Lessons from legendary traders: “the system man” ed seykota

[zebrafx]

“Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible.” – Ed Seykota

In 1970, Seykota pioneered by building his own computerized trading system known as “System trading”. This computerized trading strategy was developed for the futures market. Later on, he and Michael Marcus created a joint venture and expanded their fund management business.
The key of Seykota’s success is integrating and utilizing computational methodologies in trading systems firstly tested on IBM mainframes.

His interest in creating a computerized system was spawned after reading Richard Donchian’s letter on utilizing mechanical trend following systems for trading and also Donchian’s 5 and 20 day moving average system. Seykota’s first trading system was also developed on the exponential moving averages technics.

Lessons from Ed Seykota (source Market Wizards book by Jack Schwager):

• The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into your technical system. There are old traders and there are bold traders, but there are very few old bold traders.
• All trading has some kind of system. Most good systems following trends. Life itself is based on trends. Birds start south for the winter and keep on going.
• What’s important to me in any trade are (1) the long term trend; (2) the chart pattern; and (3) picking the right buy and sell.
• Pride is a great banana peel… as are fear, hope and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions.
• The three elements of good trading are (1) cutting losses; (2) cutting losses; and (3) cutting losses.
• I handle losing streaks by trading smaller.
• I set protective stops as soon as I enter a trade. I normally move these stops to lock in profit as the trend continues. Losing a (profitable) position is aggravating, whereas losing your nerve is devastating
• My success comes from my love of markets. I am not a casual trader. It is my life. I have a passion for trading. It is not merely a hobby or even a career choice. There is no question that this is what I am supposed to do in life.
• The trading rules I live by are (a) cut losses; (b) ride winners; (c) keep bets small; (d) follow the rules without question; and (e) know when to break rules. With respect to (e) – systems and method are constantly being refined. A rule is changed when it no longer works
• I ignore advice from other traders.