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Top 26 Quotes From Ed Seykota On Trend Following, Trading And Life

  
  Education
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 Quote 1:

“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.”

 Quote 2:

“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”.”

 Quote 3:

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

Quote 4:

“The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system.”

 Quote 5:

“There are old traders and there are bold traders, but there are very few old, bold traders.”

 Quote 6:

“”I would add that I consider myself and how I do things as a kind of system which, by definition, I always follow.”

 Quote 7:

“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 and decrease the trading base as a function of equity change.”

 Quote 8:

“Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal.”

 Quote 9:

“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.” (more…)

Traders Make Decisions based on Probabilities

  
  Education
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Most traders take price swings personally. They feel very proud when they make money and love to talk about their profits. When a trade goes against them they feel like punished children and try to keep their losses secret. You can read traders’ emotions on their faces.

Many traders believe that the aim of a market analyst is to forecast future prices. The amateurs in most fields ask for forecasts, while professionals simply manage information and make decisions based on probabilities. Take medicine, for example. A patient is brought to an emergency room with a knife sticking out of his chest – and the anxious family members have only two questions: “Will he survive?” and “when can he go home?” They ask the doctor for a forecast.

But the doctor is not forecasting – he is taking care of problems as they emerge. His first job is to prevent the patient from dying from shock, and so he gives him pain-killers and starts an intravenous drip to replace lost blood. Then he removes the knife and sutures damaged organs. After that, he has to watch against infection. He monitors the trend of a patient’s health and takes measures to prevent complications. He is managing – not forecasting. When a family begs for a forecast, he may give it to them, but its practical value is low. (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.

Five Market Scenarios

  
  Education
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  1. Bad Markets – A good pattern won’t bail you out of a bad market, so move to the sidelines when conflict and indecision take hold of the tape. Your long-term survival depends on effective trade management. The bottom line: don’t trade when you can’t measure your risk, and stand aside when you can’t find your edge.
  2. Bad Timing – It’s easy to be right but still lose money. Financial instruments are forced to negotiate a minefield of conflicting trends, each dependent on different time frames. Your positions need to align with the majority of these cycles in order to capture the profits visualized in your trade analysis.
  3. Bad Trades – There are a lot of stinkers out there, vying for your attention, so look for perfect convergence before risking capital on a questionable play, and then get out at the first sign of danger. It’s easy to go brain dead and step into a weak-handed position that makes absolutely no sense, whether it moves in your favor or not. The bottom line: it’s never too late to get out of a stupid trade.
  4. Bad Stops – Poor stops will shake you out of good positions. Stops do their best work when placed outside the market noise, while keeping risk to a minimum. Many traders believe professionals hit their stops because they have inside knowledge, but the truth is less mysterious. Most of us stick them in the same old places.
  5. Bad Action – Modern markets try to burn everyone before they launch definable trends. These shakeouts occur because most traders play popular strategies that have been deconstructed by market professionals. In a sense, the buy and sell signals found in TA books are turned against the naïve folks using them.

Alexander Elder's 7 Rules for Traders

  
  Education
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1. Decide that you want to trade for the long haul. i.e decide that you want to trade 20 years from now.
2. Learn as much as you can. Read, and listen to the experts, but keep a healthy disbelief about everything.
3. Do not be greedy and rush to trade – take your time to learn. The market will be there with many good opportunities in the months and years ahead. 
4. Develop a method for analyzing the market, that is, if A happens, B is likely to happen. Markets have many dimensions – use several analytics methods to confirm trades.
5. Develop a money management plan. Your first goal should be of long term survival, second goal, a steady growth of capital and third goal, making high profits.
6. Be aware the trader is the weakest link in the system. Learn how to avoid losses and develop your method of cutting out impulsive trades.
7. Winners think, feel and act differently than loosers. You must look within yourself and strip away the illusions and change your old way of thinking, acting and being. Change is hard, but if you want to be a successful trader, you have to work on changing your personality.

Survival of the fittest

  
  Education
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When he hear the term ‘survival of the fittest’ bandied about, people are usually referring to contests of absolute strength and think of the Darwinian struggle for life. Trading is often thought of in a similar light.

It’s interesting to note that while Darwin came up the idea of natural selection, the term ‘survival of the fittest’ was coined by economist philosopher Herbert Spencer. What is more, both Darwin and Spencer were not referring to competitions of brute strength, but of best fit. That is, the survivors were those who best fit in to the environment around them. Brute strength is an aspect of this, but it is only half the story. Adaptation to the environment is also required.
Chance and randomness plays a big role in natural selection, as it does with trading success, but we can be sure that regardless of how strong we are with respect to risk management, discipline etc, if we don’t have an edge then we will likely die out. Likewise, an edge and no strength could prove equally fatal. Because the environment of the active investor is dynamic and forever changing, it may be useful to think of the circles below as constantly moving around about other, only rarely intersecting.

Five market scenarios that place you at the most risk.

  
  Education
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FIVE-







  1. 1.Bad Markets – A good pattern won’t bail you out of a bad market, so move to the sidelines when conflict and indecision take hold of the tape. Your long-term survival depends on effective trade management. The bottom line: don’t trade when you can’t measure your risk, and stand aside when you can’t find your edge.
  2. Bad Timing – It’s easy to be right but still lose money. Financial instruments are forced to negotiate a minefield of conflicting trends, each dependent on different time frames. Your positions need to align with the majority of these cycles in order to capture the profits visualized in your trade analysis.
  3. Bad Trades – There are a lot of stinkers out there, vying for your attention, so look for perfect convergence before risking capital on a questionable play, and then get out at the first sign of danger. It’s easy to go brain dead and step into a weak-handed position that makes absolutely no sense, whether it moves in your favor or not. The bottom line: it’s never too late to get out of a stupid trade.
  4. Bad Stops – Poor stops will shake you out of good positions. Stops do their best work when placed outside the market noise, while keeping risk to a minimum. Many traders believe professionals hit their stops because they have inside knowledge, but the truth is less mysterious. Most of us stick them in the same old places.
  5. Bad Action – Modern markets try to burn everyone before they launch definable trends. These shakeouts occur because most traders play popular strategies that have been deconstructed by market professionals. In a sense, the buy and sell signals found in TA books are turned against the naïve folks using them.

The Complete Turtletrader by Michael Covel

  
  Education
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Book summary:

The famous turtle program was the fruit of the debate between Richard Dennis and William Eckhardt, on the issue of whether traders are can be nurtured. Dennis believed it can but Eckhardt thought otherwise. Hence, they decided to make a bet by recruiting people from diverse background and most without experience. The book covered the entire story of the turltes, from the beginning of the program to what happened after the program. Instead of summarizing the process of how the turtles were hired etc, I will only focus on the information and attributes that makes one a good trader which I picked up from the book. In addition, I will introduce the turtle trading method.

What makes a successful trader?

Courageous probability trader

A successful trader thinks in terms of odds and always enjoys playing the game of chance. He or she will experience losses but must be able to hold the nerves and keep trading like they have yet lost. Richard Dennis was $10mil down in a single day but was able to finish off with a $80mil profit for the year. Something that makes “mere mortals lose sleep”. It was said that great traders like Dennis, process information differently from majority of the investors. He does not take conventional wisdom for granted or accept anything at face value. “He knew that traders had a tendency to self-destruct. The battle with self was where he focused his energies.” During the interviews with the potential turtles, one of the abilities he was looking for was “to suspend your belief in reality”.

“Great training alone was not enough to win for the long run. In the end, a persistent drive for winning combined with a healthy dose of courage would be mandatory for Dennis’s students’ long-term survival.”

Eckhardt emphasized that they are not mean reversion traders who believe the market will always return to the mean or fluctuate around the mean. Dennis and co. believe the market trends and often come unexpected, which also means the payout will be very rewarding.

Emotionless and disciplined

Dennis taught the turtles not to think trading in terms of money so they can detach themselves from it and no matter what their account size, they would still be able to make the correct trading decisions.

The turtles were taught to be trend followers where they used a system of rules to tell them the bet size, entry and exit points. Rules “worked best” as they eliminate human judgements which do not work well in the market. That being said, even if rules are followed religiously, traders are not expected to be right all the time and it is crucial that they cut their losses and move on when they are wrong. It is important to make every trade a good trade rather than a profitable trade. As long as good trades are made, profits will come in the long run. (more…)

Forecasting the Market

  
  Education
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Amateurs attempt to make a forecast while professionals manage information to make decisions based on probabilities. Dr. Alexander Elder compares this to a Doctor that received a patient with a knife stabbed in his chest. The family will ask, “will he survive?” and “when can he go home?” But the Doctor is not forecasting, he must prevent the patient from dying, remove the knife, saturate the organs and carefully watch for an infection. He monitors the health trend of the patient and takes measures to prevent any complications. He is managing, not forecasting. To profit in trading you do not need to forecast the future, you need to derive from the market whether the bulls or bears are in control. You need to practice money management techniques for long term survival.

You trade against the sharpest mind in the ocean-like markets. Mental discipline is an undivided part of trading. Please remember the following points:

Understand you are in the market for the long term, that you want to be a trader in even 20 years from now

Develop your trading strategy, either technical or fundamental analysis. If “x” happens then “y “is therefore likely to take place. You may need different tools for trading a bull or a bear market

Develop a money management plan, with the first goal being long term survival. Secondary goal is steady money growth and third goal would be high profits. Successful traders do not concentrate on the profit itself but maintaining successful trades regardless of the earned amount.

Winners feel, think and act different than losers. Look inside yourself, eliminate the illusions and change the way you have been thinking and acting. Changing is hard but could pave the way to becoming a successful trader.

Traps and Pitfalls

  
  Education
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Realistically, there are many ways to lose money in the financial markets and, if you play this game long enough, you’ll get to know the most of them intimately. Fortunately, a survivalist plan empowers you to avoid many of the traps and pitfalls faced by other traders. Above all else, learn the five market scenarios that place you at the most risk.

  1. Bad Markets – A good pattern won’t bail you out of a bad market, so move to the sidelines when conflict and indecision take hold of the tape. Your long-term survival depends on effective trade management. The bottom line: don’t trade when you can’t measure your risk, and stand aside when you can’t find your edge.
  2. Bad Timing – It’s easy to be right but still lose money. Financial instruments are forced to negotiate a minefield of conflicting trends, each dependent on different time frames. Your positions need to align with the majority of these cycles in order to capture the profits visualized in your trade analysis.
  3. Bad Trades – There are a lot of stinkers out there, vying for your attention, so look for perfect convergence before risking capital on a questionable play, and then get out at the first sign of danger. It’s easy to go brain dead and step into a weak-handed position that makes absolutely no sense, whether it moves in your favor or not. The bottom line: it’s never too late to get out of a stupid trade.
  4. Bad Stops – Poor stops will shake you out of good positions. Stops do their best work when placed outside the market noise, while keeping risk to a minimum. Many traders believe professionals hit their stops because they have inside knowledge, but the truth is less mysterious. Most of us stick them in the same old places.
  5. Bad Action – Modern markets try to burn everyone before they launch definable trends. These shakeouts occur because most traders play popular strategies that have been deconstructed by market professionals. In a sense, the buy and sell signals found in TA books are turned against the naïve folks using them.
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