(Quotes from Ed in Red)

Ed Says

Do you except whatever behavior your significant other chooses to exhibit – blindly holding on because you know that things just haaaaave to improve?

Do you see high number of girls and pursue the ones that are going well and quickly cut the ones that aren’t?
…or do you only see one girl at time that you’re very serious with?

The answer to these questions can be found in your trading charts and your profit/loss statements. Observe yourself in trading and you’re observing yourself in life.

Look at your trading style and see if what I’m saying is true- look at your relationships and notice the similarities. How many positions do you normally hold? How long do you hold a trade for? How much of a loss do you normally take before you sell out?

Most people never sit down and think about doing things profitably. They let blind luck shine on them every blue moon and wait outside in the cold the rest of the time. They buy stock XYZ because some guy on t.v. said it should go up or some guy on the subway said he’d just bought 1,000 shares of it. Drifting from trade to trade they go on whims- never a conscious thought about the system they’re using to play the game. (Which in this case would be: listen to the guy on t.v., buy when he says buy, sell when…..Oh S---, I’ve lost a ton of money).

By designing your own trading system, you become aware of the process. You stack the deck in your favor. You consciously set things up to get rid of the losers and stay with the winners. In trading – you bring in buckets of money as if money was water at the bottom of a well and you knew its location. In life- you have the quality of girl you want calling you all the time wanting to come hang out- it’s your choice.

The point you need to take in is the two are related. If you sit down and explore the best possibilities available to you by designing a system, then you just might find your wallet fuller and your dating life more satisfying than you could ever imagine.

Thank you in advance,

I do not know of any services that currently use the original Technical Tools data format.

Hello Ed,

I just wanted to check if you got my solution to your exercise.

I generally respond to emails with questions or that express progress along an ongoing growth process.

Anyway, I still have a curiosity:

why didn't you disclose your method?

ok, the question maybe looks silly, but I'd like to know, if possible, which are your motivations.


I found few:

1- I'm jealous of it
2- your clients would not be happy
3- you fear that bigger (i.e. more financed) traders could hunt your stops
4- you fear that if everybody starts using your same system it will
decrease its efficacy
5- it's basically a Donchian Channel & moving average cross system, and if anyone is so interested in the market and make some test with this methods and use the "Essential rules", he will find something very close to what I use.
6- you like to receive mails from people asking this
7- you would not look so smart if everybody knew what you do....
8- if you don't say anything many new traders will be good students of markets and traders community will grow! if you tell about your system, everybody will be lazier...
9- well, Dennis revelead its turtle system and after a while it stopped to be so good. mmmm...
10- if there's no secret anymore, you would not recieve as many invitation to traders expo!
11- you fear traders tribe would not see you as a guidance anymore, since you would be less misterious...
12- I want to share this only with people I know are very similar to me and I can trust.


well, there are obviously many other reasons.

I would bet on a mix between 2, 3, 4, 5. but maybe that an "hidden" 1 or 11, 12 is the real reason.

in my own case (the reason why I don't reveal MY system) the motivations are: 1,3,5, 12. and, by the way, "no one asked me".

I hope to receive an answer from you!

FAQ is, in many ways, an attempt to disclose these principles and values - including the principle that you might do well to find a mathematical system that fits your own personal preferences.

617F3sbppHc

don't do the teasing.

Hello Ed,

I hope you are well. It must be several years now that you were good enough to meet me in Cambridge prior to one of your seminars in the UK . Things have gone well at my end over the past few years and I have filled in a bit of time by writing a book (A Practical Guide to ETF Trading Systems ) and published several articles including one called Tuning Up the Turtle for Active Traders Magazine and Equities Without Tears for the Spectator in the UK.

I also have a [City] based regulated fund now which keeps me quite busy.

How did your research into trend following on equities come along? As we discussed, the tough bit is certainly position sizing and how to avoid unwanted margin in back testing.

In any event, do write back with your news if you get the chance,

"Buy some stock that's going up and hold on to it; it if doesn't go up, don't buy it in the first place."

I have a powerful hot seat in early December that removes some k-nots that I live with for many years. With my new resources, I re-learn how to have feelings-level conversations with women. I notice that having these conversations enables me to quickly make great advancements toward achieving my stated intentions. My attitude about these conversations changes, instead of dreading and avoiding them, I look forward to them and think that they are really useful. Around the same time, I also start to have fun and enjoy the process of meeting and interacting with women.

In the end of last year and the beginning of this year, I go on dates with a few different women. They are all much closer to my ideal mate than women I have gone out with previously but not quite what I am looking for. Recently, I meet another girl that I think is a very good match for me and we are now consistently dating. We relate on a feelings level and I notice that many other things I learn in TTP (accepting others the way they are, not wanting to control her) are very useful. Also, I bring to fruition the snapshot that I create for this wave roughly 8 months ago. I experience the exact same feelings as those in my snapshot. I am amazed and feel fulfilled.
 

In general, high-frequency trading has little effect on long-term trends.

Hope you are doing well.

I want to ask if I can visit your IV tribe (I am a workshop graduate).

I currently do not have an active Tribe. I am looking for an opportunity to take the hot seat and experience the rock process.

I have an “unhealthy” attachment to my mother. She is a domineering mother. I am in my late thirties and I notice that I like to be under her control (intention = results). Last week, I decide to express my feelings about this issue to her. I feel ok expressing my feelings. I wonder if I am running in circles so I always have to come back to her.

I am far from IV, but I can arrange a visit.

I am willing to support and help your Tribe during my visit.

I have started a new tribe.

India

Dr. Doom or Mr. Realist

I had an interesting conversation last week with a potential investor. I described my thoughts on the US economy, explaining that in our (my firm’s) view the current strength of the US economy is significantly boosted by steroids graciously provided by the US government in the form of stimulus. (I’ve written about it in this article.) I explained that since stimulus exaggerates the true performance of our economy, we’ve positioned our portfolio through stock selection for a subdued, low-growth type of recovery.

Then I shared my concerns about the Chinese economy – it has tremendous overcapacity in the commercial and residential real estate and industrial sectors (see this presentation: "China – The Mother of All Black Swans"). As the Chinese economy painfully readjusts and chews through the excesses, Chinese demand for industrial, energy, and commodity goods will be significantly lower. Thus in our portfolios we have reduced our exposure to these sectors.

And finally, I explained our views on Japan. As you’ll see from charts in the attached presentation (“Japan – Past the Point of No Return”), Japan has an enormous amount of debt (second only to Zimbabwe), a stagnating economy, and the oldest population in the world (this explains why the savings rate has declined from the teens towards zero). These factors will lead to significantly higher interest rates.

As an unbiased analyst it is hard to come to any other conclusion about Japan, and I am going to put it lightly: Japan is screwed! As a consequence, we believe higher interest rates globally are unavoidable, as Japan, now the largest foreign holder of the US Treasuries (together with China, the second largest holder), turns from buyer of Treasuries to net seller. So in our portfolio we are making sure that our companies have strong balance sheets and / or significant free cash flows to pay off debt, if (more likely when) interest rates rise.

With every country mentioned the potential investor got paler and paler; and before I got to the EU, a union that was created, as my friend John Mauldin put it, for prosperity not adversity, he exclaimed, “You are Dr. Doom!”

I don’t have a PhD, thus I can only be called Mr. Doom – but I am not that either. A joke told by Warren Buffett comes to mind: a patient, after hearing from a doctor that he has cancer, tells the doctor, “Doc, I don’t have enough money for the surgery, but maybe could I pay you to touch up the x-ray?” Hope and self-deception are not a strategy. I analyze and accept the conclusions of my analysis, no matter how painful they may be, and adjust my actions according to my findings. I am neither a pessimist nor an optimist, I am a realist. So at my firm we look at risks and constantly ask ourselves: What can we do to avoid them (or benefit from them) in our clients’ portfolios? So don’t call me Mr. Doom, call me Mr. Realist.

I have been doing much composing and performing on the piano the last several years which culminated in my debut CD 'Teardrop Rain' which is now being distributed through Amazon and iTunes, and is available in close to 3,000 stores across the US.

I also plan to launch my site by April. It takes the same name of the site I started back in 1995.

I am still here in [State] and plan to return to [City] in April.

I'd like to see the manuscript before I consider writing a forward.

took appr. 2 days on my machine!

fast 10 - 400, step 5
slow 200 - 900, step 10
heat 0.1 - 1.0, step 0.1

optimized for ICAGR/max.DD

exhaustive search algorithm


optimum:

fast 80
slow 420
heat 1.0

bliss 0.51

I should add that I excluded parameter sets that would result in a mean-reverting system (see exclusion in buy rules) because testing these was not part of the exercise.

While optimization run # 5 (sensitivity-directed search) is the most robust solution from the two data ranges I tested, there may be other criteria that could cause the trader to choose not to trade this system (distribution of profits, outliers...) - at least with these parameters - to modify the bliss function (factoring in other criteria such as max. DD) or to choose another bliss function altogether.

Plus, from running a sensitivity test (see histograms attached), it seems that even this solution is not too robust at least at a single-instrument level! Trading a whole portfolio of instruments may add to robustness.

In any case, it may be necessary to do a walk-forward on a portfolio of instruments to verify the system generates the returns suggested by in-sample optimization.

Optimization run 7 may also turn out to be a looser in walk-forward analysis and particularly in real-time! But even if it weren't, I would not trade this system: always betting 100% of the stake (i.e. no losers/always winners assumed) may be a sure way to the poorhouse...

I included some charts that show how max. DD, ICAGR and bliss changes as heat changes (for my optimum solution found, i.e. optimization run # 5).

Also, following up another person's remarks one should compute from the day of first trade initiation rather than from first day of back test, I included a metric called "ICAGR since first trade" for comparison reasons. But since the first trade is being initiated after 93 days, there is not that much of a difference in the metrics.

If you don't mind, I'd like get your take on how to "properly" capitalize a trading system. Since, as Mark Twain, states "History never repeats itself but it rhymes", precautions may need to be taken if real-time max. DD exceeds back test results. Thus, a higher capital base may suggest itself.

I'm sure I speak for many others out there when I say that it would be highly appreciated if you'd spend a few words on the other topics originally outlined on your page (Margin constraints, dynamic portfolio selection, dynamic risk modification et. al)

Incidentally, you stated that "thinking" about the results besides hunt-and-peck- and steamroller approach would be likely the best approach to come up with the "best" solution. But if a system has more than three parameters to optimize (especially on a broad range of data), I can't think of any other way than using "intelligent optimization" at this point since plotting a 2d or 3d graph becomes impossible.

Thanks for the lesson!

model/christie-brinkley/picture-1.html

Dear Ed,

Excellent week. I spend over 15 hours creating systems. The most of any week so far. I feel that I am on a strong trend toward Right Livelihood, with the occasional pull back. This week I have a lot of "Ahas" Most have to do with the balance of feeling and thinking and gaining more confidence in my total inability to control the future.

I watch Lindsey Vonn crying after she won gold, crossing the finish line on one ski. I want a snapshot like that. Historically, I view her emotions as conditional. She wins gold this causes her emotions to spill over. Now, I realize that is who she is. She would be crying and over come by emotions with a win or a loss. She gives her all and sacrifices everything to define herself. I ask myself, right now, am I overcome with emotions at my success and failure? No. I now realize this is my choice rather than a result of me winning the Olympics. This is a source of inspiration.

The week before last, in my attempt to experience my lack of motivation, I have some "Ahas". I realize I try to process my feelings by identifying, labeling, understanding, and caring about them. All of this blocks them. As a result, I am not that successful in experiencing them. It is counter-intuitive to me that trying to understand feelings is not feeling. I experience how all of these intentions are only successful in preventing my emotions from being received by me. I am able to spend some time emoting and experience the now. I find it easier to go with the flow. My rule of thumb is that if it is word then it is not an emotion.

Emotions are fast. They're in Now. I feel a sense of being overwhelmed and then feel some hesitation in experiencing them because they create action ("Wait. I have not had time to think."). Historically, I associate thinking with action and feeling with inaction (meditation, long walks). Plan it, think about it, justify experiencing the emotions and then try to understand the emotion so I can better control it next time. It is amazing to experience the raw power in not understanding and simply experiencing. This is the first time I see I am intimidated by my potential inside me and block it (Powerful). This is very different from my potential being outside of me and always wanting it (Powerless).

Thank you for sharing your process and your insights.

Hi Ed,

Do you plan to schedule any workshop this year?
Are you going to make any workshop in Frankfurt / Germany?

I have no plan at this point to deliver a Workshop in Frankfurt - although I have happy memories of that city.

After reading a quote from an interview with Temple Grandin, I think of you and FAQ. The quote is "When I was younger I was looking for this magic meaning of life. It's very simple now," she says. Making the lives of others better, doing "something of lasting value, that's the meaning of life, it's that simple."

I also like her take on cows: "they deserve some respect."

Your Unwillingness is Your System

Dear Ed

I am writing to share with you, and the readers of FAQ, a recent experience which helped me better understand one of your insights.

I spent several months at the end of last year reading through the Trading Tribe website. Thank you, and all the other contributions to FAQ, for all the valuable resources and insights that are available.

I was particularly struck by the following insight:

Ed says: “The feelings you are unwilling to experience are your trading system.”

Although I could understand this statement at a conscious rational level when reading it at the time, I must admit that I did not really understand until now.

Background

I trade using a group of systems that I designed which have rules that are mechanical / algorithmic in nature, but which I still execute manually at present in order to develop a feel for how to trade with them.

One system recently signaled to go short coffee (Liffe Robusta March 2010). I followed the signal, the market dropped slightly and then consolidated. No signal to exit the position has occurred up to the time of writing this e-mail (02/22/2010) but the March contract will expire shortly and I need to roll-over the position.

In addition, for various administrative and IT reasons relating to my trading account with my broker, I must close out all my positions and delete all orders for a few hours sometime this week.

So, at the end of last week (Friday 02/19/2010) my conscious mind was well aware of two reasons to potentially distract me from following the system rules: “Roll-over” and “Admin”.

Both are normal and are expected from time to time so there should have been nothing particularly unusual about the situation. However, my mind had the chance to explain this situation to myself and provide reasons to justify me paying particular attention as to how I should close out the position and roll it over.

Feelings that I was Unwilling to Experience

At the end of last week, still I had a few days to close-out the position.

But on Friday (02/19/2010) mid-morning (European time), I suddenly got a mild feeling of fear or apprehension as the market continued to drift back down towards the recent lows. My mind started to focus on the unusual “reasons” surrounding the situation and I started to consciously think of scenarios where the market moves back up against me and the need to protect myself – especially as liquidity starts to dry up near roll-over – and I imagined regretting taking the breakeven trade implied by my system defined exit point if the market started to reverse direction. I started to consciously focus on the then current market situation in coffee much more closely. By late afternoon I closed out the position but did not roll over in to the next contract as I had convinced myself that I should: take a small profit on the closed-out leg; wait and clear up my “admin” issue with the broker on Monday; and then wait for a new shorter term continuation signal to develop in the following contract.

The feelings were not really strong, but I recognized that there was definitely a “form” to my behavior and actions in that situation: more conscious attention or focus on the short term market behavior; lots more conscious thoughts, reasons, and a priori justifications running through my mind; eyes starting to “pop” out of my head more; slightly squinting eyes; overall tension in my face and chest; generally, just lots more effort and energy was focused on the situation.

But thinking of Ed’s insight, I realized that I did not want to feel the imagined feeling of “failure” when taking the breakeven trade in the reversal scenario that I had created and focused on in my mind. I imagined “regret” at only “scratching” the position without any profit.

These mild feelings appeared to be a signal to myself to try to make me avoid those potential feelings of failure and regret – they were signals trying to make me avoid feelings that I was not willing to experience.

Of course, by closing-out the position early I appeased the mild feelings (which stopped).

Ironically…
On Monday (02/22/2010) March coffee jumped down even further. So now I had every opportunity to feel “regret” and “failure” – a self fulfilling prophesy - just not in the manner I envisaged in my mind on Friday (I was so focused on the short term reverse scenario and protecting myself from it). (Ed says: “Everybody gets what they want out of the market”.)

Learning

This experience gives me a much better understanding of Ed’s insight: even following a purely mechanical and algorithmic rules based system, being unwilling to experience feelings that I consider to be “bad or negative” can override the formal system rules and result in being the de facto rules of my overall trading behavior or “system”.

Looking at this experience from this perspective, I remember that that it is not the first time that I have experienced this type of trading behavior – this kind of “form” with mild feelings of apprehension, tension, and much more strenuous conscious focus. I remember that it can sometimes be a precursor to “off-plan” or “outside system” trading behavior especially when I am tempted to justify to myself getting out of trades too early.

But this is useful to me. Rather than trying to avoid these mild feelings, I resolve to accept them, accept their positive intention (to help me avoid potential failure and regret) and then use them as a signal to myself to have the confidence to stay “on plan” and execute in accordance my trading system rules. That way I avoid failing to execute my system properly and avoid the regret of getting out of trades too early.

Thank you for giving me the opportunity to share my experience with you and the FAQ readers.

Thank you for sharing your process and insights into the important roll of willingness in sticking to a system.

This realization is an important ah-ha for me. Now, I am struggling less, more accepting and more patient as a result. I didn't raise the threshold below which I was accepting (and above which I would lose my temper) so much as surrender to the situation.

I have lots of feelings and judgments about my own struggles, the struggles of my elders and the victimization / exploitation of various groups of people around the world. I am starting to accept my feelings and not struggle with them as much.

Where does the under-Fred network, being in the state of trance or deep breathing experiences fit into all this.

You might consider asking Ayn (or one of her proxies) to explain how she rationalizes her feelings about wanting everything to be rational.

A number of mostly larger investors / institutions have asked me if they could see their accounts and or the funds investments on a daily basis - positions, etc.

This would need to tie in to our existing site so that once someone is logged in they could see this.

After Madoff, people want to know that you are actually investing their money.

I have been asked this more than once by institutions.

any ideas?

Wants to Buy the Book

Hi Mr. Seykota,

I would like to introduce my self that I'm a new trader, I have been trading Forex for around 2 years but right know sometimes I feels empty or not satisfied my my life or just bored with trading I don't know, so after looking around at the internet I found that your book is explain mostly about psychology not only just about trading but about how to pursue happiness and that is all I need , how to improve my life in general and trading.

So Mr. Seykota , I would like to buy your book , but I don't know whether you can deliver to it [Country] or not, and how much is it?

Many Thanks , and please forgive me if my English is not very good.

I recognize that this and other "negative energy issues" that I must face as part of living do not have to drag me down : sometimes you just have to walk through a bog and get all muddy, sometimes you can walk around it, and sometimes "walking on water" just happens !

I feel great joy & enormous appreciation of my receiver, my Tribe, TTP and my family.

Thank-you.

PS. This morning I speak to my doctor : my tests are clear.

Where do we get some great drums?

You can check with the Great Drum Vendor.

Military officers who command others look towards their generals for advice and guidance and upon all of my studies so far you seem to be at the level of a general officer in Trend Following so that is why I ask to speak with you on this issue when able.

My question is about the final step in trading, going live. I'm only doing end-of-day analysis and order generation. Is there any way to integrate my system with a broker's? I would like to eliminate the manual translation of order entry.

Are there any references to issues people may have documented in going from theory to execution? By issues I mean practical (order execution, skid, etc), not psychological as I will follow the system.

Lastly, is there a Tribe in the [City] area?

I plan to provide live examples of this at the upcoming Workshop.

Given my intention is to beat myself up, I am doing well. The DIM is not that productive and invites thoughts in attempt to control and judge my emotions.

On the same note, I feel as though I am done beating myself up and it does feel like a cycle. In the past at different moments, I would have thought the confusion and disappoint in myself labels me and this time it is something that I know is not serving me and is passing. I am thankful for the support and am looking forward to a Tribe meeting on Friday. My intention at the Tribe is to serve others and for it to be a strong and productive tribe meeting for all people there.

Trading wise, there is a lot of progress with paper trading. I am still in the process of turning my 401K into an IRA and transferring funds around.

Thank you for sharing your process.