Biography of Ed Seykota: The Trailblazer in Trading Evolution
Biography of Ed Seykota:
Edward Arthur Seykota, born on August 7, 1946, is a
commodities trader known for his innovative approach to trading. He obtained
S.B. degrees in Electrical Engineering and Management from MIT in 1969. In
1970, Seykota made waves by pioneering Systems trading. He utilized early
punched card computers to test trading ideas and strategies, marking a
significant advancement in market analysis and decision-making.
Initially residing in Incline Village, Nevada, on the north
shore of Lake Tahoe, Seykota recently relocated to Texas, continuing his
trading career and contributing to the field of finance. Ed Seykota, a highly
successful trader, boasts a liquid net worth of $4.2 billion as of October
2022. Throughout his impressive 40-year trading career, Seykota has achieved
remarkable returns by adhering to a strategy of trading small and consistently.
Early Life and Education
Edward Seykota's career trajectory began with his upbringing
in the Netherlands, where he attended high school near The Hague and lived in
Voorburg.
Edward Seykota: Pioneering Computerized Trading
In 1970, Seykota made a significant breakthrough by
pioneering a computerized trading system, now widely recognized as a Trading
System, for the futures market while working for a brokerage house alongside
Michael Marcus. Inspired by Richard Donchian's letter on mechanical
trend-following systems and Edwin Lefèvre's book "Reminiscences of a Stock
Operator," Seykota developed his first trading system based on exponential
moving averages.
Edward Seykota: Innovative Trading Strategies
Seykota's success skyrocketed due to his innovative use of
computerized trading systems, initially tested on a mainframe IBM computer. His
systems were later adopted by the brokerage house for their trades, propelling
Seykota into the spotlight as a trailblazer in the field of automated trading.
Ed Seykota's Trading Philosophy
Ed Seykota, a famous trader featured in the book
"Market Wizards," believed that trading systems don't necessarily
need constant changes. Instead, he emphasized the importance of developing a
system that aligns well with the trader's personality and approach.
Evolution of Seykota's Trading System
Seykota continuously enhanced his trading system over time
to better match his own style and preferences. While the original version of
his system was quite rigid, he later added more rules, including pattern
triggers and strategies for managing money.
Seykota's Passion for Trading
One key factor in Seykota's success was his genuine passion
for trading and his positive attitude. This passion motivated him to keep
refining his system, even though he didn't change the core indicators. Instead,
he focused on adjusting to market conditions and fine-tuning his approach based
on what he observed.
Biography of Ed Seykota: The Trailblazer in Trading Evolution
Rules by Ed Seykota
Rule #1: Cut Losses
Cutting losses is a crucial rule in trading. It means
protecting your money before making profits. Ed Seykota emphasizes cutting
losses early because without money, you can't trade. Accepting losses is
essential for success. Hoping for the market to turn around can lead to bigger
losses. Having a plan and making small bets helps in handling losses better.
Rule #2: Ride Winners
To be consistently profitable, you should cut losses and let
winners run. It's not about winning every time but making more when you win and
losing less when you lose. Successful traders like Bill Lipschutz and Warren
Buffet follow this rule. To ride winners, use the daily timeframe, understand
market trends, and give trades time to develop.
Rule #3: Keep Bets Small
Keeping emotions in check while trading involves keeping
bets small. Ed Seykota suggests speculating with less than 10% of your liquid
net worth and risking less than 1% of your account balance on a trade. This
helps in enduring losing streaks without losing your entire account. It's
important to risk only what you can afford to lose.
Rule #4: Follow the Rules Without Question
Following trading rules is crucial for success. Although Ed
Seykota's specific rules aren't publicly available, it's known that having a
set of rules is essential in any trading style. Trading rules help define risk
management and actions during different market situations.
Addressing Emotional Trading
In 1992, Ed Seykota formed a group of traders to address the
issue of emotions often clouding their decision-making in trading. This group
started meeting regularly, and Seykota began developing methods to help members
with personal growth. Over time, these gatherings expanded into Tribes
worldwide, encompassing individuals from various professions. Together, they
developed a set of practices known as the Trading Tribe Process (TTP), aimed at
improving emotional management and decision-making in trading. Seykota
documented these concepts and practices in his book "The Trading
Tribe," published in 2005, and further refined them in an online article
titled "TTP Extensions: Replacing the Zero-Point Process with the Rocks
Process" in 2013.
Growth of The Trading Tribe
Ed Seykota started a group called The Trading Tribe in 1992.
He was worried that traders often let their emotions control their decisions
rather than using logic. The group met regularly, and Seykota developed ways to
help members grow personally. This group expanded over time and now includes
members from various professions all around the world. They follow Seykota's
methods called TTP, which stands for the Trading Tribe Process. Seykota wrote a
book called "The Trading Tribe" in 2005 where he explains these
methods. He later refined them in an online article called "TTP
Extensions: Replacing the Zero-Point Process with the Rocks Process" in
2013.
The Legacy of Ed Seykota
Ed Seykota is a prominent figure in the trading world, known
for his pioneering work in commodities trading and the development of the
trading tribe concept. He played a significant role in popularizing
computerized trading systems, also known as algorithmic trading, advocating for
a systematic and rules-based approach to trading.
With a trading career spanning over four decades, Seykota
has successfully navigated various markets, including stocks, bonds,
commodities, and currencies. His success is largely attributed to his focus on
developing trading systems that minimize the impact of human emotion,
emphasizing risk management and bet sizing.
Seykota's trading philosophy rejects the idea of a perfect
trading system, instead recognizing market randomness. He encourages traders to
start with small positions and increase them as the market moves in their
favor, highlighting the importance of adaptability and flexibility in trading
strategies.
