Ed's FAQ Dec 01-31, 2017

Contributors Say

Ed Says

Dec 29, 2017

Discretionary Selection

Dear Ed,

I hope you are doing well and having a great Christmas break.

I have designed and traded a trend following system for the last few months, and I'm very happy with results. And even happier with the emotional ease the system provides.

There is still a missing part in the system, though.

It's the process of selecting assets for my portfolio. I have browsed through the FAQ and unfortunately haven't found much questions/answers related to this topic.

One answer which sticked to my mind however, is your statement that "portfolio selection process is discretionary". I don't fully comprehend what you mean by that.

If it's discretionary, it means "depending on the trader's discretion". However, the trader still has some criteria/preferences/strategies which shape his discretion.

Could you please elaborate more on this, please? What do you mean by discretionary, or how do you select assets in your watchlist?

Thank you and best regards,

Thank you for raising this issue.

You might like to view a trading system as having two parts. It has some algorithm to process instrument data and it has some instruments in a tradeable-instrument list.

This contents of this tradeable-instrument list generally depend on trader discretion. For example it might contain stocks or futures or real estate or comic books - depending on the trader.

Furthermore, if it contains, say, futures, then the trader generally exercises discretion to decide which futures he wants to have in his list.

One popular, if somewhat dubious, practice involves back-testing to determine the "best" instruments to put in the portfolio. Thus, at the start of the simulation, he employs information that he acquires years later, at the end of the simulation.

Implementing this back-from-the-future method of portfolio selection in actual trading presents formidable problems - and calls into question the validity of the back-test results.

If you have a system that decides what to trade, from a universe that contains everything, you might make a claim for non-discretionary portfolio selection.

Dec 24, 2017

Doing Well

Hi Ed,

I hope that you are keeping up well.

I am doing well nowadays on the personal and professional fronts and in trading.

I am getting married on Friday, I am employed at the technology division of a HFT firm and I am making some (but not much) money by trading (I am now able to hold on to unleveraged positions for more than a year).

In general I have found that as I improve my personal life, my ability to profit from the markets also improves.

I wish to you and your beloved ones Merry Christmas.

Thank you for sharing your process.

Dec 23, 2017

Winning, Losing and Hypnosis

Good evening Ed,

I have a question for you. I have been spending 100s of hours in exploring and backtesting different systems of my own creation. I have been focusing on entries, exits, signals, and so on.

In the end, I have been looking inside me and I have come to realise that as of now I am not a winner. Every time I manage to be good at something, I tend to self sabotage.

I want to change that.

In the shortest time available to you, could you please tell me if:

1) you recognise this pattern in some traders

And if so

1) hypnose or self-hypnose could fix it for me?

Many thanks

Thank you for raising this issue.

In Tribe, we work together to discover underlying issues - and to reprogram automatic responses to critical incidents.

For more on the methods, see my book, The Trading Tribe.

To locate the issues we may begin with any form that currently presents. The process leads to location of the issue.

The Tribe can illuminate the issue from a wide variety of angles - an advantage you might not enjoy with self-hypnosis and other Do-It-Myself (DIM) methods.

To see how all this works, you might consider taking your feelings about "100s of hours," "winning" and "shortest available time" to Tribe as entry points.

Dec 21, 2017

Cab to Rickshaw

Mr. Seykota,

do you think bitcoin will reach 70,000 this week? I was riding in a cab and the driver was trading bitcoin from his smart phone. My friend said he'll be driving a rickshaw soon, all the best, and seasons greetings, I am,

You should live and be well and I should only hear good news.

Thank you for asking about Bitcoin - and for sharing your story about the Bitcoin-trading taxi operator.

I have a comment and chart of Bitcoin prices below, on this page, at December 18.

Bitcoin has obscure "fundamentals" so you can ascribe most of the propulsion in prices to trend traders.

As such, when everyone knows about it and you run out of new buyers, the ascension slows, prices pause and then head lower.

On the way down, you also have a lack of "fundamentals" so the down trend also tends to feed on itself with little amelioration.

- - -

Back in the day, Visicalc, a primitive spreadsheet program, turns the Apple II microcomputer into a serious business tool and makes Visicalc's creators wealthy.

IBM follows on with the PC.

Then, Lotus, a spreadsheet upgrade comes along and quickly puts Visicalc out of business.

Then, Excel comes along and does the same thing to Lotus.

These days, you can get the Open Office suite with spreadsheet, word processor, data base, etc. - all for exactly free.

Ed's Law for Software Prices: P --> 0.

- - -

The way I have it, Bitcoin consists mostly of software.

- - -

Thank you for telling me how I "should" live and what I "should" hear.

Actually, I prefer hearing all the news, not just the "good" stuff.

Dec 20, 2017

Wants to Meet the Austin Tribe

Mr Seykota,

I am a three year junior trader and a big music lover. I would love to have an opportunity and a privilege to meet you and the Austin tribe. I truly would appreciate it.

Thank you for a consideration. I bring open ears and a big heart to the table.

Thank you in advance for any consideration.

Best,

Thank you for extending your invitation to meet the Austin Tribe.

The Austin Tribe, when in session, does not meet people who drop by.

The Austin Tribe members agree to meet with each other for ten 6-hour sessions, about 2-3 weeks apart over a 6 month period - and to work hard supporting others and also by taking the hot seat.

Dec 20, 2017

Trading Math

Hi Ed,

Long time ago I used your a Simple Trading System Exponential Average Crossover for my training.

I never used for anything after that. Now I trying to replicate number of stacks shares to buy, using your formula (I think), end have some problem.

Problem like that. I have some capital, $100,000, and heat = 1%, RiskPerShare = 3.65 , real number from my model volatility, and my number for shares = int((100,00*0.01)/3.65)=27, price to buy is 51.95, so, my equity for trade is 51.95*27= 1,402.65, which is great my capital*heat.

Does it mean I cannot trade, or my formula Cap*Heat/RiskPerShare wrong? Should I delete my formula by Close price of the previous day?

Merry Christmas and happy New Year!

Thanks,

Thank you for raising this issue.

If you have $100k in your trading account and if you want to risk 1% per trade, then you aim to risk $1,000 per trade.

If you wish to buy a stock with a price of $51.95 and with a stop price of $48.30 you then have a risk per share of $3.65 (excluding transaction costs.)

At $3.65 risk per share, you can risk about $1,000 by buying 274 shares.

To buy 274 shares outright (not on margin) at $51.95 each, you have to spend around $14,234.30.

So, buying stock outright, you have to put up about fourteen times as much money as you wish to risk.

If you proceed in this manner, you can put on about six more trades before you fully invest and run out of capital. At that point you have about 7% total entry risk.

Dec 20, 2017

No Quick Fix for Trading

Ed,

Ive been trading for a year now but i have only just only just discovered you and your concept, hearing your Q/A and thoughts on trading etc is a great help.

All ive ever seen on the net from day 1 is a barrage of people desperate to make money through trading, mainly people who cant trade, selling their failed attempts to people who want a quick fix and cant be bothered to make the effort.

Everyone wants to be leonardo da vinci but dismisses the time, effort and attention that it takes to do so. Why would you ask another how to be creative in anything, its impossible and trading is the same.

Thank you for sharing your insights.

Dec 19, 2017

Wants a Job

Hello Ed,

I’d like a job, doing whatever is available. I really need the proximity to learn from scratch.

Please oblige if I am not asking too much.

Thank you for asking me for a job.

I can "give" you this one:

1. Find someone in your area of the world who spends himself serving others.

2. Offer to serve that person.

3. Do whatever he tells you to do.

Dec 19, 2017

Listens to Whipsaw Song

Hi Ed

I listen to your [Whipsaw] song most days (there is so much packed into such a simple tune. I love it) and I try review your rules as often as I can.

Thanks again

Thank you for letting me know.

Dec 19, 2017

Guide

Hi Ed,

I have been going through the FAQ archives and gathering your comments to form a kind of guide for myself. The results are below. The category breakdowns and anything in brackets are my additions / clarifications. I wanted to share in hopes the summary might help other FAQ readers. Thank you for sharing everything on your site. Happy holidays.

Big picture:

    In the markets, just about everything works sometimes, and hardly anything works all the time.
    The best indicator I know is Trend. The other good ones are Trend and Trend.
    There is no best [trend] system, any more than there is a best car. There might, however, be a best car for you.
    My views on trend following stay about the same.

How to determine trend:

    In Trend Trading we have two indicators: up trend and down trend.
    You can determine the trend in various ways and you mostly get the same result, depending on your preference for computing short-term or long-term trends.
    You can take a chart with one-day bars, stick it on the wall, step back a few feet, determine the trend and enter orders accordingly.
    To compute a trend, you have to compare average prices now with average prices then. Trend measurement requires averaging so you cannot define a trend until after the fact.
    The main difference between trend systems is the time constant, that defines how long it takes to register a change in trend.
    I do not publish the exact parameters as I do not wish to purvey rather arbitrary values as some kind of "magic formula."
    I prefer simple indicators.
    [Use] Richard Donchian 5/20 system as a starting point

General system considerations:

    While it's good to use your head to enter and exit trades, you make the big money using your other end ... sitting tight on winning positions
    Long-term trading has an advantage, in that the transaction costs are small relative to the average move.
    Short-term systems tend to succumb to transaction costs.
    Since so much of trading is about your ability to follow your system, a good system generally resonates with your gut approach, and evolves through years of trading.
    I do not know of any systems that are 0% discretionary.
    Trading algorithms [trend systems] are a part of trading, other important parts are risk management, attitude and knowing how to deal with feelings that arise during trading.
    Part of back-testing is to determine position sizing and risk management strategies that fit within your drawdown tolerance envelope.
    No matter how you enter and exit trades, be sure to have position sizing and risk control methods in place.
    Many technical traders keep risk per trade at about 1/2 %.
    In your models, be sure to give definite names and precise meanings to all your parameters

Other points:

    [Response to reader] You seem to be asking for a way to get on the big trends without having to suffer through the drawdowns. Nice fantasy.
    If comfort is your goal, stop trading.
    To avoid whipsaw losses, stop trading.
    Advanced technology for analyzing the markets is interesting, entertaining, distracting, and even counter-productive to coming to terms with emotional reactions to uncertainty and volatility.
    If you want to trade consistently, without the swings in confidence, then you have to learn to accept, even celebrate, the feeling of uncertainty. This is the work of the Trading Tribe [TTP].

Thank you for posting your guide.

Dec 18, 2017

Bubbles

Ed,

I've been receiving lots of texts and calls from friends, and people I haven't heard from in a while, regarding Bitcoin - what my general thoughts are; whether to buy it or stay away; is it in a bubble or not?

So I thought it'd be a good idea to take a look at some of the biggest bubbles over the past 40 years. We’ve seen bubbles in may different asset classes - stocks, agriculture, metals and energy.

I’m sure there are few I’m missing, but this is just to put Bitcoin's current price action in perspective versus past bubbles.

2008 Crude Oil

At the peak, prices sit 50% above the 300-day exponential moving average (EMA). Then prices collapse 70% over the following nine months.

2008 Canola Oil

At the peak, prices sit 67% above the 300-day EMA. Then prices fall 53% over the following years.

2000 Nasdaq

At the peak, prices sit 69% above the 300-day EMA. Then prices fall 84% over the following three years.

2011 Silver

At the peak, prices sit 85% above the 300-day EMA. Then prices fall 72% over the following years and still remains depressed today.

1980 Gold

At the peak, prices sit 150% above the 300-day EMA. Then prices fall 69% over the following years and remained depressed for a couple of decades.

1974 Sugar

At the peak, prices sit 160% above the 300-day EMA. Then prices fall 87% over the following two years.

2000 AMZN

At the peak, prices sit 180% above the 300-day EMA. Then prices fall 95% over the following two years.

2000 QCOM

At the peak, prices sit 323% above the 300-day EMA. Then prices fall 88% over the following three years.

2017 Bitcoin Investment Trust (GBTC)

Currently, prices sit 500% above the 300-day EMA.

If you’re trading this instrument today with zero plan, then may God have mercy on your soul.

Thank you for sharing your thoughts and research.

Picking Tops Gets Easy

when you get a brand new one
every day.

https://coinmarketcap.com/currencies/bitcoin/

Dec 18, 2017

Changing Emotions

Ed,

I'm happy to see FAQs is updated. It hurts to see the extreme damage you and many others suffered in Puerto Rico.

I read some FAQs last night and this AM I got the timely email below which contains this resonant bit of wisdom:

"The proper use of emotions begins by accepting that they measure the difference between what we mapped and what we experience. As such, every emotion is useful and provides valuable information. Perhaps the map was off, perhaps our skill in the experience was deficient. Either way, we can change our emotion by changing either what we’re thinking or what we’re doing or some combination of the two."

Merry Christmas, Happy Hannukah, or whatever makes you happy,

Thank you for sharing your process, your feelings about Puerto Rico and your wisdom.

In TTP we do not seek to change our emotions; we seek to experience and celebrate them.

Dec 18, 2017

Weeping

Dear Ed,

I weep as I read this article and see pictures of the people of Venezuela:

https://www.nytimes.com/interactive/
2017/12/17/world/americas/venezuela-
children-starving.html

I weep as I think about dictatorships, socialism, government control of an economy, and the true cost of the promise of free stuff without having to work for it.

Thank you for sharing your process and feelings about the situation in Venezuela.

Dec 15, 2017

Shortest Available

Ed

I have been on your website, read the ground rules about Trading Tribe, read what people send you and your answers to them. And I do not understand what is the point of it and the benefit to them.

I strongly wish be part of an association of people who commit to excellence, personal growth, and supporting and receiving support from each other, as is mentioned on your website.

Would you kindly be willing to help in the shortest time available to you?

Many thanks,

Thank you for sharing your process - and for telling me you do not understand the point of it all.

To get your bearings, you might consider reading through the introductory pages of my book, The Trading Tribe. You can read this sample for free at:

http://www.seykota.com/books/index.html

You might consider taking your feelings about <the shortest time available> to Tribe as an entry point.

Dec 15, 2017

Radial Momentum Catch

Hello Ed,

Could you please explain this to me a little better for me to understand?

Note that force (4) is independent of velocity and the size of the gap. Force depends on the ratio of the disk radius to the orifice radius.

I want to know how the ratio changes the force. Is it a small orifice to big disk radius that gives more force with low pressure/ velocity?

Can you please give me some examples so I can better understand?

Thank you very much for showing me the truth of lift and for your time to help me understand.

Sincerely

Thank you for your perceptive and constructive comments on Radial Momentum.

I salute your diligence, curiosity and willingness to sound off about things you find unclear.

Thank you for drawing my attention to a math error.

The item to which you refer:

Case I: Low pressure

In this case, the gap is relatively wide and the levitator draws all the airflow the pump can deliver.

The well pressure is relatively low.

P0, the pressure just past the valve is the same as the pressure in the well.

Friction is about zero and the velocity is constant to the edge of the physical disk.

The time for a ring of air to traverse the plate, t = (R- r0)/v. The force on the plate of the air in the well, F0 = pi * r0^2 * P0.
Text

Note that force (4) is independent of velocity and the size of the gap. Force depends on the ratio of the disk radius to the orifice radius.

Theory: http://www.seykota.com/rm/model/model.htm

Data: http://www.seykota.com/rm/orifice/orifice.htm

My mistake lies in my declaring velocity constant from r0 to R.

More to the point, we have relatively constant pressure and density out beyond the active region, except for a small gradient that motivates flow out of the device.

Inside the cavitation ring, we have a low u-shape for density and pressure.

Since we have constant mass flux, pressure and density as the ring of air expands, we have velocity inversely proportional to radius.

Equation 4, that you call into question, follows from this error and has no particular meaning or relevance - and stands in line for revision.

Low Pressure
In the Active Region

forms a cavitation ring
that levitates the disk.

As the fluid exits the active region
its pressure jumps to slightly above
ambient pressure.

Ro lies to the left; R to the right.

Hydraulic Jump Appears

on the back of a dinner plate
under a kitchen faucet.

It does not require
down-stream obstruction
as some authors claim.

Dec 15, 2017

Can't Talk to Normal People

Ed,

I am a big fan of Trading the futures markets. I have been attempting to be successful for three years.

I live in[City] I run a dumpster biz I just opened 6 months ago to stay out of car biz and corporate BS and focus on myself and my trading skills. My current area of mastery is trend trading under my mentor [Name and Location].

Even being part of a trade school it is a lonely life. I too am a big fan of music and I also believe we are in Assimilation of Govopoly but at this point no one cares and I can’t talk to any normal person about it because their mind is not on the concern.

I feel life mentorship from original smart people is hard to find these days.

Happy Holidays.

Best,

Thank you for sharing your process.

Dec 14, 2017

Shoulding on Others

Mr. Seykota, I have sent you a copy of the book I recommended you read.

Please read the first 3 chapters. If you gain some truth which you can apply in your daily life then please let me know.

Reading and applying is critical.

The truth will add to your life.

The truth will bring you closer to the unity of the created we live in.

Yet the truth will humble us and thru humility we will create a vessel that's open to truth wherever it can be found.

Seasons greetings , I am, sincerely.

You should live and be well and I should only hear good news.

Thank you for telling me what I should do in order to get to the Truth.

The word, "should," indicates obligation, duty, or correctness - and predilection toward control-centric relating.

You might consider eliminating "should" from your vocabulary for a while and then taking your feelings about <emotional closeness> to Tribe as an entry point.

Dec 14, 2017

Queasy About Winning

Ed,

I have a historical tendency toward mediocrity. I can win and have a little success but I do not feel comfortable with consistent winning or big leaps in success.

I start winning again recently. I start to feel a quesy feeling in my head and stomach when I think of this most recent win streak. Today I lose a little bit and the queasiness gives way to other feelings. As I write this I feel a little relief.

In multiple areas in my life I win, feel success, then feel a rejection of success which starts a downward spiral where I hit rock bottom or give up, only to try to climb the mountain again and repeat the process all over again.

I want to break this cycle, make allies with the feelings that come up when I have some success, so that I don’t have to act out this drama over and over again.

Thank you.

Thank you for sharing your process.

You might consider taking your feelings about <winning>, <losing> and <breaking the cycle> to Tribe as entry points.

Dec 14, 2017

On the Wagon - Noticing Forearms

Hi Ed,

I agree to not use any drugs or alcohol. Earlier I had strong feelings and I had intense pressure on my head as when I first contact you and start losing my hair a couple years ago and squeezing in my head. It turns out it was a fever, but I think it is more than that.

The past couple of days I have felt very lethargic. I think I'm suppressing anger and it's coming out as a couple years. I would get up and certain times I would feel like crying and let out a couple years but not very much, just little.

I find myself being really yeilding in trying to get people to like me and it's sickening. Im just feeling very lethargic.

And when I contact you about the maid thing, I was watching a video that my mom shared on our family chat showing my nephew in the car and the turned the camera around and this maid was there and immediately I start to rub my forearms together trying to get rid of whatever's holding me.

I hope I will be able to see you or get your assistance whenever strong feelings start to come up.

Thank you for sharing your process.

You might consider taking your feelings about <your forearms> and about <holding back> to Tribe as entry points.

Dec 13, 2017

Commodity / Stock Ratio

Ed,

You might find this chart of interest.

Commodities Near Historic Lows
Relative to Stocks

http://www.zerohedge.com/sites/default/files/images/
user5/imageroot/2017/12/13/equities%20vs
%20commodities%20gundlach.jpg

Thank you for sending me the chart.

Dec 13, 2017

What Has Three Legs and Goes Around

Dear Ed,

I hope you have enjoyed 2017 and that the coming year finds you even more joyous.

I want to share a photo that documents one of my joyful moments of 2017: the completion of a restoration of an old, non-functioning windmill that sits on the property I have purchased as my retirement home.

It was just overlooked and taken for granted, broken down and written off, until a little spark ignited in my imagination that said, "How cool would it be if that windmill could not only function, but serve a purpose!"

The renovation process was more complicated than even the windmill guy anticipated, but yesterday the top was finally installed and my windmill is now pumping water to keep my swimmin' hole full! No worrying about evaporation in the summer or overgrowth of algae, thanks to a continuous influx of fresh, cold water driven by the wind. And it is located where I can sit on my front porch and enjoy the view, just as you see it here.

I am told it is unusually tall, and that the triangular base is also rare now that most newer windmills sit on a four-sided base. The whole thing, plus my impending retirement this year, feels so incredibly special to me that I want to share it with you and your readers.

I credit my experiences with the Trading Tribe for much of the personal growth I have experienced in the past few years.

Thank you for being a part of my dreams coming true.

Pumping Again

Thank you for sharing your process and photo - and for applying and helping to extend TTP - and for living your dream.

Dec 10, 2017

Evidently

Hi Ed,

According to the available data, Inflation is 2%, unemployment is 4.1% and trending down. Evidently, 2008 bank bailout is working for the general public. Do you think government intervention in a situation like this is necessary?

I wonder, what would happen if the government would not take any action.

Thank you for raising this issue.

According to the available data, I play banjo on Friday - and - we have no sightings of elephants roaming around in Austin Texas.

Evidently, playing banjo on Friday keeps elephants away.

Dec 10, 2017

Workshop

Hi Ed,

I would like to attend your early 2018 workshop.

Have a great Christmas and New Year.

Thank you for expressing an interest.

Dec 7, 2017

Performance Evaluation

Hi Cheif,

I recently run some simple EA crossover system test, selecting a stock data as sample.

TC Parameter Setting:
(1)TC for Fast-EA: 15
(2)TC for Slow-EA: 50

Trading Rules:
(1)Entry Signal: If Fast-EA> Slow-EA, buy, entry price set as 50%*(Next day's Open price+ Nest day's High)
(2)Out Signal:
1, If Fast-EA< Slow-EA, Or
2, When holding days>7 days, and, the positon still show loss. Or
3, Whenever the positon show a +10% loss
Then Out, out price set as 50%*(Next day's Open price+ Nest day's Low)

My test resullt:
(1) The test shows 19 times to entry.
(2) The average return of all trades is +62.46%
(3) The average return decreases to 0.74% if I take the biggest profitable out.
(3) Win/Ratio is 4/19 (21%)

My question:
Becasue the average return decreases from 62.46% to 0.74% if I take the biggest profitable out, and ,Win/Ratio seems low, how would you evaluate the performance of this simple system? And, could you provide me some insight you get from such test result?

Thank you for raising this issue.

You can run back tests to gain insights and you can use MAR, Sharp Ratio, Sortino Ratio and the like to evaluate performance.

Dec 7, 2017

Multiple Setups

Hi Ed,

I have been a fan for a long time.

Quick question about risk management, correlation and forex pairs. Often times when looking for a set up I see multiple set ups appear for the same currency vs. other currencies (gbp/aud, gbp/nzd, gbp/cad).

When trend trading, if I was using position sizing of 2% per trade, would you break it up into 1% per trade and trade 2 of those pairs? Or would you take all of the trades? Or would you just take the best one?

Any advice would help, thanks.

Thank you for raising this issue.

You might consider taking your feelings about [designing and trading a definite system - versus - trying to figure out what to do as you go] to Tribe as an entry point.

Dec 7, 2017

TTP in Chinese

Hi Chief,

I read your book The Trading Tribe, and now, it is my favorite book. It's a guidebook for me to move toward righ livelihood. I begin to reread it to go deeper into this book, at the same time, go deeper into myself.

Maybe you would say, "you might take your favorte feeling as an entry point to a meeting",
but I accpet this feeling, maybe it would change in the future, which I can not predict.

I just accpet it in NOW and i feel good for this feelings. It leads me to think more on this book, which I think is the good side of this "favorite" feeling.

Now I want to translate the book to Chinese, so my families can also read it too.

It's so good a gift that I must share it to my families, I have 2 brothers and 2 sisters.

Not for commercial use, if you agree, when I finish the translation, I would send it to you and you can post it on your website.

I think my translation might be very good, becasue your SVO-p writing style makes it very easy.

Waiting for your reply if you provide me the permission to translate it to Chinese, as my gift for my famalies.

Hope this email find you healthy and happy.

Best wishes form a young man living in China!

Thank you for raising this issue.

Yes, you may translate The Trading Tribe into Chinese so your family can read it.

Please distribute paper copies only.

Please send the digital version of your Chinese translation to me as I may wish to process it further and then publish it.

You might consider re-translating your Chinese version back into English (with translation software) to confirm the meaning remains intact.

Dec 6, 2017

Swallowing Money

Ed,

I check-in with you to see how you're doing. I share a recent success of bringing in a new client. This is my first new client in a very long time.

You ask how I attract this client, and my answer is, I do nothing. The new client calls me completely unexpectedly. Prior to receiving the client call, I recall feeling confident and developing an attitude of "if people want my services, fine, if not, that's fine too". Previously, my habit is lots of hand-wringing and worrying about "how I am ever going to find new clients?"

I feel distress that my success and feelings of confidence are only temporary, and I fear a "return to the mean" of worrying about getting new clients. Below is our dialog that follows, to the best of my recollection:

You: Where is this feeling, physically?

Me: It's in my stomach.

You: Good. Can you tell me more about this feeling in your stomach?

Me: Sure. It feels like a ball. Not painful, just there.

You: What is this ball trying to tell you?

Me: I don't know.

You: What temperature is the ball?

Me: It's room temperature, not hot, not cold.

You: What color is the ball?

Me: Green. It's a green ball.

You: How big is the ball?

Me: About the size of my fist.

You: Can you make the ball bigger?

Me: Yes.

You: Really get into that feeling.

I get into the room temperature, growing green ball stuck-in-my-stomach feeling and I vividly recall something that happens when I'm three years old.

I can see everything clearly, as if it's happening in real-time. I'm alone and playing a game by myself. The game is: roll a penny down a paper tube into my mouth. It just-so-happens I choose a tarnished-green copper US penny for this game.

I have fun for several tries, rolling the penny into my mouth, spitting it out, and doing it over again. On the fifth roll, the penny goes down my throat and gets stuck. I recall feeling shock, fear, and a lot of discomfort. I swallow a bunch of times, and still feel it in my throat, then eventually in my stomach.

As I type, I can still feel the sensation of the coin going down my throat.

You ask who taught me this game. I say the toy clown bank. I remember having a toy clown bank where you place a coin on the clown's tongue and he swallows the coin.

You: This coin has been protecting you. It's been a silent sentry in your stomach nearly your entire life.

Me: I never thought of that.

You: In all this time, it has been doing its job, protecting you, without any acknowledgment. A silent soldier, showing up every day. Would you like to say anything to your faithful sentry?

Me: Yes. Thank you for all your years of service, and I'm sorry, I haven't even noticed you were there.

You: Great. Now what do you want to do with the coin?

Me: I would like to get rid of it.

You: OK, well how would you like to get rid of it?

Me: I'd like to make it infinitesimally small and pass the coin

You: Go ahead and make it small. Is it small?

Me: So tiny it cannot be seen.

You: When we’re done are you ready to pass the coin?

Me: Yes. I'm thankful for the coin, and ready to let it go. I always remember its lessons that protect me, from bringing in money that's not appropriate, and from situations in which my services would not be a good fit.

You: Is this new client appropriate?

Me: Absolutely. Without a doubt.

I feel grateful for my coin-sentry, and grateful for your observations and deep caring and interest in working through the process with me.

Per your suggestion, I locate the actual bank, and attach a photo that I plan on adding to my office wall.

The next day I attend a social event and meet someone new who seems very interested in what I do. We set a meeting to discuss Trend Following 101.

Right now, I feel happy about where I am on my path to right livelihood. It's not smooth sailing all the time, and it's definitely a challenge: especially marketing. I love helping others and sharing my talents for sticking to a profitable long-term trend following system. It’s been five years since I started my firm and I’m happy to report zero variance. I love digging deeper into my endless fascination for computers, historical prices, risk management, markets, (and music!)

Again, thank you.

A Clown Bank

can teach you a lot about money.

Bank by J. Chein and Co, circa 1940's, tin, 5-1/16 inches high. You deposit money into the bank by pushing a lever near the word "press" and placing a coin on the tongue that extends from the clown's mouth. You deposit the coin by releasing the lever.

https://www.rubylane.com/item/439818-RL558/
Mechanical-Clown-Bank-Round-Trap

Thank you for sharing your process and for documenting the work.

Note: I conduct this session by telephone. I recall Hotseat electing not to "pass" the coin after all - and to "keep it around" to remind him to accept only clients that fit with his trading strategy.

During the session, Hotseat operates in a mild trance state. He notes his report as "to the best of my recollection."

This case illustrates how an aversion to "swallowing money" can easily translate into an aversion to accepting new accounts.

Re-framing these feelings as due diligence during the client interview can empower rather than inhibit his marketing function.

This session illustrates several TTP principles:

frame the issue as a physical sensation
(distress & worry --> ball in stomach);

validate and develop the feelings
(green; room temperature; size of fist);

locate the primary incident
(swallow coin);

notice the positive intention
(protection)

release with gratitude
(thank the sentry)

implement the learning
(accept appropriate-source money).

Dec 6, 2017

Wants to Work on TSP

Hi Chief,

You reply "I wonder if you might like to help complete it."

Yes, I do like to help complete it. I do like to do something that benefits me.

TSP, as you said in the website, is an opportunity for readers of FAQ to participate in the design, verification, testing and implementation of an actual trading system, from Ground up. In my mind, it is like a on line workshop and I like it very much when I find it on your website.

I think, through following along with the evolution of the project, I can master the basic skill and find some important details, which helps me to develop my own system.

It seems that, in TSP, you briefly give a refined introduction to every sub-project, like providing an entry point, and then readers of FAQ participate to test and verify, executing the DIM process in their own side.

Now, there is only titles of remaining sub-project, it seems that these topic waiting for you to active.
I'm sure i will participate and help complete it together with other participates once you providing an entry point to active them like before.

Thanks.

Thank you for sharing your process.

You may begin by picking one of the titles and writing something about it.

Dec 6, 2017

Wants to Meet

Hi Ed,

Thank you for taking the time to reply to my message.

I am currently in Brazil, in Porto Alegre.

I am still very much interested in meeting you and learning from you as well.

Let me know if there is any possibility to do so in the future.

Thank you

Thank you for reaching out to me.

We can meet in person, briefly, if you ever visit Austin.

I can work with you on FAQ, for free and also privately. See Ground Rules, above.

I do not how to do anything in the future.

Perhaps, in the ever-evolving moment of now we can make an agreement - and then continue to keep that agreement in the now - until we meet, according to that agreement.

Dec 5, 2017

Writing a Book about Hedging

Hey, Ed,

Since I read about your story in Market Wizards, I've been thrilled by it. I have often read your website and find it fascinating how many people you have helped.

I'm a little worried if you're okay, because the last posts on your site are from the beginning of this year. I hope it's all good.
Hi Ed,

Long time ago I used your a Simple Trading System Exponential Average Crossover for my training. I never used for anything after that. Now I trying to replicate number of stacks shares to buy, using your formula (I think), end have some problem. Problem like that. I have some capital, $100,000, and heat = 1%, RiskPerShare = 3.65 , real number from my model volatility, and my number for shares = int((100,00*0.01)/3.65)=27, price to buy is 51.95, so, my equity for trade is 51.95*27= 1,402.65, which is great my capital*heat. Does it mean I cannot trade, or my formula Cap*Heat/RiskPerShare wrong? Should I delete my formula by Close price of the previous day?

Merry Christmas and happy New Year!
Thanks, Maury
From the viewpoints of trading we have many points of contact. I also use the technical analysis a lot for my trading decisions. What thrills me about your view of trading from the very beginning is the point that you see trading and psychology as an inseparable point. I share this view with you!

What we still have in common is the point that I also try to pass on my knowledge about trading to others. I am a trader here in Germany and have been leading a group of IFTA here in Germany for a long time.

I am currently working on a book project. The book is about hedging.

I have had the experience that many traders are afraid to make losses in the markets. They then try to secure their positions with less promising methods. However, this often does not lead to the desired result. I would like to inform the traders about this. I would like to point out when hedging makes sense and in which situation it is better to use a stop.

I would be interested in your opinion on this subject. I would be very happy if I could send you a few questions on this topic and use your answers in my book. I wouldn't change your answers, just have them translated. I assure you of that.

The book is published by a well-known German publishing house, which also holds the German rights for "Market Wizards" and publishes the book there.

I would love to hear from you.

With best regards

Thank you for sharing your process and for inviting me to answer questions for your book.

On FAQ, I consider issues that appear in the lives of the FAQ readers.

You might consider, for your book, reaching out to someone else who has a background in hedging.

Dec 1, 2017

Dear Ed,

Thanks for taking an interest. Such a simple question [I wonder if you can tell me, specifically,
something you would like to change about your trading.] and as I pondered further, I couldn't come up with a simple answer, which is the reason for my delayed response.

It has come to my attention that although a lot of the data indicates I should trust the system i built, I find myself sometimes not trusting the ups and downs of my trades, which leads me to sometimes cut my losses a bit too soon.

Psychologically, perhaps I don't trust myself sometimes. In my previous life, as a professional, I've somewhat succeeded in my career as a Software Architect, Project Manager and College Professor, which I am still doing to pay the bills, and it's there where I completely trust myself.

How can I channel that confidence to my trading? Is it just a matter of experience, which means I am at the mercy of time? I remember when I first started learning C++ in school, I failed a course called Data Structures, which teaches you all about the object oriented features of C++, and binary trees, linked lists, etc.

After I failed, I told myself I had to just give it time and try it again, and put more time into it, which eventually led me to passing that class, and giving me somewhat of a template on how to approach problems, which is simply, putting in the time, day in and day out.

I am convinced that perhaps my challenge lies in my subconscious, which perhaps I need to reprogram, as I have been doing, by listening to tapes with subliminal messages, by Kelly Howell. Any suggestions would be greatly appreciated.

Another quick mention, I read on one of Van Tharp's sites that you wrote a trading system in Assembly Language. I can't fathom how many countless hours that took, especially since with Assembly Language you have to be extremely meticulous about memory management.

Personally I loved Assembly Language, I actually wrote a calculator program during my time in school, and it was about 1200 lines long! Such a difference between that and C#. I just thought that was pretty cool.

All my best,

Thank you for sharing your process.

Dec 1, 2017

Media Overload

Hello Ed,

In the recent weeks, I’ve paid a lot of attention to my physiological and emotional reactions.

Also, I have made a consious decision to limit consumption of news and media “information”. I decided to spent not more than 30 minutes per week on this.

Today, was my media day and after reading news for about 20 minutes I felt angry, I was sweating and I had a minor headache. When I was reading the news (I used three different sources) I felt like everyone was trying to promote their narration (interpretation of events), instead of delivering information. I felt angry on three levels: one, for wasting my time on reading their false and useless opinions. Two, for losing time and NOT receiving the actual information. Three, for forcing me out of my zen mindset.

Here is the question. It’s clear that consuming media has a negative effect on me. At the same time I feel like quitting media 100% wouldn’t be reasonable as I need access to the minimum amount of information.

Do you have a suggestion how to acquire information about news, world events and important political changes effectively (without unnecessary emotional toll)?,

Thank you for sharing your process.

You might consider taking you feelings about <too much information> to Tribe as an entry point.

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