© Ed Seykota, 2003 ... You may not reprint without permission.

Ed Seykota's

Frequently Asked Questions

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The Trading Tribe Process

Risk Management

 

May 11-17, 2003

 

Questions

Answers

Sat, 17 May 2003

 

Fred and Angels

"If you can already locate a feeling, such as demons pulling you, or pressure in the stomach, then the name of the feeling is optional.

The process is to fully experience the feeling, per location, size, shape, texture, motion, color, sound, flavor, etc."

Oops! I was forgetting about the process. No labeling! I was not fair of me calling them "demons". They usually know better than me when the trend is vulnerable, or losing momentum.

"A coach or group can help you stay on task. When you come to accept the feeling, you get the aha and the insight."

I have been enjoying fully the flow in my relationships. The Process seems to be particular important to me in this respect. No more struggles with Fred, my friend.

Best regards,

Life is not fair; if it were, you would look like me. You might examine the feeling of wanting things to be fair.

 

Flowing relationships can provide a lot of support for communication between Fred and CM.

 

 

Old Friends ...

 

... like old Trees, intertwine and support each other at deep levels.

 

Clip: www.johndyer-artist.com/

limited%20edtion%20prints.html

Sat, 17 May 2003

 

Pyramiding

Not understanding your take on pyramiding. Are you saying start at a smaller position, say 1/5 of a full position, then pyramid up to the full position?

Example: If I trade each position of Equity divided by 10. Should I take that position smaller THEN pyramid up to the equity/10?

FAQ does not tell people what they "should" do.

 

Getting others to tell you what to do, might be a way to avoid the feeling of responsibility for making decisions.

 

You can perform simulations on historical data to determine a risk placement strategy that fits you.

 

 

 

Upside-Down Pyramid

 

Top heavy and  painful to hold.

 

-----

 

 

Pyramid of Skulls

 Cézanne,  circa 1901

 

Stable if you add fewer at each ascending level.

 

 

Clips:

www.changemakers.net/

library/temp/fortunepyramid.cfm

www.oir.ucf.edu/wm/paint/ auth/cezanne/sl/

Sat, 17 May 2003

 

NLP and TTP

Hello Ed,

I read the recent FAQ 'NLP and TTP' posted Friday May-16th with great interest. I have been a long time student of NLP and have tried on my own and also in a professional setting many of their techniques.

Based on my many years of work, I whole heartily agree with you that unless one confronts and fully experience the feelings there is very little progress and difference that NLP makes.

After doing some of these NLP techniques things would go well for a while, but I found that Fred would always find a new way to create the drama. Freds powers should not be underestimated, the temporary fixes which NLP and some of the other interventions offer, are usually readily bypassed by Fred.

I believe NLP, Visualizations techniques etc do offer tremendous benefit but should be utilized after TTP or similar work that lets you fully experience the feelings and thus dismantles the drama creating engine.

Thanks

Yes.

 

In the mid-70's, John Grinder and Richard Bandler formulate NLP (Neuro-Linguistic Programming)  by modeling the work of Fritz Perls, Virginia Satir and Milton Erickson.

 

Its effectiveness as a quick fix seems to vary among practitioners.

 

 

 

Quick Fix

 

Move the car forward about 3 feet so the flat part rolls around to the top.

 

Clip: http://abell.as.arizona.edu/

~hill/4x4/jacks720r.jpg

Sat, 17 May 2003

Fred Trying to Communicate with CM

Dr. Ed -

Just wanted to give you and your viewers an example of Fred trying to communicate with CM.

Recently I emailed you about my feelings of regret for missing out on two successful Internet IPOs at companies I worked for AND going to business school and missing the Internet bubble.

My criteria for picking stocks is very strict and the recent equity rally has given me feelings of uneasiness of missing out as no stocks met my criteria. This uneasiness is nothing new as I have felt it a few times during the bear market rallies over the last 3 years.

Just the other night I had a dream that I was standing on the beach watching the waves break and EVERYBODY was surfing the waves which to me appeared short and choppy.

At first I thought this dream had to do with the fact that I moved from NYC to Miami Beach in January of 2003. Then it became obvious what was happening.

Keep up the great work.

It's all about sticking to your plan and experiencing feelings as they arise. If you are unwilling to feel your feelings, the temptation is to avoid them by jumping off your system.

 

 

 

Brian Wise Dropping in Late

Haleiwa, Hawaii, Nov 24, 1996

 

Traders and Surfers both have to deal with feelings of missing out on the small ones, until the big one comes along. They also have to deal with feelings of staying with the big one.

 

Clip: http://www.iav.com/

~sponge/sesh/sesh55.htm

Sat, 17 May 2003

 

Dynamic Risk Management

Hi

I'm going to feel  "feeling" feelings as they appear, and see what happens.

I've never spoken to someone who doesn't answer questions as well as you do! :-)

But ... when thinking about the answers received, the perspective of the original question changes ...

I would make a comment about how your risk article is great for getting the "Big Picture", but doesn't help me much with a "dynamic" system where the expectancy (win loss probability and win loss amounts) keeps changing ... like when I'm starting out and haven't got many trades ... but I know what you'd say "You might check your feelings about finding out for yourself" ... so I wont say anything.

The point of risk management it to contain risk, by position sizing and stop placement, before you enter a trade. Once you enter a trade, risk control is already a done deal

 

Your concerns about subsequent dynamics might relate more to wanting to predict the market, and get out at the top.

 

Fundamentalists worry about such things; trend traders just follow the trend, sometimes making profits, sometimes taking losses in line with their risk budgets.

 

 

27-th Floor,  Penthouse - Everyone Off

 

People getting out at the top.

 

 

Clip: http://enigma.cs.ucla.edu/

photos/meetings/2001/elevator.jpg

Sat, 17 May 2003

 

Risk Management


To: Mr. Ed Seykota

"I am calculate for the worstest case ..."

Napoleon

Gentlemen

Majority of sucessfull traders in industry can have win ratio from 0.3 until 0.5 (if exist important exception, please inform me )

Calculation of chanse to catch losing streak
with 10 consecutive loss case of 0.3 win ratio case of 0.5 win ratio 1/(1-0.3)^10 = 1/35.4 1/(1-0.5)^10 = 1/1024

But it is only in case, if each trade is independent event.

Question - How long can be losing streak by high professional trader, if he make 10000 round trip ? What say realy statistic, not simulation ?

I suspect that losing streak with 16-32 consecutive loss is reality, but i knew not precise information from industry. In case of bet 3% (with transaction cost) of total capital on each trade, trader need catch 22 consecutive loss to lose 50% of total capital.

Autor interessed for identification of long losing streak from start and money management algortm .

10,000 round trips in 10 years is about 10 trades per trading day. Chances of a losing streak that long are much less than 1 in a googol.

 

A losing streak of even one trade, without proper risk control can be a Waterloo.

 

 

Napoleon Bonaparte

Blown-a-Part by Too Much Risk

 

In his attempt to control the whole coastline of Europe, Napoleon attacks both Spain and Portugal, without sufficient capital to withstand national resistance in both countries. He again undercapitalizes when British forces enter Portugal under Wellesley in 1808. “If I thought it would need 80,000 men to master the Peninsula I would not under take it ... 30,000 will suffice.” 

 

Clip: http://genealogie.pialat.com/ fr/hischr.htm

Sat, 17 May 2003

 

Trading Times Predictive Method

 

Mr. Seykota,

 

After completing development of my predictive mathematical method I started [recording results]. 

 

I recorded Monday trading times on Sunday, Tuesday trading times were posted on Monday, Wednesday trading times were posted on Tuesday and so on till Friday.

 

Analysis was done on Dow Industrial Index with use of 21MA and 5-13-8MACD as an additional filters to determine direction of trade. Results were 10 profitable trading times calls, 3 additional correct calls but did not get confirmed by MA or MACD. There were no incorrect calls. All trading times occurred no more than 10 min from predicted times posted on previous day some of them were 1-2 min apart.


I would be happy if you would look at my posts and told me your opinion. Feel free to pass this info to anyone who you consider ready for something like this. Best regards,

I notice your system gives only trading times, such as 9:55, 13:25 and 14:50 est. Brokerage houses do not accept time of day as an order.

 

You might consider extending your system to generate actual orders, and then having a professional third party evaluate your system.

 

 

 

 

Broker Receiving a Trading Time Order

 

 

Clip: http://www4.semo.edu/

training4/clerical.htm

Fri, 16 May 2003

 

Pakistan Tribe

 

Dear Sir Ed,

I am a 21 year old student in Karachi Pakistan doing his bachelors in business administration. Majoring in Finance (SZABIST). I aspire and truly want to become the best trader I can be.

I want to salute and thank you for coming up with such innovative idea of people meeting to help themselves , nitty gritties of the craft of trading. I am delighted and most grateful that you are sharing with novices like me your wisdom, experience and time. Trading attracted me form childhood the working of the stocks market intrigued me. Since last two year I am studying the markets and about trading as much as I can.

Sir I learned about you indirectly from yes Mkt Wizards, actually I read about in Martin. J. Ping books Investment physiology Explained.

 

Sir Ed,


I wish to start a TT community here in Pakistan which is rapidly becoming a high performing emerging market, but trading as a career and trader suffer here from the general attitude that its akin to gambling.

 

I want to contribute towards removing the idea that KSE or Karachi Stock Exchange is not a Casino and we trader not gamblers. Here its difficult to start with anything relating to learning the craft of trading. thanks to internet we can now learn from the best.

 

 

Welcome

Karachi Pakistan!

 

You are now on-line

on the

Tribe Directory Page.

 

 

Karachi, Pakistan

 

Map: http://www.lonelyplanet.com/

mapshells/indian_subcontinent/

pakistan/pakistan.htm

 

Fri, 16 May 2003

 

NLP and TTP

Dear Ed,

Thank you for encouraging us to work with our emotions and check out Turtle traders. I still am in amazement over my emotional AHA from doing The NLP Hexagon Goal setting exercise located near the end of

 

www.turtletrader.com/nlp-introduction.pdf .

 

That simple, yet challenging exercise given me awareness of the emotions I most want in my
life but I have resisted until now. Freedom!

Also, thank you for your Stock & Commodies' Determining Optimal Risk Article link. I love the ability to downloading the article yesterday immediately. Now, I am off to study your new Risk Management page. I appreciate all your efforts with TT & FAQ.

Best to you, Sincerely,

The NLP Hexagon Process, the NLP Swish and others aim to move you away from bad feelings and behaviors and toward good ones.

The Trading Tribe holds that the feelings you judge and try to avoid  run your life, and that experiencing them sets you free.

The Trading Tribe Process (TTP) seems to resonate with and support other disciplines and processes.

 

Nature's Hexagon Dance

Learning to Bee

 

Clip: www.visualparadox.com/

wallpapers/honeycomb.htm

Fri, 16 May 2003

 

Boring

I can't believe you went to the "coin toss" analogy in your risk management essay. Why not just hand out sleeping pills and blankets? Let me know if I'm snoring too much.

Unwillingness to feel boredom typically associates with not being able to stick with positions.

 

If your trades are as quick as your wit ... you might do well to stick it to others less and to stick with your trades more.

 

 

Duct Tape

 

For your trading ...

 

and for your communication skills.

Try the new raspberry flavor.

It stays on all day.

 

Clip: www.drzags.com/filecards.htm

Fri, 16 May 2003

Trader Models 4

See: Trader Models 3

Wow. Mind boggling. I don't know what to say to that. But Im sure I will ... oops, just did ... here goes ...

I just discovered its easier to sit and feel the feeling rather than chase it round trying to find out "where from?" and "why?" and "what can I do to make it go away?". Its actually quite hard to do, cos it seems such a pointless exercise ... just "feeling" something? What a waste of time... I always thought I had to "do" something when I "felt" something (that for some reason I don't like feeling) to make it go away...

And I also just realized I feel a whole range of stuff that's so "sneaky" I don't even know I'm feeling it ... in a way, I'm deducing this, cos if the result shows the intention, and the result isn't what I want, then I must have just played out a drama to "distract" myself ... I need to pay more attention ... This is quite a sobering thought ... it means a fair proportion of my life is a drama ... maybe if I just "follow the feeling" it'll take me to Hollywood! hehehe

You wrote: The Trading Tribe Process is to re-formulate your concern about wanting to succeed as a physical feeling, and then to work toward fully experiencing it.

OK, I think I got this. Instead of trying to solve it, I'm trying to feel it in all its "glory", right? Not particularly pleasant ... and doing it made me feel same as before ... kind of weird ... no "aha's" or "flashbacks" to childhood traumas I'd locked away in the depths of my mind, near to where I keep the memories of when my parents used to keep me in the coal cellar in winter and feed me stale bread and water on Sundays... but at least I realized its just a feeling and I don't actually have to do anything about it, just feel it ... hope I remember that next time I'm in my trading software ... or a restaurant! hehehe That's this weeks task ... bask in my "unpleasant" feelings... so if you haven't received another email after a week, please call the neighbors and tell them they can break down the door! :-)

You wrote: looking for the positive intention of the feeling

Hmmm ... I always thought I knew what the positive intention of, say, "being successful" was. I mean, its obvious isn't it? You have to be ... everyone else is, and that's what were here for, right? But thinking about it ... I just realized I don't have the slightest idea ... weird ... back to the drawing board ... duh!

You wrote: exemplifying enjoying the feeling for each other

Not clear on your terminology here ... does this mean "feeling good as I describe it to someone else"? If I was at my first Tribe meeting and hearing "exemplifying enjoying", I'd be nodding intelligently and doing my best to look as if I understood... However, if it does mean "feeling good as I describe it to someone else", then I think I need to find someone to talk to ... cos my computer's no good ... all it ever says to me is "Goodbye" and "You have a message" ... and some of those feelings are soooo sneaky they have me running round in circles... pressing <buy>, <sell> and (especially) <Scan Again!? You just did that> buttons left right and centre ...

You wrote: going with the feeling wherever it goes

Now this one has really got me ... go where the feeling goes? Its not going anywhere ... its just "there" ... you mean stay concentrated on it until I have an "aha" or a flashback to that time I lost my best friends last 2.7 billion dollars on a little known company called Enron cos another friend told me it was "solid" and that he'd read a really good write up about it on the internet?

Joking aside, this is really helping. I mean, I'm not rich yet or anything, and I even put on a trade today that went directly down (system said "buy", head said "market looking wobbly, better wait", but I've got my stop in), however ... the sun seems to be clearing some of the fog ...


Thanks (again)

Yes.
Fri, 16 May 2003

Win / Loss Sequence

Ed,

Thank you for your new section on risk management. You write:

Note that the results from both these systems are approximately identical. Over time, however, the fixed-fraction system grows exponentially and surpasses the fixed-bet system that grows linearly. Also note that the results depend on the numbers of heads and tails and do not at all depend on the order of heads and tails. The reader may prove this result by spreadsheet simulation.

When the fixed fraction is a higher percentage, doesn't the order matter?

Thanks again.

The order does not matter, even for large bets, as long as the bet fraction is constant. To convince yourself, simulate on a spreadsheet. 

 

The result also follows from the law of multiplicative commutation:

 

aab = aba = baa

 

This equation also shows what a Physically Fit Lady, Fred Flintstone and Sheep have in common.

 

 

 

Abs

 

 

Yabba Dabba Doo

 

 

Baa

 

 

Clips:

http://www.sixftlioness.com/abs.JPG

http://popkornjunkie.com/

profiles/matt.html

http://www.ag.ohio-state.edu/

~ansci/facilities/index.php

Fri, 16 May 2003

 

Fred, CM and Aha


Dear Ed,

The FAQ reminds of my most enjoyable university classes. The professor opened up the floor and the class talked. Thanks for taking the initiative to establish this forum.

I am aware of an "aha" experience that occurred last night. It was not even directly related to a trading position but I know that it impacts my trading style.

There was a disagreement with a coworker and I started with my typical processing of the event. This involves a continuing replaying of the event in the my head, playing out different scenarios and conclusions. As the processing continues, I evaluate (I intentionally visualize myself in 3rd person as Fred and CM replay the event) my emotions and recognize my anger is not directed at my coworker. In fact, the anger has nothing to do with my coworker. My real anger is directed at myself. I am angry at myself for not communicating what I need to communicate (low confrontation personality). I stepped back in my personal timeline even further and realize that my lack of communication and voicing opposing ideas is a life long trend.

I resolved this particular drama by sitting with my coworker and I communicated.

I basked in my feelings as I explained my perspective. What a wonderful experience. Thanks.

Yes.

 

 

 

Surprisingly Simple

 

Particularly after the Aha.

 

 

Clip: http://www.honan.net/images/

surprise.jpg

 

Fri, 16 May 2003

 

Incline Village Trading Tribe


Dear Ed,


Thank you for providing such a creative site for others to share with and learn from each other.

As for myself, I'm within driving distance of your Incline Village Trading Tribe. If possible, I would very much like to attend a meeting, perhaps this next Thursday?


Sincerely,

Send me something about yourself, your trading, your understanding of the Trading Tribe Process and your phone number.

 

Member

Thu, 15 May 2003

 

Fighting the Feeling of Trending

"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."

Ed:

I acknowledge this pattern while riding a trend. While riding a trend I usually have to make an effort to sit tight and keep mind and spirit clear, for it feels like a lot of demons try to pull me out of it. Sometimes I also feel a lot of pressure in the stomach.

Do you think this is the germ of causality inside me, or a lack of entitlement, or both?

Trading Tribe Members help each other experience feelings.  If you can already locate a feeling, such as demons pulling you, or pressure in the stomach, then the name of the feeling is optional.

 

The process is to fully experience the feeling, per location, size, shape, texture, motion, color, sound, flavor, etc. 

 

A coach or group can help you stay on task.  When you come to accept the feeling, you get the aha and the insight.

 

 

 

Aha!

 

It's not such a bad feeling after all,

it's just the solution to my problem.

 

Clip: http://old-www.idiap.ch/

vision/surprise.jpg

Thu, 15 May 2003

Risk

Dear Ed,

After reading your response on May 10, 2003 entitled Re-Buy I think that you may have helped me with something again.

I have taken big risks in the last 10 years. I have made very good percentages but with high volatility.

I experimented with something lately. I took $10,000 from my $110,000 account about 15 months ago and opened another stock account.

With the $10,000 account I bought stocks that began up trends off of bases without researching the stocks much. I bought 4 to 5 issues at a time and did not concentrate in any one position.

In my $100,000 account I kept my old method that has given me very good returns in the past and I repeated the past method. I researched sales earnings and waited for breakouts and concentrated big percentages of my money in the best all around issues.

The smaller account is now almost at $40,000 a 300% increase. The bigger account is at $133,000 a 33% increase and has been a wild rollercoaster. I was down $43,000 or 43% in the bigger account at one point this year. I couldn't even talk to anyone until I got back to even! I felt like a beginner again. I did not cut my loss on one issue that I had taken a large position in. I have not done something so stupid in years. I guess stocks don't just go up anymore like they did late 90's.

I was and am surprised at how much percentage increases can be made by increasing my diversification. For some reason I am able to cut losses better and relax more.

I still cannot believe the smaller portfolio percentage gain somehow! I think my emotions just get to wild when I buy too much of one issue. I was O.K. in the past with $2000 - $35,000 but with more money it is just hard to deal with the portfolio rising and falling a large percentage everyday. It is like I can make or loose a new car everyday and I drive a used car with over 100,000 miles on it now!

I am currently diversifying my portfolio.

Here is what I currently own. [omitted] Most of the stocks have been bought within 4 weeks. Anything in my purchases look too screwy to you? If you cannot answer because of FAQ rules, I understand. Thanks for the past help. I hope this e-mails correctly and fast.

Well, I hope I did not overstep one of the rules in FAQ somehow. Your help is very valuable to me. Thanks.


Thank You

You might continue to study risk management, particularly bet sizing.

 

 

Expected Value versus Bet Fraction

 

This curve expresses two fundamental principles of risk management: (1) The Timid Trader Rule: if you don't bet very much, you don't make very much, and (2) The Bold Trader Rule: If you bet too much, you go broke.

 

 

For more, see: Risk Management

 

More Risk Management Links:

www.turtletrader.com/money.html

 

Thu, 15 May 2003

Trader Models 3

see: Trader Models 2

Hey! Where d'you get my photo? hehehehe I've lost some hair since that was taken ...

I appreciate the time you take reading and replying.

You say... Drama is not a result of the feeling ... it is a result of not wanting to experience the feeling, of trying to do something to avoid the feeling, to make it go away.

Yeah, but it doesn't actually go away ... the more I try to make it go away, the stronger it gets ... However, lets say the drama actually achieves what I'm trying to do ... which it does sometimes ... then the feeling DOES go away ... and I feel good/better ... if I don't do the drama ... I don't get any result at all ... I'm a "non participant" with hot cheeks! Then again, perhaps I could try something else - something different and less dramatic? Maybe the beginnings of an "aha" here ... need to put CM to bed and let Fred work on it overnight ...

You also say (in another answer to someone else)... The feelings we accept and enjoy rarely interfere with trading.

Here you mean like "happiness"? ... a friend calls, I feel good for the moment and when the moments over so's the feeling? ... or my dog dies and I'm "sad" for a while ... but its just a "feeling" I feel until I don't ... no drama to play out, nothing to prove or avoid, just a feeling I feel while it is? I can understand the "accept" part, but when I do a re-run in my head how do I "enjoy and celebrate" something that's (or I am perceiving at the time as) unpleasant? Right now I'm "baffled", and I'm writing this to try and make the confusion go away! :-) Maybe I should just sit here and enjoy the furrowed brow, sweaty palms, chewed lip and fond memories of all the times I've been baffled before... until I'm "aha'd" and not confused anymore ...

More from you ... In your recipe for success, don't forget commitment - and a deep belief in the inevitability of your success.

Now THIS is a gem. How do I develop THAT belief? I think I remember you writing to someone that the future doesn't exist ... if so, how can I be sure of my success? I hear you say "You cant be sure" or "Declare your goals and ambitions, and then go out and make things happen," but how do I develop the belief so that I can actually believe going out will make things happen? Or does the belief come later, after the success starts?

 

Removing the doubts would make everything fall into place ... I mean, I'm smarter than average, if <someone> can do it I can learn too, and although writing this I feel like a complete [xxx] whose knitting is coming undone I know I'm less "dramatic" than most people... but I cant seem to "believe" this belief for some reason ... even though CM (or is it Fred? I cant tell who is who...) tells me I've got everything I need, and can do everything required, for it to be true... I KNOW that if that belief was there then the "intention" would be there ... and the results would follow ... cool! How? Accept and enjoy the doubts?

Finally (phew!) you wrote ... Strict discipline induces insurrection. I'm struggling with indiscipline (or is it doubt?) ... I've just noticed that my desire to feel "free" induces the drama of indiscipline ... I was under the impression that discipline was top of the *required* list ... and I figured it was either strict or it wasn't really discipline ... like being a virgin ... one is or one isn't ... no "fuzzy" area ... What exactly do you mean? Break the rules occasionally? Be flexible?

Thanks again ...

Congratulations on working with the model. You may find it a lot easier  with a friend or within a group.

 

Feelings you dislike, grow stronger; the feelings you like disappear, leaving you wiser.

 

The turning point in the Trading Tribe Process (TTP) occurs when you become willing to feel an historically unpleasant feeling.

 

For example, some traders dislike feelings that associate with whipsaws, missing moves and draw downs.

 

Some methods Trading Tribe uses to get to the turning point include:

 

looking for the positive intention of the feeling

exemplifying enjoying the feeling for each other

going with the feeling wherever it goes

 

For example, you seem to have a concern about how to develop a winning attitude. You are trying to make the concern (feeling) go away by "solving the problem."  Your wanting it to go away, makes it stronger.

 

The Trading Tribe Process is to re-formulate your concern about wanting to succeed as a physical feeling, and then to work toward fully experiencing it.

 

As the feeling disappears, it leaves insight and wisdom ... in this case, natural knowing about how to succeed.

 

 

Sram

 

 

Yuri

 

When you look at Sram and Yuri, you may have feelings about them, and judgments about these feelings.

 

Clip: www.fab1.net/

t-hawks/meet-zm.htm

Thu, 15 May 2003

Books

Please assist me in obtaining a thorough mastery in trading concepts. Could
you recommend a few books? Thank you.



See Books, Links and Risk Management above

 

Thu, 15 May 2003

Determining Optimal Risk


Dear Ed,


Thanks for a great site. I enjoy reading all the posts. With reference to a post on the site on Feb 6th 2003 (Poker), the contributor mentioned a publication of yours entitled Determining Optimal Risk. Please let me know where I can locate it.

Sincerely,

The article appears in Technical Analysis of Stocks and Commodities Magazine, March 1993.

 

 

http://store.traders.com/traderscom/

-v11-c03-determi-pdf.html

 

Thu, 15 May 2003

 

More on the Process & Tribes

see: Trading Tribe Process


Hi Ed,

Endeavoring to stay out of trance has proved fruitless, so I am leaning the other way and finding good pickings. Re-readiing Erickson is opening up something - what - I'm still wondering.

Continuing my comments -

Let's start with Erickson. He held throughout his lifelong research into conscious and unconscious processes that they were separate and autonomous and much more often than not, that the work of the unconscious was better left unconscious.

 

How this squares with the Trading Tribe Process is that it doesn't. What it does match up with is psychoanalysis - the unconscious becomes conscious with cathartic resolution and integration. It's clear that this does work for certain kinds of distress - and Erickson's emphatic position makes me wonder when it doesn't.

I have given this some thought in the past - mostly about how the coming to conscious awareness of metaphors of identity and other symbolic processes can have a positive effect on revising self concept. Self awareness functions as a dissociation process that places the pattern in question in a "not me" category. Here it can be changed to imagery that the individual will want to associate into. How self awareness might function in the Trading Tribe Process is still unclear to me.

I don't think that Under Fred is necessary for your model. If everyone's Fred is basically biological, then Freds recognize Freds and that's all that's needed. What is suggested by the Fred / Conscious Mind split is that when people get together they can do so as Conscious Minds, as Freds and what is most likely, a mix of both.

 

This reminds me of Kurt Vonnegut's group types: Karass or Freds and Granfalloons or Conscious Minds. Vonnegut contended that almost all of the official groups we can join are Granfalloons - full of their own importance, but not really accomplishing much of anything.
Whereas the other members of our Karass might be unknown to us - except that they keep turning up and really influencing our lives. I think you envision the Trading Tribes being Karass, and it seems to me that as established organizations, they will attract both sides of the mind.

My other comment, (also critical - why stop now?) is that catharsis can be misleading as an indicator of change. Emotional responses are quite convincing for certain parts of the brain that something important has happened. This is manifest in psychotherapy as "finding THE original historical cause" for any current difficulty. The problem with this, as Bateson and later Weick point out, this takes no account of double-bind difficulties which, of course, are the ones that "tie people up in knots".

 

This has stopped therapist from finding something resembling a memory, and metaphor is another way to change. Still, the binds keep rolling along until they are dealt with as communication devices they are.

A cathartic release of emotion may accompany the Trading Tribe Process.  In addition, sudden peacefulness, new insight, wisdom, change in facial expression, posture and trading skill may follow.

Erickson seems to have remarkable resonance with the subconscious. Perhaps he acts as a surrogate CM, for the client's Fred.

Under Fred = the collective unconsciousness; the collective consciousness resides in books, libraries and lately, Internet.

Kurt Vonnegut: Cat's Cradle

 

All about San Lorenzo Island, scene of

Bokonism, Granfallons and Karass.

 

 

Clip: www.amazon.com

 

 

Thu, 15 May 2003

More Probability

see: Probability

Ha ha ... thanks for the insight.

Regards,

OK.

Wed, 14 May 2003


Validation and Commitment 3

see: Validation and Commitment 2

Mr. Seykota:

Just thought I'd send in an update on the issues I discussed last week. In short, WOW! What a week it has been!

Having spent all that time examining my thoughts and feelings, I got straight to the heart of my "I can't win at what I really want" issue. And I dispelled it right away. When you realize that YOU choose your own beliefs and that some of them are chosen on entirely mistaken and faulty premises, it's easy to let them go. But more importantly to the process was your notion of "positive intention".

Once I sorted through the how and why of my faulty belief, all of my trading behaviors became very clear to me. I realized that what I thought was "destructive" and "conflicting" behavior made PERFECT sense in light of my beliefs. I realized that all of my behaviors were founded in POSITIVE INTENTIONS that were based on faulty premises and beliefs.

 

In other words, I wasn't acting against myself and my goals at all. I was acting fully in support of myself, based on the beliefs that I accepted.

A quick and dirty example to illustrate the point: If you believe that you can't win at trading, and the result of "not winning" is financial losses, then are you not acting with positive intentions by periodically walking away from trading? Of course. If you can't win, then it's in your best interest to stay away! YOU GET WHAT YOU WANT FROM THE MARKET. If you can't win, you won't win. So protect yourself by staying away.

Indeed, trading is so much more than trading. It's a metaphor for life. And in clearing that issue within myself, I found myself at a level of peace I haven't felt in I don't know how long. In realizing that I am acting in my best interest, that all my feelings and "parts of self" have positive intentions, I realized that I AM ON MY OWN SIDE. I feel "congruent" now. As though all my internal parts are aligned toward a common goal. Conflicts have been resolved. How wonderful it is to "welcome yourself home", to stop fighting yourself, to stop criticizing yourself for "screwing yourself up"!

"They" say that when you're committed, everything you need shows up. I feel it's no coincidence that within 48 hours of having become fully committed to my trading, the major issue that I've been contending with for almost two decades was cleared up.

But the benefits don't stop there. I finally got what trend-following is really about, and man oh man, is it ever SIMPLE: You have a system. You follow the rules. That's it.

The ONLY thing "hard" about trading is ALL THE OTHER JUNK WE BRING TO IT. The fears, the concerns, the expectations of how trading "should" be, the putting our past experiences into our future. NONE of it has anything to do with trading, but we think it does. We try to predict and forecast because we need to be right, we need to know, we need to feel secure about our trades. But none of that has anything to do with trading. There is only the system, the rules and the following of the rules. It's a numbers game. Once you have a system that works the only issue is implementing that system to give the numbers an opportunity to work out in your favor.

I found myself trying to choose between two trades the other night. Both had already triggered entry signals the day before (I was still in the process of self-examination and was not trading at the time.) I found myself looking at volume, looking at price action, trying to "figure out" which stock would perform better. Until I realized that I was attempting the impossible. One might work, both might work, neither might work. Who cares? Either one is as good a bet as the other. The signal has been tripped and the only issue now is money management. Positioning myself for exponential gains or linear losses. Trying to figure out which stock to choose has nothing to do with it. I might as well spend all day at the cab station trying to figure out which cab is going to get me to my destination without getting hit by a bus. I CAN'T FIGURE THAT OUT. EVER. WHY WASTE MY TIME AND EFFORT TRYING?

I realize now that the ONLY thing I need to "work" on is myself. Remaining vigilant not to fall into the old traps of prediction, fears, etc. Honor feelings, deal with whatever arises, but when it comes to trading, all there is to do is to follow the rules. Whatever happens happens and none of it matters so long as I'm following the rules. Losses are part of the gig, discomfort is part of the gig, getting stopped out just before the gap and limit up opening is part of the gig. Don't like it? Don't play.

And this has translated into my entire life, not just trading. Going with the flow. There is only NOW. Anything might and could happen after NOW, but NOW is all I can respond to. What is ACTUALLY OCCURING is the only "data" worth considering. (Assuming that you have a plan that accounts for various contingencies, of course.)

It's been rather fun watching myself watch the intra-day quotes. Up and down, excited one minute, scared the next, optimistic then pessimistic. Why bother? Either my stop has been hit or it hasn't. Nothing else is relevant. Why waste my energy? Time to turn off the quotes, put in the orders and go play outside...

Best to you...

Yes.

 

 

Taxis

by Saul Steinberg (1914  - 1999)

 

Many taxis and many ways to view them

 

 

Wed, 14 May 2003

Trader Models 2

see: Trader Models

Thanks for your reply yesterday ... Im still thinking about it ... So even "probability" and statistics is still trying to figure out the market? Just "go with the flow" of whats actually happening? Makes perfect sense ... until the invisible comentator asks "yeah, but what if..." :-) But he'll change his tune soon!

I just checked out your answer again, to see if I could glean more from it, and I noticed the bit you wrote about "change" has gone. This was the part I *most* didnt understand, but *most* felt as if there was something important there ... but your answer's changed ... ???

I just had an experience that included a "drama" Id like to share, and which made me try and use the process. It wasnt a trading experience, but Im [xxxx] sure it or something like it will/has affect/ed my results. (Aside: If my results are negative, does that mean my intention is to lose money? Im truly awed by the "life" implications of that quotation. Its scary...) I live in Brazil, and the nearest club looks like 5000 miles away ... so how do I do the process with myself... is it possible?

The drama... I was paying in a restaurant and ended up in an argument over prices. I complained, didnt receive satisfaction, and kept complaining, and the queue behind me kept getting bigger..... The worse I felt (rage, embarassment, frustration - all feelings I feel during trading), the more I complained... to no avail... until I just gave up, paid, left the restaurant and walked home - fuming away inside, and totally aware what Id just done was pointless, and that it would have been less unpleasant just to pay the difference and walk away, but also aware that doing this would have meant walking away feeling something ELSE not entirely pleasant ...

Anyway, on Monday, as I read your site, Id been confused the the idea of what the term "drama" actually meant, but as I sat down in front of the monitor I suddenly thought "Hey, Im feeling bad ... and if that wasnt a drama I dont know what could be! Concentrate on the feeling! ... What am I feeling? ... Where? What does it mean?" But it was like trying to see where an atom is by shining a light on it ... My Process was somethihng like: "OK, Im feeling like ****, Im angry, my gut feels like hot, Im not breathing properly, Im clenching my teeth, saying "grrr!" to myself.... but so what?" I guess Im missing something ... what?

Also ... you mention "knots" of tied up feelings Im unable to feel ... but I KNOW when Im angry, frustrated, embarassed, scared, happy, surprised... because I FEEL these emotions at the time ... and its precicely cos Im feeling them that I do all the non-useful "dramas" ... if I DIDNT feel them, I wouldnt need to play out the dramas....

Is the objective of the Process not to feel the feelings, or to feel them and be able to NOT play out the dramas? As you've probably guessed, Im a little lost here ... but Ive ordered the Toxic Parents book ... so maybe when Ive read it I can blame it all on them and everything will be great! :-D Just kidding!

Intentions = Results.

The Trading Tribe Process intends to reframe feelings you don't like, as feelings you are willing to feel.

The group keeps you on task and exemplifies enjoying the feeling. 

Drama is not a result of the feeling ... it is a result of not wanting to experience the feeling, of trying to do something to avoid the feeling, to make it go away.

Your attempt to make frustration and embarrassment go away, is the Drama. Other Freds assemble to assist you: the Maitre d', the people in the queue, etc.

By just being there with the total experience, enjoying the sensations of warmth and heat in your cheeks, the perspiration on your hands, and so forth, you get an aha, a set of realizations about all the times you recall being in similar situations. 

You may recall situations involving risking money in the markets and trying to avoid feeling frustration and embarrassment, and making an expensive move.

This time, however, you allow the feelings, notice a shift, and see things differently. You resolve your situation, effectively and quickly.

You also notice you no longer have a need set up similar dramas.

Frustration

 

You can experience it and go for the aha, or act it out in the markets.

 

Clip: www.neuroskills.com/

index.html?main=edu/ceuaba2.shtml

Wed, 14 May 2003

Tribe in London

Dear Ed,

I have been visiting your site for a number of weeks now having found it through the www.TurtleTrader.com . I have been studying and researching systematic trading methods for the last 10 years. I have been running a market neutral equity hedge fund for the last four years and have recently embarked on the
development of a systematic trend following commodity futures fund.

I have a number of questions.

There is currently no tribe based in London or the UK. How would you suggest I explore what is involved in setting one up here and what steps can I take to further prepare myself to help to establish a new tribe.

Your site refers to both a program of study you are preparing and (elsewhere) private consultations. When do you anticipate the study program becoming available and what form does it look like taking. Is the private one-on-one work something you do yourself or were you suggesting someone else.

Congratulations and thanks for the site and the work you are encouraging there.

People who participate actively seem to catch on best. To start a Tribe or Intentional Community in London see Tribe Directory.

 

For people who want to learn more about the work, in person, I am developing a seminar program.

 

Times and places are open.

 

 

Shoshone Camp

 

Time and Place:

 1870, South Pass, Wyoming

 

Clip: www.windriverhistory.org/

exhibits/washakie_2/photgraphs.html

Tue, 13 May 2003

Oh, What Ever Shall I Do


Ed,

If you look at [xxx] it had a hook down 7 days
ago ... if I wanted to buy more when the stock takes out that high of the hook down, where do I place my stop ... ?? ... do I place it at the low of that hook down or do I place it at the low of the day that it takes out the high of the hook down ... ?? ... when I asked [yyy] about this, he wasn't quite clear ... he kind of said that it depends on what the stock is doing now ... ?? ... does that mean I should look for some support in the past couple of days to place my stop? ... could you clarify?
thanks.

FAQ does not provide instrument specific advice or trading system parameter advice. See Ground Rules.

 

You seem to want someone to tell you what you "should" do ... even a friend who admits he is not clear.

 

I notice the stock you mention is still below its 2000 highs, while plenty of other stocks are making new all-time highs.

 

 

Roller Coaster

 

The passengers get plenty

of thrills and excitement ...

and never get back to the high point.

 

Clip: www.biblehelp.org/victorious.htm

 

 

 

Tue, 13 May 2003

Reframing Feelings

"You might reframe the negative feeling as just a feeling, that Fred wants to communicate to CM, neither positive nor negative."

That's it, Ed! We finally got to the point (AHA). I have just started to reframe those "negative" feelings as just feelings and also started to celebrate them for my joy and great relief. Thanks for your insights!

"I gather that you validate truth, perhaps even your own being, by the agreement of others .. trying to get the market to agree with you, can be expensive."

I feel that's partly true. About needing approval, I was aware of it a long time ago. It's rooted on rigid early upbringing. Nevertheless I think the positive aspect of such need is related to lending an attentive ear to advice from the long lived, as expressed in the maxim:

"If you wish to know the road, inquire of those who have traveled it."

Sometimes, though, I feel it's an impediment to personal growth and independence, and also an excuse not to take responsibility for my own actions and their outcomes.

Experience the road in your own way, even if the experience is to need to follow someone else's way.

 

 

Plenty of Choices Along the Way

 

 

Clip: www.allied-media.com/site_map.htm

 

Tue, 13 May 2003

Meditation

Dear Mr. Seykota,

I find your approach very similar to the meditation process.

When I meditate, instead of trying to stop my mind from thinking, I simply acknowledge and become aware of my thoughts and observe them with detachment and let them flow pass.

Your meditation observes thoughts with detachment and lets them pass.

 

The Trading Tribe observes feelings with intention to experience them.

 

The Trading Tribe keeps you on the hot seat, to help you focus your feeling until it resolves into an aha.

 

 

Insulation

 

A young Dolgan girl avoids the feeling of cold ... inside her reindeer-hide clothing, despite sub-zero temperatures.

 

Clip:

http://dsc.discovery.com/convergence/

landofmammoth/photo/zoom_03.html

Tue, 13 May 2003

Depressions

Hi


hi Ed,

When you say check your feelings about something what do you mean? Be aware of it? Aren't most people aware of what they are doing or thinking sometimes? Doesn't
that not really make a difference? If I am depressed, I am aware I am depressed no? I am still depressed. So what then?

Sorting out feelings is the work of the Trading Tribe.

 

Depression is a generic label. A tribe can help you stay on task while you parse your feeling into physical components such as pressure, temperature, size, texture, sound, etc.

 

Communication of the details of a feeling to others seems to resolve it into an aha.

 

 

The Doughboy Meets The Three Stooges

 

Depressions and Recessions

arise in many ways

and can have different meanings.

 

Clip: www.funclown.com/doughboy.htm

Tue, 13 May 2003

Mirroring and Pacing

Hello Ed,

Could you please elaborate on the mirroring and pacing technique used in TT meetings?

How does mirroring differ from pacing, is one physical and other verbal?

This is what I have been able to find, am I going in the right direction?

Mirroring is the ability to enter someone else's world, to make them feel that you understand them, that you have a strong common bond.
Mirroring allows the subject to feel as the has found someone 'just like me, " and also gives the mirrorer the ability to experience the same physiology as the subject.

Matching physiology enables the mirrorer to "walk" in the other man's "shoes." If a man can understand, say, the muscular tension of another, has he not drawn closer to understanding his thoughts?

Any observable behavior can be mirrored, for example:


Body posture
Hand gestures
Head tilt
Vocal qualities (pace, rhythm, tonality)
Key phrases
Blink rate
Facial _expression
Energy level
Breathing rate
Anything else that you can observe…

Example:
To mirror another person, merely select the behavior or quality you wish to mirror, then do that behavior. If you choose to mirror head tilt, when the person moves their head, wait a few moments, then move yours to the same angle. The effect should be as though the other person is looking in a mirror.

Example:
You: "If I were to ask you, what's the most important thing in a relationship, how would you describe it to me?"
Her: "I want a man who makes me feel comfortable with myself" (you remember "feel" and " comfortable")

Example:
You don't mimic a person word-for-word, but you match the *meaning* that's offered. ie, if someone goes "I love pancakes!", you don't go "I love pancakes!", but you can do something like "Mmmmmmmmmmhh...yeah...." - in the same tonality and volume. Mirroring and pacing work "in concert," so you have to use both.


Thanks

Technique follows from intention.

 

If you wish to compare notes in person, you might like to visit The Trading Tribe here in Nevada ... or have one of us visit your group.

 

People see pancakes differently. One might like the flavor, another the height of the pile.

 

 

Stack is 27, on the high ...

 

and our analyst is looking for 40.

If it breaks from there

he says it'll be all over the floor.

 

 

Clip: www.goldengriddlecorp.com

/images/pancakes.jpg

 

Tue, 13 May 2003

Community

Ed

cool!

Like the water from a cup that has been sitting by the bedroom window all night

Try SVO-p; staying in the present clarifies the current state of the water. See Trading Tribe Process.

 

Cool, Cool Water

 

Clip: www.adl2.com/ice_cube.html

Tue, 13 May 2003

 

Looking Forward

 

I'm enjoying you're forum very much. Ones' again, thank you for being a guiding light.. I'm currently feeling the new feelings I'm feeling. I look forward to sharing my experience with you.

 

Looking forward is looking forward. Sharing is sharing.

 

 

Looking Forward and Backward

 

Now is where all the action is.

 

Clip: http://members.aol.com/

EyeWitnessed/Eye4moon.JPG

Tue, 13 May 2003

 

The Basics

Dear Mr Seykota,

After 10 years of trading and studying the markets I had developed a systematic process for trading medium term trends in US equities and wanted to implement it.

I have been lucky enough to have brought together a great team and top class structure around the product that we are launching (see attached document). However, due to a great deal of scepticism in London about trading a system in equities, we are having a hard time closing a deal with a lead sponsor. We are looking for $20-$30 million at launch, due to the economics of the business.

If you know of any institution that would be interested in sponsoring us at launch, we are looking to do a deal and would greatly appreciate an introduction.

On a personal note, thank you for sharing your experience with people like me. Because of the generosity of people like you, I've been able to understand the markets. I'm amazed how unconventional the thinking still is, when it seems so natural to me, but it has been a wonderful journey - one which I'm going to be forever on! Thanks.

Yours sincerely,

I notice you blame skepticism and  economics for your funding difficulties.

 

Some fund managers use reasons and excuses later on, to explain performance.

 

The Trading Tribe holds that results indicate intention. 

 

As for your attachment, I suggest you  invest your team with spell checking software.

 

I understand NASA has a pretty good launch facility.

 

 

Start with the Basics

 

Clip: www.pacer.org/parent/

childhood/ec_spring98.htm

Tue, 13 May 2003

 

Probability

see: Question on Probability

Dear Mr. Seykota,

Let me rephrase my question: does probability exist?

Perhaps.

Tue, 13 May 2003


Trend Following Methods

I find trend following truly liberating because it doesn't require you to figure out the future. As a trader, I simply "wait" for the trend to shift and meet my criteria of a trend shift and then I "follow". No prediction is required.

I have been trading futures full time for five years. I spent the first 3 1/2 years trying to "figure out" the markets. I tried most technical indicators and none of them worked very well consistently. I managed to breakeven in my trading in the third year and turned a profit in the fourth year because I was trading with elementary trend following principles "despite" my TA prediction bent. Simply I was cutting losses short, risking 100% of my open profits before my exit rules are hit, letting profits ride, and sizing my position prudently to stay in the game.

I had an epiphany one day and that changed my trading from the TA prediction approach to trend following. Over time I managed to gradually lose all my indicators and I now use a moving average to define trend and switch direction.

My trading journey continues and I've tried trading different time frames and markets to find the ones that suit me personally. I continue to evolve and fine tune my trading rules on an ongoing basis (they are getting simpler).

Risk and Drawdown

I define risks in futures trading simply as when the trader doesn't know what he or she is doing. This means the trader has no clearly define trading rules for entry, exits, and position sizing. If the trader knows what he or she is doing, then the risks that remain are the trader's own well being, i.e. his personal life which affects his emotions and therefore trading.

It has taken me a long time to "accept" and be able to handle whipsaws and drawdowns. It's still not easy but I am getting better at continuing to take my trades after whipsaws. I finally understand what Mark Douglas is talking about when he teaches traders to think like a casino "operator." This means so long as the game I am playing (i.e. my trading methodology) have positive expectancy and I size my bets appropriately, I will come out ahead if I take all the trades of my method. This is just like the casino taking every bets of its customers "indiscriminately" and while they may lose on individual bets but over many bets they make money because the games operated by the casinos have positive expectancies.

So I view drawdown as an unavoidable and necessary part of trading. In fact one of my written reminders is "Drawdowns and losses are unavoidable. They are necessary to make net overall profits."

I hope the above have enabled you to get to know my feelings about trading better. I am genuinely interested in finding out whether it is possible for you to manage some of my family's money at mutually beneficial terms. Please advise how we can take explore and take this information exchange further.

If you want someone to manage your money, I recommend you visit in person. Compare notions about trading styles, risk and drawdowns.

 

 

Sound of Music

 

 

Eminem

 

Make sure your styles match.

Mon, 12 May 2003

 

Feelings about Girls

"If your CM does not listen to Fred, you might keep "practicing" the same old dramas for a lifetime.

For example, you might check your own feelings of wanting to debate, meanwhile missing opportunities."

Ed:

After reading about the Process, I acknowledge its patterns in my relationships with girls over the past years.

 

It has been a long time since I always find myself involved in power struggles with the girls I have been choosing as potential partners, with great distress to both parties. Such power struggles, on my part, I feel are based upon deep unresolved negative feelings and beliefs about women, which express themselves in the form of deep insecurity and an unwillingness to be emotionally open, always trying to take full control of the situation.

Unfortunately, I have seen and lived this pattern over and over as it would appear that I always end up caught in such dramas, ruining my hopes to achieve the healthy relationship I always dreamed about. So, after reading about The Process, I started thinking to myself: "What is Fred trying to tell you while you are trying to block him?"

Yet, I have not find a precise answer up to now.

You seem to think some of your feelings are negative.

 

You might reframe the negative feeling as just a feeling, that Fred wants to communicate to CM, neither positive nor negative.

 

When Fred succeeds in informing CM, motivations to entrain external dramas, like power struggles disappear.

 

See Trading Tribe Process.

 

 

Man and Woman Fighting ...

 

... on the Same Team

 

Clip: members.aol.com/

valtoy8/GIJoe.html

Mon, 12 May 2003

 

Who Gets the Best Price

"The stock is up already, is it overextended?"

If we had a crystal ball and we saw a stock that went from $20 to $100, we would see a trend (barring a takeover etc).

If one owns it at $20 and another at $30, who is in a better position?

We could say the owner at $30 is better off because it was even more evident that the trend was there and he owned it for a shorter time period.

Now, say the stock is at $40. Both are in the same position? We can say the owner at $30 has less risk, only 10 points to breakeven while the other has 20 points of risk to breakeven.

It seems like the price someone else gets matters to you.

 

 

 

Envy

 

Clip: www.laurahazlett.com/envy-big.jpg

Mon, 12 May 2003

 

Taking the First Step

I have been in the hedge fund industry for seven years. Recently I decided to leave the fund I was working for and manage my own capital in a way which is more consistent with my personality in an environment where I can grow personally and be open with my thoughts and emotions.

 

I think I am on the right path - there is a lot of un-learning I still have to do - but the hardest thing for me to do right now is to put on my first trade.

You might be able to locate the basis for your hesitations with the Trading Tribe Process.

 

 

Taking the First Step

 

Clip: www.empiregiftsandantiques.com/

index.cfm/detail/1824.htm

Mon, 12 May 2003

 

Trade Mark

 

Ed,


To keep the current and future members of our North West tribe up to date I had created a message board on MSFT groups. It is called the ORWA trading tribe.

 

Is this O.K.? I now see that the Trading Tribe is now a reg. trademark. So shall I have the name changed? How do you want that handled? Best Regards,

The phrase "Trading Tribe" is in registration to Ed Seykota. You may use "ORWA Tribe."  Send the URL to your board, so it can post in FAQ Tribe Directory. Be sure to include a link to FAQ on your site.

 

 

Mon, 12 May 2003

 

Trader Models

Hi there.

I've recently found your site via  www.turtletrader.com  and am intrigued by the "maybe you want to explore your feelings about..." replies. At first I thought they were pretty weird, but thinking about them has brought about a couple of "ahas".

I've been "struggling" for a couple of years now with trading and realized my lack of success is down to something I'm doing/not doing or thinking/not thinking. Is there a "model" of beliefs an investor needs to be successful? Is everyone completely different, or are there "patterns" common to the best traders? If so, what are the common elements?

Also, three things that really put me in a tailspin ... maybe you'd like to comment ...

One was a proverb I read about a coin tossing competition, where the winner was worshipped like Wall St analysts once were, ran courses and wrote books to explain his amazing coin tossing methods. Applying this to the markets (and I don't even know if its applicable, but some people say the markets are at least "almost" random) how can one know that winners are winners because of their methods and not just because "someone" has to win ... After all, everyone can't lose ... If 1000 people are trading against each other, wont SOME eventually come out winners ... even if none uses ANY kind of system?

The second is the following ... in testing systems I've noticed that none of them are really *good*, the best only give around 50% good/bad trades. The profits seem to come or go depending on when you get out, not when you get in ... 50% doesn't seem to be any better than "chance", and if good trend following systems give even less than 50% positive trades, what's the point of using ANY kind of entry method? Why not just random? I mean if most breakouts are false anyway, what's the point of using breakouts at all? If I buy (or sell) NOW, the price will either go up (and pass the next breakout point), or it wont, in which case Id have to sell ... so how does "waiting" for entry conditions reduce the *risk* if >50% of the times you wait you end up with a loss anyway?

Finally ... and this might sound even dumber than the last points ... but how come its easier to write systems that LOSE truckloads of money, but not ones that MAKE bucket loads of money? Even programming a simple Turtle type trend following system (entering and exiting on breakouts, using 2N initial stop etc) only produces mildly positive results over five years (when tested over whole markets such as SP, FTSE), so how does one get *confidence* in a system if you cant get one that makes more than bank interest?

 

I can already imagine your reply to that one! hehehe If the markets were "random", wouldn't systems produce results around a normal distribution? I'm aware my system logic and system programs may not be brilliant, but they're good enough to write simple systems based on sound logic, and I'm also NOT using additional positions are a position goes in my favour, but can you make money from a negative/zero expectancy system just through money management?

 

Also some of these systems give excellent results on PARTICULAR stocks ... but they aren't "robust" to use across lots of stocks ... Even so I get results skewed way to the (negative) left using all kinds of different systems weaned from dozens of books ... 90% of these systems lose lots of money, but the <10% that make money only breakeven or turn slight profits ... so if I start trading based on "weak" results, Ill be operating on hope that the system in real life will give better results that the system tested on historical data ... doesn't seem right somehow...

 

Any thoughts? How can I look at this in a more "useful" manner? I haven't written a system that makes money (and I'm talking about > interest results... not 200% a year), but as others have, I'm obviously not doing/thinking something right ...

On another level, could I ask you a personal question? Why do you trade? Why is <your answer> important to you?

Thanks.

PS - Nice idea to create a "community" where you share the benefits of your wisdom and experience. Thanks.

Your questions are consistent with core beliefs in Fundamental analysis, causality, predictability of the future, reasons, and understanding change.

 

The Trading Tribe approach to change is to follow the trend.

 

 

 

Understanding the Pendulum

 

In theory, physicists can predict the period from the length and gravity.

 

 

 

Understanding the Dice

 

In practice, when the pendulum is a pair of fuzzy dice, hanging from the rear view mirror of a pickup truck, on a country road, accuracy suffers.

 

Physicists generally make no attempt to explain how the atoms in the pendulum, the truck, and the physicist, all happened to assemble at the same time and place.

 

Trend Followers simply notice the direction of the dice and go with it, until the trend changes.

 

Clips: www.explorescience.com/

news/images/sept-pendulum.gif

www.dor.state.mo.us/mvdl/

images/dice.gif

 

Mon, 12 May 2003

 

Fixed Portfolio

Ed!

An true believer of trend-following, I have
experimented with almost all technical analysis tools, and continue to return to the tried and proven Simple Moving Average crossover.

I have a group of about ten highly liquid, high
volume, stocks, that all trend very nicely and respond very well (over the previous two years) to a 5/20, 7/35, 5/25 SMA crossover.

Ed, what are your thoughts on trading this one group of stocks all year long? This would be similar to futures contracts, where traders "specialize" in Crude Oil or S&P 500 contracts.

My feeling is that getting intimately familiar with the trend behavior of only these high-volume, high-liquidity stocks will put money in my pocket both long and short.

Thoughts, ideas?

Take care!

Corporations, like people, come and go.  You might consider trading specific patterns and situations rather than specific stocks.

Sam Snead (1912 - 2002)

Sam Snead wins both Masters and PGA 3 times and British Open once; runner-up in U.S. Open 4 times; PGA Player of Year in 1949; oldest player (52 years, 10 months) to win PGA event with Greater Greensboro Open title in 1965; all-time PGA Tour career victory leader with 81.

Clip: sportsillustrated.cnn.com/

golfonline/history/

Mon, 12 May 2003

 

Melbourne Tribe

Dear Sir,

Someone put up a thread regarding starting a tribe in Melbourne, Australia.

My question is can I join? And How?

Regards,

See the Tribe Directory Page

Mon, 12 May 2003

 

Portfolio Heat

Sir,

Can you please advise if you include the unrealized profits of your open trades into the calculation of portfolio heat or only the trades’ initial risk?

Regards,

Apprehensions about figuring things out for your self might be driving you.

 

 

 

Transition to Riding Solo

 

Clip: www.kidssource.com/

trail_gator.htm

Mon, 12 May

 

FAQ, Fred, Freud, and Fraud

and Making Friends with Feelings

Hello Tribe,

Just a riff off Ed's observation that, 'Sometimes Fred arranges drama to get CM's attention. When dramas occur during the day and can no longer be ignored, we call them problems. When they occur at night, we call them dreams. A student of Fred, Freud, emphasized that we need to analyze problems and dreams. To Fred, of course, this constitutes fraud.

I experienced an illuminating example of Fred, Freud, and fraud one night last week. The previous day, I had felt uncharacteristically dissatisfied with trading. I was trying to catch short-term trends, following markets obsessively and moving in and out to little effect. My distinct feeling at the end of the trading day was that I had completely wasted a day out of my life which I promptly attempted to assuage (squelch) by getting ahead in some of my other work.

That night, I dreamt that I was with my children at Pier 41 in San Francisco waiting for a ferry to Sausalito. We were watching the seals at the pier, and I noticed one in particular. It was a harp seal that I had seen in an advertisement for a wildlife organization that was soliciting money to help endangered species. The seal was large-eyed, with soft dry fur. It looked directly at me. In the dream, I desperately longed to climb down the rocks and play with the harp seal. I realized, however, that the ferry was shortly departing and, with regrets, I left the seals behind to catch our ride.

My first inclination was to play Freud and analyze the dream. Seals were my favorite animal when I was a child. They seemed happy and carefree. I could watch them play for hours: climbing onto the ice, sliding down into the water, climbing back up, sliding down. My analysis suggested to me that I was perhaps working too hard, struggling to meet obligations, thereby endangering the childlike enjoyment of life.

As soon as I arrived at my Freudian formulation, I recognized it was fraudulent. It would lead me to do what I had always done in such circumstances: I would step away from trading for awhile, enjoy life, return to trading for a period of success, and then flush with victory expand my trading efforts to briefer time frames. The analysis was not a way of dealing with Fred's communication; it was an essential part of keeping the drama going.

With a bit of trepidation and self consciousness, I decided to put my dream through The Process. My guide along the way was an excellent book by Alvin Mahrer called Dreamwork in Psychotherapy and Self-Change. Mahrer's approach makes three assumptions:

The dreaming person may be described as having entered into a new and qualitatively different personality state. In contrast, virtually all other approaches see the dreaming person as essentially the same personality but with reduced defenses.

Deeper personality processes may be grasped by entering into the dream state. This means that you will probably be unable to grasp or be privy to these particular deeper personality processes by standing outside the dream and talking about it or trying to figure out what the dream means.

Deep-seated and profound personality change occurs to the extent that you can be or experience the deeper personality processes contained in the dream. This means that you will probably be unable to undergo this kind of deep-seated and profound personality change by standing outside the dream and trying to do something therapeutic.

The goal of The Process, it seemed to me, was to be the dream, not stand outside it. And since my desire in the dream was to play with the seal, I decided the best way to be the dream was to be a seal.

So that's what I did. I spent the next trading session barking away, clapping my flippers, balancing things on my nose, and otherwise behaving in ways unbefitting a serious psychologist and trader.

The interesting part came when I started following the market action carefully while in my seal mode. I held the image of climbing up the ice floes, sliding down to the water, and climbing up again. Spontaneously, I started to view the charts as my playground. Climb up, slide down, scamper back up: the short-term movements that had been so threatening to me when I was trying to ride small trends now were part of (literally) playing the market.

The aha experience occurred when I realized that the previously intimidating countertrend movements were essential to the seal game: you couldn't play on the floes if you didn't climb up and slide down. The downward movements in a rising trend were part of the opportunity to continue play! I realized that I should work on incrementally adding to positions to get back on the slide rather than attempt to predict dips before they occurred. Better strategies for position sizing, not shorter-term trend trading, was what I needed.

Interestingly, before enacting the dream, I hadn't given position sizing a moment of thought while contemplating my trading ennui. It was a nice illustration of Mahrer's use of dreams to enter a new state and see oneself afresh. Whether I use this experience to catalyze a breakthrough in asset allocation or not remains to be seen, but I can report that, since the experience, I have not lost the sense of playing the market.

I would be interested to hear of others experiences encountering Fred in dreams, creative arts, games, and other spontaneous, non-Freudulent activities. Thanks for the opportunity to be part of the Tribe.

Yes. The Trading Tribe Process seems to facilitate and accelerate various other self-actualization methods.

 

 

 

 

Even the President has a Seal

 

 

 

Sun, 11 May

 

Trading Tribe Meeting


Hey Ed,

I just wanted to check in and see how your doing. Last week's tribe meeting was clearly a transformation for all of us. I want to thank you. You were an inspiration of emotional openness and the joy I felt from your AHA and concluding expression was simply a profound experience for me.

OK.

Sun, 11 May 2003

 

What is Truth?

"Do not believe because you saw the written
word of an ancient sage;

Do not believe on the authority of masters or
priests;

But accept as truth and conform your life to
what agrees with your experience and after
a profound study satisfies your reason and
leads to your good."

-- Siddhartha Gautama - (Buddha)

I agree with the ancient sage that truth is a very vague concept. More often that not we welcome as being true that which conforms to our own inner concept of truth.

With that in mind, I feel that truth is a result of a collective agreement about a particular issue. Even though always subject to review, the older the better. For instance, "Go with the Trend" is true for speculators because there is a collective agreement among long lived speculators that the method resonates with their experiences and feelings.

That said, Ed Seykota, I feel that we benefit the most from statements which find convergence among traders and which have gone through the test of time.

In this sense, I find particular interesting how old timers describe their feelings while being "in the zone". That's a tangible aspect to which the less experienced can compare their current level of development and concentrate efforts towards better attitudes.

In this regard, there are some shared statements among old timers which I find particular interesting:

The predominant trend is evident and easy to feel or see; Rather than the trader calling the best trades, the best trades call the trader (it would appear that traders evolve toward an inner state of absolute silence and responsiveness); In the zone, feelings flow naturally, i.e., there are no conflicting feelings, and ... The best way to learn is through practice in real situations. Please let me know what you think about it.

I gather that you validate truth, perhaps even your own being, by the agreement of others.

 

Your feeling of needing approval.  might be driving you. This may have roots in early upbringing.

 

Acting this out, say by trying to get the market to agree with you, can be expensive.

 

 

 

Approval Machine

 

You can get a stamp like this one for a few dollars. Trying to use the markets to give the stamp can lead to the stomp.

 

 

Clip: www.restena.lu/

proud-online/sxtreejs.htm