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What Ed Seykota Knows about Commodity Trading & Trend Following

InvestorEducation / Learn to Trade Jul 06, 2009 - 05:11 AM GMT

By: Andrew_Abraham

InvestorEducation

Best Financial Markets Analysis ArticleIf you have read Market Wizards you would have read about Ed Seykota and his legendary commodity trading & trend following. Ed Seykota started trading commodities at relatively a young age.To put into perspective Seykota’s commodity trading results are in the ball park of 60% per annum from 1990 to 2000. He never advertised his services and was very selective in taking clients on.


The majority of the investing world and quite possibly the commodity trading world had never really heard of him. Periodically he gives out lectures and teaches. More commonly one can access his web site in which one can glean his thinking..trading tribe. There is no magic. He does not know any more than any other trend following commodity trading advisor.

What makes Ed different is the way he thinks. There is no magical system. It all boils down to discipline and patience. He has taught a group of other commodity traders his techniques in trend following. He has taught David Druz, Jim Hamer and Jason Russell. I am fortunate to be an investor with David Druz. Even though David learned under Seykota commodity trading, David trades differently. This is a key point. One must be able to trade his personality. Ed Seykota earned tremendous returns with his style of commodity trading & trend following but the monthly volatility was high. Seykota takes big risks and garnished big returns.

This style of trading is not for everyone. As stated there are no secrets in commodity trading and trend following as far as a mechanical or trading methodology. At onset of Ed’s career he wanted to prove the concept of trend following he tested the concepts of Donchian. They proved successful and from that point on Ed has been trading. Ed learned the key was how a commodity trader thinks. He has come up with statements that resonate with me as a commodity trading advisor.

Such ideas as, Do you really know the future? Nope. Do you want to avoid whipsaws? (YES, was my initial answer and learned ) if I want to avoid whipsaws…stop trading..Do I want to avoid losses? My initial response when I first started in 1994..Yes..well the answer is they can not be avoided. It is part of trading. ( too bad all of Madoffs clients didn’t realize that).

Another of his great statements is Risk no more than you can afford to lose, as well as risk enough in order when a trade works you benefit. (That is why I risk no more than 1% of my account). Numerous trades will not work.. ( probably almost 60% of them) and I can live another day. As well as when that rare trade does work.. with a 1% risk I can benefit strongly and make up for all the trades that did not work. Another great lesson from Ed regarding commodity trading is to accept the uncertainty.

That is very strange for most to understand. We are risking our hard earned money and working hard & most want to be right. There is no right or wrong..The trade either works or doesn’t. When the trade does not work..we exit quickly to save our ( oxygen) money..When the rare trades really work we are patient and let it run where ever it wants to with out limitations or the urge to bank our profits. I am lucky one of partners also learned with Ed Seykota. He is constantly affirming the discipline needed to succeed in commodity trading.

If you want to be a winner in commodity trading my suggestion is start to immerse yourself in the thinking Ed Seykota as well as read the book Winning in the Zone… Mark Douglas..Successful commodity trading is not about finding a magic system or manager. The only holy grail is finding a system or commodity trading advisor that you understand. That manages the risk, makes themselves available to a wide basket of commodities ( I personally only believe in Trend Following), and have the discipline and patience to stick with them during the eventual draw downs.

The fact is most people are not successful in commodity trading just for these 2 simple reasons, They lack patience and discipline. Compounding your way to wealth takes time. This is not a get rich overnight..but over a lifetime.

Andrew Abraham
www.myinvestorsplace.com

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

Visit Angus Jackson Partners (http://www.angusjacksonpartners.com) Contact: A.Abraham@AngusJackson.com (mailto:A.Abraham@AngusJackson.com)

© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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