At Ed Seykota’s forum he was recently asked:

I’ve written my own function to flag limit up/downs. When I finish, I start thinking – what is the right thing to do once I am in a limit up position trying to buy? OK, under the trend-following principle, my only concern is to follow the trend, and so I just keep updating buy orders until I get filled. After one day of limit up, no problem. Two days, no problem. Three days, I’m guessing there is small hesitation. What about a week? Can I comfortably buy after it has gone a week of limit-ups? What about two weeks? I see myself having doubts if I am in a situation to buy after days after days after days of limit ups. I feel like [I am] missing out on the trade. In those particular conditions, there is a huge selection bias that the very fact that I get filled likely means that the move is over (If I’m trying to hop on a runaway train, but it won’t let me get on in its initial burst and I’m trying to catch-up, then logically if I do catch it up it just indicates that it must have slowed down significantly). Can you please share some of your experience?

Seykota response:

Playing for comfort and searching for meanings are both counter-productive to trend following…Getting comfortable is one way to make sure you miss some good moves.

Of course Seykota, as he is famous for, mentions that this trader’s issue may be an entry point for joining a trading tribe.

What Seykota Is Really Saying

The trader’s question is sophisticated and the logic is internally consistent. If the market has been limit up for multiple consecutive days, and the trend follower finally gets filled, that fill occurring may indeed be evidence that the momentum has slowed enough for sellers to appear. The “runaway train” selection bias argument is not wrong on its face.

Seykota dismisses the entire analytical framework with a single observation: playing for comfort is counter-productive to trend following. The analysis the trader is performing is not really about the statistical properties of entries after multiple limit-up days. It is about finding a reason to feel comfortable before acting. The discomfort of buying after a week of limit-up moves is the emotional signal the trader is trying to resolve through analysis. But the analysis is not the issue. The discomfort is.

Every large trend starts as a smaller trend and every large trend eventually produces a period where continuing to follow it requires accepting increasing levels of discomfort. The entry that feels most comfortable is often the entry into a mature, widely-recognized move where most of the gain has already been captured. The entry that feels most uncomfortable, buying into a market that has been limit-up for seven consecutive days, is often the entry into a move that is still early relative to its eventual magnitude. Comfort-seeking systematically pushes entries toward the wrong side of this tradeoff.

“Searching for meanings” is the companion error. The trader wants to understand why the market is limit-up, what the limits mean about the move’s sustainability, and what the selection bias of getting filled implies about the move being over. All of this analysis is the search for a frame that will make the action feel justified and comfortable. Trend following requires acting on price signals without needing to understand the reasons for those signals. The meaning is in the price. The analysis of whether the meaning makes sense is the obstacle.

Seykota’s reference to the Trading Tribe is his standard prescription for this class of problem. The intellectual analysis is a proxy for the emotional discomfort. The way to address that discomfort is not to resolve the analysis but to examine the underlying emotional pattern that the analysis is serving. That is the work the Trading Tribe process is designed to do.

Frequently Asked Questions

What is a limit-up market and why does it create hesitation?

A limit-up market is one that has risen by the maximum permitted daily amount, halting trading above that price. When a market is limit-up for multiple consecutive days, the trend follower who is trying to enter cannot get filled at their entry price because buyers are overwhelming sellers and no trades are occurring at or below the entry level. The hesitation arises because each additional limit-up day adds to the psychological distance between the current price and the original entry signal, making the eventual entry feel increasingly expensive and risky.

Why does Seykota say getting comfortable is a way to miss good moves?

Because the moves that produce the largest returns are the ones that feel most uncomfortable to enter. A market that has been trending for weeks, or limit-up for multiple consecutive days, has already moved far enough to feel dangerous. The trader who requires comfort before acting will wait until the move has normalized, which by definition means the majority of the gain has already occurred. Systematic trend following requires acting on signals regardless of how comfortable or uncomfortable the entry feels.

What does “searching for meanings” mean in Seykota’s response?

It means constructing analytical frameworks that justify not acting. The trader who asks what a week of limit-up days implies about the move’s sustainability is not performing necessary analysis. They are searching for a reason that will make the discomfort of the entry feel intellectually resolved. Trend following acts on price signals without requiring an understanding of the reasons behind them. The search for reasons is the search for permission to feel comfortable, which is the obstacle Seykota is identifying.

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