© Ed Seykota, 2003 ... Write for permission to reprint.

Ed Seykota's

Frequently Asked Questions

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Risk Management ...  Fractals & Borderlines


May 4-10, 2003




Sat, 10 May 2003



"Constant practice devoted to one subject often outdoes both intelligence and skill" -- Cicero

"You might prove your point with a deck of cards. Shuffle the cards and try to guess the top three. If you miss, just practice until perfect." -- Ed Seykota

If two players face the same challenge and no trick is used, the longest lived will have an edge. If money is on the table, the shortest lived might circumvent that handicap through money management (keeping bets small so that the longest lived could not inflict much damage on him) and probabilities play, such as increasing bets while on a winning streak and trimming down fast while on a losing one. Yet, he will just be striving to live long enough, to practice long enough.

Against the wise, prudence is the only effective weapon. Nonetheless, there are no enemies.

If your CM does not listen to Fred, you might keep "practicing" the same old dramas for a lifetime.


For example, you might check your own feelings of wanting to debate, meanwhile missing opportunities.




Debating Team

Having Good Fun with Arguing



Do not pick the markets as an opponent.


Clip: www.sfsu.edu/~speech/debate.htm

Sat, 10 May 2003


Managing Outside Money

Dear Mr. Seykota,

I would like to find out the following:

1. What criteria are you looking for in a potential client?
2. What is the minimum capital required by you?
3. What is your fee structure?

Thank you for your kind attention. I look forward to hearing from you.

You might get to know your clients well enough to understand each other's feelings about things like:


trend following





Cash Equivalent


When traders and clients see each other as fees and capital ... they may forget to check each others' feelings about trading.


Clip: www.adventurepostoffice.com/


Sat, 10 May 2003


Question on Probability

Dear Mr. Seykota,

I have recently come across an article concerning the philosophy of probability. Two main views are discussed in this paper: 1) it is subjective 2) objective. If one takes the view of the former, then is it not meaningless when a person says "There's a high probability that the stock will advance" or "This trade has a reward-to-risk ration of 2:1"? Would this not imply that most of the statistical tools used for financial analyses are not very practical? Would appreciate your view on this and how do you think probability should be handled when trading. Thanks.

You might re-write your question in SVO-p. See Trading Tribe Process.


To check your writing for clarity, have a 5-the grader read it and tell you if it's any good.





Kids might wonder

what in the world he's talking about.



Sat, 10 May 2003


Manhattan Tribe Report

on their First Meeting

Since this was our first meeting, I did spend quite a bit of time on a tour of modern Psychology. I talked about Milton Erickson, Richard Bandler, Hypnosis, NLP, Visualization Techniques, EMDR etc. This was followed by a detailed overview of conscious mind (CM), sub conscious mind (Fred), what is it that we try to do and achieve in 'The Process'.

We then went around the room and had a extensive check-in. Each member talked about their trading metaphor and Item of concern.

Since many of the members either have long commutes or have to be at their trading desks early in the morning, we planned a two hour meeting from 7PM - 9PM. With twenty minutes left in the meeting we decided to give 'The Process' a try. The Process ran for over an hour, during which many members due to time constraints had to leave.

During the process, CM put up a fierce fight. Any time I felt we saw a glimpse of Fred, CM would quickly interject, and launch into a logical story. After about an hour we reached the zero point, the person on the hot seat did report that "Some of the 'links' I made where not clear before and came up during the exercise". However no aha's.

So I think we did manage to fumble through our first meeting. As you said it does take three to four meetings before we have the process down. We did learn a lot, next time we just have to do a better job with SVO_P; this mirroring and pacing does take some practice.

Our sincere thanks to you Ed for helping us with the first meeting and also to Jason Russell of the Toronto tribe on prodding me on to do the process despite my concerns, thanks very much !

My best advice for other groups around the world and people sitting on the fence to start new groups is to jump right in, even if you have a couple of members. The process does take some practice, you will learn by doing. There is really no good way to prepare.

I also suspect that we may have some turnover in our group, doing deep psychological work via the process may not be everyone's cup of tea. In the end as you always say "Everyone always gets what they want, or at least what Fred wants".

Congratulations !


The work of the Trading Tribe is to follow the process. Results seem proportional to the intention to jump into the feelings part.


As the leader, exemplify jumping into some of your own items is an important part of your job.


Suggestion: examine your feelings of wanting to do it right, wanting to prepare, lecture and understand before you jump in.




Ready to Jump and Trying to Jump

are not the same as jumping.


Same goes for trading.





Sat, 10 May 2003



Dear Ed,

I read of course an interview with you in Market Wizards and from time to time I read your FAQ answers at your site.

I am from Poland. Now I am during a transition from polish stock exchange to forex trading. I use of course a trend following style.

I admire your FAQ answers and enjoy your sense of humor (and some pictures you enclose to make your point). You remind me of Zen masters and their paradoxical responses they give to students

I hope you'll soon write a book on trading.

FAQ seems to be trending along in that direction.




Trading Tribe & FAQ


Life is a book you write,

one day at a time.

Sat, 10 May 2003


Dear Ed,

I just read your response to Friday May 9 post "Where's The party?"

Referring to where you respond "You might even try these:" and you list 4 things to try. I love what you wrote! Nice and simple. That could almost be an entire trading book as far as I am concerned! Well almost ...

I remember when I bought America Online in 1996 (The symbol back then was AMER). I bought 1000 shares for about $27 per share from a long low base after one upward move and another sideways base and a gap up. I used almost all of my capital and no margin (That was conservative for me.).

I still remember at Christmas time and I had only owned the stock for short time. My family laughed at me because I was at a loss in the position before it began to really move.

I held the stock for 11 months and 21 points or a $21,000 profit. I sold it on a day it fell 3 1/2 or 4 points on heavy volume. It was the most money I have ever made in a single trade up to that point. I was happy. My old car could be paid off and I could go to Southern Mexico to visit an old high school friend.

AMER then reversed from the sell off the next day and began going up steadily for over a year. It had 3 or four splits within months. If I had held AMER or bought the stock back even higher than I sold it, I could have made over $600,000 in something like 12 more months or so and something like $2 MILLION if I had held longer! But Nooooo! How could I possibly buy a stock sooooo High! What a [xxx] I was! The stock had 50 million shares "How could it go up anymore?" "Smack!" I just hit myself in the head.

I think that the term "Going Up" can confuse some traders because then the stock or commodity is "Too High" and when something is "Too High" it can "Fall Down". Whoa ... I am loosing balance.

I could walk on a 20 foot long and 6 inch wide steel beam if it was 1 foot off of the ground but if it is 1 mile in the air I would have trouble even crawling it!

A way that has helped me buy at new highs is I imagine a field where there are a few trees. Plants and grass could also be in the field. A few young trees would tend to keep on growing possibly to 10, 20 or 100 feet, while the grass can only grow a 2 or 3 feet. A tree could also get sick or fall down but it has a better chance of "Going Up" than the grass does after 2 or 3 feet. Buying a stock or commodity that is low or moving sideways is like waiting for the grass to grow 30 feet high. I would rather buy the tree.

Maybe this could help some people who don't like to buy when a stock or commodity hits new highs.

I bought mucho of stock [yyy] 2 or 3 days ago at a new year high.

These e-mails are helping me to remember how many profits I gave up by not re-buying certain stocks. Very simple just let go of my ego and re-buy right or wrong.

Make sure to keep your risk in line with what you can handle, so as to keep your mind clear, your ability to re-buy intact.



One Way to Keep the Mind Clear


Amazing Survival Story

Man Impaled with Banana

"It was a horrendous hurricane. The boat was thrashing this way and that and we were fighting for our very lives. I looked at Jessie and yelled, 'this is no time to be eating a banana!' Then I noticed it was coming out of his forehead, not his mouth," grimaced Imana James.


Hurricane Velma hit in the Atlantic so quickly and with such force that all ships and boats in the area north of Bermuda were lost, except the James' and their 41' yellow ketch, "Nanu Nanu."


"Thought I was ambushed, just like my namesake," said Jessie James. "I felt this fruity felling between my eyes. Guess it's kinda like a straw going through a telephone pole in a tornado. I yanked it out. Lucky those things are slippery. Miraculously it didn't hit anything vital so I closed up the holes with duct tape and we rode out the rest of the storm. Guess it was my lucky day."





Fri, 9 May 2003

Where is the Party?

Is this trend following?

I don’t have to know if a party is a party. When people are having a good time, it’s a party. I don’t need to reason or figure it out why or what reasons people are having a good time. I should just join and dance with abandon and dance the night away.

1. Now, I am trying to figure out when the party is going to start. --- I won’t have to; I will see it if whether a party is brewing.

2. I feel left out when I am not in the party; I see it happening and want to get in but I feel “uninvited”.

This is what I feel when I see a trend. I feel uninvited/an outcast / unwelcome. But deep down inside I know I can still have a good time dancing for the rest of the time no matter what others think (but my conscious mind is trying to conceptualize a past event whereas I feel uninvited / ridiculed therefore I should not go in---the drama?).
I have an aha moment and now I invite myself to the party whenever I see one.

I dance without inhibitions and have a great time although I didn’t catch the whole party. I regulate myself from the punch bowl so that I can attend another party tomorrow.


I am having too much of these aha moments (the effect is less pronounced as the first ones)…now I feel that my conscious mind is associating everything in my life experiences to be somewhat related to my trading … thoughts? I am attempting to figure out too many aha moments consciously.

--- just follow the trend of having many aha moments?

Sounds like the party's at your place.

Here's a party game - you act out (with just facial expressions and body language - no talking) the following:

having too many ahas

The others try to guess which.

You might even try these:

buying on new highs
selling on lows
getting back in to a position after you get stopped out
entering orders again and again after many whipsaws

We do this kind of thing at Trading Tribe meetings - after a while all the expressions look pretty much the same.



Clip: www.dipaola.org/stanford/


Fri, 09 May 2003


Seeking the Path

We were delighted and excited to find your web site.

I have read all the materials on the web site and agree to all the terms.

My wife and have I traded commodities for about 10 years.

We have been on a quest for excellence, therefor have read Tharps 5 books, trading manuals, read his e-mails, his books, attend the Sacramento IITM group, read almost all the books you recommend, plus lots of others including the Wizard series

In addition we both have attended NLP classes, my wife is certified in the version taught by Mike Grinder.

Our quest continues as we have not found the needed flow you describe.

Some uncontrollable laughter while reading the FAQ's.

We would appreciate attending the Thursday Night meetings of the tribe. Our ignorance is infinite.

Best to you,

Try to dramatize to each other the feeling of wanting (to find the flow) until it converts to aha.


When wanting disappears, having remains.




Equipment for the Path

Helping Each Other Get into the Flow






Fri, 9 May 2003


Sydney Trading Tribe

Dear Mr. Seykota,

I would like to start a trading tribe in Sydney,
Australia. Is there anything I need to do?

Also, I will be grateful if you, the founder of TradingTribe can join this Yahoo Group.

As a regular reader of your TT FAQ, and I have to tell you how much I love reading it, as much as I love to trade in the markets. Mr. Seykota, you are one professional trader I really respect. Thank you very much for starting the TradingTribe - it allows traders like me to find a place to live with, not to be
"alone" anymore.

The more I learn about trading and the more I
experience the market, the feeling of loneliness grows - often I feel like I am against the crowd and everybody else has different opinions about which direction the market will go. It was when I found myself, as a trader, need to have our very own personalities and methodologies to trade the market, regardless of what opinions other people give. Do you agree?

Mr. Seykota, please continue your great work in the FAQ and the TradingTribe. Words from the Master are just too valuable. Thank you.

Kind regards,




Sydney Australia!


You are now on-line

on the

Tribe Directory Page.





Map: www.expedia.com


Thu, 8 May 2003

I feel gratitude for what you are doing ... thank you.



Into every songwriter's life comes a song,

the source of which cannot be explained

by personal experience. 

- Noel Paul Stookey


Thu, 8 May 2003


Own risk tolerance Vs Client Risk Tolerance

Dear Ed,

Just going with the flow of FAQ – and enjoying every bit. Thanks for it all.

I am inclined to trade aggressively for my own account – often with huge drawdowns; ( holding on to positions so long as they are in line with their major trends ) No debilitating stomach problems yet :)

I aspire to manage money, but feel that most investors would not be comfortable with my drawdowns. Therefore, I paper trade a portfolio of long stocks & cash only, with very low heat and consequently low drawdowns too – as a model to present to likely clients.

My dilemma is – should I seek clients who are more inclined to my trading style, or offer something more acceptable to their gut? If I choose the latter, I wonder what kind of schizophrenic repercussions might surface in real time trading ?

Would appreciate your thoughts –

Best Regards,

It might help to fully experience what your customers want, before you trade their accounts.





Choices Sometimes Rest

on Comfort Levels


So Goldilocks says, "This seat is too hard, and this seat is too soft, and this one, the seat on the exchange, is just right."  So she buys a seat on the exchange with the Three Bears, right at the top of the market, and the rest is history, sort of.







Thu, 8 May 2003


The Process

"The Trading Tribe Process is not a method for practicing trading. It is a method for resolving drama by experiencing feelings..."


I read about the TT Process and I see your positive intentions. Actually it recalls me an attempt I made about one year ago through an on-line community to keep an on-going thread to share feelings and weaknesses with other members.


It was kind of a "Losers and Gamblers Anonymous" thread where we would talk about our deepest fears, feelings and weaknesses. In the process I confessed most of my failures and dramas experienced up to then, in the early stages of my trading.


Although I could not get other members to take part in the thread I benefited a lot from the experience, basically for two reasons: (1) I got in touch with deep feelings such as fear of losing, greed, hope, etc., I was trying to suppress unconsciously and just let them go; and (2) I got wholehearted support from some valuable members through heartfelt sharing of experiences and feelings (they happen to be professionals in the business).

So, I would suggest you to set up a similar page on Trading Tribe. Or, perhaps, is this the original intent behind the FAQ pages? I will be glad to participate.

With kind regards,

Your thread and this site can assist with ID-ing some feelings.


The AHA comes at celebrating  feelings for positive intention in an

Intentional Community.


Face to face, people notice postures, tones and other nuances.




Joy - Even Better in Person



Clip: www.dipaola.org/stanford/


Thu, 8 May 2003

Fighting the Ego

"There is a difference between knowing the path, and walking it." - Morpheus,
the Matrix.

When walking; just walk. When trading; just trade.

Simple enough to understand; but the hardest thing to do. To take the diamond from within the mountain of rock and polish and shape it to crystal-clear perfection requires as much patience and persistence as it does skill.

A wise mind fades as easily as a rainbow; whereas a foolish mind is as difficult to rid ones self of as a vicious watchdog.

HOWEVER, when we work long and hard to  glimpse of a magnificent rainbow; we can't cling to them as the creatures on the river bottom; for in this case, even though we have seen the full spectrum of visible light through the refractions in both the rainbow and the diamond, we're still stuck down on the river bottom at zero flow velocity because attachments to these material things can not lead us to freedom from them!

Essentially what I am trying to say is this. When seeing the rainbow, just see it, but know that it does not exist. Once we see something does not exist; it is more difficult to become attached to it.

I began seeing the rainbow many years ago; it was very beautiful and I became attached to it when I saw it. It hurt me when it vanished from my sky. Years later, my sky opened up to become everybody's sky; I learned that the rainbow; although beautiful, didn't exist, but I consistently patted myself on the back every time I had gained a measure of intuitive insight. It has not been until just recently that I have began to come to terms with the fact that I neither exist, nor do I not exist.

It's a difficult process though; the ego won't give up without a fight. It doesn't want to stop acting out the drama that it exists as a separate entity from the infantine universal energy. On Guard Ego!

Celebrate the feeling of wanting to fight the ego, and fight and ego both disappear.

Getting to the celebration point is the work of The Trading Tribe.

See Trading Tribe Process at Going it Alone.



Celebrate !





Clip: http://partysupplieshut.



Thu, 8 May 2003

I am a beginner. Which market better to trade, electronic or open outcry?

FAQ does not offer instrument specific trading advice, See Ground Rules.

Thu, 8 May 2003


Stock Tip

see: Assistant


thanks for shedding some light on my friend [xxx] who claims to know you. It makes me question his character.


Check out [yyy] Stock. Its a little late in the game but a nice 7 month, 7 weeks chart nonetheless. The optimal time to get in would have been in late February, when it had that nice hook up.


The recent double top looks like this thing is running out of gas although if it takes out that hook down from 3 days ago one could buy in at the high of that hook down.


Looks like one could buy today also and place a stop at today's low as it looks like a hook up is occurring today. But you probably already knew this.


Your stock is consolidating, below new high ground.


Locate the feeling of buying your stock. Compare with the feeling of buying others making all-time highs.



Making New Highs

Bet on it going even higher.


April 7, 2001, a Delta 2 rocket lifts off from Cape Canaveral at 11:02 a.m. with the Mars Odyssey spacecraft aboard



Clip: http://skydiary.com/


Thu, 8 May 2003


Thanks from the Manhattan Tribe !


Thanks very much for your generous gift of sharing the mechanics of The Trading Tribe Process. I notice the updated version. I plan to use it in tonight's meeting!

Please kindly remember to call us at 7:10 PM EST.

Best Regards




on your first meeting !


Thu, 08 May 2003

Validation and Commitment 2

see: Validation and Commitment

Mr. Seykota:

Thanks for the recommendation. I'll be picking that book up today. While I never would have thought of my parents as "toxic", I can't argue with the obvious: someone seeking validation is clearly someone carrying around some drama of having been invalidated.

Thanks for posting my comments too. I hope others might find some value in them. I know that for me, seeing my personal thoughts posted in a public forum somehow created an atmosphere of greater objectivity that allowed me to see things I hadn't seen before.

Just a quick update on where I ended up (so far) after all of yesterday's "work".

I realized last night that "working your butt off" and "commitment" are two very different animals. I've worked hard on speech and trading. But upon reflection, I realize that every time I thought I was making a commitment to these areas, what was actually there was "I'm going to work really hard, I'm going to give it all I've got and hopefully it will all work out the way I want it to."

This is more than a little different from what I decided last night. Last night I made a real commitment. I'm going to be the trader that I've always wanted to be, NO MATTER WHAT. I'm going to get past this speech thing NO MATTER WHAT. There is no more doubt regarding this process. No more room for "chance" and "hopes" that it will all work out. There is only my DECISION to accomplish this and the firm intention to proceed from day to day, step by step until I'm there. That's it.

I know that feelings to the contrary will arise. I will want to stop. I will want to quit. I will wonder if I should do something else. I will wonder if maybe I can't do this. Those feelings are free to be there, I can let them arise and I can let them pass. THEY SAY NOTHING ABOUT MY COMMITMENT.

Often in the evening I feel that I don't want to brush my teeth. I'd rather just head straight for bed. But every evening I brush my teeth nonetheless, because I have a commitment to oral hygiene and my feelings, while they are valid and free to be there, have nothing to do with that commitment.

I aim to make my trading process, following the system, a bit like brushing my teeth. I follow my rules, I update my data, I look over my charts in accordance with my plan. Because I'm committed to trading successfully, not just part time, but all the time. There are no "ifs, ands or buts" regarding the outcome. The outcome is a foregone conclusion. I have the system, I have the resources to trade that system, and I have the resources to resolve whatever issues might still be in the way of my following that system. Assuming a genuine commitment, success is then, a foregone conclusion. There is no "haziness" here. There are no more variables, other than the variables inherent to trading. That, I believe, is commitment. It's not "hopefully I can pull this off", nor "maybe I can do it if the gods look upon me favorably". It's "This is my decision, this is what I'm doing. 'Nuff said."

Best to you, and thanks again for this great resource.


Thu, 8 May 2003


A Wonderful Plan


Hi Ed,

I am a trader. There is nothing in the world that excites me more than trading which doesn’t make my story unique, does it? Actually, it is my husband and I, which makes two of us.

A good friend of mine introduced me to the markets about two years ago. He set me up with a broker and “black box” system, both of which were disastrous experiences. Nothing new either, right?

Here is where it gets better. My husband is a
psychologist / hypno-therapist who has been a serious handicapper of horse racing and sports (football & basketball) all his life. He uses advanced statistics and his own special psychological techniques to make his handicapping picks. Once he learned about trading, he immediately identified the similarities between handicapping and trading.


It allowed us quickly develop our own trading ideas. This year I left my job as a vice president of a public relations firm to focus on trading full time. My husband still practices psychological counseling, mainly over the phone, while he is not busy trading.

To expand our capital base, we are looking for a partnership with an established trader, like yourself, where the sponsor would receive a percentage of our profits.

We believe that only good things can happen if you reach out.


My husband would be glad to share with you his ideas.


Who knows, they might help you with your own trading. Feel free to give us a call at any time or let us know if you would like to set up a special time for us to meet. Thanks --

Consider the feeling of excitement you derive from the market ...  and the trades you put on to get that excitement.  See Trading Tribe Process.



Little Lulu Stands Behind Her Man


Lulu is a rascal who lets nothing stop her from getting what she wants. Little LuLu, little Lulu with dimples on your chin ... always in and out of trouble, mostly always in.


Clip: http://michelesworld.net/dmm/


Thu, 8 May 2003


Thanks for creating and maintaining FAQ.

In your directory page, you state:

"In response to vigorous demand for this work, Ed is currently preparing a training program and materials, leading to certification of mastery and right to use the Trading Tribe name and logo"

I wish to become certified. How do I become certified?

Here in the bay area, I am a member of the San Jose Tribe. We have yet to meet. We have very few people - two last time I checked with the local contact.


He suggests waiting until the group obtains more people. From your experience, how many people do you suggest for group size at a minimum and maximum level.

Thank you for sharing and contributing the Trading Tribe Process to the trading community.


A tribe of two or three can work. See Trading Tribe Process. You might consider the feeling of having to wait.




Stand and Wait and Serve


His state Is kingly: thousands at his bidding speed, And post o'er land and ocean without rest; They also serve who only stand and wait. -- John Milton (1608-1674)




Thu, 8 May 2003


Feeling of Regret

Dear Dr. Ed -

From 1996 - 1998, I worked for the two most successful Internet companies in NYC. Yet due aggressive personality, I sabotaged myself with management and missed out reaping the rewards of two successful IPOs. In 1998, I was debating whether to start trading or follow my parents advice and go to business school. I went to business school and missed out on profiting on the bubble. Now that I am trading, I know these feeling of regret will affect my performance (ie getting into and out of positions too quickly and maybe in other areas I have not found yet.).

The Trading Tribe revolves around feeling these feelings and not suppressing them and seeing where they originate from. I think I have done that. Is there anything else that I should be doing to make sure these feelings of regret do not sabotage my trading and life?


Seeing where feelings originate is incidental; communicating them is central the Trading Tribe Process.


Consider celebrating your feeling of missing out.  Likely it also occurs early in the market cycle. Listen for it. It could be a pretty good opportunity indicator.



Missing the Move

After missing the train to Hogwarts, Ron and Harry have a near mishap as they fly the Ford Anglia.

Clip: www.allmoviephoto.com/



Wed, 7 May 2003


The Drama Attenuates

Today I took a nice profit and got stopped out on another for a loss. Strange thing is, I am totally phlegmatic on each trade. I am stoic and indifferent.

Am I on to something here?

Check if your stoicism feels like suppressing, or like  allowing your feelings them to be whatever they are.



The Parthenon (477 - 438 BC)


... 100 years later ...


Zeno of Cittium (333 - 261 BC)


Zeno, starts the Stoic school of philosophy in about 308 B.C. He holds that human beings are at their best when free from passion and when they calmly accept all occurrences as the unavoidable result of divine will, or of the natural order.


Stoics hold that emotions like fear or envy or passion arise from false judgments and that the sage - a person who attains moral and intellectual perfection - does not have them.


The Trading Tribe holds that The Trading Tribe Process, that encourages passionate expression from Fred to CM, is a pretty good path to freedom; suppressing feelings, inexorably entrain drama.



More on Zeno:









Wed, 7 May 2003



Mr. Seykota, about a year ago I heard that you were in need of an trading assistant.


I was just wondering if the position is still open and if so then I would like to apply. I live in Huntington Beach which is not far from you and I have the series 3, 7, and 55 licenses.


I'm already somewhat familiar with your trading style as a friend of mine have taught me a few things. I would enjoy hearing from you.

p.s. Was that really you who signed my Market Wizards book last December when you went to the Laker game with [my friend] or did he just sign your name and [trick] me as usual?

OK, here's your job: experience your feelings about trusting people who trick you, as usual. 

Then, become creative, successful and productive in your career.

I can pay you, say 100% of whatever you earn.  You may start right away.


Off to Work

Don't forget to pack a nutritious lunch.



Clip: www.reaganfoundation.org/


Thu, 7 May 2003


see Genie in a Bottle

Elizabeth Montgomery played a Witch. Barbara Eden played a Genie. Other than that I am enjoying your FAQ immensely.

Thank you for the heads up. The item stands correctly now.
Wed, 7 May 2003

Looking at the Mirror

see Perseverance

The statements I share resonate with my own experiences and feelings, especially Cicero's one (which seems to mirror the TT Process in a practical way).

Feelings register in the senses and have basic components such as pressure,  temperature, texture, sound, smell, brightness, color, etc.

Thoughts, such as in your previous send, are logical and have little sensory component.

The Trading Tribe Process is not  a method for practicing trading. It is a method for resolving drama by experiencing feelings; the Trading Tribe Process might lead to a change in trading style, or to another career entirely.



Aristotle Contemplating the Bust of Homer.




Homer Contemplating the Throat of Bart.









Wed, 7 May 2003


Dave and Hal

Hello Ed,

A small note about Fred, I think the take off on Fred-ian Model is very cleaver.

My thoughts are that when I think of Fred I think of the Friday the 13th horror movies, the character Fred or Freddy!

What do you think of naming the subconscious Hal? from the Stanley Kubrick classic movie 2001: A Space odyssey. Based on the novel by the famed Arthur Clark.

So 'Hal' would be the sub conscious mind and 'Dave' would be the conscious mind.

There are many similarities between Hal - Dave and the conscious - subconscious model.


Hal as a computer is always running in the background, carrying on the tasks to maintain the space ship (human body). Hal however also has its own mission, a mission that he keeps away from the human or the conscious mind - Dave.

Just a thought !

I think Hal-Dave-2001:Space odyssey theme is slightly better for marketing purposes.

Space odyssey - a journey within. a sort of William Blake theme.....

HAL seems calculatingly adversarial. Dave eventually lobotomizes HAL.


Fred and the Conscious Mind (CM) typically cooperate to common benefit.  Sometimes Fred arranges drama to get CM's attention.





ICU with my CPU


Dave: HAL, I won't argue with you anymore.  Open the door!

HAL: Dave, this conversation can serve no purpose anymore.   Goodbye.



Wed, 07 May 2003


Hi Ed

In the Structure of The Mind is Fred always right?


"Modern society teaches us to suppress our feelings". Fred feed himself thru experiences that involve other Fred's.


Are Fred and his colleague's part of the society?.

I thank you for all the above

Fred does not deal in right and wrong. Conscious Mind does. See The Trading Tribe Process.


Your Fred communicates with other Freds with subtle expressions and postures and tones. Fred can enrol other Freds in staging attention grabbing dramas.



Juggling Knives on a High Wire


Sometimes trading takes unnecessary risks in front of an audience.




Wed, 07 May 2003

Validation and Commitment

Mr. Seykota:

I was very happy to discover your "Trading Tribe" and have been reading the comments closely. Lately I've been writing down a lot of my thoughts about trading. I decided to take a week to explore my thoughts and feelings about trading in depth. I want to get clear on my relationship to trading before putting on any more trades.

Anyway, I started to write the following this morning and thought I'd send it your way. I think I'm hitting on something in here, but was hoping to get your thoughts on it as you seem to have a great ability to cut through the BS and get to the heart of the matter. (Or maybe I'm just trying to get some validation?!)


Thanks for the website and your willingness to share your time and insights!


I find myself trying to come up with a question or insight that I can send to Ed, hoping that he'll "tap me on the shoulder" and validate me, like "You've got it! You're destined to be great!" I have often found myself hoping that some "authority" is going to "see something in me" and validate my goals. I mean, if only a "market wizard" would see something in me, then I'd know I can do it!

(I'm embarrassed to admit that I have some need to be "great", to be recognized for my "greatness", all the while recognizing that the need likely stems from just the opposite. In other words, trying to prove that I'm great because I fear that in fact I'm nothing but.)

I extend that to wonder if I'm seeking some kind of validation from the market? Like I need to put on a great trade to "prove" to myself that I can succeed, that I'm cut out for this. It's almost like "if I get good results, that will prove that I can win at this game. Whereas if I get poor results, it means I can't."

In writing that I notice that I feel that MY RESULTS DEFINE ME, or at least my potential. If I win I'm good and I can succeed, if I lose there's something wrong with me and I can't do this thing.


I'm looking at the market to tell me who I am, to tell me what I can and can't do! WOW, what a tough game to play! Trading with money is challenging enough, but trading my sense of self-worth, isn't that a HUGE risk? What's the stop-loss on THAT one? Risking 1/2% of my equity is one thing, but putting my SELF on the line? How could anyone possibly play this game with THAT kind of risk? Talk about "overtrading"!

(What occurs to me in thinking about that is this sense of "I have an effective, proven trend-following methodology and the resources to trade it. If I'm not making it work, then there is something wrong with me. And therefore I can't win."


I realize that I am the critical component in making the system work, which elicits the concern that maybe there's something wrong with me that prevents me from making it work. If the system is good but I'm not making it work then there is something wrong
with me.)

The irony is that ultimately I have a lot of confidence in my self. I mean, at the core of it. I'm persistent as hell and never quit at anything (except temporarily) because in my heart I know that I can succeed if I just keep working at it, if I stay alert and refine my approach, continue correcting until I get the results I want. I believe there's always a way and you just have to stick with it until you find it. (I'm not talking just about trading, but about everything I take on.)


It's funny because it's as though I really believe in my own ability to succeed at anything, yet I still "need" some kind of external validation to fully accept that! It's almost as though I believe that anything is possible, but maybe, just maybe, it isn't possible for me. If only I could get some external validation that would demonstrate that it IS possible for me, then I could really believe in myself. (I can't even begin to tell you how unpleasant it is for me, Mr. Self-Reliance, to discover that about myself.)

And really, that's always been a concern in lots of things I do: "am I cut out for this?" Is it meant for me? Am I on the right path? When rationally I know that there isn't any path, that my life isn't predetermined, that no one is pulling the strings. You make your choices and you deal with them. But I need to know that I've made the right choice! It's just like trying to predict the market! I need a "forecast" on my future. I need to know in advance that I can pull this off, that this is right for me. It's as though I need some kind of external validation for my trading before I can fully commit to it.

In the meantime, I find myself going in and out of trading. I trade for a while, then I stop. I wonder if there is something else I should be doing. There isn't anything I'd rather do, but sometimes trading is just too hard. Do I really want the stress? And yet, I'm well aware that my doubts around it are fully rooted in wanting to avoid the discomfort of risk, losses, etc. I never find myself thinking "I don't like trading, I'm not interested in the markets, etc." I just find myself wanting to avoid the markets when I'm not doing well, or when I'm getting "burned out". Or when I just don't want to deal with the uncertainty of it all. But I always come back to trading.

I find myself thinking "if I knew that I could succeed at trading at the level at which I want to succeed, then I would be fully committed and would never sway in my practice nor intentions. I'd just keep doing it until I succeeded." (WHO WOULDN'T?!) As though it's even possible for me to know that?! Who's going to "validate" me? Who's going to tap me on the shoulder and say "You're it, you're the one, you're going to succeed." Nobody! Rationally I realize that it's all up to me, that whether or not I succeed is all a matter of commitment and am I willing to do whatever it takes to succeed?

It's hard for me to write this to anyone, to admit this to anyone, because I'm a very self-reliant person and pride myself on the way I think for myself, and do what I want, without needing validation from anyone else. And yet looking at what I've written here, it's very strange to realize that in this area that is so important to me, I'm the exact opposite of all that I stand for!

Bottom line: I have an effective system, I have the capital to trade it, I have all the resources I need to succeed as a trader. But I'm having a very hard time making that final leap of faith and confidence that would have me fully committed. It's like I need to know first. There have been things I've done in my life that I gave 110% too and they didn't work out. So I hold back internally now. I don't want to give 100% unless I know I can win. I don't want to give it my all only to be disappointed again. If only I could get some validation, some evidence, some cue that I can win, THEN I'd give it 100%. Rationally I know that's "messed up", but it's what there for me, at the feeling level.



----- second send ---


Mr. Seykota:

Upon further reflection and re-reading of my previous comments to you (which are pasted below as well), I realize that I didn't communicate my thoughts accurately. Two points:

1) Re: "validation". Re-reading my comments, I think I give the impression of someone who seeks validation before making any moves. Nothing could be farther from the truth. For my entire adult life, I've always done my own research and drawn my own conclusions. It's very rare that I solicit opinions from others. Having stuttered severely since I was a child, I learned pretty quick not to pay too much mind to what others think about me or what I'm doing.

When I speak of "validation", it's not a "lifestyle". It's more like, in this particular case, with trading, I think it would be great if someone who knew what he was talking about told me I'm on the right track. BUT, a) that's not a request nor the purpose of my email and b) I'm perceptive enough to realize that no one can ever give me genuine validation.


It's up to me, and nobody else is qualified to figure out whether I can or can't do something. Even if Market Wizard Ed Seykota said "listen man, you have it together and you're gonna' be one of the greats", it wouldn't take more than three days before I'd conclude that "Ed Seykota doesn't really know me so he might be wrong." In short, I'd love some validation, but in the end, I know it wouldn't matter because the issue is internal and no amount of external feedback is going to resolve it.

2) I realized that much of my "approach - avoidance" of trading has to do with the fear of losses. BUT NOT in the traditional sense that traders often describe. I have NO problem with taking losses. Stops are not an issue for me. So long as losses are taken within the parameters of my system, under the rules I've set forth for myself, I don't care much about losses. But where my issue with losses becomes a real "issue" is that I think I fear insurmountable losses. Not a "blow-out" trade, because I account for that and protect myself with stops. And I trade too small, as a percentage of equity, for any trade to do much damage. But I'm concerned about a string of losses, one of those "against the odds" runs of losses that hurts me.

But it goes a bit deeper than that. This is what I meant when I talked earlier about my results defining me. I realize that I have a pretty healthy level of self-confidence. I don't think I could be where I am without it. (I'm a confident person, but if I go too long without results, I can start to question myself.) But I find myself worried that somehow I'll end up on the wrong side of the odds and that any given string of losses can MEAN that I'm destined for more and more losses. It's a bit like "if I start trading again next week and take some losses, I'm afraid it'll just be the beginning of the end for me."

TOTALLY irrational. I've worked out the numbers, risk of ruin, etc. For this to happen it would require a) an exceptionally unlikely probability and b) that I sit back and keep taking losses, doing nothing about it. Which is absurd, because I can exercise a lot of control over how, when, how much I trade. I have self discipline. I would never allow myself to get crushed.

Mind you, I've been trading and/or investing for about 18 years. A few years on the floor, even. And I've NEVER taken a big loss. I've NEVER been hurt bad. So it's not like I'm replaying some bad trade and shying away from it. This is why I'm so puzzled about it. Because it's totally irrational.


I have nothing realistic to fear, I've proven to myself that I can handle losses, and yet I find myself sometimes walking away from trading because of that fear.

What's at the heart of it, I think, is something like "Losses might mean that I'm a loser, might be an indication that I'm destined to fail." I'm not afraid of losses. I'm afraid of LOSING, as a "lifestyle", if you will. Maybe there's even a little bit of "I don't want to go for it committed because I don't want to discover that I can't win."


There's a sense of "I want to win, it's important to me to win, and if there's a chance of losing, if I can't be certain that I'm going to win, I'm hesitant to play." I gotta' know first that I can win, but in something like this, that's not possible!

Any insights on how to get out of this mind trap?

Thanks ...


----- third send -----

Mr. Seykota -

So sorry to bombard with you so many long emails about myself. I'm sure our little dramas, while utterly fascinating to ourselves, are not nearly so interesting to others! But I've literally been sitting here all day writing and pondering these issues. And I think maybe I've hit on something.

First let me ask you, are the "aha" experience and the sensations you describe "required" as part and parcel of an accurate insight? I mean, I think I'm relatively self-aware and I'm not generally shocked or surprised at what comes out of the depths of my mind.


I'm wondering if only "aha" insights are valid or maybe some people get the "aha" because their "stuff" lies deeper and it's a bigger shock when it surfaces. Maybe for some of us, there's no "aha" because it's not something actively avoided or suppressed, but just something that we didn't give much thought to, even though we're "aware" of it?

I ask because I've come up with some things that make a lot of sense to me, but I'm not feeling any dramatic sensations nor a major AHA! It just seems to fit and it makes a lot of sense to me.

I'll try to keep it brief:

In elementary school I was the "smartest" kid in the class. I KNEW I was going to win the spelling bee and go on to the district finals. I practiced the word list over and over and I did everything in my power to assure that I'd win. I lost. Second place. Because I misheard the word! I spelled the wrong word and lost on a word that I could easily have spelled.

As a kid I entered a contest to win a jacket. I wanted that jacket more than anything. I prayed every night to win, made all kinds of promises to God. In my mind I did everything I could to win that jacket. But I didn't.

I think somewhere in there I concluded "I can't win at what I really want. If it's really important to me, I can do everything in my power, but I won't get it." I know I concluded this somewhere because when I get under stress, when something doesn't work out, that's where I go: "I can't win! It doesn't matter how hard I try, life is rigged against me."

As an adult, two things I really wanted: to "fix" my speech and be a really good trader. I busted my butt at both. I did everything. I never gave up, I just kept working and working and working, but without getting the results I wanted. It made no sense to me that someone could work so hard, persist for so long, and not get the results he wanted.

I've succeeded at lots of stuff. Lots of stuff comes easy to me. But that stuff "doesn't count" because I don't do well at the things that really matter to me. (In other words, I dismiss all evidence contrary to my belief in order to maintain my belief!)

So I think I'm in this loop:

Belief says I can't have what I really want.
I really want to be a good trader. So I can't. Because I really want it.
But I don't give up, I have to try. I can't give up on what I want. I couldn't live with myself if I didn't try. But all the trying in the world won't matter because I can't win at what I really want.

So I end up in this approach avoidance thing, depending on which part of me is dominant at the time: my persistence, or my belief that I can't win.

And THIS is why losses MEAN so much to me. Because every loss I take is not just a loss, not just part of the system, not just an ordinary part of trading, but it's EVIDENCE that I can't win. It's "proof" that my belief will be realized, that I can't win at what's really important to me.

If this is indeed the issue, I can see my way out of it. But I'm left wondering if it is indeed the issue, since I didn't have this "aha" experience.

Congratulations on confronting these issues, and sharing your item with FAQ, as many readers can identify with you.

Your situation seems consistent with some forms of early neglect.

See the Trading Tribe Process, at Methods.



Toxic Parents

sometimes pass on a legacy of seeking invalidation. If this is true for you, you might find yourself, and some of your lost feelings, in a book such as this.




 Clip: www.amazon.com

Wed, 7 May 2003


The Trading Tribe Process - Some Thoughts on the Theory

Hi Ed,

First, that it works is that it works. Given current level of neuroscience, a theory of human cognition is more important as an account that can increase its ability to work, than its neurological accuracy.

I feel drawn to point out similarities to other parallel work that might elaborate the patterns you have put forth. In that spirit, I've attached an article on the "reading faces" work of Paul Ekman. You can also find this at

2002_08_05_a_face.htm .

I am also put in mind of the work of Dr. Dave Dobson. He thought the term unconscious mind misleading. You may share this in common, like Fred. Utilizing some of the early NLP awarenesses, he pointed out that the right brain (hemisphere) typically processes experiences (pictures and feelings) while the left brain processes words.


Cross hemispheric activity creates functional action patterns and labels and dysfunctional ones as well. In Dobson's way of thinking; modern, educated people are typically trying to run their brains with the labels (what he termed the Conscious mind) while they are being run by their experiences (which he termed the Other-than-conscious mind).


He had an attraction to the old Quaker adage: "You can't think your way into better acting, but you can act your way into better thinking."


He described the Conscious mind, very similar to Milton Erickson, as a "gift" of the "Other than conscious mind."


Erickson insisted that feelings came from the unconscious. This appears to parallel your ideas about thoughts and feelings.


Dobson's model encourages a left/right orientation instead of an up/down. Erickson also talked about the front of the mind and the back of the mind. Each is interestingly different.

In my experience, consciousness and other-than-consciousness have different functional properties. In line with your description of Fred and Erickson's description of the unconscious, other than consciousness runs the ongoing show, while consciousness punctuates experience with evaluations. Difficulties arise when this one attempts to use the system designed for evaluations to run the ongoing show. A kind of right tool for the job approach to mind.

Milton Erickson is famous for pacing and mirroring.


Milton Erickson


Master of bypassing the conscious mind

 and communicating directly with Fred





Wed, 7 May 2003

Money Management and R-multiples

Dear Ed,

I just found out about The Trading Tribe yesterday. My deep compliments for it. As a long time trader, I have to admit that your answers and the accompanying pictures made me have some long laugher in a very respectful way.


After trading for more than 15 years I start to believe to know (of course I will never really know) that I've met the biggest enemy toward trading and it is within myself.


Repeating behaviors in similar trading situations seems to fit each other like on a play script for a actor. Therefore I strongly support the idea to put great time to psychological ground works in a way like finding out about the good intentions of bad feelings (while trading, i.e. fear, greed, guilt, anxiousness etc.) This forum is a wonderful basis to do so.

Besides, gaming theories and money management theories helped me much to try to understand the way, why 10 different traders trading the same market, entering at the very same time, price and direction, will finally show 10 different results. In that respect I tend to believe that the only rational in testing is to find a way to fit money and risk management into one's personal beliefs. (Hopefully beliefs which will support my activity)

I've read all FAQ from this year and interestingly I've never found a question regarding the money management sector, which separates core equity money and markets money in a way, that different risk parameters may present a way to enable people to find some algorithms which may better fit their ability to accept the DD's.

Question 1: Do you put strong importance into balancing and rebalancing core and markets money or do you totally ignore this factor?

Question 2: On several occasions you have stated that day trading has a big disadvantage against position trading (in a trend following matter, of course). While I fully agree and understand your arguments, it may be forgotten that on the basis of a very small risk level (i.e. market move) a trade may be established on a day trading basis just to move it over into a position trade, letting the market create a big risk multiple of the initial risk (1R). With the help of sound money management techniques (core money and markets money, pyramiding etc.) someone totally against looking at the markets on a intra day basis may be very well rewarded.


I found such concepts to be especially promising trading the S&P. Interestingly such trades occur maybe 10 - 20 times an year, and have a low success probability. (Maybe that's why most traders I know dislike to trade that way) but the overall mathematical expectancy per trade is/was very high. What are your thoughts on concepts like this ?

Thank you and all the best

Dynamic rebalancing is no substitute for riding a wild bull market.

Trading long term trends with close initial entry stops is different from day trading.



Riding a Wild Bull


Not exactly the right time to stop and balance your checkbook.









Wed, 7 May 2003


Different Kind of FAQ

see: Genie

I never said their association with great traders but with industry was the one of the reason of success of those people. Being with those GREAT people was one of the privilege of being with industry. A lot of different things a learnt when you are in a particular environment. When one explains thing in audience the effect is different as compared to when you are trying to learn through cyberspace. I believe this thing is mentioned somewhere in Ed's FAQ.

Also calling Ed's FAQ's, FAQ, also intrigues me as usually most of the questions are different!


FAQ are usually posted against a particular product on a website and they usually stay the same in number and content.

I hope the person who sent the question is not associated with the financial industry!

FAQ sites normally provide tips for operating technical products.


The Trading Tribe FAQ follows the Socratic Method - the teachers (the traders over there on the left) ask me questions to educate me.



Tech Support FAQ


Q: shaver doesn't go on

A: plug it in


Q: on now - still doesn't work

A: stand closer



Wed, 7 May 2003


Melbourne Tribe

Hello Ed

I would like to form an Intentional Community in Australia.




Melbourne Australia!


You are now on-line on the Tribe Directory Page.





Map: www.expedia.com

Tue, 06 May 2003

Exploring Feelings

Dear Ed,

I thank you so much for all your help and for having this FAQ. I am starting to realize that my inner feelings and my perception of myself are priorities I need to address, rather than the nuances of my system.

You say many times to explore your feelings about a particular topic in your responses. How does one explore and reconcile (make peace ) with these feelings?

I feel like your reference to playing and replaying dramas out in my trading is and in my life is my daily existence.

I need to settle this so that I can have a quality of life at home and in my trading. What do you suggest as far as a simple way to get started. Thank you again.

In response to many inquiries about the work of the Trading Tribe, I am posting The Trading Tribe Process, to document some technology that seems to work. See the link above.

Meet Fred

Tue, 6 May 2003


Bursting Out of the Tank Top


Dear Ed,

I have spent the last hour reading the Trading Tribe Questions and Answers.


I burst out in laughter several times while reading your responses. The "standing in front of the tank top" is my favorite. Thank you for taking the time to share your wisdom and humor.

Tue, 6 May 2003

Money or Money


Do you prefer running your own money or client money? Why?

What advice would you give traders on this subject?

You might look at your feeling that  money differs from money. You might also look at your feeling of wanting fundamental reasons for your preferences.



Fish Flavor Ice Cream




Tue, 06 May 2003

Livermore on Fundamentals

Mr. Seykota,

In Jesse Livermore's interview with Richard Wyckoff, Livermore was quoted to say that "No man can succeed in the market unless he acquires a fundamental knowledge of economics and thoroughly familiarizes himself with conditions of every sort - financial position of a company, past history, production etc".

Did Livermore change to become a trend trader later? Does trend trading incorporate those factors already and therefore trend followers do not need to focus on those fundamentals in detail?

Perhaps you could re-write your question in SVO-p, so as to tell me who quotes whom, and where I can find the quote, now.


If Livermore is a Fundamentalist, then perhaps we can construct a Fundamental argument that  Fundamentals explains his suicide.



The Culprit: Fundamental Juice


Not for sale in Sherry Netherlands Hotel




Tue, 6 May 2003


The Trading Tribe Process

Hello Ed,

I have a few questions regarding the hot seat.

1. How is the light trance achieved, should I use breathing techniques etc to relax the participants before we begin 'The Process'.

2. How long does the hot seat process take, about 15-20 minutes etc?

3. In a meeting could several people take turns being in the hot seat, in your Incline Village meeting typically how many?

FAQ encourages personal growth groups and Intentional Communities and provides a bulletin board and directory to assist like-minded people to connect, at their own risk.

See Tribe Directory and The Trading Tribe Process.


Tue, 06 May 2003


Should Stick


Dear Ed,

I recently re-evaluated my trend trading approach. My fund is somewhat new to
trend following. We have been incorporating our model with equities for about a month now. I understand that one should stick to a system and follow it.


However, we have found that we have too little "heat" and we are thinking about switching our stops to 3ATR's. I did a few back tests and studies on the stocks we have gotten stopped out on and I believe 3atr stops is the way to go.


Do I still pyramid up every 1 atr if I am using a 3ATR stop?

"Should" implies obligation. Your statement is ambiguous about who obliges whom, and who is responsible for your trading.

SVO-p language promotes clarity. See the Trading Tribe Process.


You can modify risk by changing the quantity of instruments you hold.


FAQ does not offer specific trading system parameters. See Ground Rules.

SVO-p: Subject, Verb, Object, present tense.

Tue, 6 May 2003


Trading $1,000 Account

I wholeheartedly believe in trend following; period. I think that trend following is the only viable approach to trading provided that the trader adheres to strict money management.

Just like many who want to be traders but lack capital, is it possible to build a sizeable account starting with $1,000 using a trend following strategy? If a trend following strategy is correct 50% of the time and trading in the Mid-Am mini contracts, one can still be forced out if there is a string of bad trades making up the other 50%.

I have been wrangling with the small account size problem for years and I have not been able to incorporate trend following with small accounts.


I think this is one of the compelling reasons why so many traders turn to day trading so that they may be able to increase their account size with incremental gains using other methods. I personally do not agree with this approach because in the long run, it will not work and they wind up losing money.

What are your thoughts? I appreciate your feed back.

I notice you seem unable to accumulate more that $1,000 in a trading account in several years.

A bucket collects a lot more water when you fix the hole in the bottom.

When you master the basics of managing money, a lot of it shows up.

You might examine your feelings of wanting to spend most all of your money.


Harry Belafonte's

Hole in the Bucket Song


Some of the Very Best Excuses

Ultimately Justify Themselves


Henry :
There's a hole in the bucket,
dear Liza, dear Liza,
There's a hole in the bucket,
dear Liza, a hole.

Liza :
Then fix it, dear Henry,
dear Henry, dear Henry.
Then fix it, dear Henry,
dear Henry, fix it.

Henry :
With what shall I fix it,
dear Liza, dear Liza,
With what shall I fix it,
dear Liza, with what?

Liza :
With a straw, then, dear Henry,
dear Henry, dear Henry,
With a straw, then, dear Henry,
dear Henry, a straw.

Henry :
If the straw be too long,
dear Liza, dear Liza...

Liza : Then cut it, dear Henry

Henry : With what shall I cut it?

Liza : With a knife...

Henry : If the knife be too dull?

Liza : Whet the knife...

Henry : With what shall I whet it?

Liza : With a stone ...

Henry : If the stone be too rough?

Liza : Then, smooth the stone ...

Henry : With what shall I smooth it?

Liza : With water ...

Henry : With what shall I fetch it?

Liza : In a bucket ...

Henry : But, there's a hole in the bucket ...


Clip :www.belafonte-asiteofsites.com

Tue, 6 May 2003

The Process, Unhappiness, and Poor Trading

Dear Tribe,

I thought I would pass along my recent experience going through The Trading Tribe Process. It was early in the morning, and I found myself unusually annoyed with an email sent to me by a good friend who is not such a good trader.


Instead of indulging the annoyance, I made a conscious effort to put the feeling into S-V-O form and then reflect upon how I felt about myself when *I* was a poor trader.

The result was interesting. What I came up with was that the person I am when I am a poor trader is not so different from the unhappy clients I meet with in my work as a psychologist.


So many people are unhappy because they create fantasies of how the world *should* be: how they should be admired, appreciated, successful, thin, capable, etc. Because reality does not accommodate these fantasies, the unhappy clients are continually stuck with a focus on the part of the cup that is not full. They miss opportunities in life because their model of what should be obliterates an appreciation for what *is*.

But I do the same in my own poor trading! I become fixated on what the market *should* do, rather than on what it is actually doing. Instead of identifying and riding a trend, I convince myself that sentiment is too extreme, that the market is too overbought/oversold, that the market *should* do something other than what it is doing because of earnings, the Fed, seasonality, cycles, war, etc, etc, etc. So I miss opportunities to ride the trend because my view of what the market *should* do obliterates reality.

The key to identifying this was my annoyance at my correspondent. His own poor trading, rooted in a fixed idea that the bear market must bring the averages to further new lows, was too close to home: too close to the kind of trading I can engage in, and too close to the kind of miseries I see in my own clients. Shrink heal thyself!


Tue, 6 May 2003


Position Sizing

Hello Mr. Seykota

Thanks so much for your comments on my last post A Personal Journey.

I find that I am always evolving, whether in trading or life philosophy or in my relationships. If I change, I believe it would be natural for the system to change with me, since the system ultimately reflects myself.


For instance, if I become more IT-savvy and better at mathematics, I can improve the details of my system, perhaps by automating more signals. Also, I am convinced that the pursuit of knowledge and wisdom never ceases.


As I trade, I come across ways to increase my profitability or methods of trading that suit my personality and feelings. It is then that I upgrade my system. Still, I am a little concerned. Tinkering too much, even to make something  better, tends to reflect some sort of inconsistency in myself. Yet, stagnation and refusing to go along with the flow of change is at least as bad. Trend-following principles suggest that if the time has come for change, I should not resist it. What are your views on this?

I have been doing some searches on money management at the library and over the Net. I am not sure if you would allow me to post my results here, since FAQ does not endorse products or traders. If it is OK, I will share what I have found.

I would like to ask you about position size and its significance. Several renowned traders have made the point that position size accounts for a large part of their success, not entry signals. I am puzzled at to why position size can make such a difference.

Please bear with me while I go through this -
Expectancy is (Average Size of Win x Frequency) - Average Size of Losses x Frequency). To ensure that the expectancy can prove itself, I require money management to make sure I don't blowout in the meantime. On this view, position size is merely a defensive concept.

But it seems that position size is not just good defense, it is also something that actively supercharges the profitability of the system. I can't understand why.

It is clear that large position size can mean larger profits, since every advance in your position is multiplied by a larger figure. But the potential for losses is great too. Even if I cut losses quickly, a string of small losses can be very substantial if I have large position size for each loss.

The key seems to be some sort of optimal position size - large enough to see profits if you get on the trend, but small enough that several losses don't clean you out. I have absolutely no idea how to find this optimum, though. Perhaps the answer is to find the position size that I can stomach - that is optimal enough for me. Would that be right?


See, the great thing about FAQ is that even when asking, I can find answers - not necessarily the correct answers, but at least I get somewhere.

Stay well!

Tue, 6 May 2003

No chance

Hi Ed,

Ed wrote:

"Until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the super market".

I don't know personally a successful trader and I don't live in USA, do you think I've no chance ?

I appreciate a lot your FAQ. I'd like to think about TT FAQ as the opportunity to live and feel as a group, sharing, after all, what we are and not simply what we know. I really believe that passion does not permit to stand alone.


P.S: sometimes, the problem for me is to understand things that seem to be presupposed: for example, I've read about The Process, but I couldn't find a clear explanation of its meaning. I wonder if there're guidelines or other useful material for someone who intend to form a TT group.

You get to take the chance you make.

You can get a pretty good sense of many good traders, for free, on  Internet. See Below.

You might take a look at your feeling that non-USA traders can't succeed.

Christopher Columbus (1451 - 1506)

Basing a Wining Trade on Trade Winds.


Clip: www1.minn.net/~keithp/

Trading References: www.turtletrader.com

Mon, 5 May 2003



"Constant practice devoted to one subject often outdoes both intelligence and skill" -- Cicero

"Well, the average guy might not be a million-dollar trader, but if he stands there for five years, he would have to pick it up. It is just like a job. You don't start any job and feel comfortable in the first six moths ... You don't need any education at all to do it. The smarter you are, the dumber you are. The more you know, the worse it is for you." --
Tom Baldwin - The Fearless Pit Trader

There is a market that fits your character. Yet, if you cannot find it, stick long enough with the market you prefer and your character will mold to it.

Your might prove your point with a deck of cards. Shuffle the cards and try to guess the top three.  If you miss, just practice until perfect.



Cicero tries to prove to Porky

that practice makes perfect.


Clip: www.geocities.com


Mon, 5 May 2003

Zero Information

I was simply drawing parallels between what you said in the quotation and Lao Tzu. I have found similar quotes between you and Socrates, the Buddha, Einstein, Confucius, or even William Shakespeare etc ...

I see no problem drawing parallels between mere mortals. Although the messengers are legion, the message is singular: We're all ignorant, not being able to see simplicity amidst what seems to be a complex universe. Simple is beautiful, simple is the way.

From the day, I first read Market Wizards, I've felt you understood the heart of the Integral Oneness. For example, 'Sat, 5 Apr 2003 The Ones of Things', you state, "consider filling up a glass of beer, since Isaac Newton (1643-1727), physicists tend to describe this event as a differential equation."

As I've mentioned before, I've always felt, worlds and particles, bodies and beings, time and space: all are transient expressions of (for lack of a better word) the Tao or the way. You have examined this, even in the most ordinary thing such as filling up a glass of beer, or your theory of lift, challenging old beliefs and percepts.

This, Integral Ones, which extends to all things, including trading and the markets, becomes even clearer to see when one embraces the self by honoring ones feelings, which helps keep ones mind and spirit clear.

Finally, my question: What did you mean by Zero-Information?

"The ultimate Reality," beyond all distinctions or forms is alone the Guru. If a man in the form of a guru awakens consciousness in you, then know for certain that it is God the Absolute who has assumed that human form for your sake. The guru is like a companion who leads you by the hand. After realizing God, one loses the distinction between the guru and the disciple. The relationship between them remains as long as the disciple does not see God.

-Sri Ramakrishna

When you have zero information, and do not even have enough information to know that, then there is nothing you do not know.


You seem like a fellow seeker on the path.  If you ever figure a way to understand it all, let me know too.  I find it simpler to experience not knowing nothing.


See Trading Tribe Process, at The Zero Point. The Trading Tribe holds that the Zero Point is the source of creativity.



Nelson Goodman (1906-1998)


Goodman creates Project Zero at the Harvard Graduate School of Education in 1967 to improve education in the arts. Goodman believes that arts learning works better as a serious cognitive activity, and that people know zero about it, hence the name. From zero, the project grows until it even publishes a taxonomy of causal models.


Clip: www.pz.harvard.edu/



Model: www.pz.harvard.edu/




Mon, 5 May 2003

Unattended Positions

Do you close out your positions if you plan to be away for a week from the markets?

Distance from the floor of the exchange to the Trader is a curious choice for a system parameter.

Trend systems stop you in and out automatically, so you don't have to watch the markets.

Trading the Proximity System

"Yeah, that's right, I'm not going to LA after all, I'm only going to Cleveland, so just sell, say, one half of the position."

Clip: www.nokia.com

Mon, 5 May 2003

Zero Information

Sometime ago on this forum you said quote:

"If I live long enough I might get to Zero Information." Can you please elaborate on that.

"In the pursuit of learning, every day something is acquired. In the pursuit of Tao, every day something is dropped." - The Tao Te Ching

I seem to get credit for a lot of things I don't even say.


The Tao Ka Ching




Even the finest teaching is not the Tao itself. Even the finest name is insufficient to define it. Without words, the Tao can be experienced, and without a name, it can be

known. To conduct one's life according to the Tao, is to conduct one's life without regrets; to realize that potential within oneself which is of benefit to all.


Clip: www.cashregisterman.com/320.htm

Text: www.clas.ufl.edu/users/


Mon, 5 May 2003


Drawdowns Yield Returns

Do you know of any place that theorizes what a particular drawdown percentage will yield in positive returns?

If I am willing to risk xx% on the portfolio, it
should yield yy%, as an example.

You seem to think that if profitable traders have drawdowns, then drawdowns must cause profits.

Such notions about causality lead to many curious results. Trend Followers eschew causality, and simply go with the flow.

William Bennett on Meet The Press

According to slick logic, Bill's career proves that gambling causes the ability to write popular books; another Bill's career proves that playing the saxophone leads to high office.

Mon, 5 May 2003


Quite Absorbing

There is a sea of information out there and I've found that if you try to absorb it all you will drown. Most make trading to complicated, but then again, most don't make and keep profits either.

You might check your feelings about drowning. Some characters seem naturally absorbent.



Sponge Bob


Clip: www.nick.com/all_nick/tv_shows/


Mon, 5 May 2003



Hi Ed,

I just wanted to write to let you know how much I enjoy your site. Sometimes I feel like some of the things I see posted are speaking directly to me, sometimes some of the things posted make me think about things that I might not have seen before, and sometimes they just drive home what I already think I might know. The more I learn, the more I realize I don't know. Thanks for giving me a resource that provides me with something to think about Ed.


I recently had to take a Classics and a Philosophy course, which I was dreading because my school studies have taken away from my trading time. What I found was awesome, there were so many trading lessons in those courses and so many thought provoking lessons that are still as relevant today as they were in 4 and 5 BCE.


I see similarities in your responses and Socrates sometimes, not sure if you consider this a compliment, but I sure do. I believe Socrates once reasoned that what made him smarter than many people is that he realized he was an ignorant being. Knowing this fact is what made him to continue to study ... he was always a student.

Good luck and keep up the good work,

Thinking is natural, profitable and  still legal in many parts of the world.

Socrates (469-399 B.C.E.)


Socrates serves with some distinction as a soldier during the Peloponnesian War, dabbles in politics, then retires from active life to work as a stonemason and to raise his children with his wife, Xanthippe.


He inherits a modest fortune from his father, he uses his financial independence as an opportunity to give full-time attention to teaching and inventing the practice of philosophical dialogue.


He abandons inquiries into the physical world, dedicates to investigation of the development of moral character.


Clip: www.philosophypages.com/


Mon, 5 May 2003

Whys Guy

If the trend is such a friend, why is it that most traders have such difficulty befriending the trend?


Why is the call of the counter trend so alluring? Why do traders abandon their friend (read trend) so readily? Most people do not have trouble making good friends. Why do most traders have such difficulty making friends with the trend?


Is it because a trend can never be a friend? A market trend is like a summer day. It is either there, or it isn't. When it is there, enjoy it. When it is not, it cannot be enjoyed. My view? A trend is a trend, but never a friend.



Asking why presupposes causality and invites fundamental analysis. Trend Trading just goes with the flow.

You might examine your feelings about wanting to know the cause.

Causality's Finest Hour


Rube Goldberg's

Simplified Pencil-Sharpener


Open window (A) and fly kite (B). String (C) lifts small door (D) allowing moths (E) to escape and eat red flannel shirt (F). As weight of shirt becomes less, shoe (G) steps on switch (H) which heats electric iron (I) and burns hole in pants (J). Smoke (K) enters hole in tree (L), smoking out opossum (M) which jumps into basket (N), pulling rope (O) and lifting cage (P), allowing woodpecker (Q) to chew wood from pencil (R), exposing lead. Emergency knife (S) is always handy in case opossum or the woodpecker gets sick and can't work.


Clip: www.rube-goldberg.com/html/


Mon, 5 May 2003

Genie In a Bottle
see: Sat, 3 May 2003, No Jobs

I've also noticed the early association of the great traders in market wizards. but I believe their association with other great traders was not a prerequisite for their success.


Since there is no one right way to trade (Holy Grail), claiming they were "taught," for most people, conjures up a superior method of trading. They were given guidance and they found their own way. The guidance that was provided to them as to where they should direct their efforts, I believe, absolutely did shorten the steep learning curve they would have to go through.


We should all count ourselves lucky for Ed's generosity and wisdom. The guidance everyone is receiving on FAQ is no less than the guidance the wizards, the questioner mentioned, received.


In my opinion, there is enough information on FAQ to transform a dedicated trader, into a great trader. Genie-in-a-bottle not required.

Learning and Transformation might just be remembering what you already know.



Genie Emerging

Through Intentional Community


Someone else sets her free.


Clip: elfwood.lysator.liu.se/loth


Date: Mon, 5 May 2003


Long and Short


If you would be kind enough to post my reply to the person who has given me advice regarding my previous inability to have a solid SHORT only trading plan:

Thank you for your kind advice. My problem was not mathematical but the sample size taken for testing. I thought that few hundred test trades would be sufficient for trading plan analysis, based on random error concept; however I have found totally different results with larger (‘000s) sample. Perhaps if Mr. Seykota can share my email address with you (xxx) we could exchange some ideas regarding mechanical trading system development.

Mr, Seykota regarding his examples of LONGs and SHORTs: I have analyzed my feelings regarding the subject and the more I think about it the more I know that I like ‘em both!


FAQ does not reveal the identity of contributors. See ground rules.

You may conduct your interchanges on these pages, so that all readers might benefit.


Möller-Franz Illusion


Long and short can be preferences.


Clip: www.ads-online.on.ca/


Sun, 4 May 2003

Disgust with the Industry

Dear Mr. Seykota,

I have spent the last couple of years retooling myself and I now understand the AHA. I just wanted to thank you for being an inspiration point. You have changed the way I think about things in life, most notably of course, trading.

I spent quite some time as a merchant banker in [xxx] and the scum on [xxx] street lies rampant. it wasn't any different on Wall street.

We know without a shadow of a doubt that all of these fund mangers managing most domestic funds are nothing but salesmen that take the hard working man's money.

The brokers are useless and so are all these funds. I refused offers from firms because I will never sell their crummy products and I know that statistically they don't stand a chance. So I won't take their money.

You might have some unresolved issues about integrity. Perhaps you can get in touch with some of these feelings directly, so you don't have to keep getting yourself into sticky situations to dramatize them.

Pinocchio The Trader


Scene 1:

Hi Diddle Dee (A Trader's Life for Me)

A traders's life for me
A high silk hat and a silver cane
A watch of gold with a diamond chain

A trader's life is fun
You wear your hair in a pompadour
You ride around in a coach and four
You stop and buy out a candy store
A trader's life for me!


Hi diddle dee dee
An trader's life for me
A high silk hat and a silver cane
A watch of gold and a diamond chain

Hi diddle dee doo
You sleep till after two
You promenade with a big cigar
You tour the world in a private car
You dine on chicken and caviar
A trader's life for me!


Scene 2:

Give a Little Whistle

When you get in trouble and you don't know right from wrong
Give a little whistle! Give a little whistle!

When you meet temptation and the urge is very strong
Give a little whistle! Give a little whistle!


Take the straight and narrow path
And if you start to slide
Give a little whistle! Give a little whistle!


And always let your conscience be your guide


Scene 3:

When You Wish Upon a Star

When you wish upon a star
Makes no difference who you are
Anything your heart desires
Will come to you.


If your heart is in your dream
No request is too extreme
When you wish upon a star
As dreamers do

Fate is kind.

She brings to those to love
The sweet fulfillment of
Their secret longing

Like a bolt out of the blue
Fate steps in and sees you through
When you wish upon a star
Your dreams come true.


Clip: www.art.com/asp/


(C) Walt Disney

Sun, 4 May 2003


Picking the Bottom

You claim flow velocity at the bottom of a river is zero. Define bottom. Is the water at the “bottom” of a river the same water that was there 10,000 years ago?

Those that are inflexible are doomed to be broken.

While shoppers in a mall move about, their net velocity, relative to the mall center, is about zero.


When they leave the mall, they sweep away in the flow. 


If you are looking to profit from a big move, wait until they get in the car to leave.



West Edmonton Mall


The world's largest mall comprises over 800 stores and services, more than 110 eating establishments and 7 theme parks all under one roof. Excellent location for conducting experiments on Brownian Motion of people.