Ed's FAQ July 21-31, 2011
The Trading Tribe
(c) Ed Seykota 2003-2011 - Write for permission to reprint.
Ed Seykota's FAQ
Readers Say Ed Says
July 23, 2011

Hi Ed,

Long time no see ! Hope you are doing well.

I was googling something and came across your Donchian page http://www.seykota.com/tribe/Charts/Donchian/

I am looking at equity curve and the tradelogs. What really disturbs me is that one single trade (Copper) resulted in almost all of the entire 16 year system profit. It made 7.25M$. Seems like the entire result of the system from 1990 to 2006 is mostly on one single trade (along with few Euro$). I am not sure that in a real portfolio chances of that happening in the next 16 years is possible.

I am interested to know what you think about systems which have single huge winners in backtesting performing in real markets.

Thanks,

Thank you for raising the issue of degree of diversification.

The Donchian system at that link aims to exemplify the principles of system trading.

You might consider taking your feelings about <making it all on one trade> and <the right amount of diversification for you> to Tribe.

You might also consider researching Bill Gates, Steve Jobs, the Google boys, etc. about all this "bet it all on one idea" idea.

July 24, 2011

World Tour

Dear Ed,

Saw on your website on your world tour - notice Singapore on the agenda but still blank - any chance of Malaysia - Kuala Lumpur? No dates?

Regards,

I have the World Tour on hold for now.

July 24, 2011

Income Distribution

Ed,

Hope all is well with you. Sending you a link I feel you might find useful.

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

Sincerely, your humble student.

Thank you for the link.

July 24, 2011

Checking In

Dear Ed,

Hope all is well with you and the family.

I want to tell you I'm always here, doing my best as husband and father, studying markets, supporting you and TT FAQs...

Thank you for all the gifts your generosity gives me.

OK.

July 25, 2011

Trend Following

Hello Ed,

I am currently fulfilling a life goal of mine in learning all I can about Trend Following-—something I was very interested in back in college twenty years ago and promised myself I would pursue upon my 40th birthday this year.

I am again reading Michael Covel’s Trend Following and have really been struck by your story and insightful commentary—you are obviously a very wise man.  I wanted to order your Trading Tribe book but wanted to know if you had any revisions of the book since 2008 and the ugliness that followed?  Or did 2008 reiterate your belief in the Trend Following process you follow?

Thank you,

Same 'ol same 'ol.

 

 

July 26, 2011

Where's Ed

Dear support-group,

I hope you're doing well. I'm very concerned about Ed's well being ... does anyone know why Ed is not updating his website any more?

Warm regards,

Likely resting.

July 29, 2011

How Algorithms Shape Our World

http://www.ritholtz.com/blog/2011/07/how-algorithms-shape-our-world/

Thank you for the link.

 


July 28, 2011

Physics and Trading

Hello Ed,

As an old commodity trader, I was wondering the other day whatever happened to Commodity Corp. The Wikipedia entry listed some illustrious alumni, including you, so I followed the link to your entry, where I noticed the section on “Controversial claims concerning physics”.

This piqued my interest since I too have developed a late interest in physics. I followed the link to your web site and found that we had gone through similar processes of questioning textbook physics (in my case, the second law of thermodynamics). I was amused by your dialog with Andrew, which is reminiscent of the encounters I’ve had with various physicists. I envy the length of your dialog, as mine have generally been comparatively brief.

However, I found the patronizing tone and defensiveness of Andrew’s responses quite familiar, as well as his unwillingness or inability to directly address what appears to be a straightforward argument. Of course, these guys don’t get ahead by bucking the system, so the original thinkers tend to get weeded out.

I probably first heard about you from Market Wizards and felt a bit of kinship since I also have a BSEE from MIT and was inspired by Donchian to explore systems trading back in the late 60’s. I’ve almost crossed paths with you a couple of times. I lived in the San Diego area in 1983-4 just after you left and knew some of the same people. I also had a brief acquaintance with [Name 1] in the late 90’s. Of more immediate interest, just as I was about to sit down yesterday to write you a letter, I got a call from [Name 2] inquiring about my trading program. By an intriguing coincidence, he mentioned your name and the fact that he had recently been studying with you. I was rewarded with an interesting exchange of ideas on trading and the vagaries of dealing with the scientific establishment.

However, to my mind the most striking coincidence is that the solution to your problem (the physical basis of lift) is similar, if not identical, to the solution to mine (the physical basis of the second law). Both rely on radial momentum. This can easily be seen in the case of expansion of an ideal gas into a vacuum. As the density decreases, the entropy increases.

I gather that you may have lost interest in physics, since the last update of your web site was 2006. If this is not the case, it might be fun to get together sometime and share ideas.

Best regards,

OK.

 

July 31, 2011

TSP

Hi Ed,

After having completed the MA crossover project, I´m now taking on the S&R exercise.

You state that you set a protective (sell) stop at the END of the day you initiated position. Does that mean the new position is WITHOUT a sell stop the whole first day (before the close)?  What if you initiated a long and the market falls like a stone on the very same day? Am I missing here something? 

Thank you,

You can enter the protective sell stop when you enter the original buy stop.