Key Takeaways
- Pioneer of computerized trading — coded systems on punch cards
- Philosophy: "The trend is your friend" — ride it until it ends
- Psychology > Strategy — your emotions make or break you
- Achieved 250,000% returns over 12 years for clients
- Believes everyone gets what they want from markets — including losses
The Computer Prophet
Before there were Bloomberg terminals. Before there was algorithmic trading. Before hedge funds hired armies of quants. There was one man, a stack of punch cards, and a vision that would change Wall Street forever.
That man was Ed Seykota.
In the early 1970s, while most traders were still hand-drawing charts with pencils and rulers, Ed was teaching computers to trade. He had graduated from MIT with degrees in electrical engineering and management science — and he saw something nobody else did.
"The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance."
— Ed Seykota
While Wall Street veterans laughed at the idea of "robot trading," Ed quietly built one of the most successful track records in trading history. His client accounts grew by 250,000% — turning $5,000 into $15 million.
And he did it all from a cabin in Lake Tahoe, playing guitar and writing songs when he wasn't revolutionizing finance.
Punch Cards & Fortune
Ed's journey into computerized trading began at a brokerage firm in the early 1970s. The company wanted to test if computers could make trading decisions. They gave the project to their young MIT graduate.
This wasn't coding on a laptop. This was punch card programming — feeding stacks of cards into refrigerator-sized machines that processed one calculation at a time.
First of Its Kind
Created one of the first commercial computerized trading systems ever
Trend Following
Systems designed to catch big moves and ride them to the end
Emotion-Free
Let the computer make decisions — no fear, no greed
But Ed soon discovered a problem. The brokerage kept overriding his system's signals. When the computer said "buy," they would wait. When it said "sell," they would hold.
The result? The official brokerage account lagged far behind Ed's personal account — where he followed the signals religiously.
Trading Pioneer
Ed Seykota is credited with creating one of the first commercial computerized trading systems in history
This taught Ed a crucial lesson: A system only works if you have the discipline to follow it.
The Philosophy of Trends
Ed's trading philosophy can be summed up in one sentence:
"Ride your winners and cut your losers."
Sounds simple, right? But here's what makes it powerful: Ed never tried to predict where markets would go. He simply reacted to what they were already doing.
Ed's Trend-Following Philosophy
Enter when a trend is established. Stay with it as long as it lasts. Don't try to predict tops or bottoms — let the market tell you when the trend is over. The big money is made in the middle of the move.
Ed identified the core components of successful trading:
The Trend
"The trend is your friend except at the end where it bends."
Risk Management
"Risk no more than you can afford to lose, and also risk enough so that a win is meaningful."
Cut Losses
"The elements of good trading are: cutting losses, cutting losses, and cutting losses."
Follow Your System
"Systems don't need to be changed. The trick is for a trader to develop a system with which he is compatible."
Psychology: The Real Game
What separates Ed Seykota from other legendary traders isn't just his returns. It's his deep understanding of trading psychology.
Ed believes that trading is 100% about psychology. The charts, the systems, the strategies — they're just tools. What matters is what's happening between your ears.
"Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money."
— Ed Seykota
This is one of Ed's most provocative ideas. He believes that if you're consistently losing money, it's because some part of you wants to lose.
Maybe it's self-sabotage. Maybe it's the thrill of drama. Maybe it's an unconscious belief that you don't deserve success. Whatever it is, Ed says you need to confront it before you can win.
Know Yourself
Your trading results are a mirror of your inner psychology
Embrace Losses
"A losing trade is not a bad trade" — if you followed your rules
Feel Your Feelings
Don't suppress emotions — process them and move forward
Ed eventually developed his own psychological framework called "The Trading Tribe Process" — a method for traders to work through their emotional blocks in groups.
The Seykota Wisdom Vault
Ed is famous for his quotable wisdom. These aren't just catchy phrases — they're hard-won lessons from decades of trading. Here are some of his most powerful insights:
"In order of importance: (1) The long-term trend, (2) The current chart pattern, (3) A good spot to buy or sell."
"If you can't take a small loss, sooner or later you will take the mother of all losses."
"Trading requires skill at reading markets and at managing your own anxieties."
"The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system."
"It can be very expensive to try to convince the markets you are right."
"There are old traders and there are bold traders, but there are very few old, bold traders."
The Desert Hermit
Unlike most Wall Street legends, Ed Seykota never sought fame or fortune beyond what he needed. After achieving incredible success, he didn't buy a yacht or a penthouse in Manhattan.
Instead, he moved to a quiet cabin near Lake Tahoe, surrounded by mountains and pine trees. He spent his time writing music, playing guitar, and reflecting on life and markets.
"I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are getting what they want, even though they may not understand it or want to admit it."
— Ed Seykota
Ed became a mentor to many famous traders. Michael Marcus, who turned $30,000 into $80 million, credits Ed as his teacher. So do many other Market Wizards.
But Ed never charged for his wisdom. He shared it freely with those willing to listen and learn.
Ed's Trading Commandments
Ed distilled his decades of experience into simple, powerful rules. These are the commandments that guided his 250,000% returns:
Cut Your Losses
The most important rule. Say it three times. Never violate it.
Ride Your Winners
Let profitable trades run. The trend is your friend until the end.
Keep Bets Small
Risk small amounts so you can survive the losing streaks.
Follow Rules Without Question
Your system only works if you follow it every single time.
Know When to Break Rules
Paradox: You must know your rules deeply before you can transcend them.
Trade Your Psychology
Your emotions are the real battleground. Master yourself first.
The Bottom Line
Ed Seykota isn't just a legendary trader. He's a philosopher of markets — someone who understood that trading success comes from within.
He showed that you don't need to be on Wall Street to win. You don't need the fastest computers or the most data. What you need is:
A simple system that follows trends. The discipline to follow your rules. And the self-awareness to understand your own psychology.
Ed retired from managing money decades ago, but his influence lives on in every trend-follower, every systematic trader, and every algorithm that rides a trend.
"The markets are the same now as they were five to ten years ago because they keep changing — just like they did then."
— Ed Seykota
From punch cards in a brokerage basement to a cabin in the mountains, Ed Seykota proved that the best trading system is the one that works with who you are.