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August 17 - 31, 2007


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We See What We Want to See


1. To see pink dots,

follow the rotating missing dot.

2. To see pink dots, and one green dot,

Look at the [+] in the center.


3. To see only the green dot,

concentrate on the [+].



The animation produces no green dots.

Eleven pink dots are always present.





(Quotes from Ed in Red)


Fri, 31 Aug 2007





Although I feel I have all the necessary tools and to design and test my system, I also feel I am limited by a number of reasons:

1) Markets are over-regulated and just a few have good volume or liquidity in [country];

2) So, ideally, I would have to work with the American markets which offer a wide range of opportunities and instruments;

3) My account is small, as I have little money. I would like to gather some savings and set apart some speculative capital to trade an aggressive (high heat) long term trend following strategy;

4) The small account is also a limitation to instrument selection for I would have to work with mini contracts or FOREX, and as such I am also subject to a very low diversification;

What do you think? Any chance?

Thank you for sharing your process.


You might consider taking your feelings of limitation to your Tribe as entry points.




I Maintain My Own Limitations


often to have something

upon which to blame

my own unwillingness.



Clip: http://gpwebdiary.blogspot.com/



Fri, 31 Aug 2007


Learning to Trade #6 : Relief

see previous


My stop Buy Order took me out of the Dow Jones trade at 13450. I am feeling some relief that this trade is over. I feel some disappointment in the fact that I do not make money, but it is over and I am on the next trade. I review the charts for the DJ to see what I might learn.


Thank you for sharing your process.




September Dow Jones Futures


Circles represent short sale entries

Line represents stop-out.



loss: ~ $1,750.00

starting equity: $40,000.00

percent loss: ~ 4.39% of equity.



Note: The intention of inclusion of this and / or other charts in FAQ is to illustrate trading principles - it does not imply any kind of indication or recommendation to buy, sell, hold or exit any positions.


Fri, 31 Aug 2007

Double Speak



“The government’s got a role to play, but it is limited,” Bush said. “A federal bailout of lenders would only encourage a recurrence of the problem.”

Politicians routinely use double-speak to medicate other's feelings.  It's part of the job and it's part of what they have to do to win elections and to stay in office.


You might consider taking your feelings about double-speak to your Tribe as an entry point.




The Intention of Double Talk

is to medicate the listener.


Many people would rather hear

that the government

will take care of us

and that our big problem

is global warming.


They do not want to hear

that government is now our main industry,

that the US has little work ethic

and is no longer productive

in manufacturing

and that we are running out of hard assets

to liquidate in order to maintain

our standard of living.



Clip: http://tobaccofreekids.org/reports/


Fri, 31 Aug 2007



Ed Says:

Your Tribe may be able to assist you in examining your sense of entitlement and also help you find some work in line with Right Livelihood.

When Your Focus Shifts from "me" to serving others you find Right Livelihood and deeper satisfaction.

CASA is an interesting name. Did you know that CASA in Portuguese also means HOUSE?

I don't have a tribe to assist me in examining my sense of entitlement. The only assistance I have been receiving in this regard is from a friend of mine who loves me and acknowledges my feelings.

I feel I am already in the process of shifting focus from "me" to serving others. I am looking for opportunities to engage myself further.

Thank you for sharing your process.



Thu, 30 Aug 2007


Learning to Trade #5 : Anxious - Lowering Stop

see previous



After correcting my positions from inadvertently (error using software) buying 3 contracts, I end up with 2 contracts Dow Jones Sept with an average at 13,275.


I stay in with a stop order to sell 2 Contracts at 13,450. I feel a little anxious about it, but basically pretty good feeling that this is still a good trade.


Feels like a good price for a synthetic option that could break my way.

Thank you for  sharing your process.


You may mean "selling 3 contracts" and "buy 2 contracts. " 


You might consider getting your language about buying and selling consistent with the language your broker uses.


Prior to your add-on your risk is about $2,800

13800 - 13240 = 560 Dow Points

560 DP * $5/DP = $ 2,800.


After your add-on your risk is about $1,750

13450 - 13275  = 175 Dow Points

175 DP * $5/DP * 2 lots = $ 1,750.


For your $40,000 account, your risk is now down from 7% to 4.39% of your equity.  Some professionals generally risk about 0.5 percent of equity on a trading idea and might see your trading as a bit "hot."


Perhaps the excitement of risking 5% of your account on one trade might be medication to distract you from having to think about what to do about the wheat market - or about some other significant event in your life.


You might consider taking your feelings about the Dow Jones market, the wheat market and your life in general to your Tribe as entry points.




September Dow Jones


Circles indicate short sales.

Top line indicates original stop.

Lower line indicates current stop.


Risk is now about 4.39% of equity,

down from about 6.75%.


Note: The intention of inclusion of this and / or other charts in FAQ is to illustrate trading principles - it does not imply any kind of indication or recommendation to buy, sell, hold or exit any positions.


Thu, 30 Aug 2007


Preparations for October 19 Workshop

Hello Ed,

I’m reading the FAQ in preparation for the Oct workshop (and because the FAQ material is very interesting to me!)

Some posts dated 2004 mention written preparation for the workshop.

However, I don’t find assignments on the workshop page now.

Do you recommend any pre-work for the event?

You might consider preparing a statement identifying some essential light within you that you might like to share with the world.




No Preparation


We do what we do,

whether or not we consider it preparation,

having to act without preparation,

holding back, going for it

or just being.


The essential commitment

is being willing

to do what we do.


Thu, 30 Aug 2007



First of all, I want to thank you for the FAQ, your perspective of trading is really understood...

I first got interested in the markets because I really believe in the ¨Work Smarter, not harder¨ philosophy ...

Question 1: I'm trying to put my system together, Do you only take into account statistics? what about fundamentals, the agendas of important organizations?

Question 2: Who was your mentor into this?

Question 3: How much are you worth in $$$ today? was it all from the trading?

Question 4: If you can only save $6k a year, have $15k in savings, are 22 years old, work @ the family business, want to pick up girls, want to go surfing on weekends, and want to be successful in trading. WHAT would you do?

I recently made my mind that I will trade futures instead of stocks.

too much useless info in the market, and time is short.

Thanks again for helping others find kind of mentorship through your FAQs.

1. If you have to do fundamentals, consider the overall system:


A while back, everybody is all about saving the world with ethanol; farmers get the fever and plant corn up to and up on their porches.  No one seems to care that it takes more energy to make a gallon of ethanol than you can get from a gallon of ethanol. 


On top of that you have to consider weather and imports and exports and competing crops and the value of the dollar.


Perhaps you luck out and figure corn is fixing to have a pretty good up move and then a down move. 


Profitable trading, however, also includes  observing good trading principles:


Ride Winners

Cut Losses

Trade the Trend

Manage Risk




Corn, December 2007


Notice the volatility that sets in

around March, 2007.


2.  You are my mentor of the now.


3. If you measure your worth only in dollars, you are not likely to accumulate much worth or much dollars.


4. Find a girl who wants a pick-up guy, who has a car and a surfboard, and who likes your family.  Tell her how you feel.




Some Surfer Chicks


looking for surfer guys

with a woodie.



5. (Bonus answer) Take your issues to a Tribe meeting.



Clip: http://homepage.mac.com/dorlando/.Pictures/


Thu, 30 Aug 2007


Learning to Trade #4 : Searching for a Substitute

see previous



Today, I feel some concern that my DJ trade has moved into the red. I also feel a little anxious that I miss the Wheat trade.


This feeling makes me want to find another trade to take my mind off of missing the wheat.

Thank you for sharing your process.




December 2007 Wheat


Trading other things

can be an attempt


to medicate the feelings

of missing a major mover.



Note: The intention of inclusion of this and / or other charts in FAQ is to illustrate trading principles - it not imply any kind of indication or recommendation to buy, sell, hold or exit any positions.


Wed, 29 Aug 2007


Still No Word From Traders on Wheat

see previous

Hi Ed,

As I mentioned in a previous email, our forum for this type of discussion / polls, etc. is in our Yahoo Groups forum


Once you've joined (if you haven't already) you can ask everyone. We use our meetings' signup sheet list only for announcements so we don't overwhelm our members with non-essential topics. Hope you understand.





Behold the The Ostrich


This trading posture may preclude

receiving trading signals

with the eyes and ears

and may invite receiving them elsewhere.



Clip: http://vwt.d2g.com:8081/ostrich.jpg

Wed, 29 Aug 2007


A Clock of Sixes

see previous



So, a stitch in 9 tells time? I wonder if you can create an Armageddon clock (using the numeral 6 instead of 9).

1 = (6/6)^6, etc.

Tue, 28 Aug 2007


Learning to Trade #3: Goosebumps

see previous


Today, I feel light and happy that my DJ trade has moved into the black. I also feel a little guilt and disappointment that I did not add on to my position at 13240 where I said I was going to add on. I let the market move right through without stops in place, watching it go down and down. I then have mixed feelings because of making money on the trade but not following my plan and making more money on it. My plan to buy Gold did not happen as the market went down today and did not hit my stop.

Ed reminds me of my feelings from a couple of days ago when I was feeling very anxious and nervous about my position on the DJ and want to move my stops down to something closer to where it was trading. Had I moved it I would have missed out on over $1500 of move in my favor.


Ed tells me that that feeling I had of anxiety and nervousness, if I understand the positive purpose and use it as an indicator of when to be steadfast and when to add on, then I am well on my way to creating great wealth. This is so counter intuitive and hard to do that almost no one is able to do this. I tell this to my trading partner and he gets goose bumps.

Thank you for sharing your process.




The Significance of Goosebumps


may depend upon ...




 ... where and how ...





... you find them.












Tue, 28 Aug 2007

Miss South Carolina


It's lucky for her she's cute!


Gummint skools at work.

Tue, 28 Aug 2007

Write a Collection of K-not Stories

Dear Mr. Seykota,

One of your gifts is the ability to convey a deep insight by telling a short story.

I first saw it when you spoke about "a patient with political position" in Market Wizards.

In your book you compare how would an anger K-notted and a normal person behave in a restaurant.

It is very illustrative and palpable. It has the healing and educational effect similar to a good book or a movie.

Therefore I would like to encourage you to write a Collection of K-not stories. You could picture all possible K-nots there, using the same comparative way.

It would be very helpful for people like me who have no tribe around and do not feel ready to start one.




Even without a tribe your influence is somehow operating:

Two days after I ordered your book I woke up in my bed with deep thoughts about you. I was very happy and grateful that you exist and could not contain my tears. It was Saturday and I spent it nicely with my wife. (which is very rare). We went for a walk and in the centre of Prague we passed four foreigners. One of them, the lady, wore a t-shirt with a picture and the name LAKE TAHOE on it! I was dumbstruck! I felt some strong wave inside me. I wanted to ask if they knew you but I did not dare. My wife noticed this happened exactly at the time of the new moon.

The next morning I woke up from bad dreams about my toxic parents and spent the whole day in bed with fever.

Thank you for your suggestion.


Perhaps I might start with a story about a man who has a k-not about his parents - and who gets a fever thinking about it.


Perhaps you could help me write it.





Sometimes a Fever


indicates unwillingness

to deal with key issues.




Sometimes a Fever


indicates unwillingness

to deal with key issues.



Clip: http://www.mcmua.com

Mon, 27 Aug 2007




Someone seems to be able to accurately identify when trends start.


All trends exists at the same time, namely, in the now, or not at all.

Mon, 27 Aug 2007


TSP - Exponential Lag Formula Problem

Hi Chief!

I've been trying to align my Exponential Lag with your example on the 150/15 run, but it seems there's a problem, can you help me identify it?

The values I get are at the attached spreadsheet

82-08-27-F slow=113.110 fast=112.055 -
82-08-30-M slow=113.177 fast=112.817 -
82-08-31-T slow=113.254 fast=113.590 +
82-09-01-W slow=113.306 fast=114.035 +

You might try going over all the TSP logs from the first day of the run to find the discrepancy.

Sun, 26 Aug 2007


Learning to Trade: #2 : Anxiety

see: previous

Report: I am feeling a little anxious about my DJ position. I would rather not lose $2500 on my first trade, so I feel like adjusting my stop to a $1500 loss which is definitely within reach of the market price tomorrow. My trading partner is telling me "no", don't change our stop. I have not put any orders in changing the stop, just mentally noting the place where I might lose $1500. This feels like a tightness in my throat and upper chest area. Not breathing as deeply.

Thank you for sharing your process.



September Dow Jones


Circle shows entry.

Line shows stop.


Sun, 26 Aug 2007


Muskat Tribe


I would like to join you.













Capital City of Oman



Clip: http://www.nationsonline.org/


Sun, 26 Aug 2007

Mother in Law #3


Not any more. I just thought the joke was extremely funny. Do you always psychoanalyze things that people send you - always looking for a reason that they do the things they do? Hmmm?

I assist people who are willing to examine their issues and I encourage them to join a Tribe and work with others to gain insights.

Sun, 26 Aug 2007


Mother in Law #2

Hi, Ed,

Well, the first one was already deceased when I got married, so no problem there - but the second one did not approve of me at all. She did not think I was fit for her son. I was ‘older’ and didn’t play golf, didn’t have matching set of dishes or silverware, didn’t wear jewelry, or shop ‘til I dropped. My idea of interior decorating and her idea of it were as far apart at Pluto is from Earth, and she did not approve of my wicked sense of humor at all.

So. What do you think?

I think you might have some business going on that attracts this kind of relationship.

Sunday, August 26, 2007

Mother in Law

A married couple was in a terrible accident where the man's face was severely burned. The doctor told the husband that they couldn't graft any skin from his body because he was too skinny.

So, the wife offered to donate some of her own skin. However, the only skin on her body that the doctor felt was suitable would have to come from her buttocks. The husband and wife agreed that they would tell no one about where the skin came from, and they requested that the doctor also honor their secret. After all, this was a very delicate matter.


After the surgery was completed, everyone was astounded at the man's new face. He looked more handsome than he ever had before! All his friends and relatives just went on and on about his youthful beauty!


One day, he was alone with his wife, and he was overcome with emotion at her sacrifice. He said, "Dear, I just want to thank you for everything you did for me. How can I possibly repay you?" "My darling," she replied,

"I get all the thanks I need every time
I see your mother kiss you on the cheek."

Hmmm ... I wonder what kind of relationship you have with your own mother in law.

Sun, 26 Aug 2007


Authority Figures



I have read twice recently on the FAQ page where you stated that someone may have an issue with authority figures.


The last time was 16 Aug 2007 and both times I read this I found myself wondering how big an issue this is to trading success. Since it came up twice on the FAQ page recently I assume you feel it is important.


I know this is an issue for me I have had most all my life and although I feel it is not beneficial to me, I don't know another way to be. I grew up in an oppressive environment where my father yelled at me, found fault with most that I did, I felt pushed, forced and he used intimidation tactics to control me.


This continued through school where my teachers and gym coaches seemed to pick up where he left off. I felt I could not win so I just shrunk and tried to just get through it. In my 20s I went through a period of intense drug use where the anger and rage came out and I just dared anyone to mess with me.


I would die before being pushed around any longer. Well no one oppressed me any longer but I did not like myself being like that (I felt I had become mean and felt I had become what I hated so much). So I quit drugs and alcohol and made a commitment to reconnect with the nice person I started out life as.


I now am at a more peaceful place with myself after many years of balancing out but still have that distrust, fear and suspicion of authority and a bit of resistance in me also.


As I write this my question seems to be partly answering itself as I realize that for years I have resisted trading systems and any structure.


Although I have made trading rules I don't always follow them, I distrust them, I second guess them and trade off the cuff usually to my accounts detriment. So where do I go from here? How do I learn to make peace with authority and structure so I can live a more balanced life and make decisions based on what is best for me and those around me instead of those knee jerk reactions that come up that I just react to?


I also notice that I have stalled several times in clicking the send button on this email and I want to just save it instead of sending it because I am feeling apprehension about what your response to this letter may be. Will you criticize me, tell me I am wrong to feel this way, judge me or delete it. You are the authority figure on this page so here I go getting confronted once again.

Thank you for sharing your process.


You might consider taking your feelings about authority figures and about your own authority to your Tribe as entry points.


Depending on your point of view, your system might be a cage, a brace, a reminder, or anything else that Fred can use to assist you in experiencing your feelings.





















Sun, 26 Aug 2007


The Sneeze Method

Shorts GOOG at 547 on 22 Jul 2007


Dear Ed,

Ed wrote:

"You might like to report your method for timing this trade as well as the method for the subsequent order to cover the short."

The scene: GOOG is scheduled to report earnings after the close. I anticipate a big move up or down, and set my trading platform to buy or sell with one click. It is 4:01 pm. My son comes into the office. I explain the tension, show him the chart, explain my plan.

Suddenly I see GOOG tick down $1. I hesitate with my finger on the "sell" button. Inexplicably, my son sneezes. I think "sneeze=sell", and press. Filled at 547.

In a minute GOOG plunges to 520. I move stop loss down and cover at 530. + 17.

We both celebrate our good fortune.






Going short on a sneeze

and covering on a tickle.


Sun, 26 Aug 2007


A Clock of Nines



Clip: http://uploads.neowin.net/forum/


For 7:00 I prefer sqrt(9)! + 9/9. as it avoids the  asymptotically imprecise repeater function. 


You might consider watching out for timely news on September 3.

Sun, 26 Aug 2007

Check In - Getting Off the Treadmill

Hi Ed,

I hope you are well.

It’s been a while since I write to FAQ. I write to check in and share my progress and experience of my journey for self-discovery which I begin a year ago after meeting you and other very inspirational Tribe members.

Over the past year I read numerous books on self improvement which have a positive impact on me. I particularly enjoy Eckhardt Tolle’s book ‘The Power of Now’. It makes me realize how I am always caught up with the future and running away from the ‘Now’ because I am not happy with circumstances in my life and hope things will take care of themselves in the ‘future’.


You are right Ed there is no future there really is only the now and the sooner I realize and accept this the better things become. Not always an easy concept to grasp particularly after a lifetime of thinking and wanting to be in someplace else ‘the future’. I wonder what your thoughts are on Tolle’s teachings.

Not all the personal snapshots I set myself about a year ago materialize, I am fine with this and don’t beat myself. The marathon snapshot is put to rest, Fred arranges for a stop to that with an ACL tear.


The down time after surgery gives me time to really think about my snapshots and how to better improve myself and my life. Spending time off the treadmill of life and at rehabilitation centre brings to light the importance of altruism and helping others.

My relationship snapshot is materializing and I am getting married in a months time! I am excited about this and also look forward to married life and having a family. I intend to have a family snapshot.

With regards to developing a trading system – I figure it out! I am not a programmer and not likely to develop a system with my limited experience and spare time so I find someone to work with and help program ideas in Excel. We finish the TSP S&R system and manage to match your results. I am happy about this and it seems the two of us work together well. I come across numerous obstacles while attempting to complete this system but stick to it to the end. I look forward to hearing from you and progressing with the TTAP. We are also developing an idea which may develop into a reasonably good system.

Thank you Ed for your teachings and bringing this wonderful community of like-minded people together, all through something as simple as the FAQ.

Thank you for sharing your process.



Getting Off The Treadmill Gracefully


is easy when you are willing

to get off it gracefully.


One non-graceful alternative

is to let Fred do it

with a knife.


Clip: http://www.weightlossanswersnow.com/




Sat, 25 Aug 2007

Wants to Start a Trading Tribe

I wrote several emails to you during the previous weeks. I am a trader.  I live in [City] I did a lot of emotional work in the field of personal growth including meditation and hot seat. I used to do it by myself as inner voice dialog and I am now becoming much more aware of my dim attitude. I bought and read your book as all the books u suggested in your reading list on TTP website.


I am very interested in starting a Tribe. I just did a couple of sessions with my girlfriend but as I do not want to push here to do it I would like collect [nationality] people to start the process. Can u please put me on your list.  My email is [email] anybody wants can write me to have a meeting. thanx mr seykota I am very happy to know there are persons like u that point me the way. I really hope to become like u and I am working to do it.

See the Tribe Directory link above for information on joining and starting a Tribe.

Thu, 23 Aug 2007


Learning to Trade: Trade #1

My account was not open for business until around 1030am CDT. At that point, I might have been able to place a Sell Stop Order at 13,280 but since I was not familiar enough with the trading platform I did not.


By time I could place the order, the Dow Jones was trading around 12,235. I placed an order at 12, 235 and the market moved up before it could be filled. I cancelled the order and placed an order to sell 1 contract of Dow Jones mini (YM) on a GFD basis at 13240.


The order is filled and I feel relief and some degree of satisfaction in finally getting in the market. But, oops, I forget to place my stop loss order. So, I then enter my stop loss order at 13800. A large stop which is not likely to be hit anytime soon.


The market almost immediately goes in favor of the trade and I feel that little feeling of happiness I associate with being right. In minutes, the trade is up $120-140. I go to lunch with the trade up $100 and come back to find the trade is now down $70. At the end of the day, the trade is down $125. I feel pretty good about this, since I am in the market and nothing that has happened has changed my feeling about the trade. A good day with good learning.

Thank you for sharing your process.



September Dow Jones


Circle shows entry.

Line shows stop.


Thu, 23 Aug 2007


Associate Program / The Runner


I am back! I have finally finished the S&R system after a few programming mishaps and a torn ACL and meniscus which put me out of action for sometime. I now have someone working with me on a more permanent basis on excel VBA programming who is also keen on learning.

We have matched Ed's results short of a dollar or so. I have not managed to match the drawdown though and would appreciate some insight as I have tinkered with this for sometime and not managed to work it out. I must be missing the obvious! I attach the system for review and advice.

I look forward to hearing from you soon and proceeding to the next part of the TTAP.


PS. Ed my running days may be over - Fred wants me to stop running and assists for my ACL and meniscus to pass the message! I intend to write a report on my personal progress over the weekend.

Thank you for sharing your process. 


You might consider taking your feeling of needing someone to help you to your Tribe as an entry point.


You might also take your feelings about running to your Tribe.




This Runner


is running

and may not be aware

of what's running him.



Clip: http://i56.photobucket.com/albums/



Wed, 22 Aug 2007



Hi Ed,

Recently, I have been pondering about causality as it seems to be a major doctrine of Buddhism. I understand that TTP embraces the Systematic model, and a very important piece is the Under-Fred network. TTP does not believe in Causality. ("TTP suspends belief in the JCT trilogy: judgment, causality and time", FAQ 7/26/04)

1) Even adopting a systematic world view, do you still use the Causality model to explain non-human phenomenon, such as the heat from the sun "causes" the water to evaporate, the gravitational pull "causes" the planets to orbit around the sun, or the positive and negative charges together "cause" lightning?

2) Do animals (dogs, cats, birds...) participate in the under-Fred network? From the TTP essay, it seems only humans (or those that have a subconscious) participate in the under-Fred Network, and that's how we communicate on a subconscious level.

3) I can understand the under-Fred network matching the victims and the predators for them to both experience some feelings from the drama. I am not too sure how the under-Fred network enroll non-human (e.g. market crashing, raining on the day of the field trip, or car breaking down in the middle of a trip) to facilitate the drama for the person to experience. Can you please elaborate on how the Under-Fred network works, and how Fred gets all these "things" (e.g. rain from seemingly nowhere) to enroll ourselves in a drama (...that forces the plane to delay that makes me feel very frustrated and annoyed) ?


1) The causal model is useful for specifying the transfer function of a sub-system within a larger system.  For example, if you have no interest in the internal dynamics of light bulbs and switches, you may note that pushing the light switch on the wall upward "causes" the light to go on. 


If you have an interest in designing light bulbs (or switches) and want to know how to make a filament burn brighter or not burn out, you might do well to make a dynamic interactive model of the switch / filament system to examine how the filament resistance changes and how the magnetic fields make it vibrate as it warms up.


2) Under Fred is a model.  Cats and dogs are in it if you want them in it.


3) One way for you to understand Under Fred is for you to intend to understand it.



He Feels The Passion Rising


and he notices he does not fully understand it


so he stops, politely excuses himself

and goes home to analyze it all.


Clip: http://flickrgirls.wordpress.com/


Sun, 19 Aug 2007



Ed Says: I do not know what you mean by "robust" and "over-optimize." I suspect you do not have a precise definition for them.

If robustness is important to you, you can include a metric for robustness in your optimization algorithm.

No, I don't have a "precise" definition, only a vague idea. And I don't think I can measure it. I think I can only use common sense. For instance, I for myself think that a system based on the rolling breakout is the most robust one. After all, if there is a trend it's in, and there are no other conditions.

When I was developing a system for myself I was working a simple rollover breakout, working with just one trend. Then I found that the model suggested in the TSP is much more effective and wise, i.e., using two trends, trading in the direction of the long term trend, cutting losers in the direction of the short term trend, etc. And still I don't think it loses its robustness.

Now, as far as optimization goes, I think that we seek to optimize the system to get the best returns. I define "over-optimization" as the adaptation of the system to market history. For example, instead of choosing the best parameters for a sound, robust system I would rather tinker with the system, adding in indicators, etc. in an attempt to develop a system that would give me the same or better returns with minimal risk or drawdowns.

With regard to this common dilemma of risk X return I have already reached my own conclusion.


Incidentally this is the reason I don't find trading very enticing and I have abandoned it. I believe that if I am looking for consistent, long term returns I won't be able to get returns of more than around 25-30% annually with drawdowns around 30%. Although this is interesting, for instance, for a money manager who is trading billions of dollars and earning performance fees, it doesn't seem to be a way to get rich quickly, say, by trading for myself and with little capital.

Thank you for sharing your process.


You might consider taking your goal (to get rich quickly, by trading for yourself, with little capital) to your Tribe as a snapshot.


Your Tribe may be able to assist you in examining your sense of entitlement and also help you find some work in line with Right Livelihood.



When Your Focus Shifts


from "me" to serving others

you find Right Livelihood

and deeper satisfaction.


See CASA, below.


Clip: http://www.foundationsforfreedom.net/


Sun, 19 Aug 2007


Associates Research - Exponential Stop System


Hey Ed, I finally have my first Donchian System fully programmed (ie. bug free : ) ).

Portfolio Manager: filters out weak stocks by using a 1 year basis strength filter (ie. # of ATRs a stock has a stock gone up over the past year). The formula = pricetoday - price1year ago / ATR 1 year ago), out of the filtered list which includes around 2520 stocks. Overall "STOCK MARKET" trend validation: I use a 140/40 EMA crossover on the S&P500 in order to start accepting trades, if 40EMA > 140EMA than the system starts accepting new signals. If the 40EMA crosses below the 140EMA the system does not accept new signals and the stocks currently being held are allowed to run their course to their natural stop or RISK manager adjusted stop.

Money Management: Fixed Fractional Strategy betting .5% of equity on each trade. I have a 2.25X leverage setting (At my ... Brokerage Firm I can get 3.33X leverage on all optionable stocks above $5 and 2X on non-optionable above $5. I am assuming I will have a 50/50 mix of 2X and 3.33X that comes out to total leverage capacity of 2.66X and further assume 2.25X leverage is a suitable range so that I don't get margin calls every day.)

Entry/Exit: The system buys N day upside breakouts and sells on N day support. I bet .5% of equity on each stock and have a 2.25X leverage setting. Optimal settings so far for the upside breakout is 200 day high and for the N day support is 250 days.
NOTE: The entry opportunities that come up are purchased in order of the stocks strength rank that day. Orders that will push me over max allowed 2.25X margin are skipped.

Risk Management: I have total allowable heat set to 65% of total equity, if current portfolio heat goes above 65% then my stops move up in proportion across all positions to bring the heat back down to 65% increasing core equity. These stops never move lower.

EXPO Stop Associates Paper Research Results:

Ok Ed, my Expo stop idea fails in all areas. The exponential stop is an exponentially growing process that grows the stop price daily (the seed stop price is the stop price on the entry date which is the MAX of the N day support or Price Close - 12 ATRs) at a rate that is a user defined parameter.

The expo stop fails to increase risk adjusted return (the basis is MAR), or overall CAGR, or even decrease drawdown in a meaningful way for that matter.

My observations are that as I increase the EXPO stop growth rate from 0% to 100% in 10% increments CAGR drops off dramatically while MAX drawdown stays the same which leads me to believe that the choice of fancy stop out methods is not a strong determinant of CAGR and essentially the stop out method that gives price the most room to move is the best. This is the policy that allows price enough room for big winners to develop. Also Max heat seems to be the strong determinant of MAX drawdown instead of choice of stop out methods.

The backtest that is attached clearly shows system degradation on many performance metrics as the EXPO stop increases. My initial hopes were that the EXPO stop would filter out slow growing stocks and hold fast growing stocks. It seems that the EXPO stop added transaction costs and unneeded turnover depleting equity instead. I guess this type of stop out method may perform better once I eliminate start date dependency as discussed below.

The complete failure of this exit strategy's ability to improve a simple Donchian support/resistance system on a basket of 6300 stocks, inspires me to look at my selection process instead, as you hinted at a couple emails back.


The best results I have achieved so far are 34.5% CAGR from Jan 1990- AUG 2007, MAR=.43 MAXDD=80.2% at a HEAT of 65% and .5% betsize.

I contemplate recently about what you said regarding "start date dependency". It seems that this dependency not only hampers my ability to properly optimize parameter values for my long term Donchian system because results can be skewed dramatically by starting several days later / earlier, it also limits the systems ability to get into the super strong trending stocks that pop up every now and then if all my capital is tied up.

Purge Strategy: My next area of focus is programming a dynamic purge strategy that will cycle capital out of my current holdings into stronger opportunities, my current holding may still be trending long term but have fallen lower in relative strength compared to newer / fresher opportunities. The system calculates the strength rank for each stock in the database, then determines where my current holdings are in that strength rank. If there is a new breakout in a stock that has a strength rank higher than any of my current holdings, then I sell enough current holdings, starting from the lowest long term strength rank, to make room for the newer stronger rank breakout.

I believe this new purge strategy should almost eliminate start date dependency except for maybe the first couple of trades as the "center of gravity" moves higher to the strongest trending opportunities. The holdings of multiple tests should become similar shortly after the start date.

I am guessing that that this new selection / purge strategy might increase CAGR and decrease max DD at the same time. I will soon see!!!!

I anticipate that I might have to make changes to my current strength rank filter because it uses current price and historical price as an input. I sense that current price alone might be too volatile on a daily basis creating too many vertical "RANK JUMPS", perhaps a strength rank using a 50day or 100day EMA might be "laggier" and produce less turnover while keeping the spirit of the purge strategy at its core.

PS. The only thing I add to the simple Donchian system that seems to improve CAGR and MAR is the SP500 portfolio filter. Results attached to this email.

Thank you for sharing your process.


Such testing gives you a wide range of experience with systems and a feel for what works and what doesn't.


Your "purge the weak" strategy might wind up protecting early winners that gain  "tenure" and are now moving slightly up and down.  New winners cannot accumulate enough "performance" to dislodge the positions with whiskers.




A Geezer With Tenure


may block a younger

individual with better qualifications.



Clip: http://www.tybeetyme.com/tb/


Sat, 18 Aug 2007



Ed says: A more precise TTP term for Right Livelihood might be CASA: Community Activity that Supports and Acknowledges. (FAQ, 3/17/2006)

Ed says: You might consider telling me which words you do not understand. This might help me make mi casa su casa. (FAQ, 7/30/2007)

Well, it isn't a particular word that I do not understand. But rather it seems rather ambiguous, as in, what does it support and what does it acknowledge?


For example, one can be engaging in activities that support protecting the environment or acknowledge the importance of regular exercise. Or he can be engaging in activities that support segregation and discrimination or acknowledge brutal dog-fighting as mere regular entertainment.

So how does supporting and acknowledging those activities relate to right livelihood?



You may not be able to get this by reading about it and trying to figure it out by yourself.


CASA is a community process, that you can do in a Tribe.


One version of the snapshot process has all your Tribe members sign off on your snapshot.


You might consider trying this version - and see how many of your Tribe members let you get away with brutality or even doing less than your best.

Sat, 18 Aug 2007


Bearish Songs, Sign of a Bottom ?



The song is a parody, light, clever and entertaining.  At the bottom, people sing the blues, from the gut.


Listen: http://www.macidol.com/song/8344

Fri, 17 Aug 2007


Bail Out - The Financial Drug of Choice


Hi Ed,

Here is an interesting article. It seems that the
author wants an fair market. But the reality says
"Fair is an illusion".



Fortune Magazine

Why does Wall Street always get bailed out?
Friday August 17, 9:39 am ET
By Allan Sloan, Fortune senior editor-at-large

Wall Street loves to talk about letting financial markets weed out the weak. But when the Street itself gets in trouble, it sticks out its little tin cup, asking for help. And gets it.

The subprime-mortgage-market meltdown is a classic example of the way small fry get devoured, but the whales of Wall Street get rescued. Here's the deal: People with crummy credit who took out mortgages are being allowed to fail in record numbers. The mortgage companies that made those loans are being allowed to fail.

The Street itself? It's bailout city. Even before the Fed made a symbolic half-point cut in the discount rate, it and other central banks from Switzerland to Singapore were trying to rescue the Street by injecting hundreds of billions of dollars into the financial markets and announcing they will put up more, if needed.

Hello? If you believe in markets - which I do - this rescue is especially galling, because Wall Street enabled this mess in the first place. How so? By happily sucking up hundreds of billions of dollars' worth of suspect mortgages from marginal U.S. borrowers-and begging mortgage makers to create more of them. The Street sliced and diced this financial toxic waste into a variety of esoteric securities, making a nice markup when it sold them and generating a continuing stream of profits when it made markets in them.

Somehow analysts at credit-rating agencies, looking at computerized scenarios rather than at the real world, decided that the bulk of the securities backed by these trashy loans could be rated triple-A.

It's really amazing: Most of the loans to substandard creditors borrowing 100% of the purchase price of homes they couldn't afford were rated the same as GE and the federal government. That makes no sense. But the money rolled in, and Wall Street-by which I mean the world's biggest and most important financial institutions-didn't care about the real world or ask any questions. It was too busy making money, and cashing bonus checks generated by sub-prime-mortgage profits.

But the world's central banks aren't letting the big guys fail. Think of it as the Escape of the Enablers. The reason this is happening, of course, is the same reason that the Fed orchestrated a bailout of the infamous Long-Term Capital Management hedge fund a decade ago-and about 20 years ago didn't close some of the nation's biggest banks, even though they were effectively insolvent because unrealized losses had wiped out their capital.

It's the "too big to fail" syndrome. In a world in which big players make incredibly large and complex deals with one another - that's what derivatives are - regulators don't dare let a big or important institution fail for fear that the collapse of one would lead to "cascading failures," and other institutions wouldn't be able to collect what the collapsed institution owed them.

The Fed's job, you see, isn't to protect you and me and our retirement portfolios, or even many of the nation's largest companies and biggest employers. The Fed's job is to protect the financial system. That's why it's trying to rescue the gigantic subprime enablers while letting borrowers and mortgage companies go under.

Your collapse or mine wouldn't bother Fed chairman Ben Bernanke or the world's other central bankers. But if, say, a big German institution loaded to the eyeballs with subprime securities croaked, Bernanke and his fellow central bankers would care a lot.

Sure, we know that Ben and the boys will always bail out the biggies. And none of us - I think, anyway - wants the world's financial system to implode. But I'd feel a lot better if the Street had to pay a serious price to its rescuers--say, having to fork over a big equity stake and pay a loan-shark interest rate. That way taxpayers, who are picking up the tab for the rescue, would get paid big-time for taking on big-time risk.

After all, that's the Wall Street way.

Yes, we are becoming a monetarily medicinal society. 


Individuals take CNS (central nervous system) depressants so they do not have to experience fear, sorrow and the futility of living without commitment to right livelihood. CNS drugs act to mask feelings and also to prevent invoking pro-active solutions.


Collectively, we are becoming risk-averse and unwilling to experience the natural and healthy fear that associates with the process of correcting market excesses and disgust that associates with poor management.


The drug (short-term liquidity, by injection) acts to medicate feelings of fear and disgust and it also inhibits invoking pro-active solutions.


It appears to be addictive and dissipative.  This dissipation may appear as inflation.


Under Fred is ultimately far stronger than Uncle Fed.  Thus, we might expect the debt / inflation wishbone situation to continue widening until enough people finally experience fear and disgust.






The positive intention

is risk control.




The Wish Drug


With a debt crunch on one side

and inflation on the other,

we may very well get both

until enough people

 are willing to experience

feelings of fear and disgust.









Fri, 17 Aug 2007


Workshop Enrollment

Hi Mr. Seykota:

Thank you for the opportunity to attend workshop. I feel great about this and keep learning. I just wanted to let you know I send in check today via regular mail. I wrote the check in the amount consistent with Early Bird Special. I look forward for the Workshop.

Very Sincerely,

OK. I am now confirming the Workshop and increasing the price.

Fri, 17 Aug 2007


An Old Familiar Feeling

Hi Ed-

I meet you at the Reno workshop in fall 2004. I am experiencing anxiety and trepidation about starting to trade the mechanical trend following system that I have been developing for the 9 months preceding. You show me how to get into my feelings and with measured confidence I begin trading my system in beginning of 2005.

I have excellent trading results- in 2005 I weather 8.5 months of equity up / equity down until finally I am rewarded for sticking to my system by achieving a return of over 50% for the year. In 2006, while my profits are more evenly distributed, again I gain over 50% for the year.

In 2007, I am experiencing the same sort of equity up/equity down that I remember from 2005. In July, my equity finally starts to rise giving me the satisfied feeling that I remember- something that I tend to associate with being rewarded for my patience. My trading program reaches a new equity high in the middle of July. I feel validated.

My equity starts to decline. It is not the good feeling of equity going up, but I trade a volatile system and my conscious mind tells me that patience should be rewarded. I stick with my system and give back all of my profits for July and even end the month down slightly.

In August my decline continues. I am cutting positions as my system dictates, but the results are not good. Many markets are trading through my stops, so my losses end up being more than I account for on an individual basis. I am not overly concerned as I think I am diversified enough that these positions will not have a big impact in the aggregate.


My drawdown gets worse and begins to accelerate. On the day that I end up cutting virtually all of my positions (of which there are few left), I have my worst trading day since I started in 2005. Roughly one month after hitting a new equity high, my program is in its worst drawdown since inception (by a factor of 2), and one that exceeds the worst case in my back testing by an appreciable amount. I am totally demoralized. The work that I have been doing for 3.5 years to develop a livable, marketable program and establish a track record seems to have come undone in a matter of weeks.

What else I achieve in 2007 is the near destruction of my marriage. I unilaterally throw a bomb on my marriage in May. I betray my spouse in an absolutely awful manner, and am careless about assuring that she is not hurt by it.


My actions are really despicable. I understand now that my behavior is a means of forcing me to experience feelings in my marriage and with my spouse that I did not want to experience. I now work toward rebuilding my marriage much as I concentrate on rebuilding my equity.

An old familiar feeling returns -- a churning in my abdomen that I associate with being guilty, or feeling like I am in trouble (goes back to childhood).


I try to get into the feeling in our last tribe meeting, but I must fall short because it is here with a vengeance.


This feeling tends to come in periods of desperation, when I am forced to get on track. I don't like the feeling -- but I now recognize its positive intention. I would like it better if my emotional stops were tighter, so that I would not feel so desperate (read regretting the past and worrying about the future) when my stops are hit.


I currently have a very loose stop on myself, allowing for very volatile swings in my behavior. I am afraid that tightening these stops might protect my downside, but will also limit my upside, as often happens in markets. I realize that I have to reassess my commitments, and commit to not allowing things to reach the desperation stage. I commit to taking myself to task.

Thank you for sharing your process.





can entrain drama

that stands between you

and prosperity



Clip: http://www.amren.com/931issue/guilt.gif  




Date: Fri, 17 Aug 2007

Thank You from AAFT

Austin Association of Financial Traders

AAFT's sends thanx to Ed.

Members are still buzzing about his presentation!

Warmest regards,


During the evening of August 14, 2007, In Austin TX, recall asking your participants (about 90 traders) how many are long the Wheat - as it is arguably the strongest futures chart.

I get a show of zero hands.

I wonder if you might consider surveying your membership to find out if anyone is long since then, how they are doing with it and what strategy they are following.




December Chicago Wheat


Red Circle Indicates

Date of Survey