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The Ten Best Things Ed Seykota Ever Said.

  
  Education
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Arguably one of the greatest traders of all time with his trend following system.

Charles Faulkner tells a story about Seykota’s finely honed intuition when it comes to trading: I am reminded of an experience that Ed Seykota shared with a group. He said that when he looks at a market, that everyone else thinks has exhausted its up trend, that is often when he likes to get in. When I asked him how he made this determination, he said he just puts the chart on the other side of the room and if it looked like it was going up, then he would buy it… Of course this trade was seen through the eyes of someone with deep insight into the market behavior

The Ten Best Things Ed Seykota Ever Said:

Psychology

“To avoid whipsaw losses, stop trading.”

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

“A fish at one with the water sees nothing between himself and his prey. A trader at one with his feelings feels nothing between himself and executing his method.”

Risk Management

“The elements of good trading are cutting losses, cutting losses, and cutting losses.”

“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.”

“In your recipe for success, don’t forget commitment – and a deep belief in the inevitability of your success.”

Trading System

“The trend is your friend except at the end when it bends.”

“If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it’s coming in, it’ll never happen. The market is always right.”

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

“I don’t predict a nonexisting future.”

Ed Seykota is a legend in the trend following community and has returns that would make Bernie Madoff  jealous, because his are real. If you can fully grasp what Ed is saying in these quotes it will improve your trading dramatically.

Books For Professional Traders

  
  Education
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Yes ,List from our Library 

Note that the literature listed below can easily be found in book stores or via the internet.

TRADING Psychology

The following books and articles target some of the core psychological obstacles that traders face every day and techniques to maximize their trading performance. This is an extremely important part of the reading list, in my opinion.

  • “The Mental Edge: Maximize Your Sports Potential with the Mind-Body Connection” – Kenneth Baum“How Successful People Practice” – James Clear (www.jamesclear.com)
    • I’m a big believer in visualization techniques and the contribution it can make to trading success.  I first used visualization during my years playing hockey.
  • “Zen and the Art of Management” – Financial Times, September 16, 2013
  • “Good To Great” – Jim Collins
    • The book is centered on how companies can go from a position of mediocre to greatness.  Many of the concepts are readily applicable to the trading business and to building yourself into an elite trader.

All the books of Dr. Ari Kiev.:

  • “Trading to Win: The Psychology of Mastering the Markets”
  • “Trading in the Zone: Maximizing Performance with Focus and Discipline”
  • “The Psychology of Risk: Mastering Market Uncertainty”
  • “The Mental Strategies of Top Traders: the Psychological Determinants of Trading Success”
  • “Hedge Fund Masters: How top Hedge Funds Set Goals, Overcome Barriers and Achieve Peak Performance”
  • “Mastering Trading Stress: Strategies for Maximizing Performance”
    • Prior to his passing, I had been organizing a conference with Dr. Kiev.  He revolutionized the hedge fund industry in terms of trader performance

(more…)

Top 10 Trading Influences

  
  Education
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If New Trader University had a campus this would be the professors:

Dan Zanger is a world record holding trader that taught me to use in the money stock options on the biggest monster stocks to amplify my returns with no added risk at key points. He is the king of chart patterns.

Alexander Elder taught me how the trader’s Mind, Method, and Money Management have to all work together for a trader to be successful.

Michael Covel showed me how the best trend following traders in the world win over the long term by simply following the trend. Finding the big trends is now my focus above all else.

Jesse Livermore knew how to make a fortune in bull and bear markets, in commodities or stocks. His only weakness was the management of the risk of ruin. He made some of the biggest fortunes in the history of trading and also blew up his account more times than other legends.

Nicolas Darvas showed me how to ride monster stocks 100 points farther than anyone else seemed to believe they could go. His lessons also showed me how to miss bear market draw downs.

Van Tharp‘s marble game on how to manage the risk of ruin was a game changer for me. Managing risk is really what determines a trader’s long term survival not stock picking.

William O’Neil showed me how to pick the real winning stocks based on historical models not opinions. He has studied what has really made money in the stock market historically better than anyone else I know. I get my stock watch list from his publication Investor’s Business Daily’s IBD 50.

Ed Seykota is truly a master trader and he has the returns to prove it. Mr. Seykota believes that a trader’s psychology determines a trader’s success more than any other factor.  I believe him.

Jack Schwager wrote “Market Wizards” and really got into the specific nuts and bolts of what makes them win.

Paul Tudor Jones I have picked up a lot of trading wisdom form his documentary, quotes, and interview. He is truly one of the greatest  traders of our time.

If you decide to study these great traders keep what actually makes you money in the long term and discard what does not.

What Winners Do

  
  Education
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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.”

– Ed Seykota

It may sound trivial, or overly simple. And yet it is so important. Being a winner starts with a firm commitment to winning.

And that commitment starts with a relentless determination to do what it takes to win — day in and day out, leaving no stone unturned.

Are you a committed winner? What steps are you taking to make 2014 your biggest and best year ever?

Quotable Quotes from Ed Seykota

  
Analysis, Education
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I was reading a bit more about Ed Seykota after seeing The Whipsaw Song.

Ed Seykota became famous after appearing in Jack Schwager’s Wall Street Wizards book. He has an Electrical Engineering degree from MIT and was one of the pioneers of systems trading. He supposedly returned 250,000% over 16 years for one of the accounts he managed.

Below I have categorized some of the quotes that I have come across.

Ed Seykota’s Trading Style

  • My style is basically trend following, with some special pattern recognition and money management
    algorithms.
  • In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading. Way down in very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.
  • I consider trend following to be a subset of charting. Charting is a little like surfing. You don’t have to know a
    lot about the physics of tides, resonance, and fluid dynamics in order to catch a good wave. You just have to be able to sense when it’s happening and then have the drive to act at the right time.
  • Common patterns transcend individual market behavior (my note: i.e. price patterns are similar across different markets).

Overall Rules

  • Trade with the long-term trend.
  • Cut your losses.
  • Let your profits ride.
  • Bet as much as you can handle and no more.

Buying on Breakouts (more…)

Managing the Mind to Stay in the Game

  
  Education
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  • “The creation of bad trades is easy:  trade your opinion, trade big, don’t cut your losses, just hold on and hope.  Bad trades fight trends; they put out a lot money with the risk of making little.  The entry and exit signals for bad trades are hope and fear, with the ego stepping in and refusing to honor the stop loss.”
  • “Dramatic and emotional trading experiences tend to be negative; pride is a great banana peel, as are hope, fear, and greed.  My biggest slipups occurred shortly after I got emotionally involved with positions.”  -Ed Seykota
  • A good trade is taken with complete confidence and follows your trading method; a bad trade is taken on an opinion.
  • A good trade is taken with a disciplined entry and position size; a bad trade is taken to win back losses the market owes you.
  • “Ninety-five percent of the trading errors you are likely to make–causing the money to just evaporate before you eyes–will stem from you attitudes about being wrong, losing money, missing out, and leaving money on the table.”  -Mark Douglas
    • A loss is not when I lose money; it’s when I don’t follow my plan
    • Turn down the heat when you are getting smoked (pare back position size, trade smaller in a drawdown)
  • A good trade is taken when your entry parameters line up; a bad trade is taken out of fear of missing a move
  • A good trade is taken to be profitable in the context of your trading plan; a bad trade is taken out of greed to make a lot of money quickly.
  • A good trade is taken according to your trading plan; a bad trade is taken to inflate the ego.
  • A good trade is taken without regret or internal conflict; a bad trade is taken when a trader is double-minded.

Why System Trading Is Ultimately Discretionary

  
  Education
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Successful system trading, in spite of the financial rewards, can be frustrating.  A quantified mechanical model will take many decisions off the table.  Yet, various issues, particularly the psychological approach to the issues, will always be in play.

Ed Seykota in the book, “Market Wizards,” writes, “Systems trading is ultimately discretionary.  The manager still has to decide how much risk to accept, which markets to play, and how aggressively to increase the trading base as a function of equity change.  These decisions are quite important, often more important than trade timing.”

It seems most sophisticated traders are aware of the fact that a system needs to be properly quantified and tested before trading. The sample size of the trades needs to be large. These traders are familiar with the terms of curve fitting and optimization. I wonder, however, how many traders continue to study the model as they trade their equity. How many understand the logic behind the entries, stops, exits, and money management techniques. How many are adjusting position size to meet expanding and contracting volatility and changes in market correlation. (more…)

Ed Seykota Interview

  
  Education
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Van Tharp:
Have you played around with any other significant ideas in terms of position sizing besides market’s money? If so, what are they?
If you could give me ten rules to consider with respect to position sizing what would they be?
Ed Seykota:
“Playing around” with “when market money becomes your money” seems to be an exercise in math-turbation.
I don’t know what you mean by playing around with ideas. I feel you either think things through or you don’t.
Ten rules for position sizing:
1. Bet high enough to make meaningful profits when you win.
2. Bet low enough so you are ok financially and psychologically when you lose.
3. If (1) and (2) don’t overlap, don’t trade.
4. Don’t go adding a bunch of rules that don’t work, just so you have ten rules.

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