The Wisdom of Market Wizard Ed Seykota

Oh my! Europe may implode! The euro may become worthless! Many European countries could go bankrupt!

Do I go long? Is this support? Do I short based on fundamentals, surely the market will be going lower, right? Do I scoop up hot stocks at a bargain?

What should I do?

Follow your system, methodology, and trading plan. If you do not have these then you should not be trading. Following a methodology that wins in the long term gives you an edge. The answers to these questions are different for everyone, they are based on your own psychology, risk tolerance, and personality. They can only be answered based on your own research and planning.

This is why Ed Seykota has been able to win year after year in the markets, he answered these questions for himself, he has complete confidence in his methods based on ten years of historic research and decades of outsized returns. He does not wonder what to do tomorrow, he knows exactly what he will do based on the market action.

Here is a summary of his winning principles from an interview of Ed Seykota in 1992 before he started his trading tribe.

  • Ed Seykota was persistant and committed to winning in the markets
  • Seykota’s father taught him to buy when a stock price broke out of the top of a box and sell when the stock price fell out of the bottom of a box. (The Darvas System?)
  • He knew there was no big secret or Holy Grail of trading.
  • His favorite trading books were Extraordinary Popular Delusions and Reminiscences of a Stock Operator.
  • He was inspired by the simple Richard Donchian 5 and 20 day moving average crossover system.
  • He spent 6 months changing parameters and back testing systems to see what worked best.
  • He traded with the long term trend
  • His advice: Cut your losses.
  • He advised to: Let your profits ride.
  • He warned to only: Bet as much as you can handle and no more.
  • Seykota sets his stop at the place where the chart sours.

Here is a link to the PDF entitled Ed Seykota of Technical Tools