MESSAGE FROM TRADERJANIE
Before we discuss Ed Seykota, one of the best traders of our times, let’s talk a little about the VIX and how it pertains to Quantitrader. We all know the VIX, often referred to as the fear index, represents one measure of the market’s expectation of stock market volatility over the next 30 day period. I think I’ve just discovered another index we could use to measure volatility, the number of QiT signals.
Even though anxiousness among investors has led to unusually large jumps in the VIX, when calm is restored, the volatility gauge drops just as quickly as it rose. You’ve probably all noticed this same pattern in the number of QiT trades. As the VIX rises or falls the number of trades signaled rise and fall in unison.
It goes without saying we make dinero when we have open trades but I hope it is just as obvious we will get signals when the market gives us the environment for them. Stay the course. As you’ve all seen in the past, when the sun shines (VIX rises) we will make hay (money).
Now to continue our discussion about Jack Schwager’s Market Wizards we will take a look at Ed Seykota.
Ed Seykota is one of the pioneers of computerized trading systems (algo trading) and has been extraordinarily successful with a combination of technical analysis and trend following techniques. Jack D. Schwager wrote Seykota is “one of the best traders of our time”.
Seykota pioneered computerized trading in 1970 with a system for the futures market for the brokerage house he and Michael Marcus were working for. Much of Seykota’s success was attributed to his development and utilization of these systems to which he first tested on a mainframe IBM computer. Later on, the brokerage house he had been working for adopted his system for their trades.
His interest in creating a computerized system was spawned after he read a letter by Richard Donchian on utilizing mechanical trend following systems with his first trading system developed based on exponential moving average.
1. The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system. There are old traders and there are bold traders, but there are very few old, bold traders.
2. Over time, I have become more mechanical, since (1) I have become more trusting of trend trading, and (2) my mechanical programs have factored in more and more “tricks of the trade.”
3. Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals.” However, if you catch on early, before others believe, then you might have valuable “surprise-a-mentals”
4. I am primarily a trend trader with touches of hunches based on about twenty years of experience. 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.
5. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions.
6. My success comes from my love of the 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 for me. There is no question that this is what I am supposed to do with my life .
8. The markets are the same now as they were five to ten years ago because they keep changing – just like they did then. Trading becomes more difficult because it is harder to move large positions without moving the market. It becomes easier because you have more access to competent people to support you. (like QiT)
9. Good traders have a special talent for trading just as good musicians and good athletes have talents for their fields. Great traders are ones who are absorbed the talent. They don’t have the talent – the talent has them.(mechanical and intuitive trader)
10. Having a quote machine is like having a slot machine on your desk – you end up feeding it all day long. I get my price data after the close each day. (My mantra – do not watch the market intraday)
11. Everyone gets what they want out of the market. (This one is really hard to take)
12. I don’t think traders can follow rules for very long unless they reflect their own trading style. Eventually, a breaking point is reached and the trader has to quit or change, or find a new set of rules he can follow. This seems to be part of the process of evolution and growth of a trader.
AND IN CONCLUSION
In 2000, Blockbuster refused to buy Netflix for $50M. Today, Blockbuster doesn’t exist and Netflix is worth $43B. Opps!
Google rally added $50 billion in market cap, or five metric Trumps.
It’s a scientific fact that the food you take from another person’s plate has no calories.
Remember, plan your trade and trade your plan.