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

Ed Seykota's

Frequently Asked Questions

FAQ Home and Ground Rules

 

May 1-3, 2003

 

Questions

Answers

Sun, 4 May 2003

Tackle

I have resistance in using a trend follow system.

I have resistance in using a trend follow system. It is because I want to gain profits constantly (at least every month).

It seems that many traders despise a trend follow system and are tackling development of trading systems (many are day trades) in order to ask for constant profits.

If I want to gain profits constantly (at least every month), should I tackle a mental problem ? Or should I tackle development of another trading system ?

If you tackle fishing, you might not catch the limit every time. If you tackle football, you might not score on every play. You might examine your feelings of wanting to tackle trading and make a profit every month.

 

Fishing Tackle

 

 

Football Tackle

 

 

Clip 1: www.hroller.com/

Clip 2: www.art.com/asp/

sp.asp?PD=10055079

Sat, 3 May 2003

Manhattan Tribe Reports

Hello Ed,

We are planning on using certain prerequisites for our tribe. If you think it appropriate could you please publish this to let out members know to call the coordinator.

Thanks

 

 

FAQ encourages personal growth groups and Intentional Communities and provides a bulletin board and directory to assist like-minded people to connect, at their own risk.

The name, Trading Tribe, and the TT logo are both in registration to Ed Seykota, and currently refer only to the meetings Ed personally conducts in Incline Village, Nevada.

In response to vigorous demand for this work, The Trading Tribe is currently preparing a training program and materials, leading to certification of mastery and right to use the Trading Tribe name and logo.

 

Sat, 3 May 2003

Go with the trend

William J. Mallers, Sr. (former chairman of CBOT):

"Nobody should be puzzled as to whether a market is a bull market or a bear market after it gets underway. The trend is evident to those who have an open mind and reasonable clear sight, for it is never wise for a speculator to fit facts to theories."

Ed Seykota:

1. Trade with the trend.
2. Ride winners and cut losers.
3. Manage risk.
4. Keep mind and spirit clear.

"Your subconscious may pick trades for their drama value ... to elevate feelings to the point you have to feel them."

"When you first start using a trend following system, you might find yourself fighting it where your objectives differ."

This is where I feel that keeping mind and spirit clear and a healthy entitlement work together to give us an "open mind and reasonable clear sight".

Best regards,

OK

Sat, 3 May 2003

 

Not Even Zero in a Glass

see: Life on the River Bottom

Good parable!

Wrong web site. These guys are more into getting in touch with their feelings, kinda like the "sensitivity training " of the '60's.

There's so many aha's happening here it sounds like somebody with the hiccups, 'course if Gurjieff is correct then 99% of these guys are "Organic Machines" just parroting words they think will ingratiate them with Ed Seykota.

Zero? I've panned many a creek and stream looking for gold and "flow velocity" is at no place, zero! It isn't even zero in a glass of water!

The guy in the cowboy hat coined a phrase, "Nobody knows what you think they know", it seems like it's true even here.

Ah shucks!

Hey! that was just one "a" short of an aha!

Just havin' fun!

Flow velocity at the sides of a pipe, the bottom of a river, the bottom of a gold pan and the bottom of a sluice box are all zero. See below.

 

Perhaps you might like to examine  your feelings of wanting to post logical (Fundamental) arguments against the. markets.

 

Going with the flow of your feelings is a good way to cover your "a" and complete your aha.

 

 

Velocity Profile Across a Pipe

 

Fluid velocity in a pipe is not constant over the cross section. The velocity is zero at the wall, increasing to a maximum at the center then decreasing symmetrically to the other wall. We call this variation the velocity profile or distribution. Here the mean velocity is um.

 

 

 

Sluice Box

 

Early miners learn to process gold ore by feeding water through a sluice box with riffles on the bottom. They use shovels to add raw ore and also to agitate the mixture into the water flow.

 

The Rocker Box, a similar device, rocks back and forth to agitate the sediment off the bottom.

 

Panning requires rotating and tilting the pan to agitate the mixture. The pan does not work very well if the prospector just fills it and leaves it on the bottom of the river.

 

Clip 1: www.efm.leeds.ac.uk/CIVE/

CIVE1400/Section3/continuity.htm

Clip 2: www.digistar.mb.ca/

minsci/equip/sluice.htm

Sat, 3 May 2003

 

No Jobs

Ed,

I Read and am still reading Market Wizard. The book gives details of numerous traders, all employing different techniques but successful. At the end of book the author summarizes the basic characteristics of those people, like all wanted to be successful traders, each trader found a methodology for himself etc etc ...


But I think one main thing which is common in them including the author is that they were all associated with Market place (future, stock etc). Like you worked as an analyst / broker where you were able to meet Richard Donchian and ask him about the number of days in his moving average, Michael Marcus met you while working as analyst and learned money management, Bruce Kovner was taught by Michael Marcus when he was hired by him, Larry Hite learned money management from you, so on and so forth. None of the profiled started without being associated with this industry.

This shows that if you work in this industry the learning curve is much steeper, upward.

A person who is not associated with this industry and knows nobody in this industry is I think at a great disadvantage.

What would you suggest for him / her assuming there are no jobs nowadays?

Thanks,

You might direct your search engine toward help wanted.  You might check your feelings about no jobs.

 

High Paying Trading Job

Cuddling in a hammock can pay pretty well for trend followers who prefer fiddling with their partners to fiddling with their winning positions.

www.hammocks.com

 

 

Fri, 2 May 2003

 

Beginning

 

I am a beginner in futures. What market you would recommend to trade, electronic or outcry? Are they different (for the same commodity)?

Until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the super market.

Pork by the Pound

$1.29 offer ... 8 bid ... done.

 

http://www.filmnorthflorida.com/locations/

Century:-Piggly-Wiggly-Supermarket

Fri, 2 May 2003

 

Common Sense is Uncommon


About the snail cling-ons posting…that is quite profound, Mr. Seykota…very profound! I have learned a lot about life in FAQ’s … no lie!

The funniest and most profound FAQ I read in Market Wizard is Mr. Schwager’s question of

Q: “What is the most important advice you can give the “average” trader?”

A: “That he should find a superior trader to do his trading for him. And then go find something he really loves to do.”

You might check on which side you see yourself.

 

The Fence

Either, Or, Both and More

 

http://community.webshots.com/

photo/4227431/4231662FUKUHytfjO

Thu, 1 May 2003

 

Life on the River Bottom

Once there lived a village of creatures along the bottom of a great crystal river. The current of the river swept silently over them all - young and old, rich and poor, good and evil, the current going its own way, knowing only its own crystal self.

 

Each creature in its own manner clung tightly to the twigs and rocks of the river bottom, for clinging was their way of life, and resisting the current what each had learned from birth.

 

But one creature said at last, "I am tired of clinging. Though I cannot see it with my eyes, I trust that the current knows where it is going. I shall let go, and let it take me where it will. Clinging, I shall die of boredom."

 

The other creatures laughed and said, "Fool! Let go, and that current you worship will throw you tumbled and smashed across the rocks, and you will die quicker than boredom!" But the one heeded them not, and taking a breath did let go, and at once was tumbled and smashed by the current across the rocks.

 

Yet in time, as the creature refused to cling again, the current lifted him free from the bottom, and he was bruised and hurt no more. And the creatures downstream, to whom he was a stranger, cried, "See a miracle! A creature like ourselves, yet he flies! See the Messiah, come to save us all!"

 

And the one carried in the current said, "I am no more Messiah than you. The river delights to lift us free, if only we dare let go. Our true work is this voyage, this adventure." But they cried all the more, "Savior!" all the while clinging to the rocks, and when they looked again he was gone, and they were left alone making legends of a Savior.

The flow velocity at the bottom of a stream is zero; the water does not dislodge small animals or sand. The flow velocity is maximum in the middle of the stream, near the top.

If a cling-on lives on the bottom of the river, he has to jump up from the bottom quite a bit, in order to find the flow.

Check before saving people; a lot of them are really quite content where they are; if you like to participate in change, wait for some to jump off the bottom and get themselves into the flow, then join them. Same for markets.

Some snails actually like sticking to rocks and, well, being snails

 

 

 

 

Clip:

http://ast.leeds.ac.uk/~agg/snails.html

 

Thu, 1 May 2003

 

Generic Applicability - What is Best

Do you subscribe to the theory that "a market is a market" and that trend following works for all markets such as futures, equities, currencies, etc?

Also, is it best to diversify into several markets as opposed to trading "equities only" as I do?

Trend following may or may not work for you. Diversification may or may not be best for you.

 

You might explore the feeling of wanting someone else to tell you what you want.

 

 

Stella & Harcourt Fenton Mudd

Star Trek Hen Peck

 

http://www.stinsv.com/TOS/tosothv.htm

Thu, 01 May 2003


Fighting the Flow

Dear Ed,

Thanks for your TT/FAQ work. May it yields you results beyond your expectations.

Today, I acknowledged my rage with Going With the Flow. My rage comes from living life believing I can only feel good when I worked hard. Yet, I also have gone through life wishing someone would save me by giving me fool-proof system, including you. And if someone did, I would still fail.


Years ago, I stopped trading because emotions started affecting my profits. I made a pact never to trade again until I could control my emotions. And now through your FAQ, I understand it's about allowing all my emotions to flow. I never thought I would explore developing a trend trading system. And today, I put aside my predicting research and start going with the flow.

Thanks so much. And best to you on all your endeavors.

Yes !

Thu, 1 May 2003

 

Feelings Convergence

From the Trading Tribe pages:

"I suggest you forego trying to find a best, or even "reasonable" system until you come to terms with how you like to trade."

Ed:

I suppose the same holds true for trade picking, i.e., the best trade to put on is the trade we like to put on, in the sense that we allow our feelings to flow naturally. Just like there is a trading system or strategy that suits best one's character, the system or strategy themselves will suggest what constitutes an opportunity or not. Doing otherwise would be like giving way to conflicting feelings.

Please let me know what you think.

Thanks.

Your subconscious may pick trades for their drama value ... to elevate feelings to the point you have to feel them. 

Fundamental analysis is reason rich, and can easily justify any trade your subconscious picks.

When you first start using a trend following system, you might find yourself fighting it where your objectives differ.

As you resolve your issues, your system and your feelings pick the same trades.

 

 

A couple nice picks.

 

 

Clip: www.einsteins-emporium.com/

earth/geology/eg920.htm

Thu, 01 May 2003

 

Thoughts

Not sure if these qualify as AHA moments, just a few insights which occurred to me these past few days:

- Self-destructive trading that occurs after a period of success requires a "self" to destroy -- lose the "self" (an ego, a target, a future expectation of where you should be, etc) and the tension dissipates.

- A trader who distrusts the market is not unlike a man who distrusts his wife -- a relationship built on suspicion and insecurity can only lead to ill will, misdirected anger, and preconceived negativity.

 

Only an open, benevolent relationship can nurture and sustain a positive result.

- Constantly feasting upon future expectations will only yield past regrets as waste products.

You might report what feelings you resolve to get these insights.

 

Diane Lane and Richard Gere

 

Dramatic proof that adultery is inevitably destructive, in Adrian Lyne’s Unfaithful.

 

Clip: www.amazon.com

Thu, 1 May 2003

The Capital of Trading

What are the advantages of trading one's own capital over trading client capital as it pertains to psychology?

Seems to me it is easier to trade with exact discipline when I ask no one for an opinion and do not feel pressure to perform.

What % of Tribal members trade their own capital (for a living) versus client capital? A guess would be fine.

Great site Ed, Thanks for sharing your wisdom with us. It is your interview in Market Wizards that led me to Trend Following.

You claim you ask no one for an opinion ... and then you ask me for an opinion based on a guess.

My guess is that you have some unresolved issues about boundaries, such as whose money to trade and whose opinions to follow.

 

Bonnie and Clyde

No worries about boundaries.

 

Clip: http://www.filmsite.org/bonn2.html

Thu, 1 May 2003

 

A Personal Journey

Dear Mr. Seykota

With every passing day, your FAQ's become more and more enlightening - it probably also has something to do with my own mind being liberated ...

I get the impression from some contributors that your answers don't address their questions. Prima facie, this seems to be, but it is increasingly clear to me that your comments reveal so much more than meets the eye. One that set me musing was the response to the contributor who quit his IT job for a riskier consulting career. You said that that seemed like cutting a winner and taking on larger risks. That comment hit me between the eyes as I have always  wondered whether it would be wise to switch careers - I never thought of that decision-making process in terms of trend-following. It is truly amazing how your answers can pack so much wisdom in often just a few lines.

I have been thinking about how to incorporate my feelings into my trading system, as you pointed out in one FAQ. In fact, my system will take into account my family commitments, personal characteristics, available time and my limited knowledge of trading.

 

For instance, I do not have that much time in the evenings to trade, so my system is designed to allow me to make major decisions over the weekend, without missing trend signals. I also know that once in a while, I will have a lapse of discipline and fail to track the market for a day, or I may fall ill and cannot trade, etc. I have tried to make my system suit me as much as possible, while providing positive expectancy (though I am probably overly optimistic on the expectancy part). I know that my system designed as such will probably not give me fantastic returns, but I like it and I really enjoyed the process of designing it.

 

As you said in an FAQ, there is no best car but there may be a best car for a person. My system is not the best there is but it is something that I call mine.

I am poor at math, so that is a large handicap when trading. But you also once pointed out that math is no substitute for clarity. I have therefore tried to be honest with myself in my system design and trading and force myself to think through everything. It is really tough, I assure you, for a Math dummy, to internalize math concepts (even those as simple as arithmetic), But strangely, it is a very enjoyable process.

I would like to seek your insights on two issues I have been pondering a long time.

1) Money management is one of the most critical elements in trading. But unlike entry indicators, there does not seem to be much evolution, not to mention revolution in this area.

 

One algorithm is to adjust position size based on daily market volatility. I have searched all the available public literature and there is nothing much on improvements to position size models. Do you have any suggestions on how I can improve basic position-sizing models? I get the sneaking suspicion that the final answer may be that the simple things work best - like how moving averages still work well despite many new entry indicators.

BUT as oft-cited, "make thing as simple as possible, but not any simpler (or simplistic". Even something as simple as a moving average can be improved by making it adaptive and dynamic, like how a simple MA can become an exponential MA.

2) The other question is on whether I should modify my system from time to time. I have finished with my system but I have new ideas every day, as well as new input from books I read, or FAQ insights. With each passing day, I find the mistakes in my system (which is being used to trade - it's not a paper system), and change my system. But I also know that I should stick to a system and not keep changing.

 

The paradox is that I am disciplined enough to stick to my system day in, day out, but yet I modify it periodically. May I have your advice on how to deal with this dilemma?

Thanks and so sorry for making this posting so long.

The Trend Trading basic principles1:

 

trade with the trend

ride winners - cut losers

manage risk

 

Most Trend Traders follow these basis principles and modify some of the details from time to time, such as what instruments to track, how much risk to take and how to place stops.

 

Ultimately, your system reflects the way you like to do things. If you find yourself fighting your system, or struggling to follow it, you might check your feelings about authority.

 

 

System as Authority Figure

 

For some traders, rules guide; for others, they stand in the way.

 

 

Clip: www.worldwidemilitaria.com/

 

-----

1. See risk management approaches at www.turtletrader.com.