Ed Seykota has been a household name in my trading endeavors for a significant period.
I first discovered Ed Seykota as I was reading the first Market Wizard book written by Jack Schwager.
In case you are yet to read it, try and find a copy. I know you will love it.
Common names of great traders of our day include George Soros, Jesse Livermore, and Richard Dennis, among others.
Ed Seykota is not a very common name.
For those who know Ed Seykota, they normally talk of him as one of the greatest traders of all time.
This is something that I totally agree with.
Who Is Ed Seykota?
Ed Seykota is mainly not well known in mainstream trading circles because he does not chase fame.
He has no office and is also a one-man shop, who has no employees.
Ed Seykota carries out his trades from his home office located in Texas and only trades his own money together with some select clients.
Additionally, he has his own Trading Tribe, which he uses to mentor other traders and discuss varied trade-related content.
There is also an Ed Seykota website where traders are able to find links to each one of his books and the main Trading Tribe hub.
In order to give you some insight and some of the important guidance from Ed Seykota, I have decided to outline some of his great trading tips in this post.
Keep on reading, and you will learn from some of the wisdom of a trader who has managed to rise to the top of the trading world.
Ed Seykota Trading Rules/Tips
On Technical Analysis
In order of importance, here are:
- The long-term trend.
- The current chart pattern.
- Picking a good spot to sell or buy.
These are the three top components of good trading, according to Ed Seykota.
Filling in the fourth place are his fundamental ideas and putting these ideas on balance. At some point, they have cost him money.
As a result, it is advisable to set protective stops when you enter a trade.
Move these stops in order to lock in a profit as the trend goes on. In some instances, take profits if a market gets wild.
This will normally not lead to you being any better than if you waited for your stops to close in, but it helps to reduce the volatility of the portfolio.
This is something that will give you some peace of mind since it will calm your nerves.
I think this is among the reasons for favorable Ed Seykota performance over the years.
On Risk Management
Use less than 10% of your liquid net worth to speculate.
Go on to risk less than 1% of your speculative account on a trade.
This helps in keeping the fluctuations in the trading account small relative to net worth.
It is wise not to take advice from fellow traders, especially those that get into a trade with perceived “certainty” that their trade will be successful.
Those regarded as old-timers, who say that “there may be a chance of so and so” are normally correct and early in taking a position.
On Long Term Trading
When the term is shorter, the move is smaller. The possibility of profit, therefore, decreases with trading frequency.
Transaction costs however, do not change. To cover the profit roll-off, short-term traders should be good at guessing.
So as to boost your guessing skills, you can rehearse dealing cards from a standard deck, one after the other.
When you are good at it, you can make money with short-term trading.
The profitability of trading systems has been noted to move in cycles.
When trend-following systems are very successful, they increase in popularity.
While the number of system users rises and the markets move from trending to directionless price action, these systems end up unprofitable and undercapitalized leading to amateur traders being shaken out.
Longevity is very important for your success in trading.
On Systems Trading
Ed Seykota asserts that the greatest motivation for traders to be able to follow rules for a long time is when the rules are a reflection of their own trading style.
In the end, a trader reaches a breaking point and has to quit or change or get a new set of rules to follow.
This has been seen to be part of a trader’s evolution process and growth.
A computer is able to follow a system and place orders while not making predictions or anticipation.
Predictions and anticipations are objects that a trader creates. These objects could interfere with the ability of sticking to your trading system.
On Money Management
The manager has to decide the level of risk they are willing to accept, the markets to play, and how to actively increase and decrease the trading base as a function of equity change.
Such decisions are crucial and even more important than trade timing.
So as to have long-term survival and prosperity, the money management techniques incorporated into the technical system play a big role.
On the Mindset of a Winner
“Doing” in trading is quite simple as it only requires you to pick up your phone or PC and place orders.
However, the “being” part is somewhat more subtle. It can be compared to being an athlete. It is about commitment and mission.
For those who are committed, a world of support appears.
Different kind of unforeseen assistance is available to support and motivate the committed to achieve.
It is a good thing when we are given true burning desires.
Nature also gives us ways to satisfy these desires.
Those with the desire to win and do not have the skill can get someone with the skill to help them out.
On Following the News
The news is of great importance to many traders.
A lot of traders actually rely on press releases and big news events happening around the world to plan out their entire strategy.
This has an impact on judgment and allows emotions to come in, leading to irrational decisions, too much risking, and blowing of accounts.
Through following the news, it is not easy to have a specific system or trading plan, especially since every news event is set to be different.
After all, the news is usually old information.
On Sticking to Your System
Ed Seykota emphasizes on how you ought to stick to your trading system in order to actualize long-term success.
This rule is very important.
It is easily tempting to break the rules and change your system especially following continuous losing trades.
There is no trading plan that is set up to win each trade, therefore don’t give up when you seem to get no results.
Believe in your system.
Top Ed Seykota Quotes
- “It can be very expensive to try to convince the markets you are right.”
- “Fundamentalists figure things out and anticipate change. Trend followers join the trend of the moment. Fundamentalists try to solve their feelings. Trend followers join their feelings and observe them evolve and dis-solve.”
- “Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible”
- “Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal.”
- “A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.”
- “The elements of good trading are: 1, cutting losses. 2, cutting losses. And 3, cutting losses. If you can follow these three rules, you may have a chance.”
- “The trading rules I live by are: 1. Cut losses. 2. Ride winners. 3. Keep bets small. 4. Follow the rules without question. 5. Know when to break the rules.”
- “Risk no more that you can afford to lose, and also risk enough so that a win is meaningful.”
- “I intend to risk below 5 percent on a trade, allowing for poor executions.”
- “I usually ignore advice from other traders, especially the ones who believe they are on to a “sure thing”. The old timers, who talk about “maybe there is a chance of so and so,” are often right and early.”
- “The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system.”
- “The positive intention of fear is risk control.”
I hope you can digest this information to help improve your trading endeavors.
You can also check out Ed Seykota books to try and learn even more from this trader.