Ed Seykota is one of the most famous traders of all time and came to the attention of many traders, when he was interviewed in the book Market Wizards by Jack Schwager. Here we will look at some of his best quotes and get some great trading tips for profit.
Ed Seykota turned $5,000 into $15,000,000 over a 12 years in a client account and was heavily influenced by another great trend follower - Richard Donchian. He was a pioneer in terms of developing technical computerised trading systems and as a money manager, has a great long term performance:
"Mr. Seykota himself has put together a money management track record with returns of roughly +60% net of fees over the three-decade span of his trading career..."(Futures Magazine)
He has an outstanding track record and in my view, his quotes, are some of the best in terms of giving you an insight into what it takes to be a great Forex trader. So let's take a look at the quotes and his trading strategy in more detail.
Trading Philosophy – Trends Waves and the Beach
“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”
The above should be read by many Forex traders who try and fight the market and let losses run – the market is like the ocean its all powerful and you need to respect it. Respect is different to fear because the markets if you respect them and know the basics of trading, the market can give you a huge amount of profit.
“Traders and Surfers both have to deal with feelings of missing out on the small ones, until the big one comes along. They also have to deal with feelings of staying with the big one.”
This is related to taking small losses. If you want to win you need to preserve your trading capital, by taking a number of them until the big trends come and then, you can hold them to cover your profits. Both taking small losses and running profits require trading discipline and we will look at this in more detail in moment but first let's look at Seykota's trading method.
Seykota's trading strategy is long term and based on following long term trends in the market and based upon the following:
“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.”
The key to success in long term trend following is to focus on the big picture and work out high rewards levels to buy and sell via the charts. It looks easy going backwards but when a trend is in motion and you have to execute a trading signal, you need to get your market timing right.
” The markets are the same now as they were five to ten years ago because they keep changing – just like they did then.”
This is correct – markets are unpredictable and always in a state of flux. To many Forex traders spend their time trying to work out a formula to which the markets move to but there is no formula. If you want to win, your Forex trading system needs to keep this in mind – it can be a very simple trading system but it must not try and predict.
I like his quote below which is a view, I share in terms of – the myth of using advanced trading strategies and thinking they will lead you to success in Forex trading.
“Advanced technology for analyzing the markets is interesting, entertaining, distracting, and even counter-productive to coming to terms with emotional reactions to uncertainty and volatility.”
Forex trading success is not based on advanced trading systems – it should be based on a simple trading system with good money management which you can execute with confidence, courage and discipline.
It might be boring a boring subject for many traders but its the foundation upon which any, successful trading strategy is based – sound money management.
“There are old traders and there are bold traders, but there are very few old, bold traders.”
The message in the above quote is obvious – over expose yourself in terms of position size and you will lose which is of course what most traders do – they over leverage their positions and end up losing – the quote below, I find amusing but its totally true:
“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.”
Ok he is being cute in this quote but you can't over stress it enough, you will never ever win, unless you can keep losses controlled.
“Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal.”
“I set protective stops at the same time I enter a trade. I normally move those stops in to lock in a profit as the trend continues.”
The above quote relates to how traders lose due to their emotions and one key reason traders lose is they want to get losses back to quickly and end up blowing their accounts up. You must also set a protective stop on entry so your not tempted to run a loss and if trend following, it should be moved up as the trend develops and your aim is to catch the middle chunk of the trend. Your not interested in predicting the start or the end – you just want the middle portion.
“John (Bollinger) tells me audiences can sit for hours and listen to him describe his famous, and simple, equation. They cannot, however, stand to listen to advice about risk management or sticking with a system.”
This will never change – most Forex traders are greedy and think they can make easy money from the Forex markets and lose. They also think they will win the majority of their trading signals and have perfect market timing but of course this is just a dream the reality is you will have losses and need to deal with them.
“Lungs Lose Air about Half the Time”
Cute quote and really means – you will lose around half of your trades. Most traders don't understand this but as a general rule, if you win 50% of your trading signals, you will be up their with the worlds best traders.
“Markets are fundamentally volatile. No way around it. Your problem is not in the math. There is no math to get you out of having to experience uncertainty.”
The above quote is a good one in making clear that Forex trading is an emotional experience – you have to deal with your emotions and deal with a market which will require you, to keep them under control and follow a trading plan with discipline.
“I don’t think traders can follow rules for very long unless they reflect their own trading style. Eventually, a breaking point is reached and the trader has to quit or change, or find a new set of rules he can follow. This seems to be part of the process of evolution and growth of a trader”
All great traders follow their own path and develop methods which suit them and their comfortable with. You need to have confidence in your strategy and this comes from education and building your own.
“Losing a position is aggravating, whereas losing your nerve is devastating.”
Its the key to winning at Forex – you need to keep trading your plan the way it was intended to be traded. If you lose your discipline, you will lose your account.
Everyone Gets What they Want from the Markets
“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...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.”
Very true quote and its true – most traders know their losers deep down because they will never do what's necessary to win. Winning traders, learn the basics and develop strategies which their comfortable with and understand emotional control is real secret of profitable trading.
“It’s all about sticking to your plan and experiencing feelings as they arise. If you are unwilling to feel your feelings, the temptation is to avoid them by jumping off your system”
The above is all about understanding, you will feel emotions when you trade but this is positive not negative so long as you understand, why you feel the way you do and remain disciplined you will win long term.
In your recipe for success, don’t forget commitment – and a deep belief in the inevitability of your success.
Winners tend to believe that they will win at any challenge they take up and know they can do it. Losers lack confidence and look for short cuts to success and as Ed Seykota says – “everyone gets what they want from the market” so if you want to win, then you can but you need to get the right education and more importantly adopt the mindset of a winner – if you do, your well on your way to trading currencies like the pro traders do.