Ed Seykota, first featured in the book Market Wizards has one of the best records of all time for any trader. Ed Seykota’s returns on capital compares to those achieved by Warren Buffett, George Soros or William J. O’Neil. He is among the trading gods with no doubt. What does he find important in trading success? Mr. Seykota has a keen focus on trader psychology above all other trading dynamics. Seykota’s website Trading Tribe spends more time advising it’s readers on proper trading psychology than anything else. Most traders are not concerned with their own psychology and instead focus on entries and exits, with trading systems and making money, not their mind and emotions. This is generally their undoing. The longer you trade and the bigger your account grows the more I see the crucial importance of mindset in the trader’s success or failure. When a losing streak sets in the trader finds out what his underlying issues are and how he handles losing is the key to his long term success. The traders ego management determines his success as much as his trading system and risk management. An an ego can cause you to let losers run and bet far too much on any one trade. An unchecked ego can destroy your account. The market is a terrible place to learn about internal issues by losing money. Here are some quotes that changed how I thought about trading early on and have kept me on the right path to consistent profits. (more…)
Archives of “ed seykota” tag
rssEd Seykota On Trading
“Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.”
“It can be very expensive to try to convince the markets you are right. Markets are fundamentally volatile. No way around it. Your prolem is not in the math. There is no math to get you out of having to experience uncertainty.”
“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.”
“To avoid whipsaw losses, stop trading.”
5 Trading Wisdom
“Never let the fear of striking out get in your way” – Babe Ruth
“If you can’t take a small loss, sooner or later you will have to take the mother of all losses” – Ed Seykota
“Don’t think about what the market is going to do. You have absosutely no control over that. Think about what you are going to do if it gets there.” – William Eckhardt
“I turned from a loser to a winner when I was able to separate my ego needs from making money. When I was able to accept being wrong. Before that, admitting I was wrong was more upsetting than losing money” – Marty Schwartz
“The worst mistake a trader can make is to miss a major profit opportunity. 95% of the profits come from only 5% of the trades” – Richard Dennis
Four Multi-Millionaire Traders Share Their Thoughts On Trading
“The key is consistency and discipline,” says Richard Dennis who grew $400 into $200,000,000.
“The key is consistency and discipline. I don’t think anybody winds up making money in this business because they started out lucky.”
For legendary trader Richard Dennis, the importance of being consistent isn’t just theory. In 1984, on a bet, Dennis trained 23 individuals off the street to religiously follow a set of trading rules. His point was to provide that discipline was the key to trading success. All but 3 of those beginner traders made over 100% return their very first year of trading and Dennis won his $1,000,000 bet. Consistent discipline is also what is taught in the “Futures in Motion” advisory service.
“It’s perseverance” declares Tom Baldwin who started with $25,000 and made untold millions trading upwards of $2 billion dollars a day in T-Bond futures.
“It’s perseverance. You don’t need any education at all to do it … because it is like any job. If you stand there long enough, you have to pick it up.” (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.
HUGE WINNERS
The entire semester could be built around that study alone. But first, to judge systematic trend following performance, you need a baseline. The S&P 500 is the barometer for making money in the markets. Comparing to it is wholly appropriate (even though some might carp). Who are some of the top-performing trend following traders over the last 30 years? How much have they made? Consider:
o Bruce Kovner is worth more than $4.1 billion
o John W. Henry is worth $840 million
o Bill Dunn made $80 million in 2008
o Michael Marcus turned an initial $30,000 into $80 million
o David Harding is now worth more than $690 million
o Ed Seykota turned $5,000 into $15 million over 12 years
o Kenneth Tropin made $120 million in 2008
o Larry Hite has made millions upon millions over 30 years
o Louis Bacon is worth $1.7 billion
o Paul Tudor Jones is worth $3 billion
o Transtrend, a trend-trading fund, has produced hundreds of millions, if not billions, in profit (more…)
The Anatomy of a Trend: 10 Guidelines
- A trend begins with capital flowing into an asset based on a perceived increase in the future value of the asset.
- Trends are identified by higher highs and higher lows for several days in a row or the reverse lower highs and lower lows.
- Moving averages can also identify trends based on a moving average sloping up or sloping down visibly.
- A moving average can also act as support or resistance for a stock as it trends in one direction and bounces off a key moving average.
- Trends tend to persist because the owners of the asset have no reason to sell and tend to just let their position ride causing the trend to continue.
- Supply and demand causes trends when you have a lot of dollars chasing a limited asset.
- In stocks, up trends are caused by mutual fund managers building large positions in their favorite stocks.
- Down trends in stocks are caused when institutions start to unload a stock or investors cash in their mutual fund shares during bear markets and managers have to raise cash by selling their holdings.
- Capital is always looking for great returns so they chase stocks with the biggest earnings expectations planning on the stock price following.
- Trends tend to persist until acted on by an opposing force. Sometimes this is as simple as running out of buyers or sellers of the asset.
The money is in the big trends, look for them, find them, and ride them until they end.
“The trend is your friend until the end when it bends” -Ed Seykota
Quotes 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”.
-Jesse Livermore (Considered by many to be the greatest stock market operator ever. Made 100 million dollars in 1929 stock market crash. Made several other multi-million dollar fortunes in his trading career).
————————————————————————————————————
“You have to cut your losses fast. The secret for winning in the stock market does not include being right all the time. The key is to lose the least amount possible when you are wrong”.
-William J. O’Neil (In my opinion, the best stock market operator in the world today. Has made an incredible fortune trading the stock market. O’Neil is the founder of Investors Business Daily. Much of my stock market education and training has been from William J. O’Neil).
————————————————————————————————————
“Whatever method you use to enter a trade, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend”.
-Richard Dennis (Turned 400 dollars into a fortune of at least 200 million dollars by using his remarkable trading skills).
———————————————————————————————————–
“I am primarily a trend trader. 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”.
-Ed Seykota (One of the greatest traders of all time. Turned 5000 dollars into an incredible 15 million dollars or more).
———————————————————————————————————–
“The most important rule of trading is to play great defense”.
-Paul Tudor Jones (An amazingly consistent and successful trader. In 2006, earned a whopping 750 million dollars).
———————————————————————————————————–
“Being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong”.
-Bernard Baruch (Fantastic trader who earned ten’s of millions of dollars in the first part of the 20th century).
———————————————————————————————————–
“The greatest safety lies in putting all your eggs in one basket and watching that basket”.
-Gerald M. Loeb (Amassed many millions in the stock market during his long career).
——————————————————————————————————– (more…)
Trading Wisdom for Traders
This exchange with a gentleman named Ed Seykota, who turned in a healthy 250,000 percent return for his clients over sixteen years, caught my eye:
What are the elements of good trading?
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.
How do you handle a losing streak?
I handle losing streaks by trimming down my activity. I just wait it out. Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal.
A little later in the interview, there was this:
What are the trading rules you live by?
a. Cut losses.
b. Ride winners.
c. Keep bets small.
d. Follow the rules without question.
e. Know when to break the rules.
Your last two rules are cute because they are contradictory. Seriously now, which do you believe: Follow the rules, or know when to break the rules?
I believe both. Mostly I follow the rules. As I keep studying the markets, I sometimes find a new rule which breaks and then replaces a previous rule. Sometimes I get to a personal breakpoint. When that happens, I just get out of the markets altogether and take a vacation until I feel that I am ready to follow the rules again. Perhaps some day, I will have a more explicit rule for breaking rules.
Never underestimate the importance of psychology and attitude as crucial elements of successful trading.
Ed Seykota’s 6 Rules from the Whipsaw Song
1. Do not be overly concerned about whipsaws a good trend pays for them all.
A whipsaw is when you enter a position but get stopped out quickly when the market reverses opposite to your position. If you are a trend trader this may happen many times in a row in a range bound market. This can be very frustrating to a trader and it may cause them to completely change their method. The fact is that one really good trend will pay for all of these whipsaws as long as you keep your losses small, and if you change your system you lose the benefit of that big trend.
To avoid whipsaw losses, stop trading. -Ed Seykota
2. When you catch a Trend, ride it to the end.
Your system must be able to take a position in a trending market, but then also be able to ride that trend to the end. Most new traders will jump out of trades before they are finished trending because they are scared the market has gone too far and will take back their paper profits. Let a trailing stop take you out of a trade when the trend is over, and only exit once you are stopped out.
“The trend is your friend except at the end where it bends.” -Ed Seykota (more…)
Great lines from :Ed Seykota
“In The Trading Tribe, Ed extends his paradoxical insights about trading and life. ‘We need to experience our feelings. If we resist them, we wind up creating dramas in our lives and in our trading so that we have to experience them.'”
“Everyone knows traders who violate their rules, second guess their systems, give up on winners, stick with losers, and swear they won’t do it again…. Rather than counseling strength, steely discipline, or automation, Ed again turns apparent common sense on its head,. He encourages traders to embrace and celebrate their feelings, especially the ones they are unwilling to feel.”“‘Win or lose, everybody gets what they want from the market. Some people like to lose, so they win by losing money….'”