Frequently Asked Questions

Yes, these are not airy fairy, they are the best trend/swing following tools we have seen. What Erikson is showing in his sample trades is what these tools do on every swing. Those are the real tools he’s showing there too. These are the most powerful, beautiful and effective lines I have ever seen. The way the tools project the slope of each trend is a simply amazing, a truly brilliant insight! You will be amazed to see how this tool projects the slope of the next trend BEFORE it happened and defines the channel that the market moves through almost every time! It's a beautiful thing! We believe Erikson has found and explained the influence that is behind and controlling all market trends! It’s pure genius, and the advantage it provides in trading gives a significant edge over those who are not privy to this knowledge.

Yes, this is true! Trading with Selene’s Chariot a smooth, clean read that is not overly technical, is well-illustrated with charts at every step, and is a thoroughly enjoyable text. One of our customers who has struggled with the technical difficulty of some past texts commented about Selene’s Chariot, “I'm loving his writing style! He's the most laid back writer you've had yet…” The author has a good sense of humor and lots of trading experience which combine into an engaging discussion and analysis of the tools and their application to the markets.

I do discuss risk, and it is always defined with these methods. There's a whole chapter on how to approach risk/reward from a different perspective than what most traders are probably used to.

[Sean Erikson] Ok, on the accuracy question… I don’t mean this personally, but I can always tell how good a trader is by how this question is asked. Beginner traders tend to believe that accuracy stands alone and is the be-all and end-all statistic that defines any trading method. Professional traders tend to place less emphasis on accuracy, and much more emphasis on risk management. In fact, the point at which that happens is often highly correlated with the point at which a trader passes into overall profitability. Institutional traders don't give two shits about accuracy and focus much more on the shape of the equity curve and various risk metrics associated with it.

Here's a simple example. Let's say we're coming up to a resistance level, and we short it. What do we do with our stop? We can either have a very tight stop, or we can have a very loose one. The tight stop is going to get hit more often and reduce our accuracy. On the other hand, our average losses will be smaller. The large stop will get hit less frequently, so we will take more winners, but when it does get hit, it will hurt. The larger the stop is, the more it will hurt, but the less often it will happen. All of this is common sense, right? There's no magic to it.

So, regarding accuracy, it's related to how much risk you're willing to accept and the win/loss ratio you are seeking. In my early days, before I knew what I was doing, I focused completely on high accuracy. To make this happen, I took quick profits, and had huge stops. When I traded Bond futures, my accuracy was over 90%. I didn't take a single loss for a period of around 14 months. But then, I did take a loss, and that one loss erased the profits of the last ten trades. Then, on the very next trade, I took a second loss, which is when I stopped trading Bonds. That's the price you pay for accuracy. There's no way around this, it works like math. It also means you can tune the accuracy numbers with different risk management strategies, which isn't something most people tend to realize.

Coming back to your comment about drawdowns, you've got it backwards. The worst drawdowns will happen with the high accuracy methods, not the low ones. You think Gann was immune to this, with his high accuracy? Nobody talks about his losses for some reason, or the times he blew out his account. Gann educators tend to gloss over those points, but they are there. How many times did Jesse Livermore blow up? Or modern greats? LTCM (Long Term Capital Management) is the perfect example. Those guys solved the markets, up until the point when they hadn't, and then they went completely under. It's like doubling your bet in a casino with a martingale approach or scale trading. You will have 100% accuracy for as long as it takes until you lose everything.

Anyway, if you are trying to target the "ideal" trading system, I would recommend revising the holy grail to be this: 50% accuracy, with at least a 2:1 risk/loss ratio. Surprise! Not as sexy as what the Gann educators like to push, is it? But you'll make more money than any of them if you adopt that approach. Drawdowns will happen, but they'll be easy to climb out of, and your chance of having a heart attack after a loss will decrease dramatically.

Now that I've said all that, I'll answer your accuracy question! As I said, in the past, when I was young and stupid, I got 90% accuracy. Nowadays I get in the neighborhood of 50-60% if I'm day-trading, and probably 60-70% otherwise. Hope that helps…

[Sean Erikson] I like it when people ask about things like risk multiples and stops! Usually it's the accuracy question. :-)

This course is not presented as a mechanical system, with hard rules to follow. It's more about placing the channels/tubes, and solving for the flow. Having said that, I've done my best to include specific trading rules according to how I think this should be traded, and there are many trading examples in the book with explicit entry/stop/exit rules. A lot of that is based on certain features of the approach which I'm not totally comfortable posting publicly, but in general, wins are always a lot larger than losses, which in my mind is key to being able to keep your sanity while trading intraday. Makes it very easy to climb out of holes, and lends itself to a great upward-sloping equity curve. I'll give you a trading example from yesterday, with rules taken straight out of the book:

On the following chart, I've removed of all the analysis and just left in the trading part. I've color-coded this to try and make it easier to follow.

1) We open, drop a little, then find our first setup. Had we been trading a 24-hour chart, we'd probably already be doing something here, but plenty of traders (including myself) like to just focus on the day session. Anyway, there was a downward channel that we would have been following, and the market broke to the upside at the first blue arrow against the light blue lines. I marked the place where you'd definitely want to have been long. There's a stop that goes with that entry (always!) and we would have been stopped in the next 10-15 minutes, which is how losses usually happen. Stops are always pre-defined, and usually amount to about one bar's width. The ES has been volatile, so yesterday that was 4.5 points.

2) The stop happened as we broke out of a very short tube, and (based on some other stuff) if we were on our toes, we'd have been looking for this possibility. We could have stopped and reversed, or stopped, then reversed at the close. That second method is more conservative, and gives a worse entry, so let's do that with this example. I didn't mark it on the chart, but the stop-loss here is one tick above that bar that triggered the entry, so another 4 or 5 points, depending on where you got in.

3) The market moves along, and we start hitting our targets. These were calculated ahead of time, back before we entered, so we knew what our risk:reward would have been. You always get multiple targets, but you don't always hit them, so what I do is take off a little at a time. Usually in thirds, first at target 1, next at target 2, and let the rest run the entire length of the tube for the "home run" style trades. If you have a smaller account and are trading one-lots, then you're a little stuck and have to figure out where to get out. The first target is the yellow line at +9.25, which is at 2:1, the next target is in that rectangle at the low. If you take the middle of it, that gives you +20, or 4:1, and the final trend ended when we broke that downward sloping yellow line for +14.25, or 3:1. So, on average, you took both a loss and a win on this day, and the win was around 3x larger than the loss.

Hope that helps. I like big volatile days, and the most boring tend to be the flat days. Those flat days tend not to necessarily be losers though, but more like getting long and sitting there as the market squeaks out +2 points or something. With this approach, you're always trading with the trend, and so things tend to work out in your favor assuming you are keeping on top of things and going with the flow like you're supposed to.