trend following, [xxx] is up 80% from February. Boy I sure wished I bought 100K of [xxx] a few months ago!

Mr. Seykota, do you have any preference to long or short? Jesse Livermore and Nick Darvas did not, I would assume you do not either, given the overall market condition is conducive to one direction or the other.

Thanks and take care.

The number of stocks you trade  depends on your preference.

The Trading Tribe holds that when you fully experience the feeling of missing out on the market, find yourself getting in on more moves.

Trend Traders have a preference for going with the trend.

Fri, 25 Apr 2003

Hi Ed,

What if applicants to a group don't fit in with the group?

I'm a little concerned, because if people who apply to join a group don't match up, a gathering of people with different trading philosophies might end up being counterproductive.

Thanks
FAQ does not tell any group how to operate - FAQ operates as a bulletin board, to help introduce people with common interests.

 

Fri, 25 Apr 2003

Ann Arbor Group

Goal of Tribe: To meet together with a group of traders to provide emotional support via a set order/meeting program. The meeting begins with an affirmation of overall goals and then proceeds with each member put on a "hot seat."

Specific neutral language and manners (one person speaking at a time) and the use (subject, verb and object) language style will be used.

For example I am a former military person who is now teaching high school. I notice the difference when a student says they will "try" something and they will "do" something.

Language is important as it gives us a lens to view the mind and soul. As the group leader I will guide the meeting keeping things on an even keel in exploring emotion and logic. Minutes may be helpful to keep all of us on track during the developmental trail. I believe in your concept.

Ann Arbor !

Welcome! 

 

You are in the Directory.

 

 

Ann Arbor, Michigan

 

Clip: www.yahoo.com

Fri, 25 Apr 2003

Leaping

Dear Ed Seykota,

Do you believe in sudden leaps in your life.

Till I came across to your web site I did not. I thought that all kinds of progress takes so much time.

But if you can detect the object which causes slow progression, it is easy to say AHA.

With the help of your ideas, I have been able to find the guilty part in my life: My emotions, I mean not my emotions but my logic which keeps every valuable things in dungeon.

I have been exercising your ideas till 3 weeks and I can say what a wonderful thing to accept your every feelings without distorting any part of them. I can experience the relief which comes from finding the positive intentions of my so-called destructive emotions.

Now I am trying to insert the living the now moment concept into my life. I am eager to send my development report on this matter also.

Thanks for your help.

Under some conditions, feelings may leap out of the subconscious and inform the conscious mind. Otherwise they may come out slowly, through repeating dramas.

 

Jack in the Box

Sudden jumps can be scary, at least until you understand their positive intentions.

Clip: www.amazon.com

Thu, 24 Apr 2003

 

Massapequa

I would like to begin my own group. Let me know if that is possible. I have been a Trend Follower for a year and associate with 3 or 4 others.

Massapequa !

Welcome! 

You are in the Directory.

 

Massapequa, NY

Clip: www.yahoo.com

Thu, 24 Apr 2003


Intentional Second Place


See:  Intentional Sabotage

 

Dragon’s Slayer poster, THANK YOU!

It seems to me that throughout my life I have been the nice guy. I let other people have what I wanted for myself thinking that I am not good enough. But in fact, I know deep inside I will and can do much better if not the best. I have always put myself in second place. Low Self Esteem?

 

I have a problem of being #1 and instead be # 2 because my thought process is: “I allow myself to be underestimated from day 1; therefore I work harder because of this” But I always put myself in that position. Do I like to be underestimated? To prove something to someone that I can do it?

Here’s myself in the hot seat:

I am 13 years old; I am chosen to be the table tennis player for the school because the teacher who gets to choose the players knows I am good. One of my friend who is also good is not picked. So I convince the coach and my friend that there should be a match between the two of us to “tryout”. Well guess what the outcome of the game is … I let him win at the end 21-19. I know I am better than him which is why I am chosen the first and from playing my friend everyday!! How nice of me to let people have what I have worked hard for! ( Is that a good example of SVOp hot seat speaking?)

How come I do this, I don’t know? That’s what I am trying to figure out. What emotional experiences in my life make me associate to be in second place??? Any thoughts on how to do this? Why do I sacrifice myself for second place? I think this also had something to do with me having draw downs after I make money trading … so metaphorically speaking I put myself back to 2nd place and try to win 1st place … over and over … its a vicious cycle. But I am doing better now after Ed’s first comment on sabotage … I am keeping my 1st place position.

How does one “keep” that “dragon’s fire in him without placing himself back to 2nd place (sabotage) - à compete against self? I want to dissolve this problem not only in my trading but in my life as well. (I noticed that it happens in every aspect of my life, now that I have discovered it) …

Thinking deep now … about the root of 2nd place theory and trying to prove something … s it because my father left our family to start a new one (without me protesting about what was going on i.e. nice guy symptom)?

 

Therefore I feel 2nd place because of my father doing this. So I try to overachieve and prove something that I am good enough?

Thanks Ed! This is the best thing about self discovery.

Consider locating and experiencing your feelings about being in second place.

 

Ribbons

Enough for half a dozen players.

 

Clip: http://www.trophyawards.com

Thu, 24 Apr 2003

 

Winning and Losing


Hi,


I appreciate your time and energy to answer questions.


I feel my intentions split ... On one hand I want everybody to grow and be successful. In The Trading Tribe and all other groups and everywhere else. On the other hand you mention "winning" many times and to win there has to be a loser on the other side. I am competitive, I like winning. Actually, I like losing sometimes too. It is refreshing.

 

I believe I am only as good as the person who can beat me. Losing helps me finding my mistakes and helps me grow.

 

But in games where the stake matters to me, I want to have a total beginner on the other side, take him on and leave with his money.

 

Whatever the method you apply, there is somebody on the other side of my trade, I do not buy from "the market", I buy from people. After I win, someone has lost.

 

Of course it all gets diluted and impersonal, I can just see the screen and charts, but there are people behind those charts and I wish success myself first, they come second. Sounds selfish and that is exactly the way I am.

 

I am selfish. But as I mentioned, there is a softer side to me. I want everybody to be happy and successful too.


Is there a way to combine these two tendencies into a congruent philosophy?
I want to join the Trading Tribe, but right now I live too far. The site is very helpful. Once again, thank you.

You might examine your own feelings about winning and losing. For example, you do not seem to mind losing, while, at the same time, you seem to worry about someone else losing.

 

 

Beanie Baby

 

Some people like to trade Beanie Babies ... and some like to buy and hold, unable to sell, perhaps, due to feeling empathy for the other party.

 

Clip: http://www.1beanies.com/

eggsbear1.html

 

 

 

Thu, 24 Apr 2003

 

Balance

See On The Rocks

So when you say not to live off trading returns you are saying "get a real job".

Are you suggesting that trading should be somewhat of a part time venture and income should be derived from other sources?

I certainly understand the philosophy behind your statements but just can't seem to figure out how to do what you say.

Say your trading account has T dollars in it and you think you can make an annual return of R.  Say you also want to take living expenses, L, out of your account each year. Then your yearly change in account is:

 

C = R * T - L

 

so for  L < R * T your account can survive and prosper.

 

You can plug in your actual numbers and do the math to find your balance points.

 

 

Balancing Act

 

Miss Kirsty The Circus Acrobat opens out for use as a small jewelry cabinet. The reverse sides of the doors of the cabinet display story-book pictograms in vibrant colors. Her body is is red pine and she can hold necklaces on her outstretched arm.

 

Clip: http://home.btclick.com/

alanfaulds/acrobat.htm

Fri, 25 Apr 2003

 

Reading Further Books

Hi,

I am in Australia and began trading six months ago. I have automated stop losses in place as I work full time and am not able to take action if my stop loss is hit.

 

I do check the charts and markets each evening however I have read in quite a few books that if you are medium term trading then it is only necessary to check once per week.

 

I'm sure my husband thinks I am addicted (and I possibly am) but am just wondering if there is a guideline for this. I quite enjoy my trading time each evening but wonder if time would be better spent reading further books and web info if this is unnecessary.

Thank you for your time.

If you have a stop order in place, you do not have to take any action when it gets hit.

There are no real guidelines for addiction - so you can take yours it in whatever creative direction you like.

There is no need to read further books that are unnecessary.

You might consider reading a few books on basic English.

Basic English Text

In May of 1954, Life publishes a report stating school books are boring. Dr. Seuss' publisher sends Dr. Seuss a list of 400 words he feels are important, and asks him to write a book with 250 of them (the publishers idea of how many a first grader can absorb). Nine months later Dr. Seuss delivers The Cat in the Hat, which uses 220 and which has instant success.

Clip: www.amazon.com

Thu, 24 Apr 2003

 

On The Rocks

see How Much Capital?

"If you withdraw living expenses from your trading account, you are trading with a financial and an emotional handicap."

What do you suggest? In order to minimize these financial and emotional handicaps, earlier in my career, I elected to invest in income real estate. I have never withdrawn living expenses from my trading account. It seems to have given me peace of mind. Even though it pays my living expenses, I do not enjoy my real estate venture.

 

Is there a way to minimize financial and emotional handicap and still live of trading income?

Suggestion: explore your feelings surrounding real estate.

As long as your survival depends on your trading account, you risk attaching emotional importance to every step; this may interfere with  following your system.

 

Clinging to Real Estate

Every Step is Important

 

Clip: http://www.rockclimbing.com

Thu, 24 Apr 2003


Embracing Feelings

I feel that I have had a bit of an epiphany. The markets have no emotions or beliefs...they just are. They aren't out to get us. We create this battle against the markets and we choose to dig in our heels when the market is going "against" what we think should be. We become rigid, close our eyes and assume the fight position and get nowhere fast. The same can be said about our emotions and the reality they help create. As Ed has been saying, if we embrace our emotions and their intentions then perhaps we can create an intellectual environment within that will allow us to face up to our feelings and the impact that they have on our perception of reality.

 

Perhaps no conflict within, allows us to have no conflict on the outside as well and allows us to flow with the markets but more importantly life itself.

One of the posters the other day gave a very heartfelt and well thought out analysis about some of his past experiences and how these past experiences are effecting his reality now. To the poster I thank you for your honesty and openness, it helped me dig a bit deeper.

When I was younger, I played sports at a very competitive level. On one occasion I was invited to participate in a summer camp and compete against the Top 100 players in the country. As soon as I received the letter I was nervous and felt anxious.

 

Interestingly, I didn't complete the acceptance form on time, but since I was considered one of the top within the Top 100, they made special allowances to let me play. Needless to say, for whatever reason, I wasn't quite as motivated to work out leading up to the camp. I felt that I was good enough and essentially didn't need to do the things that I used to do. A week before camp arrived, I was a wreck couldn't sleep, had no energy. Essentially, I felt that I was going to get creamed. I felt that I wasn't good enough to compete with the best of the best. Well, as you can see, I was in the process of setting up the foundation for failure.

 

When I got to the camp, I was a shell of myself, easily intimidated, passive etc. Everybody who had heard about me prior to the camp was totally unimpressed. They had to do a double take to see if the name matched the jersey number. I was humiliated. I had gone against the best and lost...badly. It wasn't until the last day that I regained some of my old self and started to play a lot more aggressively...but by then it was too late... (one interesting add-on, when I finally got aggressive, I was playing well. My perception of these players being so great, paralyzed me. As soon as I tested that theory, I started to play better and outperform my expectations) A lot of lasting damage had been done to my ego and my reputation. I can think back and automatically feel the pain and discomfort. That was easily the worst week of my life. Fast forward...

5 years later I am in a professional workout camp and a lot of the coaches were watching me. And as they started watching, I could feel myself holding back!!! And as I was running up and down I was moving slower and without any pep in my step. I couldn't believe what was happening. I was witnessing first hand, in the moment, my own mind and body working against me and putting the brakes on. For years I just buried this under my emotional rug. I had believed that time heals all wounds. WRONG! During the camp, I realized that is exactly wrong.

 

Actually, time lessens the intense feelings of pain associated with the memory. Misleading you to believe some healing has occurred. However, I've learned that this is the worst thing that can happen. Because as time wears on, you begin to think its a memory left far behind and you have progressed... but you haven't. For a long time, I resented myself for my summer camp failure and held it against myself as a sign of a humiliating weakness.

But just yesterday I think I realized what was happening. Taking the new approach that my feelings were trying to help me and protect me... I realized that my mind and feelings have probably made associations between competing at a high level and pain. I think deep down inside I reasoned that if I were to do well at that workout, that success would "force" me to play at a high level, where I would face the possibility of getting humiliated again. So I guess that brings about one obvious question, "Why did I assume that things would go poorly in the first place?" I think a low opinion of myself is the answer. Why? Hmm, that's one I haven't figured out yet.

But something I find interesting about my perception of low self-esteem is that I have viewed a low self-image as something that was good. Because it seemed to be a dragon inside that fuels me and pushes me to be better than I think I am. And to kill that dragon, would be to kill one important beneficial byproduct ... the dragon's fire.

 

The fire that pushed me to "overachieve." However, as you can see in the above illustration, it tends to fail me at the most critical times. Low self-esteem sabotages you, right when you have a chance to really breakout and achieve something. I guess I now visualize it as a parasite that needs you to survive. But as soon as you are healthy enough to break free it takes a hold of you, so "we" remain in a symbiosis. Not too low and not too high. Stuck in the middle, allowing it to live and allowing me to I guess "get what I really want out of life" However, its not what I want!.

Wow, that was way longer than I expected.

Ed and to the other posters involved, thanks for providing a forum in which the hot seat can exist...and I never thought I would say that. I guess doing it from the comfort of my own desk makes it easier. I hope this post may help someone, like the other poster's post helped me.. Thanks again Ed...

You might examine your feelings as  the elements in your metaphor ... such as how you feel as St. George, the lance, the dragon, the horse, the King and the daughter.

 

Otherwise you risk having the drama drag-on.

 

 

 

St. George Slays the Dragon

He saves the King's Daughter. The story is archetypal, similar to that of Perseus rescuing Andromeda from the sea monster.

 

Clip:

http://artyzm.com/k/kossak/e_swiety.htm

Thu, 24 Apr 2003

 

Everything is a Trade


Dear Mr. Seykota,

Thank you for sharing and giving!

I have 10 years of trading experience. My trading history is un-dramatic. It went through the stages of:

 

1. winning by "ignorantly" buying in a bull market.

2. losing by trying to out-smart the market, "I can pick the tops and
bottoms!"....Ha ha, those were the days!

3. losing more by trying derivatives.

4. losing some more again by trading shorter time frames.

5. breaking even by stopping.

6. trading very infrequently.



I don't even see myself as a trader any longer. I am spending less and less time on market analysis. I get on a trend if it presents itself to me, I do not look very hard for it. I have almost weaned myself of the need to use indicators. In short, I am re-discovering my own stage 1 approach. I adopt this strategy by necessity. I choose to spend what time I have with my lovely family. My profession also requires a lot of on-going learning.

My profession provides me better financial rewards than trading. I am letting this winner run. I love the idea of trading and all that goes with it. But ultimately I am exchanging my time for something and I must trade it well. It does not matter to me any longer whether the vehicle of the trade is stock, futures or another profession. I go with the flow. I am at peace.

Thanks again for the Trading Tribe FAQ, I greatly enjoy your thoughts.

Kind regards

The Trading Tribe principles seem to work in lots of situations. Going with the flow and being at peace are nice places from which to operate.

 

 

 

Going with the Flow

Arenal Volcano Waterfall - Costa Rica

 

A Taoist story tells of an old man who accidentally fell into the river rapids leading to a high and dangerous waterfall. Onlookers feared for his life. Miraculously, he came out alive and unharmed downstream at the bottom of the falls. People asked him how he managed to survive. "I accommodated myself to the water, not the water to me. Without thinking, I allowed myself to be shaped by it. Plunging into the swirl, I came out with the swirl. This is how I survived."

 

 

Clip:www.monteverdeinfo.com/arenal/

arenal-waterfall-photo.htm

Wed, 23 Apr 2003

Trading Metaphors

I see the key lies in integrating our self with the market's, nature's or whatsoever rhythm (going with the flow) rather than trying to find the answer.

In the Trading Tribe pages you often refer to the trading metaphors. These metaphors reflect the trader's underlying feelings which are probably being acted out in the marketplace.

 

More often than not these metaphors are unconsciously chosen. Now, what if the trader decides to consciously alter his trading metaphor, such as from a battlefield to a musical concert?

Thanks.

A trading metaphor is a way to think about trading. One trader might see a battlefield  between himself and the markets; another might see a harmonious musical cooperation. Some might see both.

 

 

 

Battle Metaphor: Cutting Losses

Napoleon retreats from Russia in 1812.

 

 

Piotr Ilyitch Tchaikovsky (1840-1893)

Combines Military and Musical Metaphors

 

Tchaikovsky makes his 1812 Overture in E Flat Major Op. 49 (1880) a metaphor for military conflict. He represents the French by the Marselleise, and the Russians by Orthodox Chant and a folksong, and in the final victory, “God Save the Tsar”. The piece features loud cannon bangs and crashes.

 

Clip: w3.rz-berlin.mpg.de/cmp/

tchaikovsky.html


Clip & Info: www.geocities.com/viennaonline/

bgsound/bgsound1199.html  

Wed, 23 Apr 2003

How Much Capital?

I have been trading a trend following system for a year and doing well. Is there a formula to figure out how much capital is required to trade to make x amount as a living to determine if its possible to trade full time for a living?

Also, what software is necessary to trade for a living (if any) and do you use ATR as a means to determine stops and pyramid add ons?

If you regularly withdraw living expenses from your trading account, you risk attaching emotional importance to your trading.

In general, don't make steaks out of your breeding herd.

Cut Losses, Not Your Herd

Clip: http://www.mcphee.com

Wed, 23 Apr 2003


3-D and Feelings

see: Clarification on Testing


I've found arranging graphical 3-D pattern of system profitability and robustness, and studying feelings, fascinating.

Tue, 22 Apr 2003, Clarification on Testing, "Be sure to generate a daily performance graph of your final solution, so you can check it with your stomach."

As Contiguous regions evolve ... with data arranged in 3-D pattern for each period ... checking the range of the mountain with my stomach has had interesting implications on my psychology.

It's interesting you mention "making a movie out of maps of consecutive period
and watch the evolution of the mountain range." The software I recently purchased, which has 3-D animation capability, allows me to watch, like a movie, my feelings over time. A great self exploration tool. Thank you, for your guidance.

Unresolved feelings can entrain expensive dramas in the markets. Self exploration can elevate awareness of feelings and help heal them.

Elevating the Heeling Process

to Get a Leg Up on the Markets

Clip: http://www.lisasshoes.com

Wed, 23 Apr 2003


Learning from Past Mistakes

Dear Ed,

Today I had a chance to correct a mistake I have made in the past. The mistake cost me many potential profits in the last few years.


When I was stopped out of a stock I had bought, I would usually avoid buying the security a second time even if it began to move up again. I was stopped out of [xxx] in January selling my position at a loss. Today I bought [xxx] for the second time because it began to move up on high volume. I may get stopped out again but the trend now only matters.


I am noticing much more opportunity by staying in the present. A floodgate seems to have opened. Your answers on my previous e-mail from Thursday April 10th helped me to remember to stay in the present.


It doesn't matter what the trading vehicle did in the past ... only day to day as you own it. I am asking myself more. "What is it (The trading Vehicle) doing now and every day you own the trade?"


Am I starting to get it a little better?

Trend Trading is conceptually simple and operationally difficult only in proportion to unresolved emotional issues.

It's a yellow brick road to both self actualization and profit.

 

Follow the Yellow Brick System

 

Dorothy and her friends are on the path

to finding out that what they wish for,

they already have.

Clip: www.art.com

Wed, 23 Apr 2003


Age to be in the Zone

Hi Ed

My 10 month old nephew is already walking and close to running ... the other day this little kid was kicking a soccer ball straight ahead with 6 kicks in a row...not even a year old yet and trying to dribble a ball!

Watching him though made me think of being in the 'zone' (plus the discussions at your site re: Tiger Woods, etc.) Do you think there is an age people start to intuitively understand that joy of being in the 'zone'?

Being in the Zone is not so much any particular feeling, as it is the willingness to feel all your feelings fully, whatever they are, and pass on to the next one.

Babies are so adept at riding their feelings that they can stop crying in the middle of a scream and burst into laughter.

As we grow older and learn the ways of our society, sometimes we forget how to play in the Zone.

 

Playing in the Zone

 

Too focused on the game to get stuck on any particular feeling.

Clip: http://www.tssphoto.com

Wed, 23 Apr 2003


Ed's Angels

Hello Ed,

Do you remember that hit TV show from the early 80's Charlie's Angels, where the three lovely ladies would gather in an office and the mysterious Charlie would call on the speaker phone.

Unfortunately the Manhattan group doesn't have any ladies yet, but we would like to hear from our mysterious Ed on the speaker phone! We were wondering if you could kindly give us a call to kick off our first meeting on May-8th at 7PM EST.

Thanks

OK ... when you get Farah Fawcett, Jaclyn Smith, Kate Jackson, Cheryl Ladd, Tanya Roberts and Shelley Hack all sharing feelings about their trading, I'll show up in person.

Otherwise, send me a phone number and I'll call in on the speaker phone.

Charlie's Portfolio Management System

Portfolio Management Principles include diversification, balance, and a strategy to replace exiting items with new winners.

Clips: www.charliesangels.com

Wed, 23 Apr 2003

 

Focusing

see Warm Buzzing Feeling


Regarding trying to focus on your own, when you are not in a group setting, the technique of focusing might be of help to some. The process seems very similar to what the Trading Tribe uses, only on an individual basis.

There are many ways to get from here to, well,  here.

 

Eugene T. Gendlin, Ph.D.

Gendlin's  book, Focusing, has sold over 400,000 copies and is in ten languages. His other books include, Let Your Body Interpret Your Dreams, Focusing-Oriented Psychotherapy, Experiencing and the Creation of Meaning.

Clip: www.focusing.org

Wed, 23 Apr 2003

Day Trading

What part of you is a day trader?

Long Term Traders sometimes enter a market, only to see it immediately reverse and stop them out the same day.

Scalpers, who monitor the exchange floors and who provide liquidity against large orders, such as a bunch of Trend Follower stops, may be able to extract a profit for this service.

Scalpers, however, bear the risk of going against the trend. You have to be very careful when you take a sip out of a fire hose.

I have not seen any simulation studies showing profitable regions of operation for High Frequency Trend Trading since the transaction costs and slippage become prohibitive.

Some High Frequency Traders may use the excitement to mask deeper unresolved issues - or to dramatize their feelings to the point of awareness.

The National Council on Problem Gambling, Inc. has a 10-question survey to identify compulsives.

www.ncpgambling.org/10questions.htm

 

Sadness

High Frequency Traders might have a need

for an acceptable excuse to feel their sadness

 

Clip: www.dipaola.org/stanford/

facial/class6notes.html

Tue, 22 Apr 2003

Should

Thanks Ed for your witty answers! I can't imagine how you handle so many questions a day, by yourself. Anyway, it is quite hard to find a philosopher nowadays to talk with. Therefore excuse me if I indulge myself into asking you so many questions ...

Just two more questions and I won't bother you for a while:

1. You said in your interview in Market Wizards that "psychology motivates the quality of analysis. Psychology is the driver while technical analysis is the road map."

Is the driver a kind of autopilot motivated by the underlying feelings? In other words, the underlying feelings should always be in command?

And one more question:

2. Should trading be defined as a game? And as such might we say that it belongs to the same family poker and casinos do?

Best Regards,

Un-resolved subconscious feelings  tend to replay until they gain recognition by the cortex. When the cortex fails to recognize, the subconscious may entrain a drama to gain awareness.

Members of the Trading Tribe refrain from telling each other what they should or should not do.

Susan Sarandon

Famous for Drama

Clip: www.chrisbaker.co.uk

Tue, 22 Apr 2003

 

Clarification on Testing

see Contiguous Regions


Ed Seykota,


I was surprised to find a personal thanks E-mail from you. You're welcome. A little clarification can go a long way.

 

Basically I am doing what you suggest in your send from some time ago titled MATH.


My system has two parameters X & Y. These are the lengths of two breakouts (highest high and lowest low of the last number of days).

 

I am trying to optimize for MAR Ratio. That is Compound Annual Return divided by Maximum Drawdown. Lets call that F.

 

I will test my data with lots of values of X & Y to find F for each combination, and arrange all the results in a table. Then I will ask three questions.

 

Are there good values of X & Y that produce good values of F?

How sensitive is the system to X & Y?

Are there contiguous regions on the X & Y plane that provide good values for F.

 

A system that passes all three tests would seem profitable and robust. Once I find some good values for X & Y, I will freeze them and then test other parameters. In this manner I will stepwise optimize a multivariable system.


Now, I segmented an entire history of a market and noticed that contiguous regions of X & Y change over a long history. Now, of course I would not see this if I tested the entire history of the market for each value of X & Y.

 

I did not do this simply because it would only feed the false premise that there are magic numbers. Contiguous regions evolve along with the market participants. It does not matter whether we are discussing moving averages or breakouts. What matters is what works now. If you take issue with this I'd like to know.


My questions are. How many years data would you test? Is that data up to the present?

I think you have your testing set up about right. You might arrange your data for each period in a 3-D contour map so F(x,y) shows as a mountain range. You might make a movie out of maps of consecutive periods, and watch the evolution of the mountain range.

 

Be sure to generate a daily performance graph of your final solution, so you can check it with your stomach.

 

 

F(x,y) as a Mountain Range

 

 

 

 

http://www.gameprogrammer.com/

fractal.html

 

 

 

 

Tue, 22 Apr 2003

 

Thank you

 

Mr. Seykota,

Thank you so much for providing us with the Tribal FAQ. Its value (in my opinion) is priceless. Soooooo nice to see the value you add to a traders journey.

Thank you Thank you Thank you!

You are welcome !

 

 

Happiness is not so much in having as in sharing. We make a living by what we get. We make a life out of what we give.

 

- Norman MacEwan

 

Mon, 21 Apr 2003

 

San Jose Group

 

I wish to start a San Jose Trading Tribe.

 

San Jose !

Welcome! 

You are in the Directory.

San Jose, CA

http://mappoint.msn.com

Mon, 21 Apr 2003

 

Warm Buzzing Feeling

Hi Ed,

I wonder about commitment a lot and I think I might fear commitment with girlfriends, jobs, following my trading system - it seems to be coupled with the my fear of being wrong.

 

Whenever I lie to cover my failures or hide my embarrassment, it gets worse. The feeling of IT is the dryness in the top/back portion of my throat, and a warm, buzzing feeling overcomes my head and shoulders.

 

Then, my head slowly drifts lower to hide from the truth. (I just realized this now, and my heart is racing - I was so excited, I had to go outside of the house with my 64 degree wedge and take several full swings to calm down before I could continue with this email!)

I now remember my 4th grade teacher Ms. [xxx], and how we were taking turns in class reading a chapter from a book. I was getting irritated at everyone making reading mistakes, so I started vocalizing every single correction out loud. Our teacher was annoyed by my behavior, and she said something to the effect of, "If you want to correct everyone, let's see how good YOU are!"

She started to make me read the entire chapter, and she kept yelling out the corrections to me in front of the whole class, and she kept making me read the entire chapter.

 

I remember sitting in the front-right of the class, and my head was getting closer and closer to the page while I mumbled more and more reading mistakes. All I could hear out of the back-left side of me was someone shouting and pointing out every mistake I was making.

 

"THERE, now how do YOU like it when someone corrects YOU??!!" (I think it's interesting how I remember clearly where I was sitting, how I had both of my elbows on either side of the open book so that my palms can support my hunched head, how she was talking, from where she was talking, and how she was wearing red and black I believe - and that was 25 years ago.)

At roughly the same time in my life, my father beat me for everything I did wrong (to this day, he is still somewhat of a perfectionist and cannot admit he is wrong.)

 

I was so afraid of getting another punch in the face or receiving the metal part of the belt - so I started lying, making excuses, anything to get out of trouble (or more importantly, anything to not address the problem.) Progressively, the lies got bigger to cover up previous lies, until I get caught. The cycle would start again, repeat itself, and keeps repeating over and over again, and it would never stop. I don't want to admit I did something wrong, because of a fear inside of me of accepting responsibility.

Which brings us to the present: I had a fear of making the commitment to [xxx enterprise] because of a fear of failure. When I saw [others succeeding I wanted to win too] and then my mind started wandering. "But what if I failed? What if  everyone thinks I'm stupid? What if one of the world's greatest traders thinks that I am not capable? What if, what if" ... and then I started getting that warm, buzzing feeling in the upper part of my body!

THAT'S THE AHA! MOMENT!

 

When I am responsible and learn from all of my mistakes, only then do I start to commit to making myself and everyone around me live a more enriching life in all aspects. I become unselfish, nurturing, dedicated, and focused on doing the "right thing".

 

I started to envision a process [in which I and others could]  make mistakes, I would be encouraging others as they would encourage me, we would empathize with each other to bring our feelings to surface, and that I would be on my way because I made a commitment not to be afraid to make mistakes. I visualized a bunch of very happy people!

I didn't think I was going to intentionally put myself on the "hot seat" just now, but maybe something inside wanted me to be there.


Thanks for listening to one of the best days in my life!

You share very nice example of  locating feelings, making them conscious, releasing trauma and experiencing an Aha. 

 

I find it takes considerable focus and discipline to do this on your own. The Trading Tribe sets up so that we can help each other.

 

 

 

Aha !

 

 

 

Clip: www.dipaola.org/stanford/

facial/class6notes.html

 

Ref: www.mrc-cbu.cam.ac.uk/personal/

andy.calder/perception.shtml

Mon, 21 Apr 2003

The Big Correction

Ed:

Have you ever felt like your life or achievements were kind of overbought and due for a correction? And if this happens sometimes, how do you manage that risk?

The big correction comes soon enough for all of us; you can choose to live fully or to hide. There is risk either way. Manage it by feeling it.

 

 

 

 

Avoiding the Risk of Starting the Engine

 

Clip: www.netrover.com/~lgitter/

photowebsite/auto_graveyard.html

Mon, 21 Apr 2003

Contiguous Regions

Ed Seykota,


I am testing for contiguous regions and optimizing Entry and Exit Breakouts that provide for good values of MAR Ratio (CAR / Maxdrawdown). I have found that these regions change over time.


1. How many years data do you research when adjusting these parameters?


2. Is that data up to the present, or do you leave some time period for forward testing?


3. How often are you changing these parameters?

Whatever you can offer is much appreciated. Thank You.

You might consider asking a few friends if they can understand what you are talking about.  You might also consider your own personal payoff in keeping things obscure.

 

Tower of Babel

 

The foreman started talking about optimizing exit breakouts for contiguous region testing so the crew thought it was OK to exit the job site and go to their home region.

 

Clip: www.unmuseum.org/babel.htm

Mon, 21 Apr 2003

 

PTSD and Abandoning Success


Hello Ed,

I suspect most of the traders who make the transition to trading for themselves, have had other careers. What I find interesting is that success in other fields is not transferable to trading.

In my case I carefully planned my IT career, went to the right schools, put in the longs hours needed to get ahead, always kept abreast of the ever changing technology to maneuver my career. When the tech boom started, I left a secure job to take up the financially lucrative but somewhat risky consulting work and my career thrived. I believe when I left I was probably earning in the top 5 percentile in my line of work.

I did have somewhat of a screwed up childhood and teenage years and was diagnosed with post traumatic stress disorder much later in life. I started trading in college so my part time trading and IT career overlapped. What I find interesting is that none of my early life's negative effects showed up in my IT career. However when it came to trading I was a total disaster, and even now after almost 20 years of trading, I am moderately successful, just scratching a living.

I would like to hear your thoughts, in my case why didn't I sabotage my IT career the way I clearly sabotage my trading. While I was focused, disciplined, a carefully planner of my IT career, I am the opposite when it come to trading.

What is it about trading that brings up all the past unresolved emotional issues.

Thanks very much.

Your IT career strategy seems to include abandoning your career when you are in the top 5% - and betting heavily on risky consulting work.

 

Trend Trading principles include sticking with winners and keeping risk size manageable. Following Trend Trading principles may bring up a lot of feelings.

 

PTSD (Post Traumatic Stress Disorder) symptoms include:

 

Re-experiencing of the traumatic event including Recurring nightmares, daydreams and flashbacks.

Avoidance or numbing of thoughts, feelings, activities, or situations associated with the trauma.

 

One of the treatments for PTSD, is Exposure Therapy. This involves  repeatedly reliving the frightening experience to work through the trauma. Thus, the cure sounds like one of the symptoms  -  suggesting that people instinctively know how to heal their own trauma.

 

The Trading Tribe works to frame stress as an opportunity for growth.

 

 

 

Hug 'em or Drug 'em

 

FAQ does not endorse people or products. If you feel you have PTSD or other medical problems, seek the advice of a competent physician, psychologist or psychiatrist.

 

Clip & Info: http://www.ncptsd.org

Sun, 20 Apr 2003

 

Community

Dear Mr. Seykota,

Thank you for providing a site that provides traders with a chance to feel a sense of community. As someone just starting out in the profession there are times when I feel very alone. It is comforting to know that there are others that are embarking on the same journey.

I am trying to learn more about programming, but the information available to a beginner is daunting. As a die hard Apple Fan I am trying to find the best introduction to a field that seems very arcane to someone such as myself. Finding a place to start is proving very difficult.

Community provides support for family values, individual integrity and personal growth. Furthermore it feels good and it's fun.

One aspect of a maturing society, is centralization of authority and atrophy of local community.

Some people compensate by forming intentional communities. The Trading Tribe follows this model.

You might be able to accomplish your community and your programming objectives together, by signing up at a local community college for a beginning programming course.

Introduction to Programming ...

and  New Friends, too.

Sun, 20 Apr 2003


Compatibility

Dear Ed,

I have just reread your interview in Market Wizards. You stated then that "systems do not need to be changed. The trick is for a trader to develop a system with which he is compatible." How do I know if I am compatible with my trading system?

One test of compatibility is how you feel about your system, another is how you stick with it.

Super Glue

It takes more than this to get a trader to stick to his system.

Clip: www.elfy.com

Sun, 20 Apr 2003

Counting the Gains


Ed,

In the book Reminiscences of a Stock Operator, Jesse Livermore stated that every so often he would take large sums of money out of the bank and lay it in front of him. He believed this ritual helped him retain a healthy respect for the amount of money he was continually risking.

When you are trading do you view your account balance as just numbers on a page? Or do you prefer to remind yourself, like Livermore, what all those little zeroes represent?

Jesse Livermore's life is full of drama: multiple bankruptcies, shootings among family members, Canary Yellow Rolls Royce, numerous affairs with show girls while married, syphilis and suicide.

Livermore's underlying feelings about life drive spectacular drama about winning and losing. One scene is a ceremony - withdrawing cash and counting it - sometimes putting some in his wife's name, so he can't get at it later, during his next down cycle (he manages to get at it anyway).

A trim, healthy person doesn't have to go on a fad diet, have his stomach removed or his teeth glued together. A healthy trader doesn't have to count out stacks of cash.

Counting Room

Counting double eagles at the Philadelphia Mint in 1894. No show girls allowed.

 

http://www.goldrushgallery.com/dahlmint/

show_mon_pic13.html