The Trading Tribe

Ed Seykota's FAQ
Home | Send Mail to FAQ | Resources | Ground Rules | FAQ Index



Epidemic Lab



Contributors Say Ed Says
Apr 28, 2020

Let's Make a Deal

Mr Thorpe,

I'd like to read your book Govopoly.  While I do not budget $125 for single books, I do budget more than that for charity.  I'm happy to offer you $25 for the book and $100 sent to the charity of your choice.

Thanks,
Thank you for presenting your intriguing offer.

OK, so how about you send me $25 and also send $100 to charity.  I can send you 72 pages, and the rest to charity.

By the way, Mr. Thorpe no longer works here. He now goes by the name Edward Thorp. He likes to write books about blackjack and security price forecasting.  
April 21, 2020

Hi Ed,

How are you? Hopefully you're doing great!

I've got two questions, can you give them two different answers in the FAQ?

I see life as a continuous 'psychiatrist couch' or a continuous prayer. One is asking to bring into awareness that which is a block to a higher understanding or to be more loving.

How do you see the idea of getting ill as a way out of repressed guilt within one's psyche? The more energized and bought into the belief system "people are catching a virus", the higher the likelihood the subconscious mind will put oneself in the situation to actually catch the cold.

It is useful to ask what an illness means in order to both heal the illness itself and to heal the underlying psychological issue. How do you see this idea?

Also, I'd like to take my feelings of adapting and accepting to the Tribe. It's difficult for me to accept this level of hysteria and folly. And I limit myself with the belief: "this is going to be such a hit to the economy that I won't have any opportunities". I feel really alone.

Thanks, Ed. Take care.

Thank you for raising these issues.

For my views on COVID-19, see:
www.Epidemic-Lab.com

You might consider taking your feelings about <hysteria and folly> and <alone> to Tribe as entry points.
April 20, 2020

Wants to Understand

Hello,

Thank you for making all these great resources available. 

I’ve never been much of a math or statistical student … 

Are there other lower level books or classes you’d recommend I study so that I understand your charts more?

Thank you for sharing your process.

I wonder if you can tell me which chart you wish to understand more.
April 20, 2020

Flying Hugs

Dear Ed Seykota,

I hope you are safe and well.

Remembered you suddenly!

Two neighbors are fighting and shouting. I intervene and suggest that the one who is very angry should calm down as it may affect her heart. She ignores me completely!

I remember your words Everybody gets ...

I realize it is not what she wants.

I come back in my apartment.

I start wondering how suddenly we remember you due to what we have learned!

Thanks!

Flying hugs to my beloved teacher and guide.
Thank you for sharing your process.
April 19, 2020

Definitions

Dear Ed,

In the document "System Math" you have posted on your site I'm not sure how you define

ndAtrMultiplier in: Entry Risk

ndEntryRiskPerLot = ndAtrMultiplier * ATR

and ndHeat in: Entry Quantity

Quantity = EquityBudget * ndHeat / ndEntryRiskPerLot

May I ask that you please tell me how you define these variable or how to calculate them?

Thank you for raising these issues.

In the back testing protocol, we have both ndAtrMultiplier and ndHeat as independent variables.

You define their values and run the simulation.

By testing a matrix of values for the values you define for the independent variables, you can find the values that optimize your results.

April 19, 2020

System Structure

Hello Ed,

I hope this note finds you well. Question: what is your definition of "system structure." 

Regards,
Thank you for raising this issue.

To see my views on  Models, Causality, Levels, Rates, Intentions, Results, Integrals and Differentials see: link


April 18, 2020

TSP

Ed,

Now I am trying to valid your Diversification Study results on TSP.

I notice that your post data of S&P and Gold. So yes, I know  I can use these data to study and investigate the diversification benefit by myself.

But now I want to make sure I can duplicate your results to penny and output the same equity log, to make sure I program everything right when I program to run 2 system at the same time.

So please let me know if you also post the data of Copper and Crude Oil, if this might involve you to some copyright violation to your data supplier, it does not matter if you refuse me.

I can understand.

But if not, I ask for your help to post them, now I am on the way to educate myself as a trader.

Thanks in advance and thanks for your consideration.

I always appreciate that I learn so much thing through reading your interview in Market Wizard, and then find your website and again learn lots of knowledge.

I appreciate the precious relationship that I develop with you.

I hope I can fly to your house and say thank you to you when I become a successful trader.
Thank you for raising this issue.

I wonder if you can successfully duplicate the results for the data on the site for S&P and Gold.


Apr 17, 2020

Correct Metrics

Good day, Ed.

Thank you for the work you have done over the decades in the financial markets and in particular the modeling of trend following systems.

I want to record my trades as best I can and use the data to account to myself a comprehensive strategy performance report over a set period of time.

I have one question?

Am I correct if only use My Maximum Drawdowns to track performance?

I found that focusing energy on risk averse approach (keeping track on drawdowns and managing them) is a much more profitable method than to keep score on profit percentiles or other metrics. I am currently in a drawdown and have reduced my position sizes on trades from 1 % to 0,8% risk of open equity in my account on any single trade but not exceeding 3% on all open positions until I recover to a new high on my account's equity curve.

I keep track of drawn downs monthly and quarterly. This is all I do to measure the performance of my system. I can't project profits but I can only limit what's in my control : limiting inevitable drawdowns in my account due to low win rates.

I am not sure if this is correct or complete.

Would you please give me your input.

Thanks a lot

With Regards

Thank you for raising this issue.

You might like to take your feelings about <correct> to Tribe as an entry point.

Once you have clarity about correct, let me know how you identify the correct meal; the correct car; the correct wife.

From there, we can continue the discusion about the correct metric for your system.


April 17, 2020

Radial Momentum

Good day Mr. Seykota,

I sent a link for your "Radial Momentum Theory " to Miles W. Mathis. After reading your theory Miles suggests I send you the link to his "Charge Field Theory of Lift" as they are related.

http://milesmathis.com/lift.pdf

Have fun!
Thank you for sharing your link.
April 17, 2020

Life Runner

Hey Ed,

I hope you and yours are doing well through these crazy times.

I've been chipping at myself, improving bit by bit, trying to stay present and listen to the messages coming from my emotions.

Holy S--t; sabotaging yourself -- not acknowledging my own great potential -- is a coping mechanism to avoid staying present with disappointment.

I've been working with staying present through my emotions and watching them subside. It's had a remarkable effect on my performance in grad school.

A lot of this stems from your comment many years ago --"what we don't like runs our lives" -- true indeed friend.

Thank you for sharing your process and insights.
Apr 13, 2020

Tribe Meeting Report for March 2

Dear Ed,

First and foremost, I want to thank you for the resources to you have on your website and for sharing the Trading Tribe process.

Your interview in Market Wizards has had a profound impact on my life and career and the resources on your website have shaped my trading and my views. I aim to continue the journey to right livelihood through participating in the Trading Tribe.

I attend my second Tribe meeting and there are four of us attendance. The meeting starts with the tell me what you are thinking, tell me what you are feeling and show me what you are feeling exercise.

During the tell me what you are thinking exercise, my partner tells me he’s thinking about what I do as a job. This makes me laugh which causes my partner to smile. During his next turn, he asks the same question which makes me laugh again. I wonder what triggers my response to this question for the rest of the process. I notice I have the same response when others have asked me this question in the past.

We then drum and check-in. TM1 says that he does not have any issues he wants to take to the hotseat. TM2 mentions that his Dad has asked him to manage some money for him and he’s been struggling on making a decision and he doesn’t know what to do. He would like to take this to the hotseat. I (TM3) state that I do not have any issues I want to take to the hotseat currently. Ed:

I am glad that I have had privilege to read Govopoly book.

When I see "If ever there were a time for big government, for ambitious programs, for a central role for federal authorities, it is right now"

 At least I am grasping what is going on and where it is headed.

Stay safe.  TM4 states he has an issue but he is not that hot. We invite TM2 to take the hotseat.

Hotseat 1

TM2 is HS1 and TM1 is PM. We create a field of acknowledgement and encourage HS1 to develop his forms. He rocks back and forth with his head on his lap. He clenches his fists and extends his arms.

The PM freezes HS1 and asks him to recall a memory. He recalls at a memory when he, his mum and ex-girlfriend are out shopping.

PM asks HS1 how he felt in that situation. HS1 states that he didn’t feel anything and he thinks the memory is unrelated as nothing happened.

The PM asks him is he is willing to develop his forms again. HS1 says yes and we try again. He rocks back and forth on the floor, stretches his arms out, puts his head on his lap and clenches his fist.

PM freezes HS1 at his peak and asks him to recall a memory. He recalls a memory of when he is young and he is standing in a room whilst his father shouts at his mother for a trivial reason and threatens her with divorce.

He recalls his mother apologising and trying to appease the father while his father continues to berate her. The father talks as if he has already got the divorce and how great his life would be in that situation. The mother cries and apologises whilst the father continues.

The father also asks HS1 who he would choose after the divorce and states that he is the one who provides for the family whilst the mother does nothing. HS1 recalls saying that he would choose his father and that he is saddened by his response.

We conclude that the father is the stressor and the mother is the rock donor. The medicinal rock makes HS1 appease his father and agree with him in order to move on from the situation.

We roleplay the situation with me as the mother and TM4 as the father. The father berates the mother and says that he is the one that provide for the family, the mother does nothing and he is going to get a divorce. He asks HS1 who he wants to stay with. The mother then offers the medicinal rock to HS1. HS1 sincerely states that he does not want the medicinal rock and that he does not want to respond like this anymore.

The PM suggests a heart rock whereby HS1 responds by sharing his feelings with his father. He also suggests that HS1 hug his mother.

We roleplay the situation again. HS1 tells his father he does not like it when they argue. He then hugs his mother and helps her with what she is doing. The father asks HS1 if he is choosing his mother over him.

HS1 says no, he is being fair. In each case, HS1 is unhappy with the response. He feels he is choosing a side. He shares that he would like his father to recognise that he he is treating his mother badly. We point out that he cannot change his father.

HS1 acknowledges this and we roleplay again. This time, when the father starts to berate the mother, HS1 shows his anger and frustration by screaming. He tells his father he does not like it when he treats his mother badly. He then hugs the mother. We notice that HS1 seems much happier with this response and HS1 agrees. I notice the difference immediately.

We check-out in our roles and then as ourselves.

After the meeting, I re-read the TTP extensions and notice that I did not give HS1 the medicinal rock and he did not forgive it back. Instead he sincerely refused to accept it. I will share this with the Tribe and I am confident that we will continue to improve our process over time.

Ed, I also have a question regarding the process. I wonder if you still use the Zero-Point process or whether you have completely replaced this with the Rocks Process in the Tribe that you run. I also wonder if certain issues are suited towards the Zero-Point process whilst others are suited to the Rocks Process.

Thank you,
Thank you for documenting your Tribe Meeting.  Your report presents with enough clarity that I can detect numerous issues.

You seem to use a hybrid process, combining TTP, drama class and advice. I notice the client winds up employing a yell-at-dad rock to let off some steam and then feel better.

I also detect numerous sequencing issues. Consider Beethoven's 5th Symphony - the one that starts out with "da-da-da dah."  If you go "da-dah da-dah da-dah" you get something entirely different.

I occasionally use the Zero-Point Process as an example of medicating feelings.



Beethoven's Fifth

sounds better
with a conductor
that knows the score.

https://www.youtube.com/watch?v=NWEVKyEwi4A



Apr 12, 2020

Dopamine-Centric Trading

Hi Ed,

Thank you for the wise words of wisdom always.

I have some daily trading algo systems which produce a very good profit with small risk that I am otherwise very happy with.

However I notice that there are times when the algo system is not in a trade and that my capital is sitting there doing nothing and not making a return during that time. Sometimes this waiting period can be a month to a few months at a time. This also seems to be affecting my overall bliss function.

I would like to be putting the capital to work earning a return and compounding while waiting during that month to a few months for the algo system to enter a trade.

Trading a smaller timeframe of the same asset didn’t seem to make sense to me since I am already trading the asset on a larger timeframe with a better performing and more blissful strategy. Other assets on the exchange from what Ive deeply researched are very correlated so trading them does not make sense either. The only other option I am aware of is to move funds from one exchange to trade completely uncorrelated assets; however this can be very cumbersome and fraught with risk.

When thinking about taking my desire to be making money all the time to Tribe as an entry point, I could not think of anything that needed to be worked on emotionally with wanting to put my capital to work best, in fact I thought it was a very valid point to consider as a wise money manager.

I am wondering if you have encountered situations like this and if so, what seemed to provide optimal returns and bliss function. Or if some rock I am not seeing should be taken to Tribe as an entry point.


Thank you for raising this issue.

Low-frequency traders trade once in a while.

High-frequency traders trade continually, at frequent intervals - with spaces between trades.

Obsessive traders trade continuously, unceasingly, constantly and without interruption.

The craving to fill every moment with the suspense and anxiety of trading may indicate a form of dopamine addiction.

Some traders with this condition also employ an alternate and less expensive method of satisfying their cravings for newness and variety: namely, serial pornography.

They typically set up several screens, each with many movies until they have lots of them going at once.  Then they keep scanning from one to another at approximately two-second intervals. At each switch, they get a dopamine "hit."

This  helps feed their cravings and also saves them from blowing up their accounts through day trading.  

Note: this behavior can also deepen their dopamine addiction.  

For an alternative, perhaps healthier approach,they might consider taking their feelings about <having to wait for a trade> to Tribe as an entry point.
April 11, 2020

TT Chart Server Back On Line

Ed,

Just a quick expression of appreciation for resurrecting the chart server!     

Best regards, 



Thank you for acknowledging the work.

My former data supplier terminates service in mid-February.  It takes about a week to notice the problem and to confirm the supplier does not intend to resume serice; another week to locate an alternative supplier; another several weeks to revise my software to accomodate the new format.

Link to TT Chart Server

Link to TT Chartbook
Apr 10, 2020

Wants an Anecdote

Hi Ed,

I allowed what you responded to me with about the brothel owner to sink in deeply.

I am understanding the response to be a redirection of focus. A redirection of ones thoughts from what could go wrong to what brings success.

I remember you telling us in your workshop that “Intentions = results”, and my intentions have always been to be the most successful and profitable trader I can be with the least amount of risk, which is the same way I have approached life.

However I can see that perhaps the approach I have been taking to get there asking the type of questions that focus on pain and mistakes will only bring more of the same. My belief was that knowing them would safeguard me from them, but I am understanding to not even think about them in the first place and just focus on success and things that bring ease, joy, profits, minimal risk, etc is a much better use of questions and focus.

Was that the intended lesson you were conveying?

And with that being said, how about if I reverse the questions I had before:

1) I am looking for the most amount of success in the markets which means to me the most profits at the least amount of risk. I can backtest different ideas to give me such models.

What would you say was your most successful realization in trading?

Perhaps your answer may be the same as last time, but if there is anything else I would enjoy listening to your perspective.
Thank you for raising this issue.

I do not generally discuss my own biographical material on FAQ.  See ground rules, above.

I do not know what you mean by a "successful realization."

I gather you would still like to view some peak experience - formerly a negative one, now a positive one.

Perhaps you feel that an intense epiphany can substitute for the ongoing application of discipline and character.

You might consider taking your feelings about <wanting a quick fix> to Tribe as an entry point.




Apr 9, 2020

More On Pain and Pitfalls

Hi Ed,

Thank you for the answers. The points are well taken and understood.

When you mention "I gather you parse your experiences into lessons and further sort these by pain. You might consider taking that method to Tribe as an entry point."

What other ways of viewing the experiences then? Instead of a dichotomy of "good" and "bad" experiences, are you suggesting to view them as neutral, or some sort of feedback mechanism without attaching an emotion to them?

I would say I am defining "pain" or "pitfalls" as any experience you would not want to repeat again in trading that you were not aware of at the time.
Thank you for raising this issue.

So this guy visits a brothel and tells the madam he wishes to develop his skill - and asks her to tell him about some of the finer points of her profession.

In particular, he asks her about her most painful lessons, and pitfalls.

"Well, you sure have a mighty curious way of going about this," she replies, "I don't know any of my gals or customers who think about pitfalls and that kind of thing.  I wonder how come you want get into all that.

He thinks a moment and replies. "Well, it works really well in my trading."
Apr 8, 2020

Risky Business

Dear Ed,

You talk often about the importance of risk control. I've heard you on multiple occasions refer to risk budgets such as risking at most 5% of your account on a trade.

I think I understand the implications for sizing positions and setting initial stop-in and stop-out points. I wonder if you can elaborate on how you continue to apply this risk budget to a winning trade. One approach I can imagine is moving your stop-out points each day so that your risk remains at 5%, i.e., each day you treat the position as if you just entered it. Another approach would allow higher risk in a winning position, as long as it remains winning per your system's definition of winning. In the limit case, this would mean leaving the stop-out point at its initial value and relying solely on the system's exit signal.
Ed:

I am glad that I have had privilege to read Govopoly book.

When I see "If ever there were a time for big government, for ambitious programs, for a central role for federal authorities, it is right now"

 At least I am grasping what is going on and where it is headed.

Stay safe. 

Thank you for raising this issue.

I do not recommend risking 5% or any other percent, for that matter.  Your "optimal risk" depends on your own personal risk preference.

You might consider running some back tests that display various risk metrics such as: original entry risk; open position risk;  short-term volatility; longer-term drawdowns.

As you examine the ups and downs of these metrics, you might notice your feelings and "optimize" your system around some combination that fits with your own preferences and tolerances. 
Apr 8, 2020

Assimilation Marches On

Ed,

This chart from the Bureau of Labor Statistics shows large contractions in the Free Competition Sector, especially Leisure and Hospitality.  It shows big gains in Government.




Leisure and Hospitality Down

Government Up

credit: Bureau of Labor Statistics via CNBC

Thank you for sending me the chart.
Apr 7, 2020

Govopoly

Ed:

I am glad that I have had privilege to read Govopoly book.

When I see "If ever there were a time for big government, for ambitious programs, for a central role for federal authorities, it is right now"

At least I am grasping what is going on and where it is headed.

Stay safe. 
Thenk you for sharing your process.
Apr 7, 2020

Pain, Secrets, Pitfalls and Risk

Hi Ed, thanks for your answers every month.

I sincerely hope you have been well and your weight loss has reached your goal. Do you have any updates on that? I know it is easy to eat more now that we are quarantined inside. I have had to adjust my fitness routine and become more creative to stay in the shape I desire.

I did watch the Sheryl Crow video and listen to her words and understood the point you were making. I also have become a lot more focused on attention to details (like the simple misspelling that you pointed out) and taken this into my trading analysis.

Questions for this month:

1) Not that I'm ever looking for pain in the markets (or life), but sometimes things happen. What would you say was your most painful lesson in trading?

2) In trading, what is most important, that most people don't realize the importance of?

3) Can you talk about some of the biggest Pitfalls that can blindside someone; that they may not realize about trading.

4) I am reading Van Tharp's book "The definitive guide to position sizing". What are your most important lessons you learned about position sizing? I have seen Van Tharp, Mark Minervini and others mention the importance you place on position sizing in trading.

Thank you for raising these issues.

1. I gather you parse your experiences into lessons and further sort these by pain. You might consider taking that method to Tribe as an entry point.

2. I gather you would like a trading secret.  OK, so how about this one:  nobody has any trading secrets.  Of course, people who sell trading secrets want to keep that one secret.

3. You might consider taking your feelings about <pitfalls and pain> to Tribe as entry points.

4. You might consider sizing your positions to your own personal risk tolerance.  You might take your feelings about <risk> to Tribe as an entry point. 
Apr 3, 2020

Tipping Point

Hello Ed,

I hope you are doing great! One question.

Even though humans are animals of habit and, so far, we have only seen increasing socialist policies in relation to this virus pandemic / hysteria.

Do you think there is a chance for a tipping point? And will people finally realize the futility of the Govopoly System and will stop feeding it?

Am I too positive? :D
Thank you for raising this issue.

Nothing in the Assimilation Model indicates a reversal of assimilation.

On page 13 of Govopoly, I illustrate the dynamics of assimilation with a parallel about wasps laying tiny eggs inside caterpillars.

As the larvae mature, they assimilate the caterpillar from the inside out.

The hapless caterpillar does not have an "aha" about this; he does not get to a "tipping point" and realize the futility of his situation; he does not stop feeding the larvae who continue growing and assimilating him.

The baby wasps emerge from the carcass and fly off to find other caterpillars to seed.

Of course in our case, we only have one caterpillar and the larvae don't seem to mature very much.

For an indication of the recent exponential expansion of the Govopoly system, you might consider comparing the national responses to (1) the Swine Flu from 10 years ago and (2) Covid-19 recently.

You might consider taking your feelings about <accepting and adapting> to Tribe as entry points.
To Top of Page