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Ed Seykota Quotes – Trend Following Trading Wisdom

  
  Education
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Ed Seykota-

  • 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.
  • To avoid whipsaw losses, stop trading.
  • Risk no more than you can afford to lose and also risk enough so that a win is meaningful.
  • Trend following is an exercise in observing and responding to the ever-present moment of now.
  • Fundamentalists and anticipators may have difficulties with risk control because a trade keeps looking ‘better’ the more it goes against them.
  • Until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarket.
  • I don’t predict a nonexisting future.

Discipline Trading

  
  Education
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-The market pays you to be disciplined.
-Be disciplined every day, in every trade, and the market will reward you. But don’t
claim to be disciplined if you are not 100 percent of the time.
-Always lower your trade size when you’re trading poorly.
-Never turn a winner into a loser.
-Your biggest loser can?t exceed your biggest winner.
-Develop a methodology and stick with it. don?t change methodologies from day to
day.
-Be yourself. Don?t try to be someone else.
-You always want to be able to come back and play the next day. Once you reach
the daily downside limit, you must turn your PC off and call it a day. You can always come back tomorrow.
-Earn the right to trade bigger. Remember: if you are trading poorly with two lots you
must lower your trade size down to a one lot.
-Get out of your losers.
-The first loss is the best loss.
-Don?t hope and pray. If you do, you will lose.
-don?t worry about news. it?s history.
-Don?t speculate. if you do, you will lose.
-Love to lose money. What I mean is to accept the fact that you are going to have
losing trades throughout the trading session. Get out of your losers quickly. Love to get out of your losers quickly.
-If your trade is not going anywhere in a given timeframe, it?s time to exit.
-Never take a big loss. Only a big loss can hurt you. consistency builds confidence and control.
-Learn to sweat out (scale out) your winners.
-Make the same type of trades over and over again ? be a bricklayer.
don?t over-analyze. don?t procrastinate. don?t hesitate. if you do, you will lose.
all traders are created equal in the eyes of the market.
-It?s the market itself that wields the ultimate scale of justice.

The Hidden Variable in Your Trading Success

  
  Education
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Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”.  Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ……”I froze just as I was about to pull the trigger”….. ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”…..  “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”

Those are four common examples of trading psychology issues manifesting in one’s trading.  Do you recognize yourself in the above statements?

All four of those statements have in common one thing, fear. Whether it’s the fear of not being perfect, the fear of being wrong, fear of losing money, fear of missing out, the fear of not being approved by others, or some other fear, the common theme is fear.  Most trading mistakes are a maladaptive attempt to deal with fear or anxiety. (more…)

Lack of Patience

  
  Education
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The fourth finger of the invisible hand that robs your trading account is Lack of Patience. I forget where, but I once read that markets trend only 20% of the time, and, from my experience, I would say that this is an accurate statement. So think about it, the other 80% of the time the markets are not trending in one clear direction.

That may explain why I believe that for any given time frame, there are only two or three really good trading opportunities. For example, if you’re a long-term trader, there are typically only two or three compelling tradable moves in a market during any given year. Similarly, if you are a short-term trader, there are only two or three high-quality trade setups in a given week. (more…)

5 “Common” Rules of Great Traders.

  
  Education
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1. They react and make few decisions. They do plan every trade. They just plan a lot faster. The market moves fast, so do they. A plan is somehow neglected by many. Would you start a business without any plans? Do it already. You will improve.

2. They make most of their money on the highs or lows. There will be interest at the highs and lows, they use it to buy and sell into. They are already in a position when it gets there. It is a place that most people are looking at. The market actions will dictate further moves. I disagree that they stop picking tops and bottoms. They just are aware that is the type of trade they are taking. High risk, high reward.

3. They get out on the best tick. On a winner or a loser. See rule 1 and 2. I am not sure why no one ever talks about this, including here. Execution is as important as any other skill.

4. They accept responsibilities for their actions. They do not socialize losses and privatize wins. It is all privatized. They eliminate mistakes and learn more cheaply than others. I do not know if they only trade one market but they are experts on themselves.

5. Success is the end point. They can already pay their bills. They are actually trading with risk capital. They can focus on the market and keeping their TEE in balance. Percentage gains are very important but they are not indicative of future returns. Their measurement is based on how well they executed their plan.

Honor your stops!

  
  Education
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In high volatile environment (now), you would often be shaken out of positions, only to see them reverse back in the desired direction. This is not a reason not to honor your stop losses. It is just a reminder that either your timing was inappropriate or that you don’t have an edge in the current market environment and therefore you shouldn’t participate until things change. There are times to buy, there are times to sell, there are times to do nothing.

In bear market, honoring your stop loss will save you form disaster. It will assist you to preserve capital, so you could live to trade another day. In bull market, it will free out money for better trading opportunities.

The only reason to hold a stock in your portfolio is if you would buy it at its current level and there aren’t any better opportunities for your money.

We are experiencing a rare event of market destruction that will lay down the foundations for the greatest wealth-building opportunities in our life time.

After the darkest hour of the night, the sun will rise again.

Five key for profitable trading

  
  Education
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There are five key things that make all the difference in profitable trading:

Focus on a system with bigger wins than losses, big wins makes robustness a much easier thing to find. A 1:3 risk/return ratio makes it much easier to be profitable even with more losses than wins.

Trade in the direction of the trend, in my experience buying dips in a bull market and selling into strength in a bear market is a much easier process than calling tops and catching falling knives.

Trade small versus your buying power, most systems fail because traders simple trade too big causing losses and being wrong to set them back far too much. Small losses are easy to come back from a string of big losses is fatal.

Trade price action not opinions. Be quick to cut losses and patient to ride winners. Getting stuck on what you think should happen could be fatal when the market disagrees with you.

Your goal as a trader is to find an edge over the 90% of traders that lose money, once you have that edge the more you trade the right signals the better chance you have of being profitable. Before you have an edge the volume of trades work against you as your luck runs out. 

About Winning, About Losing

  
  Education
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People lose money at the stock market for very simple reasons:

1. They don’t have a method at all. They rely on other people opinions.

2. People don’t have a winning method. The method they are trading has a negative expectancy. Being disciplined about stop losses and position sizing won’t help, if you are trading a losing method. Expectancy changes with volatility. When your method stops providing satisfying results, you either find another that is working in the current market conditions or stay on the side until things change.

3. Those who have a winning strategy often don’t use it. They get emotional and forget about their strategy.

“Good trading is 10% technology and 90% psychology. People defeat themselves. It doesn’t matter how often you repeat basic trading principles when almost no one will practice them” (Maoxian)

Everybody knows the four cardinal rules of trading, but so few people follow them — 1) Trade with the trend. 2) Cut losses short. 3) Let profits run. 4) Manage risk.

There is a big difference between knowing something and applying it. Most people don’t use what they know.

 

Trading should be effortless

  
  Education
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A true piece of wisdom. In my experience when I trade well it is like shooting fish in a barrel. Almost everything works. I don’t need to be overly patient with positions. The money comes in very fast. That’s exactly how trading should be. The exact opposite was the case during the first 2 months of this year. So I did what I had to do. I recognized the situation for what it was and admitted my efforts were not leading my portfolio anywhere. It was like folding when you are dealt a bad hand in poker. So I folded. Now I am waiting for the next hand. If it is a bad one I fold again. If a series of trades start to really go my way I push it hard and increase exposure and trade aggressively.

Mark Douglas makes some great statements

  
  Education
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In the book Trading In The Zone, Mark Douglas makes some great statements that I truly believe are important.  He states:

I AM A CONSISTENT WINNER BECAUSE:

  • I objectively identify my edges
  • I predefine the risk of every trade
  • I completely ACCEPT the risk or I am willing to let go of the trade
  • I act on my edges without reservation or hesitation
  • I pay myself as the market makes money available to me
  • I continually monitor my susceptibility for making errors
  • I understand the absolute necessity of these principles of consistent success and, therefor, I always follow them with confidence and joy.

What you’ll notice about his statements is that it is he is assuming that you have already done the first set of bullets up top; that you have already created a plan and you already have a set of RULES.  Now you might ask, how do I know if my set of rules now will work next month or next year? GREAT question. The market dates back all the way into the late 1700’s.  There is literally a few HUNDRED years of data.  That’s why I say that back testing is KEY.  Now that doesn’t mean that you need to back-test 200 years of data.  Not even close.  You want to back-test a reasonable time depending on your time-frame of trading.  For example, if I plan on trading based on a daily system, then I might back-test the last 5-6 years.  If I’m going to trade based on an intra-day 3 minute chart, I would probably backtest about a year.  There is no way to KNOW what is going to happen, but trading really boils down to probabilities.  Time and time again the same things tend to repeat themselves.  Why do you think the markets tend do to the same things over and over.  Why does it seem that certain stocks that are in the same class look the same from a chart perspective?  How come a company will report great quarterly results, but still go down? It’s because there is a greater number of traders that BELIEVE that this is where an equity is too much or too little.  Why do you think there are people who are talking about a “recession” right now?  Again, it’s because the same things seem to be occurring that did prior to a previous recession and people have that BELIEF.

So what does all this mean?  What can you gather from all this?  Well, a few things actually.  One is to make sure you create, find and organize a PLAN for trading.  Think about it as if you wanted to open up a company.  Do the research and find out how some of these traders got started and what they did.  Once you’ve done that, write down your plan and look at your questions from up top.  Once you can answer ALL of them, then you are moving toward being a consistently profitable trader.  Then take a look at what Mark Douglas wrote.  You have to own these statements mentally.  You have to truly believe that you are a consistent winner because of all of the statements above.

Remember, you are starting a business, and if you want your business to succeed, you need to have a PLAN!

“Plan your trade, and trade your plan” – Anonymous

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