6 Pieces of Advice From One of The Most Iconic Trend Traders, Ed Seykota
You’ve probably heard that “success leaves clues” and to “learn from those who have achieved what you are after.”
If you aspire to be a successful trader, Ed Seykota is someone who has a lot of valuable knowledge to help you along your journey.
In this post, I’m going to share six foundation trading principles from Mr. Seykota, that has allowed him to achieve a great amount of wealth in the markets.
1. Ride Your Winners
The trend is your friend. When there is a trend in play, hang on as long as you possibly can so that you can multiply your winnings through the power of compounding.
Many traders use a “take profit”, but this is just putting a limit on the amount of money you’re able to earn. Don’t let a “take profit” get in the way of being a part of the long-term trend. Ride the wave!
2. Cut Your Losses
This is a huge psychological issue for many traders. When a position starts to go against someone, they can often hold on way longer than necessary.
They may widen their stop loss even more out of ego, telling themselves that price will go back in the right direction. Don’t let hope drive your decisions in trading.
When you take a trade that seems to be a great set-up, but ends up going against you, don’t be afraid or upset to accept that small loss and move onto the next one.
3. Manage Your Risk
“Risk no more that you can afford to lose, and also risk enough so that a win is meaningful.” -Ed Seykota
Losses in trading are inevitable. They will happen, so don’t be caught risking a large amount of your account when you end up placing a trade that goes against you.
If you have trouble sleeping at night or staying away from the computer screen, you are probably risking more than you should be.
If you try to make a lot of money fast, you’ll lose a lot of money even faster.
4. Use Stops
This ties into number two and three. Stops are a crucial part of your trading success. It helps establish the amount of risk that you are allowing on any given trade, and they help you cut your losses short when the trade goes against you.
By not having a stop loss, you are technically putting your entire account at risk. The key to using stops is to keep them wide enough to allow price to breathe and perform it’s natural pullbacks, without stopping you out of your positions early.
5. Stick To Your System
This is a really important rule to follow. It can be very tempting to bend the rules and switch up your system after a series of losing trades. No plan is set up to win every single trade, so don’t get discouraged during the times when you aren’t seeing results.
Trust your system.
6. File The News
The news has a big influence on many traders. Actually, a lot of traders base their entire strategy around press releases and big events happening around the world.
This clouds judgement and brings emotions into play, which leads to irrational decisions, over-risking, and blown accounts.
By following the news, it is hard to have a specific system or trading plan, considering every news event is going to be different. The news is old information anyway.
Ed says to trash the news!
