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Workshop

 

 

August 17-20, 2003

 

Questions

(Quotes from Ed in Red)

Answers

Wed, 20 Aug

 

Belated Happy Birthday !


Dear Ed,

Wishing you a wonderful year and many many more to come. You are doing a great job with TTP; thank you for all the insightful wisdom.

Sincere regards & best wishes to you and your family.

Thank You.

Wed, 20 Aug 2003

 

Intraday Trading

I'm considering intraday trading as a  profession. I'm wondering if this is a wise move.

Yes, considering things is generally wise.

 

Profits tend to roll off at higher trading frequencies.

 

Lots of Systems Roll Off

at High Frequencies

 

Such as Angle Sensors (above)

and Trading Systems

 

http://www.tilt-measurement.com/

appnotes/htmlfiles/an3.html

Wed, 20 Aug 2003

 

following trends (degree of magnitude)

Dear Mr. Seykota:


A few years back I paid a man US $50K to teach me to trade. His “offer” came in with a course and some two software programs.

Without going into much detail, none of the “courses” included ONE SINGLE LINE on MONEY MANAGEMENT.

I went to him because he was associated with a previous editor of the “best” magazine in the industry and because he was included in the “wizards” book. The impression I got from him was that he “knew” how markets “work” and as such I could “benefit”.

 

His methods, however, failed to “follow” the market to my advantage and, without money management (at the time I hadn’t even heard the expression) I lost big time: the frequency of losers was higher than the frequency of winners and the amplitude of the first … I asked for my money back and received.

Latter I begun to understand that one doesn’t need to “understand” “how” markets “work” but instead one should design a plan which follows the market and a plan to follow that following. So I read some 40 books on NLP, psychology (I reached college level biopsychology – neurology) and attended a seminar on money management.

I would like to ask you this: (1) I know for a fact that what goes on during the day in any market doesn’t have any bearing on the trend (unless price action is sufficiently strong to produce a signal).

 

You follow trends. I don’t know the degree of magnitude of the trends that you follow. Perhaps you follow the monthly trend, or the weekly trend and act accordingly. Perhaps you trade soybeans twice a year, perhaps not.

(2) If someone told you that he or she found a couple of markets which have as many as 8 trends a year and the market is liquid enough to allow you to trade would you consider this to be trend following?

 

This would mean that the trader in question is actually trading (3) what people call “intermediate” and “short-term” trends lasting anywhere from 1 to 3 months.

Perhaps I simply don’t understand what “trend following is”. Perhaps I do and perhaps the way I trade is actually “trend following”. I’m not that concerned with names. (4) I just would like to know from you if you would consider trading this degree of magnitude.


Finally: (5) do you not think that 99% of all books published on trading are XXXX?!!!!

Regards,

you have to be careful in the rules and way you establish [them]. If it is too strict you will fail, if it is too loose, the rules will not work. Our way should be strict enough to have authority, and authority everyone should obey. The rules should be possible to observe ... We cannot force anything. But once the rules have been decided, we should obey them completely until they are changed. It is not a matter of good or bad, convenient or inconvenient. You just do it without question. That way your mind is free. -- Shunryu Suzuki (founder, San Francisco Zen Center)

(1) Ask your Zen Master about the value of knowing facts.

 

(2) People telling me their opinions of the markets does not constitute trend following.

 

(3) You seem to place a lot of value on the opinions of others.

 

(4) I trade markets, not degrees of magnitude.

 

(5) 100% of the books on trading are books on trading. What you get out of them is up to you.

 

 

 

Books Work Better

 

when you read them.

Tue, 19 Aug 2003


Ed,


I have a fairly large SUV and if you need me to do anything (i.e. pick up food from the store, people from the airport, or whatever) in preparation for the workshop, it would be my privilege. You have a resource available if you need it. Thanks again for all your support, you're a mensch.

Thank You.

Tue, 19 Aug 2003

 

Tiger Woods

Dear Ed,

Last week I was watching a golf game on TV and I saw Tiger Woods taking an iron shot. As he addressed the ball, his facial expression was one of intense concentration.

 

He then swung and hit the ball high towards the green. The camera zoomed in on his face and I couldn't help but notice his facial expressions from the time he connected with the ball to when it landed on the green fairly close to the pin. In that short space of time his emotions seemed to change very rapidly and ranged from anticipation, despair, puzzlement, anxiety, hope and finally satisfaction. Of course, these are just my personal opinions and Tiger might explain things differently, but it struck me there and then that he allowed his emotions to flow quickly from one to another in line with what with what I think TTP aims at.

Perhaps this partly explains his extraordinary success. Previously I had the idea that mastery in sports may be due to rigid emotional control, but after this aha I have revised my thinking.

Thank you once again for your insights.

With kindest regards,

 

 

Tiger Woods



Clip: http://www.opengroup.com/

sports/Tiger_Woods.shtml

Yes.

August 19, 2003

 

My Dear Friend Ed,

 

In anticipation of the TT Event late in October, I wanted to summarize the benefits of my work with you and the Incline Village Trading Tribe for the benefit of others who may be considering attending. You may cut and paste any of this as you see fit. You may use my name if you wish. This is how I feel.

 

[I am a professional trader—it is how I earn my living. I earn Management fees as well as Incentive Fees. My system is profitable and the results suggest positive mathematical expectation.]

 

The word Commitment for me is a capital “C” word. I am Committed to being a great trader. I have been since we first met. I travel from Los Angeles every two weeks to Incline and to this date I have not missed one meeting.

 

The TTP works for me because I have been Committed to the process from the beginning without judgment. I do not need reasons (fundamentals) “why” or “how” the TTP works.

 

I trusted that in experiencing my feelings in a safe and supportive environment, I would begin to better understand why I feel the way I do, what impact my feelings have on me as a person, and how these feelings and emotions manifest themselves in my trading. My feelings ultimately have an impact on my trading whether I am conscious of them or not. Prior to joining the IV-TT, I figured that as long as they are affecting my trading, I might as well know about them. If not, they most likely would be a liability.

 

I believe that being in touch with my feelings, the positive ones and the uncomfortable ones, makes me a superior trader. Because of our work, I am free to feel my feelings, good and bad. I have power and I am powerful. I embrace all of my feelings, especially the uncomfortable ones as a sentient human being.

 

Through our work in Incline Village, I now have made “friends” with these feelings. I am no longer intimidated by them. Nor am I mute in expressing them due to my own fear, inhibition, or how I believe I will be perceived by others. I am not “out of control” having my emotions so adversely affect my judgment. Thus, these negative feelings are not so negative anymore. They are, in fact, my newest allies.

 

As provocative as this may seem, it is why I feel so powerful. I feel I am unstoppable.

 

When I begin to doubt this, and I do have doubts from time to time, I call you, qand other Tribe Members. I am typically reminded that my feelings are what make me so uniquely me and that my feelings are not “facts.” Thus, the process repeats itself. Kind of nice, huh? Sort of like a trading system. Hmmm?!

 

You see, I believe that the point of my journey was not necessarily to arrive. Up to this point, it has been to feel the feelings during the journey. Now, as a result, when Fred and CM do their dance, I am comfortable feeling and being present—and being in the now.

 

What I love most about the IV-TT is the special bond among us. The support network is formidable. As you know, I speak to and email you and most other members of our tribe frequently. I know that when I’m feeling a strong feeling I have a very special and unique resource in The Tribe and its members. This is evidences by the amount of contact I receive from them as well.

 

As you know Ed, I have been fortunate to meet many world class traders. Many have intimated technical aspects of our business and trading to me. I am truly grateful for that. However, none has had the impact on me as a trader, and more importantly, as a man and as a father, like you have.

 

I know you to be a great student of the world markets and of the human condition. I feel that you care for all of us within the IV-TT with a special type of paternalism, perhaps because we are traders.

 

This is evidenced by the fact that meetings are held at your home, the refrigerator is always open, that meetings do not have a firm ending time, and your frequent telephone calls reminding me of how I nailed the Cocoa trade, as well as how many times I’ve been stopped in Beans. (Gotta’ love those beans!)

 

A humble note to anyone reading:

 

If you are wondering if you will get your money’s worth: I cannot tell you how to feel about this — but I would encourage you to feel whatever you are feeling even more, in fact “make it bigger.” If you have strong feelings and issues around trust, chances are your CM and Fred are doing the Cha-Cha right about now. Why not? Isn’t this the perfect set up? A weekend with a world-renown trader who you’ve always wanted to meet!

 

If you are feeling somewhat congruent to this, the good news is that you have material to work on when you get to Incline.

 

Seriously though, knowing what I know and what I have experienced through the IV-TT, I would err to the side of attending as long as it is affordable. The most revealing insights and “aha’s” I have gotten from consistently attending the IV-TT have been unexpected.

 

Ed, thank you for being your inimitable self. Thank you for having the guts to openly feel exactly how you feel and for pioneering this priceless work. Thank you for your genius and your generosity. And most importantly, thanks for being my friend.

 

Warm regards,

Thank You.

Tue, 19 Aug 2003

 

Our Greatest Enemy?

Hi Ed and fellow tribe members ~

I came across the Native American prayer below and wanted to pass it along. It made me wonder: Are we really our own greatest enemy? And if so, is it a battle between good (Fred) and bad (CM)? Or is it even right to use the terms 'good' and 'bad'? Aren't Fred and CM just trying to do their jobs? I look forward to anyone's thoughts on this.

"O Great Spirit whose voice I hear in the winds, I come to you as one of your many children. I need your strength and your wisdom. Make me strong not to be superior to my brother, but to be able to fight my greatest enemy: myself." -- by Chief Dan George (1899 - 1981).

Fred and CM are allies ... and they like to communicate ... otherwise Fred generates drama in order to get messages across to CM.

 

You can take your feelings about fighting yourself (ourselves) into the TTP process.

 

 

Pogo Ponders Fighting Ourselves

 

Clip: http://members.tripod.com/

~Timoun/Essays.html

Tue, 19 Aug 2003


Profit Targets

 

Whilst eating my dinner, I suddenly thought of the next logical step, for my system.

 

My system sets a profit target that when reached, means that no more trades are added and volatility is used to move stops up.

 

The next logical step is to trade the same instrument in parallel once the first trade is at breakeven. E.g. Say you have 20 instruments to trade. Split your money into 5% for each instrument. On the first signal, for the first instrument, you put on 1%. When this system is at breakeven, you put your next 1% onto the shadow system. Repeat until you have 5 systems shadowing each other. This would allow you to profit from a good trend, whilst keeping control of the risk.

Looking at my system, it would work for instruments that either explode, and are symmetrical or that trend for long term. I believe that it is best applied to stock indices, because they trend well and a lot of the "dangerous" volatility that individual stocks suffer from, is filtered out, currencies and macro instruments, where trends are long, and commodities that have 1000 day breakouts.

Any comments?

You might consider keeping your position size small, at least until you finish your testing ... and resolve some issues:

 

Adding to a position when it is at breakeven is ambiguous. For example, a position might dither around ... it might win. lose and break even many times.

 

You do not define explode or symmetrical. 

 

Long term trend trading is generally incompatible with profit targeting.

 

 

Space Trader Studies Symmetry

 

Clip: http://www.goma.demon.co.uk/

space/symmetry.html

Tue, 19 Aug 2003


Analyze That

Dear Ed,

Reading about the TTP, I remembered the movie Analyze That with De Niro and Billy Crystal. If you haven't seen the movie, Crystal is the psychiatrist who has just lost his father and is called to help De Niro (the Mafia boss).

Crystal's character deals with that loss by repeating the phrase "I'm grieving; its a process" . That would be a form of accepting the feelings, if it wasn't for the despair he goes through in the end of the movie when he cries together with De Niro (which is very funny) because of both of their losses (De Niro suffers from denying his feelings from his father's death).

There are some psychological aspects to analyze here:

1) Although Crystal's character kept saying "I'm grieving; it's a process", he was not TRULY accepting his feelings, which is a common attitude among traders. They think they are accepting only because they are saying that they are accepting. Crystall will only accept his father's loss, when he gets inside him and really meets the pain that was disturbing him - which also happens to De Niro's character, who was running away from that feeling for 30 years.

2) Crystal was unable to solve his problem alone. Crystal only accepts his pain when he works his Fred together with De Niro (TTP) and they solve their individual issues.

There are people that prefer leading with losses alone. Most of the times, they fail to do that and they will achieve to deal with Fred when only they connect to other Freds in a very deep emotional analytical state of mind that will drive them to explore their drama, but this can take 30 years!

 

How can we call these people attention to this problem? I mean, if you tell them, the first reaction will always be repulse.

 

So, is it better to Let them suffer (even though we like them) because this is the only way they will learn or try to talk them out of that denial?

 

This is a very sensitive issue and I really like to hear your thoughts about this situation.

Thank you very much.

People who try to force ideas on others are generally in drama.

 

 

Sometimes a Hug Heals Better

 

than analysis.

 

 

Clip: http://www.nsa-norva.navy.mil/

mwr/images/analyze%20that1.jpg

 

Tue, 19 Aug 2003

 

Poem

 

I am nothing; yet I am everything.
I see nothing; yet I see everything.
I win with what is inside me;
I lose with what is inside me.
I am the market; I always win.

Regards

I am a bucket, collecting this and that experience, becoming heavy.

 

I am a tube, passing experiences  through me, like a jet engine passes air and fuel.

 

 

Jet Engine

 

... open at both ends

 

Clip: http://ci.fort-worth.tx.us/

DEM/images/josh.gif

Tue, 19 Aug 2003


Cutting Losses and Feeling foolish


Dear Ed,

I repeated the same mistake again. I over bought xyz (a stock) last week. The stock started a weak move up and I bought and bought and bought (10,000 shares). The stock immediately moved back and the volume dried up Friday 8/15/03.

 

I was down around $3,500 within hours and then the market closed. I thought "The stock would kill me if I sold all 10,000 shares on Monday!".

 

I thought about my past mistakes and would usually hold the shares and hope my stock came back. This usually caused me to lose more money.

 

The weekend then came. I then went to the casino Sunday night with my friend. I usually never bet more than $20 or $40 there. Sometimes I just walk around and enjoy a nice dinner. This time was different I must have wanted to experience riding a loss.

 

I bet $60 on slots and went wild betting $280 on Blackjack! I lost a total of $340 within 2 hours! It was strange but I actually felt good after because I learned something.

 

It was very strange to feel good after losing. I did not feel good I lost money however. I felt good because it would help me with this trade the next day.

 

I was not going to hold this stock even with a big loss Monday! Man I just could not win anything at the casino! The worst Blackjack table I ever played! At least I had a nice dinner of clam chowder and twin lobsters and a good time with my friend. He won about $400! I have never been so wild! I could have used that money for something good.


Today Monday I sold all 10,000 shares at about a $7400 loss. I was not happy "I could have bought some private coaching with Ed for this money!"

 

I then found 3 stocks trending up strong and bought them 1000 shares of xxx, 5000 shares of yyy and 3000 shares of zzz. Even though I bought them extended I am back up $8000 in one day so far. I feel back on track now.


I started to drift to an old habit but I do not want that drama of losing a lot of money. I took action to correct the problem immediately and it is working so far!


I think I sometimes try to force a stock to work for me (make me money) by buying. I have to differentiate buying many shares on power from trying to force a trade. I just have to let loose sometimes and realize that the market is not a car that I am steering or in control of. The market is more like a large boat or train. I can ride along with it, walk off the edge and fall, or try to stop it and get crushed.

 

I don't have enough money to be a captain and steer yet! A few days before this whole stupid buy of xyz I do remember feeling a little guilty for spending the money on the workshop.

 

Things came in my head like "Am I too old to go?, Does Ed think I am an ignorant trader or a pushy person for asking too many questions?, Should I have used the money for something else?".


I don't feel this way anymore. I cannot wait for the workshop! I am going to fly in a day or 2 early and enjoy and explore the area and get well rested for the workshop after the long flight.


I am not afraid to feel foolish when I make a mistake anymore. This is a big time for me right now! Thanks for listening.

Sometimes people gamble and lose to cover up some other feelings they wish to avoid experiencing ... guilt, for example.

 

When you are willing to feel all your feelings, Fred does not have to engineer dramas that put your assets at risk.

 

You might check your feelings of self-worth ... see if you are willing to award yourself nice things, like good trades in the markets..

 

 

I'm Me and I'm Worth it

 

and I'm on some good moves.

 

Clip: http://ci.fort-worth.tx.us/

DEM/images/josh.gif

 

 

 

Tue, 19 Aug 2003


Frustration

Ed Seykota wrote in Market Wizards: "If I am bullish, I neither buy on reaction, nor wait for strength; I am already in. I turn bullish at the instant my buy stop is hit, and stay bullish until my sell stop is hit. Being bullish and not being long is illogical."

Sometimes I see good opportunities, but I miss them as I can't take the risk for my account. And so I feel frustrated.

You might take your feelings of frustration into the Process.

 

You might notice you can control  risk by stop placement and position sizing.

 

 

Experiencing Frustration

to the Aha Point

 

is different from acting out drama

 

Clip: http://www.twiyo.net/

lobster/frustration.gif

Tue, 19 Aug 2003

 

Fear of commitment

Ed Said: I wonder if wishful thinking feels the same as thoughtful wishing. Watch What You Wish For. You might get it.

OK. I examine and experience my feelings about trending and review many aspects of my life and trading. I have many insights and change many things, but one change is missing: celebration and self abandonment to the feeling of trending. Perhaps, fear of commitment?

In tracking your feelings and in tracking the markets, take whatever comes up and go with it.

 

Trying to force a feeling is like trying to force a market.

 

You might find some joy in the process of allowing feelings and markets to come and go as you experience them.

 

 

Going with the Flow

 

works with the markets

and works with feelings

 

Clip: http://www.jesamine.co.uk/deadfish/

Mon, 18 Aug 2003

 

TTP Theory Doesn't Hit Home


Your tribe idea is very interesting and the whole thing with the Fred and CM is interesting as well.

 

The thing I'm trying to understand is that a bad feeling doesn't want to be recognized, so Fred makes drama to get our attention. And if we recognize them, they get dissolved.

 

But both good and bad feelings are pretty much the same. We would definitely rather have good feelings, but a feeling is a feeling. And if experienced will be dissolved as well.

 

If we experience good feelings to their core and regress, aren't they also dramas being replayed?

 

Aren't all emotions dramas being triggered by current events? What would happen if we were to dissolve all of them?

 

Wouldn't they all disappear? Wouldn't we be emotionless creatures? I've read your theory and it just doesn't seem to hit home with me. The fact that I get very excited when my home team wins is also a feeling that can probably be traced, experienced and dissolved, but why bother?

Normally, as familiar situations develop, Fred generates automatic, healthy responses.

 

For example, say you get caught in the middle of an intersection when the light changes. Fred might feel fear and motivate you to seek safety.  Or, when your team wins, Fred might feel pride and joy and motivate you to share your feelings by jumping up and down and sounding an air horn.

 

When CM is open to Fred, there is, as you point out, little judgment about the feelings, little concern about good and bad.  Most feelings last for a while and then disappear.  That is the nature of feelings.

 

Occasionally unfamiliar situations arise and Fred proceeds anyway, best efforts, and then re-plays the incident later, so CM can look it over and advise Fred.

 

When CM makes judgments about feelings (often learning to do this from parents) Fred is unable to get messages across, so a couple things happen:

 

Fred does not learn how to cope with the unfamiliar situation so you might keep repeating the same drama

 

Fred might resort to escalating the drama to get your attention

 

The purpose of the TTP (Fred-ian) model is to support the Trading Tribe Process.  I do not attempt to argue or defend the scientific validity of the model.

 

 

Fred-ian Model

 

See Trading Tribe Process, above

Mon, 18 Aug


Trend Following and Stocks

Hi Ed:

I am researching different stock market trend following systems.

 

I have yet to find any that are completely mechanical with simple and easy to understand rules, for learning purposes.

 

I wonder if you could give me an example of a system/strategy that would give me a base to work off, similar to the Donchian 5/20 MA system that you originally tested in the commodity future markets.

 

To date, the only real trend following example I found is William O'Neil's CANSLIM strategy, but, it is near impossible to backtest for the simple reason that the system uses a lot of proprietary fundamental data.

regards,

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

 

 

Mon, 18 Aug 2003

Your Work

Your aptitude for teaching and relaying to others so they might work on experiencing is unparalleled! FAQ relays your "trademark" keen replying, and powerful metaphors most conducive to the learning environment you are promoting.

 

As always, you present the material
in a simple, yet very powerful way. You are a mind Ed ... thank you!

PS One can glean and learn almost as much from those who reply defensively to your answers, as your answers alone.

 

Maybe experiencing their feelings to your replying, and experiencing their feelings to the way the market is replying ... they can throw two rocks at one bird, and quit taking both personally;)

Yes, Fred tends to use whatever situation is handy to entrain attention-getting drama. 

 

Interactions with FAQ and interactions with your friends both tend to mirror interactions with the markets.

 

Lip-Shape Mirror

 

The kiss you give

is the kiss you get.

 

Clip: http://www.lipstore.com/mirror.gif

Mon, 18 Aug 2003


Borderline (see Fractals, above)

An excellent poem and wonderful insight!

Where have you been hiding this treasure since 1986?

Respects

"Guard well within yourself that treasure, kindness. Know how to give without hesitation, how to lose without regret, how to acquire without meanness."  -- George Sand, French writer (1804 - 1876)

Thank you.

Mon, 18 Aug 2003


Stupid Questions

... only if I do not learn from them

Dear Ed,


From a previous question: “and don't waste both parties' time trying to show them how foolish they are and how wise you are.”

I am an active reader of FAQ’s and always learn plenty from reading “stupid inquiries.” In fact, it’s not a waste of time at all as it saves me from asking the same stupid questions (thank you posters!).

From my observation of each FAQ’s question multiple times, no repetition of stupid questions seem redundant. I think the lesson that you convey on each posting is simple, unique, elegant, and thought provoking.

Keep up the great work for fostering community.

Some people seem to deal with challenging, thought-provoking questions by simply deciding they are too stupid to answer.

 

 

Clip: www.cartoonz.co.uk/ goddard.html

Mon, 18 Aug 2003


My System


Hi Ed,

Finished the core of the system now. Just got to go thru with a fine tooth comb to test everything. After that, I'll run out versions for commodities and currencies etc. Your site has been very influential to opening my mind to trading and other issues and many thanks for that.

OK.

Mon, 18 Aug 2003

 

RE: FAQ 11. August - Visual Entries


Dear Mr, Seykota,

 
With "visual entries / exits" I have meant using visual analysis ( chart-patterns ... ) to confirm trend-following system signals. Do you use visual analysis?


Yours sincerely,

Use of visual inspection to confirm system signals, might both signal and  confirm that you are having some troubles following a definite system.

 

 

Looking for Secondary Signs

 

can be dangerous

 

Clip: www.ajax-usa.com/mcgough/signs/

Mon, 18 Aug 2003

Fear

How do you recognize, respond to and eliminate effectively?

You might consider treating fear as a friend and ally.

 

Friends can relate to friends through more than just recognizing, responding and eliminating.

 

 

Eliminating

 

isn't always the best way

to manage a relationship.

 

Clip: http://www.toiletology.com/

images/toilet$.jpg

Mon, 18 Aug 2003

 

Introducing Myself


Mr. Seykota,

I accidentally stumbled upon your web site tonight and was fascinated from the very beginning. I have spent most of the evening looking over your comments to other web viewers. From the beginning, it is easy to can see that you Mr. Seykota, are a no-nonsense type of guy that has had tremendous success in the game of money management. The last comment I read from today's post shocked me, but your response did not. Many people lack the capacity or the ability to learn from others. They're called stubborn and often poor!

I am a 21-year-old college senior that will be graduating in December. I have begun a career with a multi-billion dollar global organization that will ultimately lead to a full-time position upon graduation. I have my life pretty much planned out and I like what I see for the future. However, I believe in following your instincts and taking chances. My passion, my interest, and my motivation to succeed in corporate America, stems from my love of the "game" (money management).

Everyday I rush home to check the status of my portfolio and desperately search the web for the next best stock. I get caught up in the thrill of the hunt and the satisfaction I feel when I pick a winner.  I have no mentors, teachers, etc. to look to or call upon for advice which makes it that much more gratifying when I do succeed.

I won't pretend to understand even half of what I've read on your site but I will tell you, the desire and the dedication is there. I want to become a regular to the site and be able to engage in conversation with you and your viewers. For all I know, I could have read a post or a comment tonight that could have turned me into a millionaire. Problem is, I didn't catch it! That's what I would like to change.

I would be grateful if you could pass along any advice in which you may have for someone in my situation. The desire is there. The knowledge isn't! Thanks for a great web site and even more, your time.

Some people who get their kicks from winning, tend to take their profits right away and let their losses run.

 

Trend Trading requires an ability to ride winners and cut losers.

 

 

 

Get Your Kicks on Route 66

 

Route 66 is a winning ride. It is fairly straight-line, with hardly any set backs between LA and Chicago ... and you know how far it goes, in advance.

 

Clip: http://serenitybreeze.virtualave.net/

66links.html

 

Sun, 17 Aug 2003

 

Risk Management: Diversification

Dear Ed,


In response to my question about a portfolio consisting exclusively of stocks you wrote, "Yes, you might wind up with all your stocks trending your way, or the other way, at the same time."

I am still uncertain on the subject.

Hopefully, here is a clearer question: While my portfolio of stocks might wind up all simultaneously trending my way or might all simultaneously enter a period of whipsaws, based on historical testing, has a portfolio exclusively made of stocks been able to produce a non-correlation level formidable to a portfolio made up of other various markets that are weakly correlated with each other (where such simultaneous movements, or lack thereof, in the same direction at the same time are minimized)?

Or...another way of phrasing the question is: In your "Risk Management" article, are the ideas / lessons under "Diversification" better able to be realized with a portfolio broader than mere stocks or can stocks alone have the same probability, based on past historical testing, of providing a "Smoother short-term portfolio volatility" as a portfolio of multi market instruments?

You also wrote, "You might examine your feelings about losing.."

I have examined my feelings ... I don't like to lose. Thus, I'm making the effort to write in again so that I can achieve a better understanding of correlation and hopefully avoid as many money management mistakes as possible. I do believe I remember once reading that much of the battle is won before it is even fought.

Have A Great Night Ed.

Yes, you can crate a portfolio of non-correlating stocks ... and you can constrain portfolio volatility to an arbitrarily low level.

 

If your goal is to get volatility all the way to zero (since you don't like the feeling of losing) you can simply not even trade.

 

You might ask yourself exactly how much volatility and drawdown you (and your clients) can actually stand ... and then gear your system design and testing to that amount.

 

The term, correlation, as you use it, is a rather generic, loose term. To tighten it up, you might consider:

 

how to define it numerically

how to define it for a dynamic portfolio in which instruments come and go.

how much return you are willing to sacrifice for a 1% decrease in volatility.

 

You might be off looking for the Holy Grail of Correlations, instead of doing the real gut work dealing with the feelings of volatility.

 

 

 

Riding Underneath The Rails

is no Way to Duck the Volatility.

 

If you don't like volatility

don't ride roller coasters

or trade big-move markets.

 

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

~kenghor/taiwan/taiwan.html

Sun, 17 Aug 2003


Kinesiology

Ed

Congratulations on an excellent website. I've gained quite a lot of useful insights. I've always admired your perception 'everybody gets what they want' since reading Market Wizards.

[I am reading a book on kinesiological testing ... getting some incredible insights along the lines of interconnectedness of human consciousness.

Kind Regards

I recall running a verification test on kinesiology.

 

When I tell the kinesiologist that his results pass tests for randomness, he says he knows that ... and he tells me he uses the procedure as a ritual that his clients accept, while he dispenses common sense advice, like avoiding tobacco, exercising and watching weight.

 

 

 

Checking for muscle resistance,

 

while encouraging her to

take it easy on the jelly beans.

 

 

Clip: http://www.kinesiology-

school.co.uk/main.htm

Sun, 17 Aug 2003


Trading Tribe Process

Ed -

Thank you for sharing this information. I have found it very helpful.

OK.

Sun, 17 Aug 2003

 

Know Thyself

Ed,

You might want to examine your own need to slavishly trot out your own minute view of pop psychology and visit it on the masses, some of whom may actually have what they feel are pertinent questions for you. If not, why not just either ignore the offending emails, and don't waste both parties' time trying to show them how foolish they are and how wise you are? A true master is also the best student and listener, Ed. They don't spout.

You may be an amazing trader, but you lack either the good manners or a basic filter to eliminate the bullshit from your own correspondence life.

Don't bother publicly taking to task the poor guy the other day who can quite obviously hardly understand English. If I get all flustered and I ask a stupidly worded question about risk calculation mathematics, and then babble a bit more, just send me a few-word message telling me I am off base for this forum, and please, Ed don't send me back a bunch of gibberish about how my Fred/CM relationship is all screwed up. It is quite simply rude. We are all honestly working on it. We all try to ask succinct questions when we either dare or bother to ask at all, and when someone we approach who we initially think can be respected responds the way I see you respond to various people, I have to ask, "is this guy really worth talking to?" Life is short and there is less time for bullshit than that. Leave it alone.

And yes, Ed I know I am in serious denial about your whole collective-unconscious world view, but did you ever stop to think that you might just be looking at a tiny corner of a much bigger tapestry? What you are trying to approach is much bigger than your pat descriptions and prescriptions allow you to see. I think we all know that at gut level. Your approach is a bit evangelistic and dogmatic for me.

So I will take you off my link list and wish you well, and keep working on my own thing in my own way here. Learning how to learn, be and DO fluidly is indeed what it is all about.

All the best, and I mean that,

P.S.

Don't bother posting this unless you feel a need to. This was from me to you.

You might take a look at the relationship you have with your teachers ... ones from school, close relationships and, oh yes, the markets.

 

 

 

2 + 2 = 4 is pretty obvious

 

once you see it

 

Clip: http://teachers.teach-nology.com/

web_tools/web_quest/teacher.gif

 

 

 

Sometimes Teachers give Gold

for Mastery ...

 

... markets are like that, sometimes.

 

Clip: http://papercamp.com/

 

PS. In case you are wondering how come you are back checking if your email is on line ... it has to do with the way you structure your learning, including asking for help.