Those familiar with Ed’s Whipsaw trading song will not be surprised to find him back playing music a few months ago. Here is the legendary trader Ed Seykota playing music recently with his son. If you are not familiar with this Market Wizard check him out here: Wikipedia.
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rssYou are not your Trade
Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible. -Ed Seykota
Traders can make psychological mistakes when trading that can end a trading career very fast. Here are a few examples:
- They take on more risk than they can deal with, stress takes over and they start making bad decisions.
- They become married to a trade, they become stubborn and ignore their stop losses, wanting to be “right” they wait while losses mount.
- Their egos take over their trading. They are more concerned about proving how smart or clever they are than making money. They begin to be more concerned with bragging about their winners than managing their losing trades. It becomes an ego trip that will not end well.
- Their system does not match them, someone who likes fast paced action should not be a long term growth investor and someone who loves investing in growth stocks they believe in should not day trade.
- A trader loses many times in a row so they change systems right before the big pay off. If you have a proven system trade it for the long term benefits.
Here are some solutions: (more…)
Top Trend Traders Bank Millions, Ride The Trend
Famed Stanford University psychologist Leon Festinger once said, “A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point.”
Although trend following has been one of the most successful trading strategies for decades, some critics downplay the massive profits accumulated by trend followers, arguing there are just a few chance winners — “lucky monkeys,” they claim.
BEAT THE AVERAGES
Not true. Large numbers of trend followers have found a way to outpace market averages. They have done so with hard work and the ability to stick with a trading plan — usually for a very long time. Some argue, “There’s no romance in trend following.” The romance is found in returns. Money is the ultimate aphrodisiac.
PROFITS COUNT
Think of it this way: Performance data examples from the great trend followers could be the foundation of every college finance class. When you show up on the first day, instead of your teacher handing you a syllabus and telling you to buy certain books, you are handed one piece of paper that simply shows the performance histories of professional trend following traders for the last 50 years. (more…)
Hope Quotes for Traders
“The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear… The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit.”
– Reminiscences of a Stock Operator
“Hope is not a strategy.”
– Rigo Durazo
“There is no worse course in leadership than to hold out false hopes soon to be swept away.”
– Winston Churchill
“It is not enough to rely on luck or hope to carry us past the weak parts of our game. These parts must be attended to. The system must be whole and complete.”
– Zen and the Art of Poker (more…)
Chess Lesson That Can Really Help Profits
There are useful parallels between chess and trading. In the below quotation there is actually more than one lesson for those willing to consider it.
Pal Benko, a chess grandmaster said:
“Patience is the most valuable trait of the endgame player. In the endgame, the most common errors, besides those resulting from ignorance of theory, are caused by either impatience, complacency, exhaustion, or all of the above.”
1) Ignorance of theory
2) Impatience / Patience
3) Complacency
4) Exhaustion
See this 1 chess lesson morphed into 4 lessons:
Let me have a little go at highlighting some things that we can perhaps learn from this chess quote that apply to trading. (I’d love it if you told me yours in the comment section below. Go on, be brave and join in – dialogue is good :-))
1) Ignorance of Theory
Ed Seykota has been recorded as saying something like: until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarket.
Naturally with trading, getting comfortable with the basics is an important step. Make sure, however, not to end up one of those paralysed and stuck in student mode. At some point you have to be willing to move from student to trader. One of the useful ways of ‘spending time with traders’ if you are not employed in a trading firm is to utilise things like Stocktwits, trading groups, forums etc. (more…)
THE NEED FOR INDEPENDENCE
You need to do your own thinking. Don’t get caught up in mass hyste-ria. As Ed Seykota pointed out, by the time a story is making the cover of the national periodicals, the trend is probably near an end. Independence also means making your own trading decisions. Never listen to other opinions. Even if it occasionally helps on a trade or two, listening to others invariably seems to end up costing you money-not to mention confusing your own market view. As Michael Marcus stated in Market Wizards, “You need to follow your own light. If you combine two traders, you will get the worst of each.”
A related personal anecdote concerns another trader I interviewed in Market Wizards. Although he could trade better than I if he were blindfolded and placed in a trunk at the bottom of a pool, he still was interested in my view of the markets. One day he called and asked, “What do you think of the yen?” The yen was one of the few markets about which I had a strong opinion at the time. It had formed a particular chart pattern that made me very bearish. “I think the yen is going straight down, and I’m short,” I replied. (more…)
Discipline and Devotion
No issue so pervades the trading psychology literature as that of “discipline”. It is very common for traders to lay their plans and define their setups, only to find that their actions undermine their careful preparation.
A good deal of the advice dispensed by trading coaches and psychologists addresses this discipline problem.
But what if the lack of discipline is not a problem? What if we view departures from trading plans and intentions as *information*, not as weakness? As it turns out, those departures can be quite informative.
You see, we naturally gravitate toward the nexus of our values (interests), talents (native abilities), and skills (acquired competencies). On average, we tend to enjoy doing what we’re good at and we tend to build skills when there is a foundation of talents to support them. The artist who spends long hours at the canvas doesn’t have to draw upon “discipline” to sustain an interest in painting. The hard work is hard play: the discipline stems from a devotion to a craft–and to the ability of that craft to crystallize the artists’ interests, talents, and skills. (more…)
Ways to Increase Willpower For Traders
- Plan in advance and operate on the basis of habit
- You need to have a trading plan that covers all permutations that the market can possibly throw at you. You need less willpower to follow a clearly defined plan than to try adhering to broad principles in reaction to the market.
- Keep practicing applying your trading plan, so that you can make following the rules a habit. It is like driving, the more you do the less effort it requires progressively.
- Motivate yourself, remind yourself of the importance of what you are doing
- You need to remind yourself of the importance of achieving good trading results, of the importance of not throwing your hard-earned money away.
- Use visualization techniques to picture situations where you follow your trading plan successfully. Thinking that you have lots of willpower actually makes it so.
- Think of some trader you admire that have lots of self-control and unfazed by market movements (e.g. Ed Seykota)
- Exercise your willpower
- Willpower is like a muscle, the more you exert your willpower in whatever tasks, the greater your capacity for self-control.
- You can get yourself to follow rules such as sitting up straight, opening doors with your left hand, etc.
- Have sufficient food
- Exercising willpower uses up glucose. Being hungry means you don’t have the energy to exert willpower.
- Have sufficient rest
- You can replenish your ‘willpower’ stores through sleep. Get sufficient sleep every day.
Ed Seykota – “Everybody Gets What They Want From The Markets”
When Jack Schwagger interviewed legendary trend following trader Ed Seykota for his book “Market Wizards” in 1989, it’s clear he was not ready for the answers that Ed Seykota gave. Not many people are.
But by far the greatest and most provocative answer that Ed gave was that of “Everybody gets what they want out of the market”. Not only did it incite an almost angry response from Schwagger, it has confused and enlightened an entire generation of traders since.
The Famous Ed Seykota Interview
Jack Schwagger asks his interviewee: “Don’t all traders want to win?”
And Ed replies with: “Win or lose, everybody gets what they want out of the market.
“I know one trader who seems to get in near the start of every substantial bull move and works his $10 thousand up to about a quarter of a million in a couple of months. Then he changes his personality and loses it all back again. This process repeats like clockwork. Once I traded with him, but got out when his personality changed. I doubled my money, while he got wiped out as usual. I told him what I was doing, and even paid him a management fee. He just couldn’t help himself. I don’t think he can do it any differently. He wouldn’t want to.
- “He gets a lot of excitement, he gets to be a martyr, he gets sympathy from his friends, and he gets to be the centre of attention. Also, possibly, he may be more comfortable relating to people if he is on their financial plane.
“On some level, I think he is really getting what he wants.”
Does This Sound Like Someone You Know? Maybe Someone You Know… Intimately?
Even back then, Ed Seykota had a fantastic grasp on the dangerous psychology pitfalls that almost every trader has to work through before they become a success in the markets.
So you need to ask yourself: (more…)
Wisdom from Legendary Traders
“I absolutely believe that price movement patterns are being repeated; they are recurring patterns that appear over and over. This is because the stocks were being driven by humans- and human nature never changes”. -Richard Dennis (Turned 400 dollars into a fortune of at least 200 million dollars by using his remarkable trading skills). |