Questions

(Quotes from Ed in Red)

Answers

Wed, 31 Mar 2004

Wed, 31 Mar 2004

Tue, 30 Mar 2004

Tue, 30 Mar 2004

Mon, 29 Mar 2004

Capital - Does Size matter

Hi Ed

What you are doing with the FAQ is a great thing and I greatly admire your generosity.

I was interested in your response to the post mentioned above. FAQ readers might like to know of an alternative for those with small accounts, although this may not exist in all countries. In the UK at least it is possible to bet on market movements with online bookmakers (spread betting).

The bookie quotes a spread around the market price, which you then go long or short from. You obviously get bad fills, but this is compensated for by not having to pay capital gains tax on any profits.

One of these companies allows you to open an account with as little as GBP 100, and for the first 8 weeks allows you to bet as little as one penny a point move.

Thereafter, minimum bet size goes up to 50 pence. Margin requirement is as little as 6 times your stake for some stocks and as high as 2500 times your stake for volatile indices.

I do not have any affiliation with any of these companies, but just thought that it might allow someone to test the water without putting up a lot of capital, and that it can provide a bit of verisimilitude which paper trading cannot. Needless to say, there is nothing in the way of winning big with this method, as long as risk is managed carefully. If anyone is interested, a search under the subject "spread betting" will throw up plenty of examples.

Also, the e-text of "Memoirs of Extraordinary Popular Delusions" which you recommend is available free at the following address:

http://www.gutenberg.net/

cgi-bin/search/t9.cgi?author=

mackay&title=&subject=

&ntes=&whole=yes&language=

&filetype=&class_lc=

-----

I hope you don't mind me pointing out a grammatical mistake in your reply to System and Discretionary Trading on Nov 1 2003. " All these decisions may greatly effect performance"

Your bookie system seems to include getting bad fills and not paying taxes.

An alternative system is to study the markets, study yourself, come up with a legitimate and robust system and attract capital from the investment community.

That community, by the way, is not likely to take someone with a bookie system very seriously.

You might take your feelings of being too small into the process.

A Small System

of proper construction,

can attract and hold large assets

Clip: www.clublisa.com/tiny01/

-----

Sun, 28 Mar 2004

In a Paradox

Dear Mr. Seykota,

I believe in Intention = Results. I take a look at whatever results I am getting, and I tell myself that it is a perfect reflection of my intention. Thus, I find myself having a tendency to be very concerned about results.

But I also read many other books and interviews (you or some other successful persons) who suggest just doing whatever I love to do, and not worry about the results. The best way to go from Point A to Point B without bumping into the walls is to bump into the walls and not worry about it. Don't worry about getting to Point B but just enjoy the bumps. I like that and it feels like a light bulb just goes on.

So I find myself in a paradox and am somewhat confused. It's like it seems to make sense and resonates, but at the same time it doesn't.

You might try experiencing the feeling of being in a Paradox, and be sure to be plenty concerned about the results of doing so.

Hydrostatic Paradox

(The Self-Flowing Flask)

The larger weight on the left forces water down and around the narrow neck where the weight is less, and then it flows out the orifice at the top to replenish the water in the vase.

While the "paradox" seems perfectly reasonable to many persons, the darn thing just doesn't work that way. In fact, it works in accordance with the principle "water seeks its own level".

Sun, 28 Mar 2004

TTP supports you in feeling your loneliness - all the way to the point at which you come to know it's positive intention.

Loneliness

like other feelings,

runs your life until you are willing

to experience it.

Clip: http://www.cs.umd.edu/

Sun, 28 Mar 2004

Trading Time / Intention

Hi Ed

Thanks for your site.

1. I was wondering if you had come up with any 'a-has' about the concept of trading time, instead of money, in both work and job relationships, or is it a very simple concept as I expect it may be.

1. Can you send me the name and number of a broker who accepts orders denominated in Hours and Minutes, rather that in Dollars and Cents.

2.  If you buy a ticket with a 1,000,000: 1 chance against winning, and if you wish really hard to win, and you do not win, then your intention is to wish really hard to win and to lose.

Sun, 28 Mar 2004

Ready to start a tribe in Amsterdam


Ed,

I wrote to you a while back, in January. As explained previously, I would really enjoy setting up a tribe in Amsterdam. It took me this long to finally commit to this decision, though I thought about it after I read your reply to my FAQ letter.

This happens to be an issue for me, the ability to follow through on commitments to excellence. Anyway, I am not certain of the requirements for starting a tribe, but I do have a more than a keen interest in psychology and its behaviors and the role or emotions in trading.

Additionally, I have experience working with others in a trading setting, I set up two trading offices in the not too distant past. I need this outlet to share the process with others. Just a bit of history, upon first reading your sight and the TTP process, I encouraged my girlfriend to receive for me as I have several unresolved emotional issues.

She agreed and was an excellent receiver, I had a huge cathartic outpouring of emotion, (a lot of crying) and then of course the AHAs and the why's to my recurring problems acting out in trading. It was extremely beneficial and in large part, the compulsive parts of my trading were exorcised (I realized I was trying to get my father's attention and prove to him that I'm lovable).

Welcome

Amsterdam !

You are in the directory.

Lekker!  Ik woonde Hoge School in Den Haag bij, leefde in Voorburg en heb veel dierbaar geheugen van Holland, haringen, frieten met mayonaise, mijn 50 cc. bromfiets en zingen "Ze dronk orange met een rietje."

Nice !  I attended high school near the Hague, lived in Voorburg, and have many happy memeories of herring, fries with mayonnaise, riding a 50 cc. motor-bike and singing: "She drank orange with a straw"

Ze was Hollands als het grass

als een molen op een plats.

She was as Dutch as the grass,

as a windmill on a plot.

Clip: www.nyfa.com/schools/ amsterdam.html

Sun, 28 Mar 2004

Forest Gate Tribe

Dear Ed,

I hope you are well, you may or may not remember receiving previous postings from me last July.

As I said before, I was not ready to start a tribe up at that time because of other commitments, and some questions I had that you did not answer.

I have been helping a friend with his college project, which is a stock monitoring program for both of us to use, and this will hopefully earn him a high grade.

Welcome

Forest Gate London !

You are in the directory.

Today Forest Gate is part of a bustling inner London borough; its origins lie in early Victorian times as a small clump of houses round a barrier to Epping Forest in what is now Woodgrange Road. The barrier, is a gate designed to stop the cattle from the forest from straying onto the high road to Romford.

Sun, 28 Mar 2004

Probability Calculations & Sarcasm

Dear Ed,


I have a couple of questions to ask you, and I hope you can answer them, as I feel confident that you would already have done some work in this area.

Basically, I am working on a system filter by calculating the mathematical probabilities of a stock rising / falling by X percent in N bars.

The ultimate idea is to take only the trades which have probabilities of more than 40-50%, of moving in the intended direction and by the minimum distance required to secure a locked in profit.

The first way I have coded is based on the delta part of the Black - Scholes option formula, which is working well (in low volatility trending markets) .

Formula (1)

to calculate the probability of the market being > 3% higher than it is now in the next 25 days.

Take the Black-Scholes option formula and make the following alterations:-

Strike price = Close + 3%
Expiry date = 25 bars in this case.
Volatility = ( 5 different lengths of standard deviations, to obtain a bigger picture of true volatility (divided down to produce average reading consistent with market option prices)
Price = Close + 5 different lengths of momentum divided down by varying factors ( to ensure that very long, long, medium, short and very short term trends are factored in)

A bug arises here in the instance of when the momentum reading is negative less than the actual minus stock price, after a profit warning for example, and this can be cured by a small piece of code saying

if momentum < (-close) then momentum = neg (c- (c*.01))

This bug fix is solving the problem but I do realize it is not strictly mathematically correct, so my first question is , if you can suggest an alternative for a "factor" to be added to the closing price that cannot ever be allowed to be a more negative reading than the negative of the close, and that is using the same formula regardless of how extreme the move has been ? As my not so good bug fix is using a "restrictor" rather than a constant piece of code to calculate itself.

The delta part of the this formula ( call ) then returns the probability of the above scenario occurring.

I am happy with the way it is working ( most of the time ), and I am finding a strong correlation between my past trade profits and the probabilities of each long and short signal taken.

But when extremely high or low reading are given e.g. probability up = 5% or 95% these are usually not accurate because the extreme over bought over sold readings are causing too much momentum to be applied to the formula. These are occurring after a very long trend becomes overheated, and then is set up for an exhaustion move.( reversal )

In these cases, after a long term down trend, the probability up indicator seems to take too long to rise to a higher value.

Most of the time during less volatile market conditions then formula is producing fine results.

I did some other studies on standard deviations a while ago, which also worked well on choppy non trending markets.

Formula (2)

Calculate the number of standard deviations that the close is away from its MA, then convert the reading to a standard deviation confidence level.

For example if the market had moved 3 deviations away, then this indicated an approximately 99.4 probability that the price would return back to its average.
But this did NOT work well during trends.

So, I made another probability function, which measures the probability of a trend occurring, by calculating the probability of ADX > 20, and the probability of ADX being > than its MA 30. added together and divided by 2.

Once this was factored in, I wrote in my code, if the probability of the market moving up by 3% in 25 days was 65% and the probability of a trend was 70% then I would multiply the two together to get 45.5% .
Also the other formula which was better in non trending market, would be used by multiplying itself by the REVERSED reading of the probability of trend indicator e.g. , 30% probability of NON trend, multiplied by 70% probability of market returning back to it average would give me a reading of 21%.
Once the 2 results are calculated then add them together and divide by 2 giving a reading of 33.25% ( but what is this reading representing??)

Half the formula is telling me, that the odds of the market rising 3% in 25 days and the other half is telling me the odds of it returning to its MA. You will surely agree this is not very satisfactory.

I am definitely a trend following trader, but I am aware of the effects that extreme moves can have on the probabilities of the trend continuing or reversing.

So my 2nd question is, how does one calculate the odds of the affect that extreme overbought oversold conditions, have on a trending market continuing or reversing?

Or is it indeed possible to calculate the odds of this affect at all?

I am aware that I may be told that it is not possible to do this, and also have a feeling that 50-50 odds are the only odds that are really TRUE in the mathematical sense.
But my own trading statistics for the last four years show my strike rate is 55.4% so I am wondering, am I just 5.4% more lucky than the average guy, or have I got an edge?

I have attached a chart to illustrate.

Your Sincerely


PS:

My last email was replied to with a highly sarcastic remark, even after I commented to you that I do not like such sarcasm.

Since meeting some more American people, I am learning that egotistical characteristics are common in USA, so I understand you may not have been aware that your comments would be taken as offensive to me.

But in UK, it is considered rude to make such remarks, and I may be more sensitive than most, I don't know.

I have a lot of respect for you, and I think you are probably the highest IQ level person I have ever communicated with, your intelligence and perception is remarkable.

Computing the probability of a stock rising (in the future) is inconsistent with trend following.

-----

You might notice the extent to which you try to control other people by telling them they are behaving  inappropriately - such as being (in your opinion) sarcastic.

While you might be able to attract people who want a  master (see: Fred, below), you might run into financial troubles if you try to control the market.

You might consider taking your feelings about wanting other people to behave appropriately, into the process.

Obedience Training

The administrators are typically people

who are unwilling to experience

their own feelings about control.

Clip: http://www.adbusters.no/

galleri/obey.jpg

Sat, 27 Mar 2004

Reformed True Believer in Stop Losses

Ed,

How are you?

I would like to thank you for offering your guidance, and constantly imploring us to look inside ourselves and to constantly grow. I also thank you for teaching us how to fish, by encouraging us to examine the psychological reasons of our success/failure.

This is much better than simply giving us a fish by telling us about the illusive holy grail, as success can only be reached through self growth. From you FAQ, I have learned to take responsibility for the results I get. I now realize that only I can make myself success, no one can do it for me.

I am no longer upset when I make a losing trade. I have come to realize that even a master trader such as you don't win 100% of the time, and that it's just silly for me to expect myself to be right 100% of the time.

I have realized that it takes a bigger man to admit that he is wrong, which in my mind is what cutting losses equates to. I realized that I used to want to trade to be right, and neglected that the magnitudes of one's profits and losses are even more important than the probability of one's profits and losses.

Fri, 26 Mar 2004

Trading Tribe Report

Hey Chief!

The [Name] Trading Tribe held our first TTP meeting Thursday, March 25. We are currently an Intentional Community of two including [Name] and myself, but we look forward to sharing our nascent Trading Tribe with others.

Sincerely,

Fri, 26 Mar 2004

From the Growth Engine List

Hi Ed !

Today's action !

BCSI  +  6 %
NVTL  + 10 %
IDSA  + 19 %

You might notice the extent to which you "validate" a trading system by the daily percentage change in a few stocks.

Other methods of measuring success include noticing how well you follow your signals, ride your winners, cut losses and manage risk.

Fri, 26 Mar 2004

What is it that Fred Wants Me to Experience?


Dear Mr. Seykota,

I figure the I amount I am comfortable to risk, and with the stop 8 handles away, I derive the number 50 to be the number of contracts I am comfortable to trade. But I actually mistakenly use the NASDAQ minis multiplier instead of the S&P, and I am 2.5 times larger what I really want to be !!!

Since intention = results, I am guessing Fred wants me to experience something. Perhaps the feeling of "taking more risk than I want to" or the feeling of regret or frustration? I really don't know its positive intentions and I have a respectful curiosity in learning. I am guessing you may suggest me to take my feeling of "taking more risk than I want to" to TTP? What if I will soon be out of the country before our next tribe meeting, and the place I am going to have no active tribe? Is there some alternate suggestions you may have? Many thanks.

How about taking your feeling of needing someone to tell you what to do, into the process. See Sarcasm, above.

The Boss System

has lots of opportunities

for people to tell each other

what to do.

Clip: http://flatrock.org.nz/topics/

working/assets/bossy.jpg

Fri, 26 Mar 2004

Tribe in Melbourne Australia?

Hi Ed,

I live in Melbourne Australia and I want to join a Trading Tribe so I wrote to the Melbourne contact you have listed - with absolutely no response? Is this an active tribe? Is there a Tribe I can Join Locally?

Regards and thank you for your site and helping me work towards change.

---


If you think you are too small to be effective, you have never been in bed with a mosquito. ~ Betty Reese

You might consider starting a tribe of your own.

Experiencing Mosquitoes

reveals the positive intention

of Geckos.

Clip: http://pup.princeton.edu/birds/

Thu, 25 Mar 2004

Clients for Asset Management

Dear Ed -

Thanks for your response.

1) With regards to gains/losses: I would expect annual losses in the 40% range if markets were very choppy and gains of 80% if there were many trends

2) Volatility: I would expect monthly volatility to be +/- 20%

3) Trading with the trend without having to understand why the markets move: I can only relate some personal experiences to you. I am trying to master the art of trading stocks from the long side. It has been almost two years and I am pretty mediocre so far. The few good trades I have made and the bad trades that were almost good gives me hope to stick with it. The challenge I am in the process of overcoming is learning how to ride my winners. My strategy has been to only buy stocks that have outperformed 90% of the market over the previous 12 months with the 6 month MA upward sloping for a minimum of 3 months and with prices at new highs or with 15% of new highs.

I use Jesse Livermore's concept of pivot points to calculate when to buy. It has been easy to ignore the funnymentals on an intellectual level. However on an emotional level ignoring the funnymentals has caused much angst because I spent 4 full years and $500K in opportunity cost learning the funnymentals in the pursuit of my Stern NYU MBA. Yet I still have never made a trade based on the funnymentals

I'd be happy to answer anymore questions.

OK.

Likely, you know exactly how to ride your winners.  You may want to look at your ability to stand the feelings of doing so.

Riding a Winner

is pretty easy, in theory.

Clip: http://www.vividgroup.com/

pressimages/Lhorse05.JPG

Thu, 25 Mar 2004

Growth Engine?

Greetings Ed,

Ok, I have to ask: What is the Trading Tribe Growth Engine? You reference it on your Charts page.

--

"For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled." - Richard P. Feynman

The Trading Tribe is reaching critical mass - evolving into an organism.

TT Growth Engine is a system that provides a structure for traders who wish to take the work forward, into the world - to manifest personal and financial growth for themselves and others.

Requirements for association, and access to The Growth Engine are mastery of TTP. See the TT Home Page. 

Thu, 25 Mar 2004

Quel sont les condition pour investir avec toi?

Merci

Je me demande si vous basez tous vos rapports sur des conditions. Vous pourriez considérer l'engagement à un processus comme alternative.

I wonder if you you base all your relationships on conditions.  You might consider commitment to process as an alternative basis.

Condition-Based Relationships

don't seem to work as well

as un-conditional ones,

based on commitment to process.

Clip: http://www.amarillonet.com/images/

headlines/030500/relationships.jpg

Thu, 25 Mar 2004

4 AM - In Paradise

Hi Ed !

I found an internet place across the street from where I'm staying (in Hawaii). I asked if there were any way he would be open at 4 am so I could look at the market. The proprietor said he didn't open until 9 am.

We talked for awhile. He said he used to trade. He designed a system in Visual Basic. He said he'd been inspired by a book ... Market Wizards. In that book he was impressed with one particular trader .... guess who ? So I told him about the Trading Tribe ...

After a pause in the conversation he said, "well, maybe i could get up at 4 am and open the store for you."

So here I am.

regards,

If you want to catch the open on the Bond Futures from Hawaii, you have to be in your place, with a bright shiny face, at 2:30 AM.

Yawning

is Mother Nature's way

of telling you that

Hawaiian Vacations

are supposed to be vacations.

PS: you can verify this by asking your wife.

Clip: http://www.vedantagallery.com/artists/

erwinwurm/images/yawning.jpg

Wed, 24 Mar 2004

Fishing

Hi Ed,

I'm taking a few days off before and after the workshop, and I plan to fish the Truckee, little Truckee, or float Boca Reservoir (depending on the flows and run off). If you fish, and like to get outside for a few hours, I know some great pocket waters, and would love to fish with you (and anyone else you might like to bring out).

All the best to you and yours.

Respectfully,

The California Department of Fish and Game has an ongoing program to remove non-native brook trout from the Truckee (with electro-fishing), and to restock the waters with Lahontan Cutthroat Trout.

Nature, however, has another idea, so the program continues to fail.

It's fortunate, for all of us, that our governmental agencies do not ever attempt to impose such ineffective impediments upon the workings of our free markets.

Upper Truckee River ...

... where the fish seem to know a lot more about going with the flow than does the Dept. of F&G.

Wed, 24 Mar 2004

1500%/ano

Tiene rentabilidades de 1500%/ano?
Qual és o capital minimo para invertir na sua empresa?

Gracias,

La parte de usted se parece ser española.  A parte de você parece ser portuguese. Vous pourriez prendre vos sentiments au sujet de l'essai de communiquer dans le TTP processus. 

Part of you seems to be Spanish. Part of you seems to be Portuguese. You might like to take your feelings about trying to communicate into the TT process.

Rule of thumb for passive trend following systems - allow about 50% of your expected annual profit for drawdowns - so if you want 1,500% per year, you might allow for 750% drawdowns. 

Wed, 24 Mar 2004

Happy Judge

Dear Ed,

Thank you for inventing TTP its changing my life. One of the benefits that I am aware of now is that I am much nicer to myself and others. In the past I was very critical of everything which I can now see affected everything from my personal relationships to my trading, this constant judging of people and markets seems to be dissolving.

I still have these judgments that come up, instead of ignoring them or telling myself its wrong to feel this way I try and find where this feeling is coming from and accept that's how I feel. During the workshop I aim to work my way to the happy judge, its a long way for me but I can get there.

You might consider the positive intention of judgment.

Judges

On some level,

they're all very, very happy.

Clip: http://www.larochecreative.com/

judge.jpg

Wed, 24 Mar 2004

Invertir

Como invertir con usted?

Gracias

Bueno, pues - Dígame algo sobre cómo usted maneja riesgo - y sobre cuánto riesgo usted puede manejar.

Ok then, tell me something bout how you manage risk, and about how much risk you can manage.

Trader Job #1:

Manage the Risk

Clip: http://www.graphicnovels.brodart.com

/selection_criteria.htm