Ed Seykota’s Trading Style Part-I

Ed Seykota’s Trading Style

• My style is basically trend following, with some special pattern recognition and money management
  algorithms.
• 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. Those are the three primary components of my trading. Way down in very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.
• I consider trend following to be a subset of charting. Charting is a little like surfing. You don’t have to know a
  lot about the physics of tides, resonance, and fluid dynamics in order to catch a good wave. You just have to be able to sense when it’s happening and then have the drive to act at the right time.
• Common patterns transcend individual market behavior (my note: i.e. price patterns are similar across different markets).

Overall Rules

• Trade with the long-term trend.
• Cut your losses.
• Let your profits ride.
• Bet as much as you can handle and no more.

Buying on Breakouts

• If I were buying, my point would be above the market. I try to identify a point at which I expect the market momentum to be strong in the direction of the trade, so as to reduce my probable risk.
• I don’t try to pick a bottom or top.
• 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. Being bullish and not being long is illogical.

Only Exit When Stops

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