Wed, 30 Apr 2003
Going with the
Thank you so much for your patience of my repetitive tribe postings. Now I
have come to realize after “examining” my feelings/postings.
I am aware of it
now and accepting and celebrating its positive intentions. I feel joyful to
“go with the flow” and “following the trend.” I have no reason to
fight it now.
Thank you so much,
Wed, 30 Apr 2003
Diversification and Position-Sizing
How is position-sizing affected by portfolio
For example, if I have allocated equal amounts to 5 markets, instead of 1%
of the portfolio might I reasonably choose to risk only 1/5 of 1%?
I've never heard
of anyone risking such small amounts but that minimizes the risk if
positions are established in all 5 at the same time.
Also, do you think fixed % allocations are OK? I learned to trade the
strongest signals, and if
necessary, replace one position with another.
However, this seems to increase the risk of selecting the wrong markets.
Also, if each
trade risks 1%, then their combined risk is greater. I have found that,
trading odd lots of equities (no futures/option contracts) in a margin
account, I can pyramid up to the maximum in only 2 or 3 markets at a time,
but I would like to be able to trade more markets (at least 6) with minimal
So, I'm leaning
towards fixed percentage allocations and risking 1% of each allocation, not
total portfolio size, but wondering if there is not a better way(?). What
about "slots" of 25% each, and just pick 4 of the strongest to
Also, is the combined risk of all open positions the same as "portfolio
heat," and is it affected by the degree of correlation of the markets
does not suggest specific system parameters. See Ground Rules.
You can answer such questions for
yourself through simulations. As you get results, be sure to check them with
you stomach for follow-ability. See System
tool for performing simulations, designing strategies and optimizing
Wed, 30 Apr 2003
Wanting to Predict
First, let me thank you for your willingness to facilitate a forum such as
this. I have always found the interview of you in Market Wizards to be the
most interesting and thought provoking, and was very happy to stumble across
www.seykota.com a few days ago.
Sometimes seeing many different variations on the same theme seems to have
an impact. In my case, the AHA factor hit me after reading several pages of
the FAQ's here. I've had a fascination with economics since I took my first
course in the subject, and had always carried the belief that my
understanding of Macro Economics gave me some sort of an edge in
predicting where the markets would head.
As you can
probably imagine, this desire to predict the future, and be right about
it with my timing, has led to a lot of frustration with the markets.
Seeing it emphasized again and again here, I've finally discovered that
prediction is completely unnecessary, and even undesirable when using a
Previously I had
discounted technical analysis in general, and trend following specifically
as something that could not work in "today's computer oriented
market". This view has changed, I'm now in the process of learning
about system development and testing, I hope that I will discover some
Do you have any suggestions on how I can keep my notions of how the
market SHOULD act based economic fundamentals separate from my trading?
I know the obvious
answer is "follow your system", but I don't think it's
possible, or desirable for me to just suppress my ideas completely.
For example, if I
believe the fundamentals say that a certain currency is almost guaranteed to
fall over the next several months, I would be very hesitant to put on a
significant trade long that currency if my system gave me the signal to do
so. The problem here is again, I'm trying to predict the future.
Your thoughts would be greatly appreciated,
your feelings about how the markets should act, and fully experience and
celebrate them. This is the work of the Trading Tribe.
you reach AHA your thoughts, feelings and trading all fall nicely into
Lake City Seasonal Ritual
a blower and tractor, a Recreation Department employee blows leaves up; they
all fall nicely into into a big pile.
Wed, 30 Apr 2003
Once feelings flow freely, they reach the conscious mind and create wisdom.
Would you say the above quote applies in other facets of life?
flows better than ice, free markets work better than rationing, and it's
easier to pick your banjo without a lot of duct tape all over your body.
Way to Prevent Day-Trading
Wed, 30 Apr 2003
I am pleased to report that the Manhattan Tribe is now full. We have five
people on the waiting list.
Could you kindly update your web directory to reflect that we are full
and looking for others to start another group in NYC. I am also hoping
that perhaps one or two members of our current tribe would go on to start
their own group.
Based on the amount of interest and the number of emails received in the
past four weeks I believe Manhattan could probably support 3-4 groups by
It's that mystique of the great Seykota name. I believe for most of us, our
first introduction was the Market Wizards book interview where we learned
about this quirky trader living by the banks of Lake Tahoe; that image of a
very successful trader with no quote machine on his desk stayed with us all
Thanks for opening up a portal into your mind via the FAQ.
keep your Tribe full, make it easy to leave, hard to get it.
at Hoover Dam
a portal is worth wading for.
Wed, 30 Apr 2003
Hello Mr. Seykota,
Thank you very much for the forum that you provide, and the time and effort
you give to the rest of us.
Thank you also to the people that ask the questions. I relate to a number of
the questions asked. I expect some benefit to my trading, and I am already
feeling challenged to grow in ways that will help my life as a whole.
I am responding to the person who mentioned that his or her system
provided positive results only on the long side, and not on the short side.
I see two possible reasons why a mechanical system would work to profit from
long positions and not from shorts:
behavior causes different types of signals when it is moving up than
when it is moving down
Error in the
I spend time looking at the calculations when I am in similar situations. I
am very suspicious of a math error because the person said that he/she had
tested several different indicators and always did bad on the shorts.
One way to test for an error would be to modify the data and see what
happens. Try taking all of the prices, and subtracting them from 100, or
what ever number seems appropriate for your values. If you replace all the
prices with 100-price, the system should do well on the short side and badly
on the long side.
Do not let the fact that the system has been profitable prevent you from
accepting the possibility of calculation errors. I did make profits over a
short time period with a system before I discovered I had coded it
Thank you very much for your time,
it's just as likely for a stock to double as fall to half, then the signal
to noise ratio is initially 100% better for the long side.
Long and short both have their
advantages and disadvantages.
Some prefer one, some another and
some both. Ultimately, you do best by finding your own niche.
Wed, 30 Apr 2003
Hot Seat Experience at our Tribe Meeting
Dear Mr. Seykota,
From the moment I volunteered to the time the meeting was over, I felt
anxiety. I was truly experiencing feelings that I had repressed inside my
I found it very surprising that since I have shared the experience with a
few selected people, I still had repressed feelings of the trauma. I just
wanted to forget about the experience and move on. (Clue#1 about my
I had not expected the hot seat experience to be as profound as it was. The
physical and emotional experiences were clear to myself, as well as the
other tribe members. During the hot seat process, the feelings seemed to
be exorcised from my subconscious, as I watched and listened to the other
tribe member's mirror my feelings.
amplified the feelings I was experiencing. I felt very uncomfortable, and
started to worry about what kind of chain reactions would take place. Would
I be able to have control of this situation, do I have to give up control?
(Clue#2 about my trading practices)
I've always wanted to have control over all situations and aspects of my
life. I never felt comfortable with "Going with the Flow"
(Clue#3 about my trading practices)
I've always felt that I controlled my own destiny (which I now realize is an
illusion) and would not accept anything else. Whenever I don't have control
of a situation, or I feel that my illusionary sense of control is lost, I
fall into a state of panic. I have been living with this illusion of
control and panic all my life. (Clue#4 about my trading practices).
One of the tribe members spoke about water when describing his feeling
during the mirroring process. Then my subconscious emotional dam cracked. I
no longer had control over this situation.
The subconscious feelings started pouring out.
When I was a young child, my parents sent me off to summer camp for part of
the summer. This was the first time I was ever away from my parents for an
extended period of time (approximately one month). I met other children and
enjoyed my time with them. However, there was one event that had changed my
life and stuck with me to
Before going to camp, I never learned to swim. The camp had it's own private
swimming pool. I felt it was important to be accepted within the group. The
group went swimming one day; many of my friends were jumping into the deep
end (12 feet deep).
companions were carrying flutter boards (floating devices) to protect them
and support them. I dropped my flutter board into the water, as I stood on
the end of the diving board. I stepped off the end of the diving board, as I
landed in the water, the waves from the splash pushed away my flutter board.
That summer, I almost drowned.
The panic and lack of control I felt while being submerged under the water
was something I never wanted to experience again. (Clue#5 about my trading
practices) This deep-rooted subconscious feeling of panic was resurrected
into my consciousness during the hot seat process.
I have a trading system in place, but the sense of panic (subconscious)
always took precedent over my rules of trading (conscious). (Clue#6 about my
While sharing my feelings with the tribe, several issues were brought to my
conscious. I want to follow my system, but it means I need to give up the
illusionary feeling I have about control over my own life and all the things
within it which includes the Markets (The "AHA" starts) Issues
that dealt with lack of trust in others, following the crowd, believing I
controlled my own destiny, seemed to be catapulted into my conscious.
I had a near death experience, which had traumatized me as a child. I never
dealt with the feelings associated with this experience.
The hot seat process didn't stop; the tribe members did not let go, they
continued to mirror the feelings. (How much more of this do I need to
endure, I thought?)
What could I have done to avoid this potential catastrophe? The tribe
members started taking about taking precautions, (wearing a life jacket) to
protect myself, to keep my head above water, A contrast to trading. Always
wear your life jacket when going into deep water. Sounds like a metaphor to
trading? ("Another AHA") It's still a cool idea to wear a life
jacket. ("Another AHA")
I feel that my feelings about destiny and having CONTROL were clouding my
past experience with death. This was manifesting itself within all areas of
my life, especially trading! ("Another AHA")
Some closing thoughts. I feel I have experienced a tremendous purge.
I felt pain, but I also felt relief, once I acknowledged my subconscious
feelings. There has to be balance. ("Another AHA")
I see that this is a work in progress issue. However, I feel that I am aware
of the clues to look for.
A huge paradigm shift has occurred. I can't control the universe and now
I realize I don't want to, it takes too much work. Being prepared with my
life-jacket is a simpler and easier approach.
One final important note, I feel it was crucial that I decided to deal
with the issue and I made the effort to explore my feelings. The desire must
come from within the person.
I want acknowledge my appreciation to our Tribal Chief for organizing our
group along with our tribe members for helping me deal with this major
Finally, I would
like to thank you (Mr. Seykota), for creating a medium that fosters personal
Wed, 30 Apr 2003
How would you describe the feeling of being in “the zone”? Does
this feeling become noticeable to those around you?
you are in the zone, feelings flow easily and naturally, like notes rolling
out of a banjo. There's really no one feeling or one note to describe it.
a Banjo Apart
find out how it sounds.
a Banjo and a ...
chain saw has a dynamic range.
is loud, obnoxious, and noisy ... and the other is a bird.
can tune a Harley.
take your shoes off to jump on a trampoline.
Tue, 29 Apr 2003
In your Market Wizards interview you said that the the most important rules
in trading are: (1) cutting losses, (2) cutting losses and (3) cutting
When you put on a trade, do you know, to any degree, what the outcome
will be like?
know the outcome when it occurs.
Tue, 29 Apr 2003
Trading Tribe Process
First of all, deep thanks for your encouragement. I am sincerely grateful to
you. Yesterday, for the first time, I did what I always wanted: I bought
breakout at its formation, and sold it at the end of the move. Thank
interesting is that I even didn't feel the excitement from the gain (as
before), but just a (much better) feeling of satisfaction. I just did the
right thing - for the first time. If not you, I probably would not have guts
to do that.
Today, also, for the first time, I had the right attitude, and I sold the
position at small profit when market broke at some news before it became a
large loss ... Once again, feeling of satisfaction, and not a feeling of
regret about lost gains as before ... Thanks...
Now I think I understand better what is the problem with daily trading.
First of all, I disconnected all the news. They just distract. Now, the
natural unit of time for me is just a day. Probably, it is the same for all
people. So, you have to wait days to get breakout in the equities index.
But - when breakout is formed, it is necessary to act during seconds (
minutes at the very most).
So, daily trader should have two almost contradicting traits: patience
(as for commodities), but to be very alert, and to be able to act decisively
in matter of seconds.
I think about
myself: if I am patient, it develops predisposition to quiet thinking, and
analysis. At that time, I am not always able to act fast. But, if I am
alert, there is a tendency to do something - means, to trade randomly
(usually, with loss).
I suspect it is a combination of two spider traits - patience, and
alertness, makes the daily trading so difficult. What I did with myself
- I am training myself to take decision in just seconds (most of them - do
nothing), and I allow for the free stream of emotions.
I am registering the feelings I have before I come to the screen - it
makes me much more
concentrated. Feeling brought from outside disappear somehow ... Ed,
Tue, 29 Apr 2003
Saw your new references to 'intentional community'. Did some Google searches
the phrase, but was curious if you would offer more specifics on what an
intentional community actually is from your perspective?
communities provide benefits of association.
In The Different Drum Dr.
Scott Peck shares examples of getting to self awareness through community.
The Trading Tribe and this FAQ are
examples of intentional community, in which traders interact and help each
Date: Tue, 29 Apr
Test for Randomness
Could you explain further as to what you mean by : "Markets can pass
tests for randomness and also provide profits for good traders" (a
comment you made in response to an email sent on the 5th Feb). I didn't
think it was possible to test for randomness in price data. Are there such
Random Walk Theory. It claims markets are efficient and chart methods
therefore cannot work.
the trader takes an Efficient Market Scholar to lunch. On the way the trader
sees a 100 dollar bill on the sidewalk and points it out to the Scholar. The
Scholar tells the trader he must be mistaken, since if there were one there,
someone would have already picked it up.
that if you force the joke into SVO-p syntax, the joke and the Random Walk
Theory both fail:
Scholar tells the trader he is mistaken, since if there is one
there, someone is now picking it up.
Thousand Dollar Bill
Walk Theorists still won't stop
pick one up since it can't be there.
Tue, 29 Apr 2003
Testing and The Process
I've made a thorough review of my actual historical trades ..with data
arranged in 3-D pattern...and I've gained quite interesting insights.
does historical simulation and testing fit in the process of including the
organic part in ones system design?
simulation gives you an idea of the ride you might expect at various bet
size levels. Ultimately your gut sets the amount of volatility you can
good design for a volatility sensor.
Tue, 29 Apr 2003
I have been trading LONG only for a while now with respectable
results as a beginner (less than 15 % max drawdown) since Dec ’02.
My problem is that my system does not work for SHORT trading. I have
back tested the Donchian, the Turtles, MACD, Moving av. Etc. based systems
and my results are a steady decline in profits. I find that I am consistent
in following my trading plan, which has worked so far for LONG trades only,
however I am struggling to come up with a system for short trading that has
at least a statistical chance of positive return. Can you assist?
your system works on the long side, and not on the short side, I suggest you
examine your feelings of wanting to trade the short side.
to an eternity of doing things the hard way.
Tue, 29 Apr 2003
My problem of having draw downs is because I am a nice guy who would not
hurt a flower … having this psychology in my head … when I am making
money in the market, I feel like I am hurting someone else by taking “their”
money away … therefore I feel “bad”… which causes me to have draw
downs; because of this feeling, I want to give the money back because I don’t
want to hurt people!!!
But I am not hurting people, in fact they want to give me their money as a
gift for executing a proper trade. But why do I feel bad when I take their
money - à because I feel bad WHEN I give it away when they deserve it (ie
when I lose)!!!
I am a scrooge with money (materialistic) so every time a cash flow comes
out … I feel & associate it like I have been hit by Mack truck …
SOLUTION: Quit connecting money with pain!
You may think at times that money determines your feelings (getting it
feels 'good', spending it hurts), but that's not true: You have the ability
to choose the way you feel.
Your life and your
income will change dramatically to the better if you decide to feel
exceptionally great about every dollar that you are going to spend from now
If spending (i.e. utility bills, taxes, mortgage payments, groceries,
purchases, gifts for grand kids, etc.) is a 'bad' and painful experience to
you, you are generating a dangerous belief - association - anchoring with
every dollar you're giving to someone else:
You'll believe (and it doesn't matter whether you're aware of it or not)
that you are causing pain to other people each and every time you're
accepting money from them. You'll believe that your desire for money is
damaging to someone else. Your income will be limited to the level of pain
that you are willing to inflict on others. How much would you let others
suffer, for the sake of your personal financial gain?
Giving Money To Other People Is Fun!
If you can understand--and more important feel--the truth of it, you'll make
more money than ever. You'll feel great about yourself taking more money
from more people, and the people who pay you will love you for accepting
For more along these lines, see:
Egbert Sukop www.rumpelstilz.com
you can choose how you feel, a bereaved person can choose to feel cheerful
The Trading Tribe does not attempt to
change, manage or fix feelings.
Our Process is to experience
feelings, exactly as they are, until they inform the conscious mind.
Forcing feelings sets a mission for
the subconscious to inform the conscious mind, through repeating
To unwind all this, you might begin
examining your own feelings of wanting to control your feelings.
The Process is about experiencing
feelings, not judging them.
Honorable Paul Freitag - Sparks, NV
your feelings just the way they are and leave the judging to Paul.
Mon, 28 Apr 2003
Cause vs. Effect
One consideration that keeps coming back to me when reading through your
site about " Going with the Flow" is that I think you should
adapt the environment to yourself and not have the environment adapt you to
One is cause and
one is being effect. One is being responsible and one is being
The markets are a
good place for this theory as you need to figure out how to be Cause over
something which you have no control over.
The only way I
see doing that is to focus on the things you have control over such as:
Entry Method, Position Size, Expectancy, Stop Losses, Exit Strategies etc...
Otherwise to me
when you say "Go with the Flow" you are saying "O.K. what
just happened to me I am not responsible for but I am not going to get mis-emotional
because of it." I do agree with being able to experience your
emotions and being able to confront the situation but can you explain to
me how you locate the positive intentions of your destructive emotions? I am
very interested in that process.
Anyway I am still trading and just wanted to write and say Hi and ask you a
question that I think about a lot.
Trading Tribe goes with the flow, not against it; trade with the
The Trading Tribe knows no
destructive feelings. Traders who view their feelings as destructive, may
have trouble experiencing them.
The process of unlocking feelings is
the work of the Trading Tribe.
Once feelings flow freely, they reach
the conscious mind and create wisdom.
wrecking ball is destructive; it takes a chunk out of a building and
destroys it. Feelings are not destructive. Acting out dramas instead of
experiencing feelings can be destructive.
Sun, 27 Apr 2003
I want to apologize for sending you an earlier email that was the rough
draft. I nearly jumped out of my skin when I saw the rough draft had been
You work hard enough without having to tolerate this type of inconvenience.
If you have time, please post this email instead:
Thanks for your excellent site, hard work and creativity. FAQ has been a
pleasure to read. The traders that write in are to be congratulated for their
honesty and effort also.
My email relates to three widely held beliefs in the trading community:
1). Not strictly following a mechanical trading system is an amateur
2). Strictly following my system will eventually lead to excellent
3). Trading blowouts are usually the result of psychological phenomenon. Or
as you put it Ed, that trading disasters are the result of dramas being
My take is that:
1). There are plenty of level headed experienced traders that change or
don't follow their systems at times for the betterment of performance.
2). Severe drawdowns or poor performance are frequently not the result of
psychological baggage. To the contrary, I believe emotions are often used
as an excuse for poor performance.
Just recently I read that [xxx], who where highly successful and have had
success over many years, introduced discretion into their approach for the
first time in their trading careers and are quite happy with the method.
A second example of this is [yyy]. He's had several severe drawdowns.
After this episode, I read [yyy] began using a counter trend approach along
with his trend following system. He is a trader recognized as calm, cool and
collected and an excellent system designer with two decades of tremendous
success and yet he did exactly what's implied as amateur trading behavior --
not sticking to his system, or, changing the system just when the system
Another example is a veteran successful trader who prides himself on robust
systems and has stated in the past that "the system must be followed
religiously" and that "probabilities must be allowed to play
themselves out over many trades" and "work over different markets
and time periods." Last year this trader had some tough drawdowns and
wrote a letter to his investors implying the game has changed and that he
was quitting trading commodity futures and was now dedicating himself to
developing stock trading systems.
I bring these points up because I think trading can be a difficult long-term
endeavor regardless of one's hard work in system development and discipline.
Trading excellence and superior performance is not guaranteed regardless of
one's mental makeup or whether there is or isn't emotional baggage.
My key point: one's emotions are often made the scapegoat for poor
performance. It's that old question: Which came first, the chicken or the
Often the emotional baggage is the result of poor performance and not the
other way around.
tribe uses SVO-p syntax. S-ubject, V-erb, O-bject, present tense.
Your "are to be
congratulated" puts the congratulations out in the non-existing future
and also hides the identity of the congratulator.
You might consider, "I
congratulate the traders."
You might make a point of using SVO-p
for a whole day, and notice any feelings that come up in doing so, and use
that as an entry point for The Process.
Same comment for "emotions are
often used as an excuse." SVO-p requires you to identify the
you have trouble using SVO-p,
might have something to hide.
Sun, 27 Apr 2003
Adding to the position & time Stop
I am forever grateful to the knowledge and wisdom (Not just trading, about
life too) you have passed along to all of us and continue to do so through
this web site. I have sent email to [xxx] and am very interested to join the
[yyy] Tribe and one day I wish to meet with you. I am writing it to you very
first time with a trading question.
What do think of having a time period on initial position to determine
the exit of a trade in addition to just a Stop Order? For example in my
EOD trading, if my trade does not double (2%) to the level of initial risk
(1%) by fourth trading day after entry, but still has a little profit I
close the position.
On the other hand,
if trade is already double of the initial risk I add to the position with
lighter position and move first stop to the breakeven. So in this situation
I’ll have an open risk (<1%) of the only 2nd position and if market
continues to trend my reward could be higher.
Currently, I do have a rule in my trading of moving stops to breakeven on
4th day if trade is in profit, however, I do not add to the position. In
case if trend continues to go in my direction after I closed out I re-enter
on a little higher level with 1% risk. Please advise
does not recommend parameters. See Ground Rules.
might examine your feelings of trusting your own research versus relying on
an external expert to verify your reality.
child may learn to trust himself.
Sun, 27 Apr 2003
After I buy a breakout, the stock does not advance nor hit my protective
stop for some time. Is time stop a good strategy in this situation for
The scenario is similar to the checkout lines in grocery stores. I
am anxious and frustrated seeing other longer lines moving faster. But I am
reluctant to switch because I am afraid to lose my current position.
By employing a
stopwatch, I don’t know whether I would be getting out the store faster or
just hopping repetitively to different lines all day long. Appreciate your
does not recommend parameters. See Ground Rules.
You might examine your feeling of
frustration about being in one line and seeing another move faster, or being
in one instrument and watching another move faster.
Ave & 42nd St - NYC 1932
Cent Meal Line
Sun, 27 Apr 2003
I want to thank you for the excellent Tribe site. I've forwarded a posting
that I recently sent to a different community of traders that might be
relevant to Tribe members interested in The Process.
Recent research supports the idea that emotional patterns can be
efficiently under conditions of high attention - concentration. I
believe that is
what is happening during experiential exercises when individuals become
conscious of their emotional experience and verbalize it through S-V-O
The biofeedback that my posting refers to may be a way of operationalizing
degree to which a person is operating under full conscious awareness. I
would expect that processing troublesome emotional experience during such
full awareness would be particularly effective. I would also expect that
introducing new thought - feeling - behavior patterns under such awareness
would accelerate learning.
I realize there's a fair amount of verbiage in what I'm forwarding. Feel
free to edit as you see fit if you'd like to share with Tribe members.
Again, thanks for the thought-provoking site.
Abstract: This is a lengthy posting on brain activity as it relates to
trading. While recent advances in functional magnetic resonance imaging are
revealing important brain-behavior relationships, such research is
difficult to conduct with traders. Use of thermal biofeedback
holds particular promise in objectively quantifying the degree to which
individuals are engaging in executive cognitive functions. Preliminary data
suggest that such biofeedback accurately discriminates between haphazard
- discretionary and rule-governed - mechanical trading methods.
One of the traditional challenges research psychologists have faced is
the reliance upon the self-report of experimental subjects for data on such
variables as moods, intentions, etc.
With the advent of
functional magnetic resonance imaging (fMRI), it has become possible to
track cerebral blood flow patterns among subjects as they perform various
tasks. This allows researchers to see which areas of the brain are
activated during standardized tasks that draw upon particular cognitive
Such standardization is necessary when assessing the functioning of
particular patients. For instance, a task called the PASAT (Paced Auditory
Serial Addition Test) presents subjects with a series of numbers. Each
number in the series is followed by n seconds of silence before the next
number is presented. The task is for subjects to add the series of
numbers mentally. This tests auditory processing speed, attention, and
calculating ability. By obtaining fMRI pictures of normal subjects engaging
in the PASAT, we have a sense for the brain regions that are activated when
engaged in these functions. When a brain damaged patient is asked to perform
the PASAT, the fMRI reveals those relevant brain regions that are not
receiving adequate blood flow.
when efforts at cognitive rehabilitation are undertaken, the brain damaged
patients can regain some of their skill at tasks such as the PASAT. This
is corroborated by fMRI pictures that show new regions of blood flow to
those brain areas associated with auditory processing and attention.
The implications of this work are profound, suggesting that the brain is
much more plastic than has been assumed in the past. With imaging, we can
now see the brain develop new blood flow patterns.
patients, for example, who have undergone successful behavioral
psychotherapy reveal structural brain changes before and after their
treatment. In the future, such changes might even constitute an objective
measure of whether a pharmacotherapy or psychotherapy has been successful.
One of my longstanding passions has been to identify the brain regions
that are activated during trading, and particularly the patterns of brain
activation that distinguish successful traders from their less successful
It is reasonable
to believe that traders who experience emotional interference with their
trading, for example, would display different blood flow patterns under fMRI
than traders who maintain a reasoned discipline in their work. It is also
reasonable to believe that neophyte traders might show different blood flow
patterns than their more experienced peers. (Research, for example, finds
that novel tasks tend to be processed in the right cerebral hemisphere,
while routine tasks are processed dominantly in the left. Intriguingly,
negative emotional experience also tends to be lateralized to the right).
There are significant logistical difficulties in studying trading with
fMRI. Imaging is very expensive, and getting on the magnet at busy
medical centers is not easy. Perhaps even more daunting is the challenge of
placing an entire trading station inside an MRI tube and creating realistic
trading conditions. Finally, there is the challenge of creating standardized
trading tasks, so that different individuals can be assessed on the same
I've mentioned on the List (and in my book) that one way I've tried to begin
exploring the brain/trading relationship is through a novel form of
biofeedback. Most biofeedback measures physiological arousal, and is
used to track patterns of anxiety for the purpose of relaxation. Forehead
skin temperature biofeedback, however, evaluates minute shifts in skin
temperature on a real time basis. This reflects increases or decreases
of cerebral blood flow to the frontal regions of the brain, which are the
mind's "executive center". The logic behind the biofeedback unit
is that skin temperatures should increase when subjects are engaged in
such processes as concentration, judgment, planning, and verbal reasoning.
Conversely, forehead skin temperatures should decrease when subjects are
frustrated or otherwise emotionally aroused and when they are physically
I commissioned an engineer to build such a machine (since none are
commercially available) and have been engaged in using it for research
purposes. Most recently, I have created standardized tasks for the unit that
involve varying degrees of emotionality, activity, attention/concentration,
etc. By taking forehead skin temperatures every 10 seconds during task
performance and calculating the standard deviation of the readings, I can
compare the distribution of temperature scores under one set of task
conditions with those derived from other tasks. The readings strongly
support the underlying rationale of the device: tasks requiring the
greatest mental effort consistently generate the highest temperature
readings. The biofeedback unit appears to be an accurate means for
quantifying the degree to which subjects are exercising their executive
An interesting side note: Very high skin forehead temperature readings
that are sustained over a period of minutes are invariably accompanied by
major mood shifts, in which subjects report feelings consistent with being
"in the zone". They report an unusual degree of clarity, focus,
present-centeredness, and ease of thought. I should emphasize that this is
not a placebo effect: the digital readings of the machine are hidden from
the subjects so that they have no idea of whether their readings are high or
In my most recent experimentation, I attach myself to the biofeedback unit
while placing a variety of trades in the market. Unlike fMRI, there is no
logistical problem with being hooked up to the machine while trading.
Specifically, I tried to create two very different trading conditions: 1)
uncertain, frustrating trading where I made decisions intuitively on the
basis of common technical oscillators and chart patterns, and 2) structured
trading where I traded a tested, mechanical system. To keep conditions
constant, I traded over identical time frames in similar mid-afternoon
During the seat-of-the-pants
trading, I started with relatively high forehead skin temperature readings,
which deteriorated over the course of the trade. In the structured
trading, however, my readings continued significantly higher throughout the
trade. In fact, the average readings were much higher than the highest
levels recorded during my standardized concentration tasks. Objectively (and
subjectively) I was in the zone--but only when trading was structured.
The reason for this is a bit subtle. In the seat-of-the-pants trading, I
didn't really know what to look for to base my decisions and had to flit
from screen to screen to pick up (probably random) cues of strength and
weakness. My attention was highly divided, and--because the trade duration
was short (less than a half hour)--I felt rushed in my decision-making.
During the mechanical trading, however, I knew exactly what to follow on a
minute to minute basis and stayed glued to a customized screen that
contained all the relevant data for decision making. My attention was not
divided, and I experienced no sense of time pressure or frustration. (Yes,
the mechanical trading has also been more profitable).
Much more experimentation remains to be performed. How are the
biofeedback readings (reflecting sustained concentration and mental effort)
affected by large increases in market volatility or position size? By
holding period? By the nature of the trading system? Do successful traders
sustain significantly different readings from unsuccessful ones? How much
individual variability in readings occurs during hot and cold trading
Perhaps the most intriguing questions involve training. Can we train
people to sustain mental effort and access "the zone"? Would
such training improve trading performance by enhancing trader discipline,
pattern recognition, and problem-solving? Can dysfunctional trading patterns
(blaming self for bad trades, failing to take valid trading signals,
impulsively trading when valid signals are absent) be eliminated by
reprocessing anxiety during states of high frontal activation?
If there is sufficient interest and if the kind hosts are amenable, I
would be happy to conduct a demonstration of the biofeedback during our
August Spec gathering. By then, I'm sure to have a variety of data to share.
understanding of your points:
don't like to rely on self reporting of symptoms - and prefer objective
measurements, such as fMRI and your Forehead Monitor.
of brain function shows up as physical restructuring of the brain.
passion is to use your equipment to measure and enhance trading
repetitive tasks tend to result in going into the Zone.
and random activity does not result in going into the Zone.
You might consider getting some
readings on yourself before, during and after conducting The Process on your
feelings of wanting to measure trading performance.
Self Measurement System
Avoids Measuring Equipment.
size bra should you buy? Where do you
start? Don't go
near a tape measure! The objective is to wear a properly fitted bra, not a
tape measure. We don't use a measure to fit customers in our retail shop and
neither should you. If a bra is too big or too small it tells you.
Date: Sun, 27 Apr
Dear Mr. Seykota,
Which method is the most robust for linking historical futures prices (i.e.
rollover) for the purpose of system testing? Thanks.
means healthy, strong and vigorous. A trading system is robust if it
performs well over a wide range of parameters. Same for a trader.
Some methods for linking historical
|Simple Splice - when one delivery
expires, just continue with the next one - this leaves a price gap equal
to the spread, at the seam.|
|Panama - like at the canal, you
float one delivery up or down to close the gap - these adjustments
accumulate, so for long term charts, with many splices, the prices at
one end of the chart drift way off, even negative in some cases.|
|Interpolation - when you have two
adjacent deliveries on the board at the same time, you can manufacture
an interpolation series, that gradually works its way from one delivery
to the other - this method gradually discounts the spread between the
I prefer software that imitates real
life, closes the expiring position and opens a new position in the next
This also handles the case in which
adjacent deliveries are trending in different directions.
good method for bringing new deliveries on line.