Ed Seykota Trading Strategy and Quotes: Wisdom of a Trend-Following Wizard

Anyone reasonably interested in trading and speculating has probably heard about Ed Seykota. He was first featured in Jack Schwager’s Market Wizards. It’s the most memorable interview in the whole series, in my opinion, not only because he’s very direct, but also because he is unique in his thinking and how he expresses the most important elements of trading.

Ed Seykota is famous for his trend-following strategies – he is regarded as the trend follower wizard and father of computerized trading. In this article, you get a brief story of his life and some of his most interesting quotes (taken from different sources). Unfortunately, Seykota has been quite secretive about his trading strategies, except that he is a trend follower.

I recently reread the interview in Market Wizards and Micheal Covel’s Trend Following. In the latter book, Covel has covered Seykota extensively and is mentioned throughout the whole book. Seykota might be a very good trader and investor, according to Covel he made 60% annually from 1990 to 2001, but Seykota has the knack of expressing the vital part of trading into very amusing metaphors. Moreover, Seykota is also multitalented -just look at some videos on YouTube where he is singing and playing the guitar.

Table of contents:

Who is Ed Seykota?

Ed Seykota. Source: Webpage of Micheal Covel.

Born on August 7 of 1946 in the Netherlands, Ed Seykota was the pioneer of the trading system (computerized trading) for the futures market in 1970. Most of the concepts he used in trading were taught to him by his father, a stock trader.

He graduated from MIT and MIT Sloan School of Management, where he earned S.B degrees in Electrical Engineering and Management, both in 1969. Seykota used early punched card computers to test his ideas of computerized trading in the market. He’s often regarded as the “father of commercial computerized trading.” He was one of the pioneers in mechanical trading and developed his trend-following systems in the 1970s:

He became interested in computerized trading systems after reading a letter by Richard Donchian on five- and 20-day moving average strategies and on utilizing mechanical trend following systems for trading. From then on Ed Seykota’s trading strategies have been all about trend-following. The Reminiscences of a Stock Operator by Edwin Lefèvre was another source of inspiration for him. Seykota developed his first trading system based on exponential moving averages. He would spend evenings at the local computer service trying to reproduce the results achieved by Richard Donchian. It would go on to become an exciting tool for technical analysis.

In 1970, He got a job at a brokerage firm; this marked the beginning of great history for him. Seykota honed his trading system over time, adopting a more flexible approach rather than the rigid system he started. He introduced more rules and criteria into the system in addition to money management algorithms and pattern triggers.

Though the brokerage firm adopted his research and built a model on it, he was in dispute with the top management. Therefore, at the age of 23, he left the brokerage firm. Seykota walked out with close to a dozen accounts ranging from $10 000 to $25 000. He converted $5000 into $15 million over twelve years in his account.

His genuine love for trading and his optimistic conduct sustained his success which continuously improved his trading style. However, he didn’t change his approach to indicators. Instead, he filters out the market noise.

In the famous book Market Wizards, Ed Seykota was interviewed, and this is what he had to say:

Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible.

In 1992, Seykota organized a group of traders to evaluate their emotions — to verify that traders often allow their emotions to interfere in their trading decisions. These started meeting regularly, and Seykota used data collected to develop methods to support personal development. And in the following years, this gathering expanded to include people from other professions with members.

As a trend trader, Seykota prefers technical analysis. He noted that he looks out for three fundamental components in his trading style: identifying the right time to buy and sell, long-term trends, and chart patterns which he says are the basis of analysis. He places his stop losses immediately after opening a position and takes profit if there was a downturn in the market.

Seykota resided in Incline Village, Nevada, on the north shore of Lake Tahoe, but recently moved to Texas. Apart from trading, Seykota was interested in science and mathematics.

Throughout his career, he has kept a low profile and only occasionally managed money for other people. He’s a proponent of process over outcome, as you’ll see from the quotes below. We are sure he likes Annie Duke’s Thinking In Bets.

Ed Seykota’s trading rules

Ed Seykota’s trading strategies use mechanical trading rules (backtest) with no human discretion whatsoever. He has labeled himself as a trend follower, but this is of course a very wide and vague description.

He started in the 1970s by using moving averages and we suspect he is still using them. However, we have not managed to find any meaningful resources as to what his main strategies are today.

Relevant helpful articles:

More Famous Traders And Investors

Here you can find a lot of articles with many more famous traders and investors.

Ed Seykota Quotes:

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If you can’t measure it, you probably can’t manage it… Things you measure tend to improve.

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I feel my success comes from my love of the markets. I’m not a casual trader. It’s my life. I have a passion for trading. It’s not merely a hobby or even a career choice for me. There is no question that this is what I am supposed to do with my life.

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In general, higher-frequency trading succumbs to declining profit potential against non-declining transaction costs.

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I’m a self-taught trader who is continually studying both myself and other traders.

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Gut feel is important. If ignored, it may come out in subtle ways by coloring your logic. It can be dealt with through meditation and reflection to determine what’s behind it. If it persists, then it might be a valuable subconscious analysis of some subtle information.

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The average trader should find a superior trader to do his trading for him, and then go find something he really loves to do.

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The markets are the same now as they were five to ten years ago because they keep changing – just like they did then.

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Our work is not so much to treat or to cure feelings, as to accept and celebrate them. This is a critical difference.

More Ed Seykota Quotes:

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About having a bigger account:

It becomes more difficult because it is harder to move large positions without moving the market. It becomes easier because you have more access to competent people to support you.

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I keep track of a lot of outside advisers, mostly by reading the business press or hearing from my brokers. The services usually break even, except when they start to gloat, then they are likely headed for trouble.

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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.

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I sometimes get most confident of my ability just before a major losing streak.

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The stock market behaves differently from all other markets and it also behaves differently from the stock market. If this si hard to understand, it is because trying to understand the markets is a bit futile….A lot of people would rather understand the market than make money.

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Great traders are ones who are absorbed by the talent. They don’t have the talent – the talent has them.

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I think most good traders have a little extra spark about trading.

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My personal life is integrated with my trading life.

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Having a quote machine is like having a slot machine on your desk – you end up feeding it all day long. I get my price data after the close each day.

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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.

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Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money. I think success has to do with finding and following one’s calling regardless of financial gain.

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Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible.

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I still go through periods of thinking I can outperform my own system, but such excursions are often self-correcting through the process of losing money.

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My biggest slip-ups occurred shortly after I got emotionally involved with positions.

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When you stop trying to please others and concentrate on pleasing yourself, you gradually become aware of what you are passionate about in life.

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The biggest secret about success is that there isn’t any big secret about it, or if there is, then it’s a secret from me, too. The idea of searching for some secret for trading success misses the point.

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To avoid whipsaw losses, stop trading.

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Here’s the essence of risk management: Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don’t play.

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Markets are fundamentally volatile. No way around it. Your problem is not in the math. There is no math to get you out of having to experience uncertainty.

—-More Ed Seykota Quotes:————–

It can be very expensive to try to convince the markets you are right.

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Life is too dynamic to remain static.

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Curiosity is the answer, not degrees.

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Losing a position is aggravating, whereas losing your nerve is devastating.

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The positive intention of fear is risk control.

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Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions.

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I don’t judge success, I celebrate it. I think success has to do with finding and following one’s calling regardless of financial gain.

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Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”. However, if you catch on early, before others believe, you might have valuable “surprise-a-mentals.

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Trading requires skill at reading the markets and at managing your own anxieties.

It’s pretty obvious that Ed Seykota’s trading strategies are all about trend following. If you want to read more about Ed Seykota quotes and Ed Seykota trading strategies you can do that on this link.

FAQ:

– What are Ed Seykota’s main contributions to trading?

Ed Seykota is credited with developing computerized trading systems and is a pioneer in mechanical trading. He is known for his trend-following approach and is recognized as a key figure in the evolution of automated trading strategies.

– What are Ed Seykota’s trading strategies?

Ed Seykota’s primary trading strategy is trend following. He developed his first trading system based on exponential moving averages in the 1970s. While he has been secretive about specific strategies, he emphasizes the importance of trend identification, long-term trends, and chart patterns in his trading style.

– What are Ed Seykota’s views on risk management?

Seykota emphasizes risk management, advising traders to risk no more than they can afford to lose. He suggests that a meaningful win should make the risk worthwhile, and he stresses the importance of avoiding whipsaw losses by ceasing trading when necessary.