FAQ Feedback

Hi again, Ed,

Brenda Ueland wrote If You Want to Write: A Book about Art, Independence and Spirit in 1938. It is a book about writing, but she tells her readers of
multi-uses for her book:

Whenever I say 'writing' in this book I also mean anything that you love and
want to do or make. It may be a six act tragedy in blank verse, it may be
dressmaking or acrobatics, or inventing a new system of double entry book-
keeping. But you must be sure that your imagination and love are behind it,
that you are not just working from grim resolution, i.e. to make money or
impress people.

What's great about the development of your FAQ is that you seem to be going in a similar direction as Ms. Ueland. If something else was substituted for
'trading' in your writing, your parables and lessons are just as important for
the non-trader.

Finding an Itch

	the total amount you should bet at any one time, distributed among the current bets
	the amount you should place on any one bet
	something else entirely.

I think its the first - to this end I created a spread sheet that employs the same method, that you can figure out max portfolio heat from the results of one cycle. I just used my % winners, size winners, % losers, size losers (standardized to one for this), and extended it over 100 trials. I came up with ~40% for this short term trend following system ...

Any clarification will be very appreciated.

	initial risk for each instrument
	total portfolio initial risk
	open market risk for each instrument
	total portfolio open market risk
	total risk to equity ratio
	largest percent drawdown from a previous all-time high.

See other FAQ's on heat: 1  2  3  4  5  6 .

I have to go to bed now to be fresh for work tomorrow.

Many Thanks

Dear Mr. Ed Seykota,

After having studied some time I have devised my trend following system. By applying back-tests I have come to the conclusion that in the long run my system will make money. But I have some problems:

- Although I know that I play the game according to my game plan, sometimes when the market goes against me I feel myself depressed due to losing money and also when my account gets to higher levels I find myself in an euphoric mood. I totally know that these emotions are dangerous to my results but I can not keep myself away from these moods. Is it possible to think that after some years of experience in the market it will be much easier to handle my mood. Or to say it another way, is there anything I can do to speed up the process of handling emotions in a more effective way.

	commit to the system and ignore the feelings.
	develop a hard shell, a stiff upper lip, a coat of armor.
	adopt a what-me-worry attitude.
	reduce trading to the sleeping point.
	emote profusely, all over your friends and associates.
	outguess the urges, buy instead of sell.
	use the feelings to guide personal growth.

For a spiffy lawn, maintain eternal vigilance and hand weed at the first appearance.

Breakouts

Mr. Seykota,

Would you be kind enough to comment on how you identify breakouts?

This novel describes emergence from various restrictive conditions and situations.

Radial Momentum


Dear Ed,


I read your articles about Radial Momentum.

Some 34 years ago a friend of mine was running around (in Australia) with a Russian inventor who came up with the idea that hydrogen could be utilized as fuel to run a motor car.

Now my friend was a very determined man ... all to no avail. My friend wasn't a person to give up easily so he dedicated a good part of his life on promoting the project but ... didn't get anywhere.

Today, some 30 years later, it is a fact that several car manufacturers  now have a working prototype.

This goes to show that it is not so unusual to run into enormous resistance to a new idea (just as you have found).

A large amount of persistence is required to succeed. However from what I have read on your website I do get the impression that you do have the required 'obsession' to see it through so I wish you well.

A champion of momentum theory. A body in motion tends to stay in motion ... or at least until the trend runs out of steam.

Favorites

Dear Mr. Seykota,

I enjoyed reading both Market Wizards books authored by Mr. Schwager. In particular, I find myself re-reading your interview because of your simple yet profound approach to trading.

My questions for you are:

1. What is your favorite movie? Why?
2. What is your favorite book? Why?
3. Who is your favorite historical figure? Why?

Thank you for your response.

1. There is an appointed time for everything. And there is a time for every event under heaven.
2. A time to give birth and a time to die;
A time to plant and a time to uproot what is planted.
3. A time to kill and a time to heal;
A time to tear down and a time to build up.
4. A time to weep and a time to laugh;
A time to mourn and a time to dance.
5. A time to throw stones and a time to gather stones; A time to embrace and a time to shun embracing.
6. A time to search and a time to give up as lost; A time to keep and a time to throw away.
7. A time to tear apart and a time to sew together; A time to be silent and a time to speak.
8. A time to love and a time to hate; A time for war and a time for peace.

Seeds and Reasons

Mr. Seykota,

I finished your "Market Wizards" interview. I'm 3/4 through the book and the technicians outnumber the fundamentalists ... interesting.

What I'm gathering is that the "Wizards'" intuition might be the reason for all the success. The technical don't seem to be very complicated. Its a matter of figuring out which to use and how to apply them (maybe that's the difficult part...at least time consuming?) Only a few rely solely on fundamentals, and these guys seem to be extremely intuitive with the markets. I'm wondering if this intuition is just a matter of spending a great deal of time watching the markets and learning their behavior...learning their psychology ... would you agree? Then the technicals are there to back-up the intuition.

I completed the assignment you recommended, however I didn't eat an apple. I don't like apples. I ate a seedless watermelon instead ... finished the whole thing ... all 30 pounds of it.

In addition, great quote from Goethe.

Typically 15 pounds.

I found your comment of (Fri, 28 Mar 2003, Psychology) very profound. You're truly humbling.

You make everything sound easy. So far, I know I was spending too much time to the development of trading skills and math, and too little to the development of my spirit and psychology, even though, I thought I was allotting enough time to those areas.

I'm Saying Nothing

I'm looking for historical end-of-day futures data to use for system back-testing. Of course, the validity of the tests will only be as good as the data is accurate (well, the design of the tests, my programming skills, and interpretation of the results come into play too).

I've done some web searches, and even bought some data. And it's apparent that some of the people who sell data don't use it to system test, or if they do, they're ignoring data type mismatch errors.

Are you still in the data business? I know you once had an affiliation with [XXX], and maybe still do, but I haven't been able to find them on the web and as near as I can tell they no longer exist. I don't know if you'd be willing to recommend a company by name, as it might interpreted as an endorsement, but I'd appreciate any input you could provide. Have you ever sold your own historical data?

Thanks in advance.

	Keypunch operators
	data storage compression and de-compression
	vendor signature ID marks
	data interpolation to fill gaps
	adjustments for splits
	adjustment for stock dividends

Dolphins Go Free

Dear Sir. Edward Seykota,


I am Italian, born in Sarajevo (Bosnia), living in London (UK), and I am fond of trading. It has been a pleasure for me to learn that you now maintain your own Trading Tribe web site and that you are willing to share you genius insights with others.

In my experience as a trader and someone who managed to make well over 100% in return on equity last year, I feel very much that in order to have a $5,000 account grows to as much as $15,000,000 in 15 years time, it requires not only a huge amount of LUCK but also an extraordinary risk taking soul, which quite possibly was accomplished through a 20%-heat IRON stomach and no more than 2 to 3 positions at the time (each initially greater then 2% of course)!

I would really appreciate your opinion about my assumptions and your Risk taking intentions/feelings/abilities/styles in the years from 1975 to 1989 and now? In case they were different (a very likely scenario), wouldn’t you mind briefly explaining as to why, apart from the fact that you are richer now? Also, did you have any exposure to neural networks over the last 30 years and if so do they hold any ground?

P.S. Could you please confirm if success in trading lies in 40% psychology, 40% money management and only 20% timing?

Many Thanks in advance

Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative (and creation) there is one elementary truth the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, providence moves too. All sorts of things then occur to help one that would never otherwise have occurred. A whole stream of events issue from the decision, raising in one's favor all manner of unforeseen incidents and meetings and material assistance which no one could have dreamed would come his way. Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it. Begin it now.

I want to thank all you for taking the time to share. I have learned a great deal. I hope one day to repay the favor. Thank you.

There is a foot for every shoe and market for every method.

Unfortunately I don't have the time to help XXX improve his product, I'd rather save the time for your future materials.

Back to my original question. Any suggestions on building a statistically sound back testing and money management model that uses discretionary entry and exit signals similar to Jesse Livermore's concept of pivot points?

Any suggestions on what markets from the 1970 - 1990 had significant trends which may help train me to find the next ones in the future?

	build a mathematical proxy and back-test that.
	trade for a few years and see how you do.

No worries, it is set to go off in the future.

Mr. Seykota:

I am a self-made trader. I was born in Argentina, I lived 13 years in Barcelona, Spain and now I am living in Colombia. I am 32 years old. I am a trend follower and I have some individual things that I add to my trades.

I have no university education, (only one year in law but I give up for job in a Spain broker) I only have markets and trading education. I had traded markets in Europe and I received an offer from a Colombian broker. I decide to come here because I wanted to learn more a more, but this experienced was not very good, I had lost a lot of money in my divorce and the local market is not very good now.

By luck, my personal life is beautiful now. I had a very good girlfriend besides me, she is a dermatologist doctor, a very good professional and a person who is besides me just now, in this difficult labor market.

I had bought a trading course some years ago. I had read markets wizards books and every interview or opinion from a trader who is an example for me, like Seykota, Tudor Jones, Soros, you know.

I want to know how I can Have the opportunity of demonstrate something of my skill in markets and how can I learn more from traders who are very good? I want to come back to markets. I want to learn more and more, I love markets and I can live without them but now, I have a little job like analyst for a local broker and I have no capital to trade markets again. And local market, I repeat, is not good now.

I am looking only for an opportunity, not for free money. I want to trade for somebody for free, I only want to have an opportunity. I want to trade besides somebody who I can observe, listen, talk to and learn more and more every day. I am not afraid of working hard, thanks that I worked hard every day of my life in markets I have something of skill. Every hour of every day, I was looking at markets, charts, reading from other traders ... and I still make this every day.

If it is not possible I will be grateful with you if you can give me the opportunity to talk to you some day.


Thanks and regards

P.S.: Sorry, my English is not good, I never could study English, markets teach me it too.

SVO-p Language


Can you please elaborate further on what you've termed SVO-p language? How is it important and how does it fit into trend following? And if you may, please point out how one can go about integrating consistently such language in daily life.

Psychology (see reference)

You answered me yesterday "Achilles mom, Thetis forgets to dip the other ankle in the magic Styx water. Some think his real weakness is a matter of pride, that shows up as hesitation to cut losses".

I think you have centered the point. I have studied extensively the financial markets in the last 9 years, but I must say the truth, I have hesitation to cut losses. I think my problem is only psychological, because when I trade leaving my ego in the corner I make money. When i trade like "hey guys, I'm the best trader around" I have hesitation to cut losses and I lose money. Hope you can help me in some way.

For me good trading is good trading, is not important if we use fundamental or technical analysis. The point is that we must find a trading system that fits our personality.

Excuse me for my bad English

	Trade with the trend
	Ride winners
	Cut losers
	Keep risk manageable

Achilles mom, Thetis forgets to dip the other ankle in the magic Styx water. Some think his real weakness is a matter of pride, that shows up as hesitation to cut losses.

For me the most important thing is my family, and if I trade for make my family and me happy I can have great results. Think about that. If you was at the end of your life what should you think? should you think about your money in your bank account, or should you think about your childrens and your wife? "To be a money master, you must be first a self-master".

Thanks for all.

... and still see this in the mirror.

	using a set of moving averages (to determine the trend)2.
	doing cycle analysis (to fine tune your entrees and exits)

Am I correct in that conclusion ?

Read between the lines, on a Treble Staff

Day Trading

I reviewed my daily trading activity. I came to the same conclusion as you initially offered: daily trading is very inefficient, and reduces me to the guesser. When I got back from Chicago, I was very excited, and decided to trade daily ... Result - ACTIVITY, but weak profit. Though I am making a few bucks here and there, it does not worth the effort.

Only now, after about a month, I was able to
extract the essence of the problem with daily trading. It consumes time, obscures mind, makes me addicted to the news coverage, with pitiful results. Once again, I am making some money, but all the effort just does not worth it.

All those, bid-ask spread, commissions, inefficient filling, human errors, and stop hitting on daily level are eating away my profit. And if even they would not, this is still much less efficient than just "buy/sell and hold" (at the right time, though!). I'll try to do that.

Only now I begin to appreciate fully your philosophy about trends ... Thanks

I am currently reading "Market Wizards" and I have gotten through half of your interview. I liked what you had to say so I hoped online and did a search for "Ed Seykota" and here I am. It's great that you're helping people out. If I ever become as successful, I will do the same.

I, too, have an engineering degree ... so I like the technical way you approach the markets. My understanding is that the markets trended much better when you started out. Do you see any difference with today's markets? Does the trending approach still produce significant gains?

I've visited tons of web sites, read books, subscribed to news letters, and there seems to be an overflow of information ... and as a novice trader too much info is a problem.

Do you have any comments on what strategies to approach? Would you recommend getting into commodities brokerage? I am determined to figure "It" out. Having a mentor would be great. Too bad I don't live in Incline Village. Actually I live in Palm Beach, FL ... maybe you know someone here who is mentoring like yourself.

Well, any info would be great.

Seems like trend following might be described as agreeing to give up some measure of control and going along with something bigger than you are. Agreed?

Trend Followers don't stick around to convince Mr. Elephant that he is supposed to be somewhere else.

Online classroom forum with Ed Seykota? Viva Internet!

My question is:

You simulate a trend following system on a market for n years of prices. The results give 0 real profits; or not statistically significant.

So how can psychology help?

If we follow this system, with 0 psychological involvement, than results are flat.

If we put a certain psychology in, then the resulting coupled system is the new trading system.

You have a winning trading system, no need for psychology; you have system with psychology ingredient than this is a new meta system where psychology is encoded in. That meta system in that encoded form doesn't need psychology either.

Can you say a simple trend following system is enough for trading success? If a person is winning, she should have a winning approach, maybe in some part implemented as actions driven by some psychology.

I'd very much appreciate if you especially post what you think are the errors or the missed points in this reasoning.

PS. I'm a young Electrical Engineer gradated from what we could call the Turkish version of MIT, Bilkent University. I read Market Wizards maybe 6-7 years ago in the university library. I was particularly attached to one figure in that book.

What in your opinion is the most effective therapy to bring about personal change?

Thanks very much

Possible Group in San Jose

Dear Mr. Seykota,

I see on your ‘meetings’ page that there is one request for a San Jose site for group meetings. Make that 2 now. What with current gas prices and distance, driving to Incline Village is impossible without affecting my GDP (Gross Driving Policy).

Thank you again for all your insight.

Am I a Trend Follower ?

Dear Ed Seykota,

I want to give you the brief overview of my trading system. Can you please comment on it whether it resembles trend following strategy or is there some points that still lack.

1. I define a market whether it trends or not by using 2 simple moving averages ( 10 and 20)

2. My risk per position is between minimum 0.5% and maximum 2% of my equity.

3. After the market starts to show some positive signs (making a new high after it has dropped for some time) I get ready.

4. If the market starts to trade above the 10 day moving I make my first commitment by risking 0.5% of my equity.

5. After this I watch the market if it resumes to trending or not. If it increases by 5-10% from my initial purchase price I add another position by risking 0.5% of the equity again.

6. If it trends strongly, I add till the position risk reaches to 2% of my equity.

7. When the trend reverses I start to sell my positions gradually if the price starts to get below the moving averages.

8. In terms of risk management; I want to leave all the positions if my equity drops 3% in one week and stop trading for this week , if equity drops 12% in one month I stop trading for that month.

Thanks for your help.

Surprises
See Sun, 23 Mar 2003 Surprises

For example, over all, equities markets were in a down trend when the 9/11 tragedy took place. If this tragedy had occurred at another time during a major up trend, do you think its safe to assume the markets would have shrugged off such news? If not, would it not still be a surprise (organically), despite the fail safe mechanisms set in place.

Keeping Mind and Spirit Clear

Dear Ed,

My trading has greatly improved. I believe this is because my attitude towards trading and life has become very positive. Keeping my mind and spirit clear is proving to be incredibly important. Thank you for your ongoing help, your knowledge is astounding.

see: FAQ 24 March 03


Dear Ed,

My daily fix is absorbing the wisdom from FAQ, first thing in the morning. Thanks.

Since I trade only equities, (as access to global instruments is not yet available in India) I find that keeping a short position in a bull market (as well as the converse, longs in a bear market) as a hedge strategy, is not a great approach. There is always an overhanging effect of the major trend, and to keep probabilities in my favor, I find that trading only primary moves in the direction of the major trend, a better strategy.

Would appreciate your comments/views.

Barry Bonds

Please finish your book soon. If we trend following students have to rely on XXX for much longer, we are in big trouble. I've seen 8th grade biology reports that are better put together than the XXX manual.

My question is the following. I use Jesse Livermore's technique of pivot points to generate my entry and exit signals. Since this is an art and can't be quantified, I'm assuming that back testing even to get a feel for money management and heat, will be a pointless if not impossible endeavor.

Second question: I am taking your advice on examining charts of the past big trends. As I am only 30, I completely missed out on the classic bull/bear trends from 1970 - 1990. If you could make a list what they were maybe others would find it helpful as well.

Mentors from Trading Tribe

I, like many others on this site, truly appreciate the opportunity to share ideas not only with you but with other traders trying to grow both personally and professionally. I feel like I've known you for quite a while. Like many others on this site, I've read and re-read many articles and stories that you've participated in. Also, there are two people that have been mentors of mine that were part of the Trading Tribe. Thanks again for providing this site and your insights on trading and life.

1. I have to mention honestly that your FAQ section is the most inspiring material I have ever read on trading since my interest has started on this subject.

After your advice about using always active sentences instead of passives most of the issues that I have considered to solve for some time have appeared more clearer.

You are 100% right that everybody has the power inside to solve every problem that he faces, but taking the responsibility is the most irritating situation for most of the people. To blame somebody is the easiest path and you feel yourself relaxed by not assuming any responsibility.

2. Is there any possibility to put a sample conversation material of your trading tribe meetings for the people who do not have chance to participate your tribe for now.

Joshua, the computer, concludes nuclear war is a strange game, and the only way to win is not to play.

Number of Markets to Trade

Your insights and your success story have given me hope in a very difficult environment. My question is if you are only trading equities, how many equities at a maximum would you follow for trading signals. Also since equities are positively correlated, would you always keep a hedged position (long and short) to counteract this to some degree. Thank you again for being a great source of inspiration.

Surprises

Why do you suppose surprises almost always happen in the direction of the trend?