Ed Seykota is one of the most influential trend followers in trading history. He pioneered computerised trading systems in the 1970s — long before algorithmic trading became mainstream. His results, and his thinking, are still studied by serious traders today.
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Their Approach in a Nutshell
Seykota is a systematic trend follower at heart. His core belief is simple: cut your losses, ride your winners, and let the market do the rest.
He built rule-based systems to remove emotion from trading decisions. Rather than predicting market direction, he focused on following price. If a trend exists, you participate. If it doesn't, you step aside.
He's also famously philosophical about trading psychology. He believed most trading problems are actually personal problems in disguise. The market, in his view, is a mirror.
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Key Principles Worth Studying
1. The trend is your filter — not your forecast
Seykota didn't try to predict where markets would go. He built systems that identified existing trends and positioned accordingly.
This is a meaningful distinction. Forecasting requires being right. Trend following requires being disciplined.
You don't need to know why a market is moving. You need to know that it's moving — and in which direction. From there, your system does the work.
Takeaway: Ask yourself whether your current approach relies on predictions or patterns. There's a difference. And that difference matters at scale.
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2. Risk management isn't optional — it's the strategy
Seykota is credited with one of the most-quoted lines in trading: "The elements of good trading are: cutting losses, cutting losses, and cutting losses."
That repetition is intentional. Every trade has some probability of going wrong. What separates long-term traders from short-term ones is how they handle the trades that don't work.
Seykota sized positions relative to risk. He didn't bet big because he felt confident. He bet proportionally because the math demanded it.
Takeaway: Before you enter any trade, know exactly where you're wrong — and how much that costs you. Position size should follow from that number, not from conviction.
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3. Psychology is part of the system
Most traders treat psychology as the soft part of trading. Seykota treated it as structural.
He believed traders unconsciously get the results they want — even when those results look like failure. If you keep blowing up accounts, he'd suggest looking inward before tweaking your strategy.
This isn't mysticism. It's pattern recognition applied to behaviour. Are you revenge trading? Overriding your signals? Holding losers because admitting you're wrong feels worse than losing money?
These are system failures. But the system is you.
Takeaway: Keep a trading journal. Not just your entries and exits — your reasoning, your emotional state, and what happened when you deviated from your plan.
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4. Simplicity compounds better than complexity
Seykota's original systems were built on relatively simple rules. Moving averages, trend filters, clear exit criteria. He didn't need dozens of indicators.
Complexity often feels like rigour. It rarely is. The more variables in a system, the more opportunities for things to break — and the harder it becomes to understand why something stopped working.
Takeaway: If you can't explain your trading logic in three sentences, it may be over-engineered. Simple rules, applied consistently, tend to outperform complicated ones over time.
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Where This Connects to Systematic Trading
Seykota is one of the earliest examples of what we'd now call algorithmic or quantitative thinking. He used computers to backtest and execute rules-based systems in the early 1970s. That's genuinely remarkable.
The overlap with modern systematic trading is significant. Rule-based entry and exit. Defined risk per trade. Removing discretion where possible. These are principles we build into our own signal methodology at Trade Forge.
Trend-following logic, in particular, underpins a large portion of quantitative strategies across forex, commodities, and indices. Seykota wasn't just ahead of his time. In many ways, he helped define it.
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Who This Approach Suits (And Who It Doesn't)
This approach suits you if:
- You're comfortable with slow, patient capital growth rather than frequent wins
- You're willing to take many small losses in exchange for occasional large gains
- You want to build or follow rule-based systems rather than trade intuitively
- You're interested in understanding your own psychology as part of your edge
This approach may challenge you if:
- You need frequent wins to stay motivated
- You find it hard to hold positions through drawdowns
- You prefer highly active, short-term trading styles
- You're still developing the discipline to follow rules consistently
Neither group is wrong. Different approaches work for different people. What matters is that your strategy matches your temperament — Seykota would probably agree with that more than most.
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FAQ
Was Ed Seykota a discretionary or systematic trader?
Primarily systematic. He built rule-based computer models to generate and manage trades. That said, his thinking on psychology adds a deeply human dimension to what he did.
Is trend following still relevant today?
Yes. Markets trend across all asset classes. The mechanics of capturing those trends have evolved, but the underlying logic holds.
Can I apply Seykota's principles without building my own system?
Absolutely. The risk management principles, the psychological awareness, and the emphasis on simplicity apply to any trading approach — including following pre-built signals.
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Want Systematic Signals Built on These Principles?
At Trade Forge, we generate algorithmic signals across forex, crypto, commodities, indices, and ETFs. Every signal includes defined risk parameters — because we think Seykota had the right idea.
Free tier signals are available on Telegram and Discord, with a short delay. VIP members get real-time delivery across all asset classes for $119/month.
Explore what we do at tradingforge.io.
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This content is for educational purposes only and does not constitute financial advice. Trading financial instruments involves significant risk of loss. Past performance is not indicative of future results. Trade Forge operates in compliance with applicable regulatory standards. Always consult a qualified financial adviser before making investment decisions.