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Epidemic Lab

Contributors Say Ed Says
Feb 28, 2021


Hello Mr. Seykota,

I have read the German book "Magier der Märkte" and find it interesting that you say that everyone in the market is a winner because they get what they want from the market.

I interpret it to mean that you do not only relate this to the market, but to life as a whole.
I will be thinking about this in the near future as i consider this to be an extremely important point.


Have you ever thought about to getting a better website?

Because your current website does not match your intellect and makes a bad impression.

I therefore find it inappropriate.

Please do not be offended and think about it.

Why don’t you just make yourself a beautiful new website, it’s very easy to do today.

Best regards from Germany,
Thank you for sending me your suggestions on improving my website.

I wonder if you might consider sending me a sample page to show an actual example of your idea in practice.

Feb 10, 2021



I've compiled some of the things I've learned into quick paragraphs so I can look over them from time to time and so you can post it to your Q&A since I learned a lot of these thanks to our meeting. Feel free to correct me on things you think I'm wrong about. 👍 

Follow the trend

A trend is made up of small little movements in price, you can try to time these movements, which are more random than not, or you can capture the bigger move by buying when there is confirmation that a trend where you can make money has started, selling if there is confirmation that you are wrong, and booking your profits once there is confirmation the move is over.

Trade systematically

The same emotions that have helped us survive for thousands of years are the ones that'll mess you up in the stock market. Anxiety, greed might be useful in life but they're the worst thing you can hope for while trading. The more inhumanely you can trade the better; follow a system like a computer and ignore emotions.

Trading is a job, not a game

The reason gambling is addictive is because when you beat the odds and make a lot of money your brain releases the pleasure chemical and it makes you feel good. Don't fall into the trap of gambling in the stock market where you trade for the thrills, not for the money, this will make you trade emotionally and you'll take too much risk just to feel the thrill of making and losing money. When you trade this way, you aren't trading to make money, you're trading for thrills, for entertainment.

Trade objectively

The story adapts to the price, not the other way around. I'm not saying that the stock market will move randomly, there is an objective reality that the stock market will try to follow, but most of the time this is disconnected from the story the masses will try to portray. CNBC doesn't know what they're talking about, they'll make up ways to excuse what the stock market does, if stocks are up they'll mention the bullish news, when it's going down they'll mention the bearish news. It's all bullshit, there probably is a reason why the price is doing what it's doing, but the easiest way to find out the story that is moving the stock market is just to watch the charts, they'll tell you everything you need to know.


Come up with a simple system, backtest it and implement it, monitor how it does in live trading, and slowly find improvements. Don't start off with the most complicated systems, using a bunch of indicators or complex formulas, usually a simple system will be enough and you'll be able to improve it over time as you learn. Trading shouldn't be fun, it's a job, and we usually get distracted looking for complex systems because it is exciting, more exciting than actually trading. Stick to the boring, simple system, and add complexity as you learn.

Size According to Conviction

Size your position in a trade depending on the conviction you have of the play succeeding. If you think there's a 50% chance of winning don't buy as much as you would if there was a 90% chance of winning, in turn, if you buy into a play that's at 50% for you but it starts going up and confirming your hypothesis, buy more because that means you were right and your conviction should grow accordingly.

Don't Buy on Tips

Don't buy just because someone told you to. No matter how credible the person giving you the tip is, don't take it, they have a different system than you and you won't understand the information in the same way they do, you won't understand when to exit or when to take profits, what's good or what's bad. Research tips and adapt to your own system at the bare minimum.

Don't Buy Bad Stocks

It is usually better to buy stocks that have already gone up a lot in an uptrend than stocks that are in a downtrend and haven't stopped going down. Most of the time trying to guess the bottom of a downtrend will fail compared to buying an overextended stock. The stock that looks overextended to you right now can go up a lot higher before it actually is overextended. If you have a solid exit, it shouldn't matter how much the stock has gone up by, just stick to the system.

Probe Stocks

Let's say you get a stock that has been going up nonstop but buying in now would leave you with a stop 10% below your entry price. In this situation you could buy in with a small position so you don't feel like you're missing out if the stock keeps going up but won't lose a lot if it goes down closer to a potential stop, also giving you a better option for a full position. The same goes with exiting a position, sometimes you can leave some runners after exiting a position if you speculate that the stock will keep going up but your system is telling you otherwise.

Backtest Manually

Don't use software where you input some variables of your system and it gives you past performance, do it manually, looking at charts as they change on a daily basis so you can experience how it would feel if it was real trading. You'll understand your system more thoroughly and you'' train your mind psychologically, understanding how you'll react emotionally and learning to control it, and starting to recognize patterns intuitively.
Hey !
Feb 10, 2021


Dear Ed,

What is your opinion about crypto currencies and alt coins?
Do you trade them?

Looking forward to your answer.

Kind regards and greetings from Germany,
My opinions:

1. Currently in uptrend.

2. Long range target = 0.

I do not post specific system recommendations or positions on this site.  See ground rules.
Feb 9, 2021

Really Hard

Dear Ed,

Thank you for posting my email onto FAQ. I get sad when you post my work on FAQ, I feel like I can't fully be myself if I know what I type will be posted for other people to see.

It takes the specialness of my hard work and studying away. I'm wondering if this is my body enacting self preservation or is it time to say to hell with it anybody can see my work. If I choose to adhere to self preservation how can I then learn from you, lovely little conundrum.

I'm wondering about what to do with what I learned and built during the trend exercise.

I'm thinking about the following strategy.

After the close of every day, generate the top 10 list. Once a new stock enters the list issue a buy order for the next open. Sell the stock once it gets replaced by a new better performing stock.

Back testing the above strategy feels possible but really hard. I would have to set up my own database so that I can loop through thousands of stocks over and over again. Let's say I have a database of 1000 stocks and I have 20 years worth of data on each stock then I would have to go through each stock, I think that is roughly 1000^(20*252) iterations.

Maybe I can subset the stocks and begin with small industries like restaurants and put a list of 50 or so restaurants together. My stock broker gives me access to a history api for equities so I can query the api instead of building my own database. I like this idea.

Do you host your systems on a local pc at home that you leave on or do you deploy your system on a third party server?

Thank you.
Thank you for raising these issues.

You might consider taking your feelings about <really hard> to Tribe as an entry point.

I host systems at my office and also on a third-party server.
Feb 9, 2021

How to Start with $5,000

Dear Ed,

Yes you are correct. I sat for 5 hours trading a strategy on 1 minute candles on a simulation account. The trade P&L was slightly positive but after factoring in the fees and commissions I was down over $200. I trade micro contracts on ES and Russell 2k.

Umm, in Market Wizards, Jack Schwager states that you turned $5,000 into $15M over 12 years. So I'm wondering how you were able to trade futures with only $5,000. Did you start the account with trading equities and then diversify to trading futures once the account was big enough to handle futures margin requirements?

Thank you
Thank you for raising this issue.

You might consider checking the price levels back in the early 1970's.

You might also consider taking your feelings about <entitlement> to Tribe as an entry point.
Feb 8, 2021

Wants to Ensure Results

Dear Ed,

I want to share with you my thoughts on applying adaptive technique to Donchian break out system.

Materials from Perry Kaufman's <Trading Systems and Methods>

In the N-day breakout, the determination of N is critical to the success of this system. The most obvious approach to finding N is by back testing a broad range of values (as is shown in the next section). It has also been suggested that N could be based on the relationship of normal volatility to current volatility,

Nt = NI x Vn/Vc

where Nt = the number of days used for today’s calculation
           NI = the initial number of days used for “normal’’ markets
           Vn = the normal volatility measured over historical data
           Vc = the current volatility measured over a fixed period shorter than the period used to define normal volatility, Vn. Typically, this is less than ¼ of the longer period.

As the current volatility increases, the number of days used in today’s calculation decreases. This may also be classified as an adaptive technique.

Materials from Covel's <Trend Following>

"I’d be glad to share what I know. I knew Donchian a lot better than Hostetter. Donchian had noticed this system, the two-week rule in copper. Two-week rule: you buy something when it makes highs for two weeks and you sell it when it makes lows for two weeks. I asked him once, “How did you come up with the two- week rule?” And he said, “I don’t exactly know and you’re the first person that’s ever asked.” He said that he just kind of came up with it and I think that was the start of automated trend following coming up to the two-week rule.

Before that, you can look at some of Livermore’s writings and he had another system of pivot points and so forth. Donchian basically started the two-week rule. Now that won’t work today. Back then you had different characteristics in the markets. And the two-week rule used to work in copper and then we found that you had to lengthen those and maybe made the weeks longer, six weeks or sometimes 30 or 40, 50 weeks or much more than that."

My thoughts

1. We might be able to apply an adaptive technique to Donchian break out system to ensure its longevity of profitability.
2. We might try to define the key characteristics of the markets and adjust the look back period based on the current situation/status of these key characteristics

My humble ask

I sincerely hope you can provide some instructions or insights on this issue.

I would report my study results or insight constantly to you(if any), and your comments would be appreciated in my heart.

My wish

I hope you healthy in new year 2021!
Thank you for raising this issue.

You might consider taking your feelings about <uncertainty> to Tribe as an entry point.
Feb 6, 2021

Brain Rattling

Hi Ed,

I currently use the 1.5x the ATR for where price is when I enter to define my stop loss on a position with a max risk of 2% of my account.

Is it a good idea to scale out of a position? Say take half my position off at 1x the ATR from point of entry and let the rest run with the knowledge that this has become a free trade.

I then use an exit indicator to tell me when to close out the rest of my trade.

It’s been really rattling my brain whether to scale out a little of my position or to leave the whole position on until my exit indicator triggers.

Apologies if this is deemed a stupid question.

Best Regards,
Thank you for raising this issue.

You might consider that a profitable trading system generates a series of trades that, on balance, come out ahead.

You seem to have a desire to outguess the system on individual trades.

You might consider taking your feelings about <control, intimacy and surrender> to Tribe as entry points.

Feb 2, 2021

How to Adapt

How does a business person adapt to an environment where government regulations are killing everything and the people in government don’t want to work with businesses more efficiently to get things done?
Thank You,
Thank you for raising this issue.

You can get some idea of what to expect from my book, Govopoly in the 39th Day.

You can capitalize on the transformations by riding the trends.

You can also take your issues to Tribe and come to discover resources within yourself and within your community.

Feb 2, 2021

Trading System Examples Not Working

Hi Ed,

I hope you are well.

I have been following the trading system examples on your website recently as they are really helpful to see what trend trading actually is.

However, I noticed that they are not updating anymore since the 27th of January. I wanted to let you know about this problem. Hopefully it can be fixed soon.

Thank you for your help and for being a great inspiration to many traders including myself.

Best regards,
Thank you for reporting the situation.

Siteground, the ISP that carries my websites, recently implements a system "upgrade" that includes changing the FTP connection protocols in a way that does not include backward compatibility.

Thus, I have to re-tool a number of routines to bring them into compliance with the new methods.

I think I have everything back on line again.

Let me know if you detect additional issues or have other ideas for improving the service.
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