Last Updated on September 18, 2023
Ed Seykota is a well-known figure in the trading world. He is a commodities trader and money manager who developed and popularized the concept of the trading tribe.
Ed Seykota pioneered computerized trading systems, now referred to as algorithmic trading. He is one of the first to advocate for trading with a systematic, rules-based approach.
Seykota’s trading career spans over four decades. He has succeeded in trading various markets, including stocks, bonds, commodities, and currencies.
Much of his success can be attributed to the development of trading systems that take human emotion out of the equation. Seykota’s trading style is based on the belief that all markets are random and that it is impossible to build a “holy grail” trading system.
Instead, he focuses on risk management and bet sizing. Ed Seykota is also a big proponent of opening small positions and scaling up as the market moves in your favor.
In this article, we’ll look at Ed Seykota’s trading career, life, current net worth, and trading strategies.
Ed Seykota’s Personal Life
Ed Seykota was born in 1947. He first lived in Incline Village, Nevada, but later moved to Texas.
While in high school, Ed Seykota lived in Voorburg, Netherlands, and went to a high school near The Hague. He then studied at the Massachusetts Institute of Technology (MIT).
Seykota acquired electrical engineering and management degrees in 1969.
Ed Seykota’s Career
After graduating, in 1970, Ed Seykota set up one of the first computerized trading systems.
He was later on hired by a brokerage house as an egg and broiler markets analyst. He wanted access to the company’s computer system to test his theories, but after he was denied, he quit the job.
Seykota went to work for another major brokerage firm as an office assistant. During a company reorganization, Ed Seykota took advantage of the lack of supervision to gain access to the computer systems and test his trading ideas.
After a few months, when his trading style showed promise, the management got interested and granted him funding. However, after a while, they withdrew their support and overrode the system, decreasing its performance substantially.
After the disagreements regarding how his trading system should be used, Ed Seykota left the firm and ventured out to find clients and manage their accounts. One of his client’s accounts was $5,000 when he started in 1972. For a decade, Seykota managed to grow it by over 250,000% on a cash-on-cash basis.
Seykota started getting interested in building a computerized trading system after reading a letter by Richard Donchian on how to utilize automated trend-following systems. The letter also mentioned Donchian’s 5- and 20-day moving average system.
Ed Seykota took these trading concepts, along with some of his own, and created one of the first trading algorithms. The trading system would then go on to make him one of the most successful traders of all time.
Over time, he refined the trading system by making it more adaptive, which significantly increased its efficiency.
In 1992, Ed Seykota gathered a group of trading enthusiasts and formed the “Tribe,” now known as the “Trading Tribe.” The Trading Tribe is a network of trading professionals who meet regularly to discuss trading and psychology.
The group has helped Ed Seykota develop and refine his trading ideas over the years. His book Trading Tribe (2005) explains how this process works and how traders can use it to improve their trading.
Ed Seykota’s Net Worth
Ed Seykota is a successful trader with a liquid net worth of $4.2 billion as of October 2022. In his over 40 years of trading, Seykota has produced some of the best returns in history.
His success has come from trading small and consistently.
Ed Seykota’s Trading Principles
Some of Seykota’s most effective trading strategies include:
1. Stick to the trading rules
The trading rules are there for a reason, and they need to be respected. Ed Seykota is a big believer in trading rules and sticks to them religiously.
Whether a trading rule defines the entry or exit points, money management, or risk management, following it is crucial. Succeeding in this takes discipline and self-control, but, in the end, it helps keep your emotions in check.
Ed Seykota’s rules are mainly based on his trend-following algorithm. They are designed to keep him in the market during trends and out of ranging markets.
2. Manage your trading account risk
Risk management is another important aspect of trading that Ed Seykota heavily believes in. He believes that to succeed, one should first minimize potential losses.
Ed Seykota uses a risk-per-trade rule, which means he knows how much risk he will take for every trade. This helps him keep his losing streaks under control and prevents over-trading.
You are probably familiar with the saying, “Cut your losses short and let your winners run.” This is exactly what Seykota does. He is quick to take a loss when a trade is against him.
When you embrace trading losses as part of the trading process, it becomes easier to take them and move on.
3. Ride your winners
Ed Seykota believes the trend is your friend, and you should ride it as long as possible. It can be hard to do, but it is important to let your winners run and not get out too early.
This trading strategy has been instrumental in Seykota’s success. By holding on to his winning trades, he has compounded his returns and produced some of the best trading results in history.
4. Adapt to change
While having strict trading rules is important, the markets are constantly changing, and it is crucial to be flexible and adapt to them.
Ed Seykota is a big believer in adaptation and has made it a key part of his trading strategy. He is constantly adjusting his trading system to fit the dominating market conditions.
This allows him to stay ahead of the curve and retain the efficiency of his trading system.
5. Have a trading plan
A trading plan outlines your trading goals, strategies, and rules. It helps keep you organized and focused.
Ed Seykota is a big proponent of trading plans. He first commercialized trading systems to help other traders develop and follow their trading plans.
Make sure to build a trading plan before you start trading actively and review it regularly. You should document every trade idea you have made.
