Questions

(Quotes from Ed in Red)

Answers

Sat, 25 Oct 2003

Perhaps you can notice a difference between the feelings of sharing he joy and peacefulness of kayaking on the lake with the feeling of telling a secret.

The Joy of The Lake

is not necessarily secret.

Clip: http://www.mum.edu/campus/

Fri, 24 Oct 2003

Expert Trader Rules

In Market Wizards, you indicate that your system becomes more compatible with your style as you continue to incorporate more "expert trader rules."

You also mention that, over time, your mechanical programs factor in more "tricks of the trade."

FAQ does not offer instrument specific trading advice, or recommend specific trading system parameters. See Ground Rules

Fri, 24 Oct 2003I

Impatient


Dear Mr. Seykota,

I have sent you a question a while ago about my simple sentiment moving average. You have pointed out to me that my desire to get ahead of the crowd indicates my being impatience.

I proceed to study what's out there a bit and increase my part-time trading activities and confidence. I found Marty Schwartz's "Pit Bull" very helpful and try to adopt some of the tricks and advice since that might suit my temperament.

I was trying to model after him a bit. I "thought" I was doing real well for a while until my old amateur personality starts to creeping back in as my greed and position size increases.

This led me to slowly starts breaking the trading rules I read which would have saved me. Now I am down 80% in my small account because I hold on to some options positions too long and create a losing streak by trying to gamble my money back.

You real trading system is the set of feelings you are unwilling to experience.

Piling software and trading systems on top of unresolved drama only elevates the drama.

Tall Towers

require strong foundations

Clip: http://www.infomotions.com/

Fri, 24 Oct 2003

Exist Reasons

Dear Sir

What can you say about options trading ?

Exist reason for futures trader to trade options ?

Grüße !

Fri, 24 Oct 2003

The event, the pause, and then the cause.

Davy Crockett Fur Hat

This hat has very little to do with causality.  Then again, fundamental reasons have little to do with price moves.

Clip: http://shop.5click.com/sohoshoe1/

Fri, 24 Oct 2003

Risk Management


Dear Ed,

I have read the recent comments on stop placement and pyramiding with interest.

You seem to advise "Risk not more than 5% of core equity by placing a stop loss order "

To do this I can have a small position with a far away stop or a larger position with a close stop or something in between. The chances of the close stop being executed are usually larger than the far away one. Bruce Kovner states that he sets his stop beyond a technical barrier so that it is not easily taken, but Schwager did not pursue this point with him.

What is a technical barrier and where do I set the stop ? Bearing in mind your admonition - cut losses, cut losses and cut losses I think I have erred on the side of placing my stops too close particularly since this seems to be my personal style even before I read MW.

FAQ does not recommend specific systems or parameters - or suggest where to place stops - trading is personal - what works for one person might not work for someone else.

For instance, your own personal definition of trading barrier defines how you place your stops. 

Applying a lot of technology, especially someone else's, to your trading, before you develop a strong inner sense of yourself as a trader, may be setting yourself up with a drama about enforcing external rules against how you really want to trade.

You might take your feelings about taking losses into TTP and work through them. 

This might help shorten your your own psychological recovery period and also put you more at ease with having stops in the market.

It might also help you define how you really like to trade.

If Computers Could Think

they'd look like this.

Clip: http://sprott.physics.wisc.edu/

images/heart.gif

Fri, 24 Oct 2003

More e-TTP (Inter Tribe Communication)

By the time I get to write you a reply, feelings described in a previous message might have already passed through.

Thu, 23 Oct 2003

Fundamentals of Free Trade

see October 16

A recent example of Ed's correctness is the near-term result of our passing an "anti-dumping" steel tariff.

The WSJ recently reported that many industries that use steel to make products were injured and their competitiveness in the US and foreign markets were severely reduced. The dollar advantage to the few remaining unionized steel makers was far less than the dollar cost to subsidiary industries.

The obvious 800 pound gorilla is China. Our balance of trade is very negative and continues so because they have cleverly pegged the Yuan to the dollar.

While fundamental analysis may help you understand how things work, it does not tell you when, or how much. 

Also, by the time a fundamental case presents, the move may already be over.

Just around the recent high in the Lave Cattle market, the fundamental reasons include Chinese Buying, Mad Cow Disease, and The Atkins' Diet.

Atkins' Diet

around for thirty years

finally becomes a fundamental

in the cattle market

after the market moves up.

Clip: http://www.2millionbooks.com/

Thu, 23 Oct 2003

Pyramiding

Hi,

I am curious about the whole pyramiding idea. The idea I'm guessing is to trade with the trend and build up to an optimum amount and ride the wave.

This way, risk can be held constant and a big position could be accumulated in a trend.

But for every position I am adding on, aren't I just getting stopped out more often?

Say every trade in a strategy is random. You have a 50/50 chance of making money.

f I am accumulating into a trend, doesn't each individual trade have a 50/50 chance of working out, making the whole process the same as just taking a bunch of trades on their own? I am comparing these things to random processes I guess.

FAQ does not recommend any particular strategies - trading systems are rather personal; what works for one person might not work for someone else.

You might back test some trading systems to find one you can live with.

Thu, 23 Oct 2003

Expert Trader Rules

Dear Ed,

Please define what is meant by "Expert Trader Rules."

TTP uses SVO-p grammar.

Notice that you have no S-ubject in your question - and that you use  passive "is meant by" construction.

Thu, 23 Oct 2003

Risk Redux - Oct 16 Position Sizing


I see that Anonymous public exposure in FAQ is a good way to learn. The writer's calculations about my pyramiding scheme are correct. The entries I suggest are not free of risk.

I am interested in his definition of "optimum size", as he indicates a maximum % of portfolio equity, while it appears more appropriate to determine optimum size by the amount at risk, rather than the percent of portfolio equity. Perhaps he is referring to the sizing calculation of a fair coin flip game in your "Risk" page, however, in the coin flip game there is no way to put in a stop loss order.

Raising the stop loss at the second add above the recent low, as he suggests, will create more likelihood of whipsawing out, although it certainly appears wise while looking at this chart. We could consider raising the stop loss two days after entry after the dramatic rise.

His last comment about gaps down is an assumed risk in all trend trading. Yes, lightning may strike in a storm.

To balance risk between two instruments that have different price and volatility (say, a T-Bill and a Tech Stock), you might want to have different amounts of instruments.

To balance amounts of two different instruments implies different amounts of risk.

A lot depends

on what you are trying to balance.

Clip:

http://www.un4gettabletoys.com/

images/hedstrom%20teetertwirl.jpg

Thu, 23 Oct 2003

Position Sizing post on 16 Oct 2003

Hi Ed,

I’ve gone through the example posted on 16 Oct 2003 on Position Sizing and I find it to be incorrect in regards to the pyramid positions being capital risk free trades. Please see below:


Equity = $62,000
Risk = 1% or $620
1st Entry @ $8 - stop @ $7 = $1
$620/$1 = 620 shares
risk 1%
position size is 8%

1st Pyramid

entry $9.16 – stop @ $7.99 = $1.17
current profit $719/$1.17 = 614 shares
position size 9%

new risk is 1.1% (risk & position size should decrease as we pyramid not increase)

total position size is 17% (probably close to optimal position size threshold)

if the stock reverses and hits the stop at $7.99 the loss would be $724 therefore this is not a risk free trade.

2nd Pyramid

entry $9.71 – stop @ $8.99

current profit $1,397/0.72 = 1940 shares

position size 30% (too large, above optimal position size)

new risk 1.4% ($887.38 risk / $63397 equity) % risk is increasing

total position size 47% (too large, above optimal position size)

again if the stock immediately reverses and hits the stop at $8.99 the loss would be $887 therefore this not a risk free trade

The stop placement on 2nd pyramid can be set closer to $9.16 rather than $8.99 because entry on 1st pyramid at $9.16 is not protected which will produce a larger than necessary loss.

Also, if 2nd pyramid is completed and the share price opens 20% lower @ $7.76 the following day, the loss incurred on the account would be $4,791.40 or 7.7%

Any comments would be appreciated.

Cheers

As you point out, the example assumes you can get out at your stop.

There is no way to eliminate risk from trading, or from life for that matter - there are, however, some ways to manage it.

The example shows how to build a substantial position while holding entry risk to about 1.5 %.

You notice, correctly that total risk increases over the course of the campaign ... this is characteristic of winning trades, since they tend to keep moving further away from the protective stop.

One way to keep total risk from increasing would be to keep selling off winning positions.

Your seem to have some additional rules:

These rules would excuse you from following some trend-following  strategies.

You might take your feelings about risk into TTP.

Risk and Reason

Sunstein claims that too much of the time we fear the wrong things, and sometimes we make the situation even worse. Rather than investigating the facts, we respond to temporary fears ... that the results are usually hysteria and neglect, as well as unnecessary illness and death.

Sunstein believes there is a direct and simple response that could save thousands of lives and billions of dollars while protecting the environment in the process.

Before government acts it should, produce a cost-benefit analysis that would be a detailed accounting of the consequences of alternative courses of action. It should allow people to see if the problem at issue is small or large, explore the expense of reducing the problem and explain who will bear that expense.

Clip and text: http://chronicle.uchicago.edu/

Thu, 23 Oct 2003

Sabotaging my Own Success

Ed,

I have good gains, then I always give them back. I have a feeling that I am sabotaging my own success on a deeper level. Maybe I am afraid on a deeper level ("Everybody gets what they want") that I won't be able to make it as a full time trader. I have a feeling that's what's keeping me back, as well as countless other traders.

What steps or advice can you offer.

Thanks

How about getting with a good receiver and using your feelings (about sabotage; about wanting advice) as entry points.

Free Advice

Worth Every Penny of It

Clip: http://www.bargainandhaggle.com/

Thu, 23 Oct 2003

Fred Catharsis and Focusing


Ed,

I have been following your site for several months and it appears the process of communicating with Fred, is very similar to the concept of Focusing, written about by Dr. Gendlin in is his book entitled "Focusing." I was wondering if you had read this book and if you feel these two processes are similar. The reason I ask is because I wanted to get a better handle on the concept of communicating with Fred and feeling feelings as a way to have a cathartic experience.

While in the end your response may act as an endorsement of his book (and perhaps that is part of my intention for asking) I was also looking for an endorsement of using "focusing" as a way to consistently attain the "cathartic breakthroughs" that you urge your readers to experience. As always, it'll be interesting to see your response.

Thanks

Focusing and TTP have similar aims in that they both intend to access inner wisdom.

Focusing seems to put the conscious mind in control of a six step process (Clearing, Sensing, Handle, Resonance, Asking and Receiving) ... and seems to expect the inner self to provide answers in a consciously understandable form.

TTP intends for CM to release control and for Fred to communicate experience in whatever way Fred wants.

Thu, 23 Oct 2003

Addictions and Fred

Dear Chief Ed,

You mentioned in a recent post on the TTP: "One way to break an addiction is to get Fred and CM talking about it."

I'm curious as to whether the TTP process could help someone with an alcohol addiction to stop drinking? I have a relative who is battling alcoholism and so far he hasn't clicked with AA or the traditional methods.

As a side question, is AA a form of TTP, what with their meetings and talking about feelings in front of groups?

Just a couple things to get your thoughts on. Thanks, Ed.

I assume AA refers to Alcoholics Anonymous, not American Airlines or Alcoa (Symbol AA).

Alcohol and other drugs pose an additional complication for TTP in that Fred and CM may not be able to communicate while the subject is under the influence.

AA includes effective methods for keeping the participants substance free - that are outside the scope of TTP.

Once the subject is sober you might encourage him to use TTP to experience his feelings rather than act them out by reaching for substance.  Receiving can heal.

Wed, 22 Oct 2003

e-TTP Inter Tribe Correspondence


A: It manifests itself like a pressure in the thorax and head, as if coming from inside out, as if I am being inflated.

Here B is directing A on what to do: namely, feel eyeballs start to pop.

This is typical of strategies in which the therapist somehow knows what the patient should do.

In TTP, the job of the receiver is to  encourage the sender to follow the trend wherever Fred wants without leading or predicting.

In this case, B might want to explore his own feelings about wanting to control the process.

Control Room

at the National Superconducting

 Cyclotron Laboratory.

Some people are very good

at process control

Clip: http://www.pa.msu.edu/gtour/

Wed, 22 Oct 2003

FAQ Oct 21


Dear Mr. Seykota,

Ed said:
"...trend definition and risk management methods effect your system profitability and volatility."

In my eyes volatility effects profitability. I want to use volatility as part of risk management such that it effects profitability positively.

Please let me know your thoughts. All the best for the workshop!

One way to use volatility in risk management is to make sure your assumptions about transaction costs include some allowance for volatility.

You might not always

get a fill at your stop price.

Wed, 22 Oct 2003

Correction

Hi Ed,

In your response to the question dated Fri, 19 Sep 2003, you write "...intentional community and using the Tracing Tribe Process (TTP)." I believe you meant to write Trading Tribe Process.

Do you believe the TTP works better with a group or the same as if just two people work together?

Thank you for reading carefully.

TTP can work in groups, in pairs and, ultimately, within one person as Fred and CM communicate.

When Fred communicates  long-repressed feelings with CM, you may experience a cathartic release of pain and get an AHA.

Wed, 22 Oct 2003

Hardball

The Hardball Process is a  back-and-forth clearing between two people who alternatively send and receive, with intention to dissolve whatever is standing in the way of realizing goals.

Your leader is attending the Workshop and can bring back lots of examples.

Hardball

Senders and receivers

find a way to communicate

and realize goals.

Clip: http://www.health.uottawa.ca/biomech/

Wed, 22 Oct 2003

Staring at the Screen

As I get in touch with my feelings,
I tend to stare less at the ceiling.

I quickly find out what's my scene,
and it isn't staring at the screen.

Gone are the days of trading despair,
the more I feel, the less I stare.

Some traders seem to think you can make a market move by watching it.

Causality is a Notion

Some people claim that if things are related by location, and if one comes first, then that one "causes" the other.

In this case, watching the pot causes it to boil.  Running the test five times confirms the result.

Much fundamental analysis rests on this method.

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

watched%20pot%20never%20boils.jpg

Wed, 22 Oct 2003

The Process


Ed,

I am a lucky man for a lot of reasons but the reason tonight is I am in the [xxx] Tribe and I took my issue into the process tonight.

I have been trying to figure out WHY [I have this issue], to no avail. I have had a troubled heart and huge headache most of the time.

I could go into great detail of the process that I went through tonight, on how I saw a yellow J with a troll sitting on the tail or how a huge weight on a cable was suffocating me and how bright slivers of white light lifted me up from underneath the huge weight and how the pain in my heart had completely disappeared and the headache was only very mild, but I won’t expand on these visions as I am sure you have been told similar stories multiple times over the years.

I have helped many individuals with the TTP but tonight was my turn to be helped and I was. Even though I have been skeptical of the process I have never been skeptical of the results. I am no longer skeptical of the process. I am now looking forward to Reno, meeting you, shaking hands and continuing my journey of peeling back the onion.

Tonight was an excellent start.

Thank you.

Yes.

Tue, 21 Oct 2003

Confessions of an Emotional Fundamentalist

Ed,

It took me a few years to go from "why does the market act this way" to "this is the way the market acts".

I am really struggling with my need to analyze my way out of my feelings.

It seems as hard as it was with the market, but I look forward to switching from "why do I feel this way" to "this is the way I feel".

Struggle is a form of drama.

How about just go, right now, with the flow of your feelings - and, if it comes up, simply experience your need to analyze - perhaps, too, your need to struggle.

You might see if "looking forward to picking up a pencil"  conflicts with "picking up a pencil."

Moving a Pencil in the Future

means not moving it now

Clip: http://www.virtualchoice.com/

pencil.gif

Tue, 21 Oct 2003

Program Working

Dear Ed,

I bought [XXX] at an average price of $17.25. I might not have found it this early without the new computer program I have.

It is moving nicely so far.

I notice XXX is trading at about 1/4 of its all-time high.

You might check your feelings about wanting to get in near the bottom, rather than go with things that are making all-time highs.

Using computers instead of dealing with feelings may wind up automating your dramas.

Monthly Bar Chart

Tue, 21 Oct 2003

Value of Back Testing

Hi,


I've read on this site that the trend following style of trading does not try to figure anything out, and that it follows the trend.

Then the more important issue lies with money management.

I also read the money management section. I was just curious what your take is on back testing.

If we were to know what our system was going to produce, then we could most definitely find optimum position sizing amounts, but the percentages could vary quite wildly in real time trading making that whole process a waste of time.

So I'm just curious about what you think of back testing in general. If you have a trend following attitude, does that mean you still back test?

Any trend following system I seem to test in stocks is wildly skewed by what happened at the end of the millennium. Of what use are those results?

That may or may not happen again in the next few decades. Am I to adjust my risk parameters based on those results? I know you learn more from a coin by flipping it and noting the results as opposed to knowing what the fundamental properties of the coin are, but the markets are like a coin which keeps changing properties.

Just curious about how you think about these things, especially back testing.

Thanks for the interesting reading!

Back testing does not change the markets, does not predict the future does not remove risk from trading and does not endow you with super powers.

It can, however, help you get a feel for how various trend definition and risk management methods effect your system profitability and volatility.

Your long-term success depends on your ability to stick with your system.  Back testing can help you develop a system you can live with.

Different Vehicles

have their pros and cons

taking a test drive

can help you find

something you can live with.

Ckips:

http://harleys.com/

http://www.bermuda-online.org/

Tue, 21 Oct 2003

Once you get Fred and CM communicating, you may get AHA's just in the process of life itself.

Don't take your friends and associates

for granite.

Clip: http://www.stcloudarea

Tue, 21 Oct 2003

Time

Hi Mr. Seykota,

Have you done a study, or what is your observation on time stops? Do you apply it in your trading? Thank you in advance. Looking forward to meeting you on Friday.

All stops that move have some time component. 

You might check to make sure your original entry stop in within your risk budget.

Different People

have different risk budgets.

Clip: http://www.hal-pc.org/

~canupnet/risk.jpg

Tue, 21 Oct 2003

Life is just a Borderline

and the TT process


Hi Ed,

I enjoyed your Fractal Poem very much.

Sometimes I wonder if the TT process is like a fractal in that when examining internal feelings we see ourselves examining internal feelings, examining internal feelings, etc. Doesn't consciously examining feelings change our feelings so we never grasp what we really felt in the first place? Like a trying to remember a dream. Or like James Taylor's song goes:

"Now I almost had a heart attack
Looking in my rear view mirror
I saw myself the next car back
Looking in the rear view mirror
'Bout to have a heart attack"
(Traffic Jam)

I have included a couple of my fractals discovered found about the same time you wrote your poem.

Fractals

Nice Fractals.

TTP promotes the communication of experience between Fred and CM.

Sometimes, very analytical people   tend to analyze their feelings - rather than experience them. 

In such cases, you might try a koan to keep CM busy - so that Fred can come out.

Mon, 20 Oct 2003

Checking Back - 12 Years Later


Hi Ed,

I am writing this to you in response to some advice you gave me at least 12 years ago. Back then I wrote a letter to you and you graciously phoned me back and we had several discussions. I was seeking advice on developing a "trading system". After reading your interview in market wizards your approach to trading seem to make a lot of sense to me.

To this day I have utilized many of the insights you gave me. I e-mailed you a while back here and expressed a couple of them. I have had a good career as a market maker for an investment bank and now working with a wealth management company utilizing a long-term buy and hold strategy. The most important thing you taught me was emotional control. You recommended that I read the Grof book "Adventures in Self-Discovery". That began my career as a trader.

To date, I have been a discretionary trader. It has worked well but I am not satisfied. I have been trading for 13 years, I am 33 years old now. I first spoke to you when I was 21. I have a sincere interest in "trend-following".

Your first assignment to me 12 years ago was "go program a computer to generate buy/sell signals from a moving average, once you have done that call me back and I will help you some more".

It has been 12 years and I still have not programmed a computer to buy/sell from a moving average!

This has to tell you something about me? What kind of impression does that give Ed Seykota? In the meantime I have continued to trade, do well and really focus on managing risk. Letting winners ride and cutting losses quickly. However, I do not do anything in a systematic way. I primarily rely on the charting skills you taught me and use some basis money management algorithms for risk management.

However, I am very intrigued by the systematic approach to trading. I do not feel that I have explored and implemented my true potential as a trader. I feel stuck because I cannot program a computer and really have no interest in doing so. But I am very interested and want to test and implement a "trend-following" system with a computer. I see no value in utilizing any of the systems software platforms that exist today based on your advice that I need to know how my "system" works from the ground up, just like building a house is what you told me. I have a client who is an ex-msft windows programmer. He is now retired. I asked him if he was interested in helping me "program" and test my ideas. It was met with little interest. I have the basics of what I want to "build".

I have made it a priority in my life to explore something that "Fred" has been telling me for a very long period of time. "Fred" wants to test and trade trend-following computer models.

CM is lazy and does not want to do it because CM does not know how to program the computer.

CM has a lot of good ideas and 13 years of real-time profitable trading experience.

CM is relatively "comfortable" with how things are (everybody gets what they want out of the markets!)

Your drama seems to revolve around the conflict between "I'm supposed to do it" and "I don't want to do it."

In TTP, you generally do not know what feeling Fred wants CM to acknowledge - until after the AHA - since your drama arises out of CM not listening to Fred.

Perhaps you have some strong feelings about about authority figures and /or following instructions.

One way to proceed is to take your feelings to a Tribe meeting and allow a good receiver to assist you to locate them and to develop them towards AHA.

Another is to attend the TTP Workshop (above).

More direct, still, is for you to experience the feelings of putting the whole thing off for a while.

Procrastination

is something you can do right now.

Clip: http://www.wilcherish.com/

cardshop/humor/lazy.htm

Mon, 20 Oct 2003

Thanks for the Present


Hi Ed !

Today's fuchsia FAQ was the best ever

...  as I have been living in the pasta.

Living in the Pasta

Clip: http://www.kinderrezepte.de/

index.php?red=%2Fpages%2

Staying in the Present

You Become the Gift

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

00design/sections/teachers/present.gif

Sun, 19 Oct 2003

Cellular Memory


Ed,

I thought of you as I explored this topic on the web. You may find it useful in your work.

-----

Pert might consider joining a Tribe and using TTP.

Perhaps some of her drama with the scientific community is just Fred trying to get her to experience her anger, sadness and frustration.

Book Review

by Library Journal

at www.amazon.com

Sun, 19 Oct 2003

Right and Left

Dear Ed,

This could be what happens to the left and right side of your brain when you trade ...

Left-Right Conflict

Look at the chart

and say the color

not the word!

Your right brain

tries to say the color

and your left brain

TTP uses a "Fredian" model - useful in training people in the art of TTP.

FAQ makes no attempt to justify the model scientifically or to locate or analyze specific areas of the brain.

Believing in the Fredian model, or in the left-right model, or in model airplanes ... are optional.

Strong attachment to a belief can be an entry point for TTP.