(c) Ed Seykota, 2003 ... You may not reprint without permission.

Frequently Asked Questions

Hypnosis

I'm contemplating hypnosis as treatment in order to get at those feelings that might be stuck. You're absolutely correct in your assertion, I'm like a jet engine only open from one end. I'm sitting on a time bomb. I'm scaling down my positions. In your opinion, is hypnosis an effective treatment mode for traders?

When is the Next Tribal Weekend Meeting ?

When is your next tribal weekend meeting ? What is the normal schedule for the weekend meetings ? It says on your page that it starts Friday evening and ends Sunday afternoon. Can you please tell me approximate timings so that I can decide whether to come alone or bring the family and leave them in hotel during the meeting.

More Pyramiding

Could we base pyramiding on either of the following: ATR, multiple moving averages, multiple breakouts. How many pyramids is too many? Does low start up capital prohibit Pyramiding?

Mama don't allow no pyramiding here.

	The trend is your friend implies using a long term moving average to identify trend. Is a 200 day moving average reasonable or too long?
	Sitting out choppy markets implies using a breakout (highest high or lowest low of last # days) to Enter a trade. Should this time frame be 20% to 50% of moving average time frame? (ex. 100 day breakout or 40 day breakout)
	Sitting tight on winning trades implies allowing Exit stops to expand in a trend. How much of a trend is too much to give back? What is the affect on other positions risk? What is the affect on new entry signals?
	Bet sizing. (% of Total Equity)/($ value of stop loss) = #LOTS Should I use Total Equity or perhaps TE minus stop loss on all positions as bases for calculation of number of lots? Can the 'dollar value of stop loss' be based on any of these...ATR, breakout stop, or moving average stop?
	Total number of markets to follow for possible trend. I've narrowed the field down to 20 non correlating markets. Any suggestion as to why it should be more or less.
	Total risk across portfolio. Is this number the disaster number? All positions get stopped out on the same day. If your max drawdown is 30%. Is there any reason to carry Exit stops in position beyond that number?

If I've missed anything major or minor, please let me know. Practical advice can go a long way for those instilled with honor, discipline, and fortitude.

	define what kind of trading performance you want.
	determine how much time and energy you are willing to invest.
	realize that psychological tendencies may interfere with executing signals.
	spend some time looking over lots of charts to see the kinds of things to expect.
	look at the daily performance graph of the system to see if you can stand the ride.

Clearly, the Best Car

On Waking Up


Thanks to one of your gems on your website, I diid some googling, and found more stuff similar to what you said about the traders, "You get what you want from the stock market".

Most people tell you they want to get out of kindergarten, but don't believe them. Don't believe them! All they want you to do is to mend their broken toys. "Give me back my wife. Give me back my job. Give me back my money. Give me back my reputation, my success." This is what they want; they want their toys replaced. That's all. Even the best psychologist will tell you that, that people don't really want to be cured. What they want is relief; a cure is painful.

One of the best known aromatic acetates is acetylsalicylic acid, prepared by esterification of the phenolic hydroxyl group of salicylic acid.

Group in San Jose Area

Has anyone asked/suggested to create a group in the bay area ?

Home of the Great Silicon Boom

Request to Attend Trading Tribe Meeting

I am very interested in attending your Trading Tribe meetings.

Trading has been my lifelong pursuit. I would like to meet and share experience with people going on similar journey.

I understand that discussions in the Tribe frequently focus on the psychological and emotional aspects of trading and I have the commitment to attend regularly.

It would be my honor if you can allow me to join the Tribe.

Flying in for a Tribe Meeting

Trading is not just buying and selling. It has a soul that must be comprehended. Traders should explore it before starting buying and selling, even if they are good in statistics or technical analysis.

Professors of Trend Following

What I've Learned so Far

I started by making a list of feelings I'm trying to avoid, and thoughts that comprise my personal trading metaphors.

In exploring Ed's writings and discourses on trading I've learned that trading foundation lies in the mind and in oneself. I learned it is best for individuals to remain free to see and interpret the truth for themselves. As the saying goes "A good teacher protects his pupil from his own influence".

Freeing my thoughts of restrictive encumbrances, my trading philosophy is now geared for trading fully, with every nerve fully exposed to my feelings, and philosophy both subconscious and conscious. It is an integrated philosophy that explicitly and implicitly includes all my feelings and all major branches of philosophy & Science.

Lockheed Feelings Processor

Toronto Group Update

The Toronto Group is growing every day. The first meeting has been scheduled for the evening of April 1st. FAQ contributors will be strongly represented in the group and for that I thank you.

We'll be sure to share updates, issues and thoughts from the meetings for the benefit of all.

Before the Europeans arrive in 1635, the Hurons have a favorite spot on the shore of Lake Ontario for meeting. In the Huron language it is known as To'ron'to - Place of Meeting.

Tom

A lot depends on how you manage the heat.

The Best System

I know that emotion and psychology are large
components in developing one's own standing strategy, but if we were to somehow take this out of the equation, shouldn't there be a system that is better or worse than another, if we were to back- test the results?

Econo-Wagon for Going to Bible Study Class

Divorce

I have been working on my psychology extensively. My wife and I are divorcing. She does not wish to take this journey with me, and while not initially my choice, this I think is good for both of us.

My compliments on your site, as well as your  graphics - I would like to attend your bi-weekly meetings, however I live too far away.

If you want to get a divorce, you have to do this first.

Wrestling

I find some of your comments keeping me up ...
As you've suggested, I'm currently exploring directly the specific organic part of my trading. How does one go about including the organic part of trading in ones system design. Do I proceed by keeping records, observing & exploring how I feel during actual trading? Given my belief that "trading wisdom does not consist of trying to wrestle profits from losses but in learning to ride them as a cork adapts itself to the crests and troughs of the waves," How do I go about exploring the organic part of trading without feeling like I'm wrestling?

Late Night Wrestling - Like Trading on the LME

Must Read

How many hours a day are you putting in on your web site? your content is turning into one very unique, must-read destination site. I find myself going back several times a day -- just like the Drudge report.

Hey, wait a minute ... how did that fum get in here?

I thought about this situation and reversed my method. Now, the first profits that I'm able to cash in, I do and my mind is set free to trade for the rest of the period. I don't know if this is a good technique, but I'm sure testing it and this is the first month.

This backwards-running timepiece is particularly useful for going back to load up on those really good breakouts. Alternate it with a standard clock, to have as many hours in a day as you please.

Cornucopia


Your insight as to a trader’s relationship with his/her system is quite insightful. I have always felt that trading is really a metaphor for life, but I had never gone the extra step and thought about my own perception of my system (how I personalize it). You comment has allowed me to look at my development, and my system’s development, in a totally new light. I used to view my system as a puzzle … always tinkering and trying to solve it. This would often lead to a drawdown, which would lead to fear, which would lead to suspension of trading at just the wrong time.

If I had not been pretty good at cutting losses I would have ended that year and a half with zero dollars in the account. As it was, I had missed some huge moves though. How big? The cotton move in 1994 that eventually took cotton over 100 and the currency (especially the Yen) move in 1995. When had I become just a little too tentative to trade? Literally days before each move began. Amazing, but true, and I bet not that uncommon. Of course, seeing the subsequent move would get me trading again. My later trading became more profitable as I began to systematically follow two of Donchian’s systems.

I would now characterize the way I personalize my system as a ‘parent’ to use your word. I want to view it as a ‘cornucopia’!

A question: Would you mind expounding on a statement you made in the MW interview: the manager still has to ‘decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading base as a function of equity change. Would you talk about the trading base as you meant it here?

I understand systematically risking less during a drawdown. Is that what you are getting at here?

Trading System as a Cornucopia

Can contributors to FAQ edit their questions, once they appear on FAQ?

Pencils have two ends

hay! i jes ain't havin no luck turnin muh 200 hundrid bucks inta a bazillion buks like ya'll did. Tell me agin... wuzzat buy heigh and sale loe or wuzzit sale low an by hi? Cain't seem ta git no lift ...

Readin' Ritin' & Risk-matik

I have been a follower of your published work and interviews about trading for some time. I believe your trading philosophy is similar to mine. I also feel that I could use help in the area of trading psychology.

I live in Reno, and I was wondering if I might attend one of your Trading Tribe meetings. If so, please let me know when and where the next few meetings will be.

The Beat Goes On

Opening Bell

Risk for the Sake of Risk

I have a couple of real-life scenarios I think relate to trading. First off, I have made numerous trips across the country in automobiles. I find myself bored after awhile so I keep track of and refigure my average miles per hour after each pit stop. Sometimes when I get low on fuel I have to decide whether or not to stop at the next exit or to chance running out but try to get to the next farther exit away. Normally I have a pretty good idea as to how many miles I can still go on the current tank of gas but there is still risk involved; I feel calculated risk. The analogy I see to trading is once I have decided to go beyond what may be a 'safe' exit, I normally feel some anxiety and need to process it. The decision has been made, so at that point it is just a matter of reducing my speed to conserve fuel and living with my decision; feeling stress about it doesn't help or reverse the situation.

A second analogy I saw with trading a few weeks ago was when I was driving to an appointment. I could either take the freeway which would be a twenty mile trek through traffic, or take the twenty six mile curvy mountainous road without many cars on it. Since I was in a very fast sports car, I opted for the mountain road. It had rained earlier that morning so there was a slight amount of water left drying on the pavement. I noticed myself speeding around the corners and trying to make really good time so as to not be late. Once I knew I would be on time I had to consciously ask myself why I was still going so fast. I guess I like to experience the car's performance envelope. Any analogies to trading would be appreciated.

Intraday Trading / Risk per Trade


Author of this e-mail have some short questions. Excuse me, if my questions are not relevant.

1. Author (stock market - primary target) will evaluate risk/reward in trading of most liquid futures - financial as EN, MCA, LFT and commodities oil/gold. What are "pro" and "contra" versus equity trading for intraday trader ? Author point of view - Equity market have more opportunities. Can you comment?

2. Your statement -...cut loss, cut loss, cut loss. How great loss can be on one round trip? Autor would very pleased for answer. Excuse me, if my request is not relevant.

Old Sam Throckmorton, Bet Big on Buggy Whips.

Holy Grail

Just came upon your site - know you by reputation.

Everyone it seems searches for the "Holy Grail".
Since everyone already has possession of this, it seems a bit pointless.

Grail

Fundamentals

I will have to reassess the harmony between my metaphor and my system by looking at the different ways of looking at interdependence, as you mentioned.

My last question for a while would be, you mentioned in MW that "way down in very distant fourth place were your fundamental ideas and, quietly, on balance, you said they have cost you money." If you could please comment on that and touch on the effects of fundamental biases on the organic part of a system. Thank you for all your insights.

P.S. Sorry for bombarding you with questions, one doesn't often get the chance to learn from a grand wizard.

Abby Cohen peaks in 1969. Her beautician, also a fundamentalist, advises her to double up on youthful outfits, since her appearance is set to return to its old highs.

Great Emotional Detachment

You responded to a question in February by saying... You might consider this rule of thumb: Speculate with less than 10% of your net worth. If you are looking to support yourself, day-to-day from the markets, your account and your nerves might be wearing a bit thin.

I wonder if it's possible to eliminate most of the emotions of trading by better understanding your Essence of Risk. It seems that it would be a lot easier to maintain strict discipline.

Essence of Risk

Interdependence

You said: if you see Yin and Yang as symbolic of interdependence, you might consider connecting with some other traders in your area, perhaps setting up a group of your own.

Interdependence refers to: e.g. without an imbalance in Yin/Yang there won't be a trend. Our place in the markets as traders as I see it is to bring harmony and balance. I see my system as a supportive ally in discovering Yin/Yang imbalances. and more directly, the Yin/Yang part of my system is profit, which I'm always striving to bring into balance. I find it discomforting to think of a Trading Tribe as interdependent.

	Dependent - as a child
	Independent - each man an island
	Co-dependent - enabling delinquencies
	Inter-dependent - free trade

It all depends on the gravity of the situation.

I noticed you made some great recommendations on trading books. Can you recommend any psychology or self help, etc. books. You seem to have a lot of knowledge in that area.

Milton H. Erickson 1901-1980

Tao (see below, Pandora's Box)


These are feelings and thoughts I had bottled up for quite a while. I don't discuss trading with anyone, let alone belong to a group. I found most groups to be too mechanical. This forum gave me an outlet; it assisted in setting me free, opening up the flood gates for 'flow.' Most traders think in absolutes. They either focus on exits or entries or some other system aspect, instead of thinking about the totality of the system being congruent with the individual. it is difficult to keep that focus. Now that the flood gates are open, this aspect of trading is even more clearer to me.

It might seem at first, concepts borrowed from Chinese philosophy would ever be especially parallel to ideas found in trading. but a closer look would prove other wise. the golden rule of letting winners run; and cutting losses is nothing more than a Taoism concept, a branch of Buddhism. Tao or the way is within everyone. ones we understand the way everything falls into place.

The well known symbol of the yin and yang, two fish encircling one another, is a picture of the complementary nature of things, and their need for one another and their interdependence. To keep it simple, there are profits and losses, ups and downs, you can fill in the blanks.

Trading is not comfortable and harmonious; rather, it is a place of individuation where a person rubs up against his zero-sum counter parts, and bumps against himself in profits and losses, and in this fashion comes to know himself.

The flowing stream is a key metaphor for Taoism. be 'with it,' and not 'against. go with the flow. Not rigidity and aggressiveness but naturalness, humility not arrogance, not complexity but simplicity would do wonders for a traders soul. wisdom resides with the simple, and uncomplicated. simplicity brings one to move with the rhythms of the flow: the trend.

I want to understand more about your Trading Tribe's approach to meetings to see if we want to adopt some of your methodology at our meetings.

Before finals, and at the height of Star Wars Mania, hackers decorate the Great Dome to replicate the droid, R2D2. MIT has a tradition of creative, grand-design hacking, one of the ways engineers find to express feelings.

One of the hardest things I have experienced in trading is my lack of ability to sit tight and trade light when the market position is uncertain. It has taken me a few years to realize that clearly defined trends occur often enough to grow my capital by a significant rate ... Now the time has come to use this knowledge and make huge profits when these opportunities are signaled.

Good trading practice dictates all office staff also learn to use Trader Restraints, especially when they feel the market is going through the roof-roof.

While in college I continued to spend inordinate amount of time in the libraries trying to figure out the meaning to a lot of things.... I read Market Wizards around this time, I somewhat read your section at the time but didn't pay much attention to it. In fact, I thought it was the strangest and most convoluted interview in the whole book. I was more impressed with the other wizards. Little did I know I would come back to it years later.

Through my personal studies, I started gravitating towards the premise that there exists an governing law or energy that binds all disciplines and things together. My search seemed more like the search for enlightenment; more like Zen-Buddhism than trading ... eventually I learned that Zen-Buddhim had a lot in common with Behavioral Finance, & Complex Systems/Chaos theory, Martial Arts, Medicine etc. you can call it east-meets-west. In trading, my area of obsession, by discarding the complexities of prediction I ended up finding trend  following. "Realizing and believing" that one cannot accurately describe the current situation with the detail necessary, and that one cannot accurately predict the state of any system at a future time set me on the right path. I knew without a doubt that if I could follow the daily or weekly charts I would succeed. At this point I didn't even know there was such a thing as trend following. It was not something I was doing; it was something it was doing to me.

At this juncture, while flipping through Market Wizards, 'I had the aaahhhh effect as you might say' while reading your section. Every word you said made more sense at that point than ever before. At that point all the other MW seemed rigid for the complexities of this world.

Pandora's Box: (Greek mythology) a box that Zeus gave to Pandora with instructions that she not open it; she gave in to her curiosity and opened it; all the miseries and evils flew out. Reports indicate a few flew over to some of the major exchanges.

Let us say JJ has a model with the following stats, and can comfortably sit through :

historical heat 60%.
recovery 500%.
program based on a 65% blow-out.

So far JJs, peaks and drawdowns in equity remain within the boundaries of his model. He rigorously follows his prescribed money management, while focusing on long-term results. We would say JJ has enough stomach lining to take the turns. His heat is high, but his results more than compensate for it. Even though he has enough stomach lining to take the turns, should he stick to his system? Is heat only evaluated in the in the context of returns?

The New Joy of Sim. Work on your trading using safe simulation studies, thereby neatly avoiding the messy, emotional, organic part. Also, by the same author: Mathturbation - How to Avoid the Emotional Issues by Tinkering Endlessly with your System.

In your trend following trades, of the dozens of markets which you follow, do you try to be so selective to wait for a worthwhile trend so that only one or two opportunities would present itself in any single market per year, and sometimes none? And when it is a good trade, usually it may run for couple of months?

Is that the kind of time horizon to look for trades that would present more profitable trading opportunities in trend following?

	"Buy some good stock that is going up, and if it doesn't go up, then don't buy it in the first place."
	"Live your life so that whenever you lose, you're still ahead."

Other FAQ references: time constant; short-term trading

I find focusing on the magnitude of correctness as well as the frequency of correctness, appears to be more reliable in "controlling" drawdown. Is this assumption fundamentally flawed? Although, I'm confident of my method because of my results, there is enough literature out there refuting my assumption.

	the coefficient of friction of the tires
	the speed of the car into the turns
	the weight of the car
	the condition of the road
	the ambient humidity

One of the stomach's functions is to smooth fluctuations in food intake rate and to deliver an average flow to the small intestine. Another function is to smooth fluctuations in how people feel. People say they have things they just can't stomach, no matter how good they look on paper. If a trader's system performance is too "hot" or too "rich" his stomach may go into overload and attempt to protect itself by regurgitating signals. Acknowledging the organic part of the system is central to the Trading Tribe.

Do you recommend Mark Douglas' "Trading in the Zone"? I would appreciate very much your opinion. Thank you for your attention.

Fancy Disclaimer from USDA Site

FAQ Feedback

What a pleasure to finally communicate with you. You are an inspiration and a role model (it appears, to many of us). I can still remember the day I first read Market Wizards. I went cover to cover without putting it down. Your interview stood out that day and continues to each time I read it. I guess I have read certain interviews in that book as many as a hundred times. Yours’ is certainly one of them.

One aspect of that interview that hit me then was “…when nature gives us true burning desires, she often gives us means to satisfy them. A trader without talent or knowledge will find a successful trader to help him.” (paraphrased) Thank you for allowing us all the chance to interact with, and hopefully gain some guidance from, you. If I lived within three hours of Incline Village, I would be in regular attendance at Tribe meetings. What an opportunity! However, being in Virginia puts a wrinkle in those plans.

I began that day to seek out traders from whom I could learn ... I also wanted to find old writings of Dick Donchian.

I hope to be a decent contributor to these pages and will relay my trading feelings and experiences from both the past and going forward. Any comments or insights you have would be greatly appreciated.

I noted that you have a tab for quotations on your site. It has always been fun to collect quotes from trading books, biographies, literature, and even popular literature. I have a notebook full of them. So I offer two that seem apropos to this site (to me anyway). I hope others will get something out of them.

Thank you again for a service to the trading community and to those of us that continue to look for improvement.

Chief Trader: "I'll loan you two Color GameBoy cartridges for an option to buy your skateboard."