After reading the Market Wizards books about 20 times, and researching all their is on famously successful trader Ed Seykota and some of his students, I have come to the conclusion that Seykota uses: 1. Bet Size and Money Management are key principles 2. Likely uses Moving Averages to determine trend 3. Is a proponent/believer in Donchian's early works 4. Does not listen to outside news, rumor, gossip 5. Goes long and short without prejudice....Ed likely is more active in Futures than stocks however Ed stated in the book "How to Trade your Way to Financial Freedom" that he taught a college course based on a 10/20 day MA crossover. In another interview in Stocks and Commodities Magazine, he states his dad showed him how to buy stocks when "they broke out of a box" (<----Nick Darvas stuff?). Further clues are the fact that he uses end-of-day data and does not watch the market during the day. Based on his interview and bits and pieces from the web, I interpret that he likely uses MA's (or his own M.I.T.-education- improved versions of them!) for trend. By the way, Ed has a website, www.seykota.com, I have specifically emailed him this question and he, while a very pleasant and nice individual, never told me what method he uses. I am a major Ed fan not only for his trading success, predicated on apparently simple rules, but for his outside interests in childhood education efforts and various non-profit efforts. anyone care to comment on what they think ole Ed is using? * as a side note, on TurtleTrader.com, almost every TA tool/indicator is listed as garbage (probably true), but MA's are left out of the garbage list. It is apparent that while Seykota does not use "The Turtle Method", the turtle guys are supportive of Ed and his own trend following methodology.... BILL avid TA trader, 1-6 month time frame
I catch up on the tribe site FAQs every few days for fun. Ed seems fairly intent on keeping the discussion focused on psychology, so I have sought clues about his trading style in his website links. Two things that stand out to me are the discussions of fluid dynamics and fractals. I would love to know how he applies these to trading, even at a rudimentary level. His analogies are very insightful, and I always seem to leave the site contemplating how best to measure the "flow". I am eyeballing a 10/20 MA crossover on daily bars, and from a surface examination, these signals seem far too pedestrian to fulfill my expectation of Ed's entry methodology, but what do I know?
http://www.originalturtles.org/scams.htm This site also has a PDF Doc of the original (COMPLETE and FREE) Turtle System. Brandon
Ed Seykota is a genius. I was talking to a friend that plays golf with him and he is definatly analytical to say it mildly. Michael B.
Bill Your observations about Ed's methods seem to be a bullseye. I'll hazard a guess as to his MA and say it is a combination of a weekly and monthly MA of both a short and long period. He is a longer term trader and what is simple and obvious are the probable answers, looking for a change of trend and staying in it. If a chart is the sum total of all the fundamental and technical forces, that is what he works with, not wanting to miss the "forest through the trees" or complicating his analysis with any type of noise. Start playing with backtesting on yearly charts with different MA values. That's my 2cents.
I also came across some insights into how several of the Market Wizards would manage positions thru Joseph Hart's Trend Dynamics...From what I gathered, Seykota's key was that he was willing to accept a much greater "giveback" on open equity or accumlated equity in an existing position. It was his willingness to keep the "faith" in the macro conditions that enabled him to accumulate massive winners...I just believe that these are macro trading concepts that are impressive to hear about, but few people have the faith in market trends to actually emulate this level of patience and tolerance when the inevitable retracements occur...
William Ekhardt makes a terrific point in that there's something about human nature that makes a trader see his current positions as paramount, so he's willing to bend his rules now to makes those positions profitable, be it hanging in there a little longer on a loser or grabbing a profit too quick or whatever. But what happens is that by doing so, the trader sabotages the longer term probabilities of their system, actually turning a profitable system into a losing system. For the turtles, this meant seeing reversals of fortune today but huge gains when looking back, and probably any long term trend trader, such as Seykota, benefits similarly by following that discipline.
Pate- thanks for the "bullseye" comment. Again, I am almost forced into concluded that ol' Ed (no disrespect, Ed is a young 55-ish, based on being 1971 and "recently graduated from college" - M.Wiz) is using MA's coupled with his own flair of portfolio management and bet size. This sounds astoundingly simple, one would conclude that someone of Ed's reputation would be using advanced fluid dynamics to determine trend, but again, based on my interpretations, Ed is using MA's. Even reading his Trading Tribe forum, he advocates simplicity and going with the flow, with the trend. Of all the TA tools that fall under "simplicity" and "going with the trend", I can throw out Gann, Zig Zag, Japanese candlesticks, Fibb Waves, etc, etc. At the end of the day in my pursuit of Seykota's Method, the only indicator not crossed-out with my red pen is the one labeled "Moving Averages." You can open up a variety of "hot" trading books and even go on web forums, and people will make fun of MA's and blast their use. Yes, many many stocks are highly volatile and MA's just do not work very well with them, admittedly true. However, a handful exist that trend very nicely, calmly trending up for a few months, then down for a few months. If you are willing to go long AND short, I still think MA's are hard to beat. AZO (AutoZone) chart attached for your viewing pleasure ** ---> Back to the discussion: Anyone else care to comment on Ed's methodology
I chose 7/35 because it exhibited the best trend following characteristics without too many false signals or whipsaws. Back in the 1950's, Richard Donchian "invented" the 5/20 MA cross method (amongst others), numerous studies and research since, shows that adjusting the time variables for each particular stock is probably a good idea, since each stock is its own animal. You can take the 50/200 to the S&P 500 index for major bear/bull trend identification. I tend to trade on the 1 to 3 month time frame, so my faster MA will be 5-10 days, and the slower will be 20-35 days. NOTE: Some stocks just do not work well with MAs, you need some that trend for long periods, both up and down. To blindly buy a stock because its MA's crossed today is asking for trouble. I know.....been there, done that!