Born in 1946, Edward Arthur Seykota is a commodities trader, and one of the fathers of systems-trading. In 1970 he pioneered a trading-system for the futures market by using a mainframe IBM card computer to test trading ideas.

Books:

• The Trading Tribe (2005)
• Govopoly in the 39th Day (2013)

 

ED SEYKOTA TRADING TIPS

■ The five rules of Ed Seykota

The trading rules I live by are:

1. Cut losses
2. Ride winners
3. Keep bets small
4. Follow the rules without question
5. Know when to break the rules

 

■ Don’t try to convince the market you are right

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.

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

 

 

■ Staying bullish until a sell stop is hit

If I am bullish, I neither buy on a reaction nor wait for strength; I am already in. I turn bullish at the instant my buy stop is hit and stay bullish until my sell stop is hit.

 

■ Systems don’t need to be changed

The trick is for a trader to develop a system with which he is compatible.

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

 

■ Markets keep changing

The markets are the same now as they were five to ten years ago because they keep changing – just like they did then.

 

■ Transforming is the kind of thing winning traders do

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.

 

■ Advice from other traders

I usually ignore advice from other traders, especially the ones who believe they are on to a “sure thing”. The old-timers, who talk about “maybe there is a chance of so and so,” are often right and early.

 

■ The long-term trend is the more important

In order of importance to me are:

• the long term trend
• the current chart pattern
• picking a good spot to buy or sell

 

MONEY MANAGEMENT TIPS

 

■ Incorporating money management into a technical system

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

 

■ How much to risk

Risk no more than you can afford to lose, and also risk enough so that a win is meaningful.

 

■ Risk below 5 percent on a trade

I intend to risk below 5 percent on a trade, allowing for poor executions.

 

■ Cutting losses is the key element 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.

Losing a position is aggravating, whereas losing your nerve is devastating.

If you can’t take a small loss, sooner or later you will take the mother of all losses.

 

■ 10% and 1% rules

Speculate with less than 10% of your liquid net worth. Risk less than 1% of your speculative account on a trade. This tends to keep the fluctuations in the trading account small, relative to net worth. This is essential as large fluctuations can engage {emotions} and lead to feeling-justifying drama.

 

■ Don’t trade during a losing streak

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

 

■ Setting protective stops

I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues. Sometimes, I take profits when a market gets wild. This usually doesn’t get me out any better than waiting for my stops to close in, but it does cut down on the volatility of the portfolio, which helps calm my nerves.

 

■ Fundamentals matter only if you catch on early

Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-metals”. However, if you catch on early before others believe, you might have valuable “surprise-a-mentals”.

 

 

■ Ed Seykota (Commodities Trader)

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