Ed Seykota: the trend follower who taught cutting losses
Ask Ed Seykota for the three elements of good trading and you get one answer, three times: cut your losses. It sounds like a joke. It's the most serious advice in the whole Market Wizards series.
Who they were
Ed Seykota was born in 1946. He earned two degrees from MIT in 1969: one in electrical engineering and one in management.
Around 1970, computers were huge machines fed with punched cards. Seykota used them to test trading ideas on past prices. At a brokerage firm, he built one of the first computer-run trading systems for the futures market.
He became famous outside trading circles because of one book: Jack Schwager's Market Wizards (1989), a set of interviews with standout traders. His chapter is one of the most quoted in the book.
What happened
A computer that followed trends
Seykota's system was a trend follower. The idea is simple. When a market starts moving strongly in one direction, get on board. Stay on while it keeps going. Get off when it turns.
A trend follower doesn't try to guess tops or bottoms. It waits for the move to show itself, then follows. It accepts many small losses, when a move fizzles, in exchange for staying in the rare big moves.
Because the rules lived in a program, the computer gave the signals. That took a lot of feeling out of the decisions.
The record in Market Wizards
In Market Wizards, Schwager wrote that one account Seykota managed grew from $5,000 to about $15 million over roughly 12 years, adjusted for withdrawals.
That figure comes from one account, as reported in the book. It isn't an audited record for all his clients, and some websites repeat bigger numbers with no source. Treat it as "as reported by Schwager."
A teacher to other traders
In the same book, the trader Michael Marcus credited Seykota with teaching him how to manage money and handle risk. Marcus met him at a broker's office in 1971.
Later, Seykota became known for the "Trading Tribe," a group approach to the feelings behind trading decisions. He wrote a book of the same name in 2005.
The moment everyone remembers
The moment is a few short lines in Market Wizards:
"The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses."
It's a joke with a point. Everything else in trading, he's saying, matters less than this. Entries, indicators, news: none of it saves you if you let losses grow.
Another line from the same chapter is quoted almost as often: "Win or lose, everybody gets what they want out of the market." He meant that people's habits and feelings drive their results more than they think.
What it teaches
1. The stop loss is the system
A trend follower is wrong often. Moves start and then fizzle. What keeps the approach alive is that each "wrong" is small.
That means the exit is decided before the entry. Our guide on how to set a stop loss shows how to place it from the chart: past the last place price turned around. Then the position size calculator turns that stop into a size.
2. Test rules on past prices before trusting them
Seykota tested ideas on old price data before using them. You can do the same, for free, by practicing on past charts. That's called Backtesting.
The key rule: never peek ahead. Hide the future, decide, then reveal. See how to backtest a trading strategy and TradingView bar replay.
3. A trend is something you can define
"Follow the trend" only works if you can say what a trend is. Ours: higher highs and higher lows for an uptrend, the reverse for a downtrend. See how to identify a trend.
For the full approach, with its strengths and weak spots, see the trend following strategy guide.
4. Your feelings are part of your trading
His "Trading Tribe" idea is that the hardest part of trading is inside your head. That's why we log feelings next to trades. A trading journal shows you, in black and white, which moods come before your worst decisions.
What it doesn't mean
It doesn't mean trend following always works. It goes through long stretches of small losses when markets chop sideways. Many trend followers quit during those stretches.
It doesn't mean a computer makes trading easy. A system still needs a person who sticks to it on the bad weeks. That's the hard part.
And one famous account isn't a typical result. Market Wizards is, by design, a book of standout traders. Thousands who tried similar ideas weren't interviewed. What carries over is the rule, not the number: keep every loss small.
Timeline
| Year | What happened |
|---|---|
| 1946 | Born |
| 1969 | Earns two degrees from MIT |
| c. 1970 | Builds an early computer trading system for futures at a brokerage |
| 1971 | Meets Michael Marcus, who later credits him as a mentor |
| 1989 | Profiled in Jack Schwager's Market Wizards |
| 2005 | Publishes The Trading Tribe |
Questions
What are Ed Seykota's rules of trading?
His most famous line is that the elements of good trading are cutting losses, cutting losses, and cutting losses. He also stressed riding trends, keeping risk small, and following your system.
How much did Ed Seykota make?
In Market Wizards, Jack Schwager reported that one account grew from $5,000 to about $15 million over roughly 12 years. It's one account, as reported in the book, not an audited record of all his trading.
What is trend following?
It's an approach that waits for a market to start moving strongly, then follows that move until it turns. It accepts many small losses to stay in the rare big moves.
Is Ed Seykota in Market Wizards?
Yes. He's one of the traders interviewed in Jack Schwager's 1989 book Market Wizards, and his chapter is among the most quoted.
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