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RealTraders:
Recently, members of RealTraders conducted an email interview with Eddie
Toppel, author of Zen in the Markets, Confessions of a Samurai Trader. The
text of the interview is reprinted below. In a day or two, we will get Mr.
Toppel to come on RealTraders and respond directly to any follow-up
questions you may have. We will announce when that occurs.
Before you read the interview, let me give you some of my own impressions
of Mr. Toppel's book. I've read a lot of books on Trading Psychology. These
include Trader's I.Q. by Bernstein, Trading Rules by Eng, Trading for a
Living by Elder, The Psychology of Trading by Pring, and the Disciplined
Trader by Douglas. In addition many books I've read about trading include
sections about trading psychology. So I have some familiar on this topic
from books, as well as that which has been gleaned from the battles I've
waged in my own trading.
Generally, speaking--all these books say the same things and I think most
people on this list would be familiar with the much repeated principles of
trading psychology, so I won't repeat them here. But there is tremendous
value, however, in reading these books because each author gives added
insight to things you already know, but from his own personal experience as
a trade.
Toppel's book is no different and I would recommend it, whether you're down
in the dumps and need some mentoring or are doing fairly well and need a
booster shot. Toppel, like all the above authors, has his own personal
bias. Speaking from that point of view, we can learn and adapt some
elements of his approach to our trading. Namely, his focus is on "going
with the flow" of the market rather than placing emphasis on trying to
predict things. While my philosophy is different in that I believe it is
possible evaluate future probabilities and stack the odds more in your
favor through predictive technologies, I know I can also integrate some of
Toppel's concepts into my trading. Concentration on present market
conditions and blanking your mind to outside distractions, effectively
attaining a Zen-like state, enables you to changes that you could never
anticipate. Thus, you can respond intelligently rather than stand there
frozen and incapcited.
You will find that Toppel, in the context of Zen, covers much of the same
ground as the other guys, i.e. follow the trend, keep your bet size small,
let profits run, cut profits short, etc. but his style is personable and,
most important, he relates it to his own experiences as a trader, rather
than as a spectator. To the extent this is the case, I think I came away
from the book learning things I thought I knew, but which I didn't actually
put in action. I may not agree with everything Toppel says, or at least not
in the extreme, but, in keeping with the RT philosophy, I acknowledge that
we can all learn from each other.
More information about Toppel's work can be viewed at
http://www.Samuraitrader.com.
>-----Original Message-----
>From: Eddie@xxxxxxxxxxxxxxxxx [SMTP:Eddie@xxxxxxxxxxxxxxxxx]
>Sent: Tuesday, November 18, 1997 9:26 AM
>To: SAmurai@xxxxxxxxxxxxxxx
>Subject:
>
>Eddie,
>
>Here we go.
>
>EddieFrom: ALTAF JUMMA <ASHLEYJUM@xxxxxxxxxxxxxxxx>
>To: "samurai@xxxxxxxxxxxxxxx" <samurai@xxxxxxxxxxxxxxx>
>Subject: Is buying calls and puts a losing proposition?
>Date: Tue, 25 Nov 1997 16:55:36 -0800
>MIME-Version: 1.0
>Content-Type: text/plain; charset="us-ascii"
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>
>Dear Sir,
>Buying calls and puts is thought to be a losing proposition while writing
>options or doing spread is touted as a way to go to make money because of
>time decay.
>I am doing fairly well in the futures market in calling the direction. I
>want to buy straight put and call when they are undervalued and cheap as a
>directional and volatility play. I would trade them selectively a few
times
>per year per commodity when chart patterns and low volatility come
>together.I would get rid of losing options within 2 to 4 weeks. Is this a
>losing proposition?
>I want to use options to improve returns, for leverage. I also want to do
>options on stocks.
>Are their techniques to make buying options a winning proposition?
>Thanking you,
>Ashif
A. The trouble I have with doing covered writes (own the stock, sell a
call) is that you have lost opportunity. If the stock stands still, you
make out. However, if it takes off, you kick yourself for having given
someone a cheap play while you hold the bag. Personally, I like to buy
options close to expiration time when there is little premium and a lot
more leverage.
In my book, Zen in the Markets: Confessions of A Samurai
Trader I talk about people who wrote options and
the pitfalls and opportunities lost.
By the way, nothing is undervalued or overvalued. The MARKET knows.
Good luck and good trading.
Eddie
>
>From: Donald Thompson <detomps@xxxxxxxxxxxxx>
>To: "samurai@xxxxxxxxxxxxxxx" <samurai@xxxxxxxxxxxxxxx>
>Subject: Pivots
>Date: Wed, 26 Nov 1997 09:42:08 -0800
>MIME-Version: 1.0
>Content-Type: text/plain; charset="us-ascii"
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>
>Ed,
>
>Some recent prattle in RT about the Pivot formula.
>
>My question. Deep in the heart of hearts of trading in the pit what
>stands out to keep a trader on his/her target staying alive and keeping
>capitalized and makin money? Does the Pivot formula offer such a person
>a guideline in making buy and sells?
>
>When you were Mkt Making in IBM options. How did you interpolate the
>VIX into your calculations to arrive a value upon which to sell call
>and puts to the public?
>
>Thanks
Don,
A. Everybody has a different game plan. Some traders use pivot points, a
lot do not. If everybody used the same approach, nothing would happen.
When I was a market maker in IBM, we used the Black-Shales models for
pricing. I usually went by the seat of my pants which I explain in my book,
Zen in the Markets:Confessions of a Samurai
Trader<http://www.Samuraitrader.com>.
Good luck and good trading.
Eddie
>
>DonFrom: Tom Stein <comfut@xxxxxxxxxxxxx>
>To: "samurai@xxxxxxxxxxxxxxx" <samurai@xxxxxxxxxxxxxxx>
>Subject: Re:Interview with Ed
>Date: Tue, 25 Nov 1997 15:45:36 -0800
>MIME-Version: 1.0
>Content-Type: text/plain; charset="us-ascii"
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>
>Ed....getting into a trade seems to be the easiest part of the
>equation....getting out is the tough part.........
>
>Please, comment on exiting a trade.....using targets , raising your stop
>until the market takes you out or just exiting when the behavior of the
>market makes you "uncomfortable" with your position.
>
>Thankyou...Tom Stein comfut@xxxxxxx
Tom,
A, You are 100% on the money. The hardest part is exiting a winning trade.
Usually, no matter what you do, it is wrong. You should have held on
because it went higher, a lot higher. You didn't get out soon enough and
now it has become a loser etc. Personaly, I do not like to set targets but
prefer to use a trailing stop. The reason I do not like targets is that
you are limiting what could be a big profitable trade. Why get out if it
is going out if it is going your way?
In my book, Zen i the Markets:Confessions of a
SamuraiTrader<http:www.SamuraiTrader.com>, I discuss techniques for
maximizing a trade. There is no real set formula. I conduct these
seminars and I asked this question. "We know when to exit a losing trade.
When do you get out of a winner? The best answer that I heard was "When
you are satisfied!" This is a business where you are never satisfied. You
either lost too much money or you didn't make enough.
Good black and good trading.
Eddie
>
>
>
>From: Tyson Wolbaum <Wolbaum@xxxxxxxxxxxxx>
>To: "eddiekwong@xxxxxxxxxxxxxxx" <eddiekwong@xxxxxxxxxxxxxxx>
>Subject: Question for a Samurai.
>Date: Thu, 27 Nov 1997 14:09:20 -0800
>MIME-Version: 1.0
>Content-Type: text/plain; charset="us-ascii"
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>
>Hello Ed,
>
> Below are some of the questions for Mr. Topple. By the way, GREAT idea
>having guest teachers. (I'm new to RT.). Thanks again.
>
>1. Was there a definitive moment in your career where the clouds parted,
>and you saw the light? If so, what prompted it?
A. Yes. One day while I was a market maker in IBM options at the CBOE, I
traded so rapidly that I lost all sense of self-awareness and let the
market guide me. I had one of the best days ever and I had no sense of
conscious input. IT reminded me of the Zen that I had heard about it a
philosophy class while in college. It began my quest and eventually the
foundation for my book, Zen in the Markets; Confessions of a Samurai
Trader<http://www.Samuraitrader.com>.
>
>2. Do you have a mind set when you enter a trade?
A. Yes, I am tonally in the now. I liken trading to surfing. You just hop
on the trade and get off when the wave breaks. My motto and the motto of
my company is "Expect Nothing. Berg prepared fpr everything,"
>
>3. What are the main ingredients to make a successful trader? How can
>those skills be learned?
A. Great question. Pardon the plug but I answer this exact question in my
book.Quickly, you must take losses quickly. Number One!! Essential for
survivial. Second. Never have an opinion. Opinions are what lock you into
losing trades. Trading is a game of doing and you learn by actually
trading and see how you react to various events. You'll get to learn a lot
about yourself. sometimes you might not like what you learn!
>
>4. What are the shortfalls which haunt unsuccessful traders? How can
they
>correct them?
A. The main shortfall is believing that you can predict the market,
Accept the fact that it can't be done but you can make money by just going
with the flow and you are ahead of the game. This is the sown fall of most
beginners and some very experienced traders as well. I have seen guys who
have traded successfully for years go bust because they got themselves
locked into a positions and refused to bite the bullet. The battle with
your ego never ends. That's where the real game lies.
>
>5. Many traders claim to have an unconscience subconscience (the inner
>self tells them what to do without them even knowing it). Does this
exist?
> If so, how is it attained?
A. I know what they mean. They feel the markets. I like to use a
combination of both feeling and seeing. I lean more to seeing than feeling
as sometimes our feelings do not workout. I talk about this in my book as
well.
>
>6. Could you please name the largest contributors to your success be it
>books, people, education, experience, etc. and why they such an impact on
>you.
A. The largest contributor to my success was failure initially. I had to
take a close look at what I was doing wrong and realized that I wasn't
smart enough to predict markets and neither could anyone else. Success
doesn't come overnight and you have to be ready for it as well. I also
discuss this in my book, thus the subtitle Confessions of a SamuaiTrader.
>
>Thanks for your time,
>
>May success in trading and life be yours,
>
>Tyson
>From: TL <Timothy.H.Lee-1@xxxxxxxxxx>
>To: "samurai@xxxxxxxxxxxxxxx" <samurai@xxxxxxxxxxxxxxx>
>Subject: Questions for Edward Toppel
>Date: Thu, 9 Oct 1997 18:17:59 -0800
>MIME-Version: 1.0
>Content-Type: text/plain; charset="us-ascii"
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>
>Hi thanks for taking the time to do the interview.
>
>Questions:
>
>1. What is your current opinion on the neural linguistic programming
>approach for improving mental trading behavior as promoted by various
>authors e.g. Van Tharp?
A. In my book, Zen in the Markets:Confessions of a
SamuraiTrader, I outline some of the techniques
that I use to improve trading performance. No one technique is going to do
it all for you. Each one helps you along the path,
>2. Are you aware of any trading systems that work?
A. Some work for a while but none works all of the time. Taking losses
quickly and letting your winners run works all of the time but it takes
time to master this.
>
>3. What markets do you trade, and what techniques do you use?
A. I trade only the S&P's at the CME and I just follow the price direction
and try to hop in and switch around when the market tell me too. I talk
about when to switch in my book and how difficult it is to set parameters.
Eveyone is unique.
>
>
>Again thanks very much for sharing with us,
Good luck and good trading.
Eddie
>TLFrom: RON JONES <ronjones@xxxxxxxxxxx>
>To: "samurai@xxxxxxxxxxxxxxx" <samurai@xxxxxxxxxxxxxxx>
>Subject: Questions
>Date: Mon, 24 Nov 1997 13:37:53 -0800
>MIME-Version: 1.0
>Content-Type: text/plain; charset="us-ascii"
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>
>
>Mr. Toppel...
>
>My trading partnerand I opened an account with a well known
>brokerage account to trade the S & P futures contract.
>
>We began trading after paper trading on 10/1/97. We paper
>traded very profitably for the four months immediately prior to
>the account opening. In addition, several years ago I had been
>an account rep for an IB.
>
>We assumed that we'd done sufficient due diligence. We chose
>the brokerage house because they claimed to cater to new traders.
>We also went with FutureSource as our data link.
>
>We opened the account with $50,000 and had increased it to
>$62,000 after about ten days trading, then things started to go
>wrong. I couldn't match the trades up to my internal records
>and I was ending up with open positions that I knew I had not
>placed orders for! We were day trading and could place orders
>for one contract with $4,000 margin. Our typical order size was
>4 contracts.
>
>I got a phone call @ 4:00am one morning. The trading desk supervisor
>was on the liine with a margin call for $80,000. As I knew that we had
>no open orders at the previous day's end I was SHOCKED, however
>by the time I got fully awake I was able to exit the mystery trade with
>a $14,000 profit.
>
>As it turns out, the trades I could not track were the result of closing
>out my profitable trades without properly canceling out my protective
>stop orders.
>
>While this debacle, which continued over about a two week period was
>a MAJOR contributor to the loss of about $40,000 of our trade equity
>we realize that the ultimate responsibility is ours. However, we know that
>our trades were not consistently processed. Sometimes the person at
>the desk would save us from making the obvious mistake due to our
>lack of experience and SOMETIMES they did not.
>
>As I want to trade these markets for the rest of my life, I've got to
learn
>to do so profitably. It's imperative that we find out if it's a level
>playing
>field, or can we expect to find variations of our poor treatment wherever
>we go?
>
>Only an expienced floor trader, such as yourself can answer that one...
>
>Thanks in advance for any help that you can give us,
>
>Ron Jones
>101 Temelec Cir
>Sonoma, CA 95476
>
>Voice (707)933.9990
>FAX 933-9993
>
>e-mail ronjones@xxx grid.net
A. Sorry about your bad experience. Errors are made and if you do not
agree with the clerk, make damned sure that they know it and that you both
agree. It's your money and they have it. Getting it back can be a long
process in disputes. Most firms are extremely reliable but errors do
occur.
>
>From: George M Burke <c355@xxxxxxxx>
>To: "samurai@xxxxxxxxxxxxxxx" <samurai@xxxxxxxxxxxxxxx>
>Subject: cme-S&P
>Date: Wed, 26 Nov 1997 20:45:50 -0800
>MIME-Version: 1.0
>Content-Type: text/plain; charset="us-ascii"
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>
>Is it true that the CME is beginning to panic because they are losing the
>S&P market as a result of the floor traders unwillingness to provide a
>liquid market. That whenever the floor traders are needed to help
>stabalize the market they either leave the pit or accentuate the
>volatility. They appear to have attempted to keep the market by the
>mini-S&P (which I guess is a dismal failure), and splitting the S&P,
>which has really done nothing to help. Because of this problem, the CBOT
>is attempting to take the entire markett away with the DJI. Any
>comment?
>From: ALTAF JUMMA <ASHLEYJUM@xxxxxxxxxxxxxxxx>
>To: "samurai@xxxxxxxxxxxxxxx" <samurai@xxxxxxxxxxxxxxx>
>Subject: Good Option software and data?
>Date: Tue, 25 Nov 1997 17:36:15 -0800
>MIME-Version: 1.0
>Content-Type: text/plain; charset="us-ascii"
>Content-Transfer-Encoding: 7bit
A. The S&P's are a very liquid contract right now. Traders love
volatility. They live for this and I never have seen anybody leave the pit
because of the volatility. TheDow contract at the board is struggling.
Just look at the volume.
I talk about this subject in my book, Zen in the Markets;Confessions of a
SamuraiTrader.
>Dear Sir,
>What Option software and source of data do you use and recommend?
>I am looking for a software that does candlestick charting for option and
>underlying future/stock on same chart for daily/weekly/monthly with
moving
>average/bollinger bands/put-call indicator besides ranking option by
volume,
>valuation.etc. Is it too much to ask ?
>Thanking you,
>Ashif From: "sheley@xxxxxxxxxxxxxxx"
<sheley@xxxxxxxxxxxxxxx>
>To: "samurai@xxxxxxxxxxxxxxx" <samurai@xxxxxxxxxxxxxxx>
>Subject: realtraders interview
>Date: Wed, 26 Nov 1997 20:30:24 -0800
>MIME-Version: 1.0
>Content-Type: text/plain; charset="us-ascii"
>Content-Transfer-Encoding: 7bit
A. I use DBC's Signal and do not look at any of the "crap" that you just
mentioned. Read my book, Zen in the Markets;Confessions of a
SamuraiTrader for a full discussions of using
indicators and what effect they have on your profitability.
>
>Hi Ed,
>
> I would like to know what techniques you use
>for your trade exit strategy.
>
> Looking forward to the interview.
>
>Thanks
>Connie Sheley
A. Trailing stops and at the market both for entering and exiting. Read my
book and you'll get a better understanding of why every trader had problems
with this question.
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