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.
Archives of “whipsaw” tag
rssThe Ten Best Things Ed Seykota Ever Said.
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.
Ed Seykota Quotes
Markets
The markets are the same now as they were five or ten years ago because they keep changing-just like they did then.
Short-Term Trading
The elements of good trading are cutting losses, cutting losses, and cutting losses.
Outcomes
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.
I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are really getting what they want, even though they may not understand it or want to admit it.
Market Trends
The trend is your friend except at the end where it bends.
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.
Predicting the Future
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.
Trading
To avoid whipsaw losses, stop trading.
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.
Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.
Markets are fundamentally volatile. No way around it. Your prolem is not in the math. There is no math to ge you out of having to experience uncertainty.
It can be very expensive to try to convince the markets you are right.
System Trading
Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible. (more…)
Ed Seykota Quotes – Trend Following Trading Wisdom
- 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.
Ed Seykota’s Magic Trading System
1: Do not stress about whipsaws – one good trend pays for them all.
A whipsaw is when you enter a stock, but get stopped out quickly. In a period of whipsaws, this may happen many times. This can be frustrating to a trader or investor, and it may cause them to change their system. But the fact is that one good trend will pay for all of these whipsaws, and if you change your system you lose the benefit of that!
2: When you Catch a Trend, ride it to the end.
Your system must be able to jump on a trending stock (for instance, up if you are going long), but then also be able to ride that trend to the end. Many novice traders will jump out of stocks before they are finished trending because they are scared the market has gone too far. Let your system tell you when the trend is ending, and only exit once it does.
3: When you show a loss, give the loss a toss.
Every single successful money manager ever interviewed has said something along the lines of: “Cut your losses short”. Get rid of your losses. Keep your winners. And once you have your system don’t second guess it! Being stopped out is part of the process.
4: We know if our risk is right when we make a lot of money, but can still sleep at night.
Risk is the amount of risk per trade (the price between your entry and your stop loss), and how much your total risk is (regarding how many positions you have open at one time). (more…)
Ed 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.”
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…)