📊Breaking the Market Code
📊Breaking the Market Code
Seykota Story: The Real Side of Technical Analysis Analysis That Made Millions
Join our community of global Investors in across 25 US states and 45 countries who are anticipating the Market demystifying the Market Cycle and investing smarter in Wall Street👇
Breaking the Market Code
Seykota Story: The Real Side of Technical Analysis Analysis That Made Millions
Technical Analysis stands as the second most popular method of market analysis. This approach believes that market prices reflect all influencing variables. Analysts using this method base their operations on the movement of prices, diving technical analysis into two main subcategories.
The Two Faces of Technical Analysis
Predictive Technical Analysis
The first subdivision focuses on indicators predicting the market's direction. This form of analysis is widely accepted, though its effectiveness is nothing more than randomness of dice-rolling or astrology.
Reactive Technical Analysis
On the other hand, Wall Street Insiders employ a different form of Technical Analysis. Rather than attempting to forecast the future, they respond to price movements. This method emphasizes current price trends, patiently waiting for specific conditions to manifest. The philosophy is based on three key premises:
It's impossible to buy at the lowest point of a trend or sell at its peak.
Daily trading isn't necessary.
Profit targets should not dictate the analysis.
Predictive Technical Analysis attempts to foresee the future based on existing chart patterns, while Reactive Technical Analysis follows the flow of price movements, capitalizing on the latest Resistance breach and staying in the trend as long as it persists.
The Philosophy of Technical Analysis
The first approach views charts as a crystal ball, while the second considers them a traffic light. Once your Trade System’s conditions are satisfied, it's time to move forward with the trend.
However, a popular opinion in the financial world suggests that the best way to make money in the stock market is through Buying and Holding Stocks. Benjamin Graham, in "The Intelligent Investor," asserts that success in following the market is rare. I appreciate his insights, but the market has evolved.
The Success Story of Ed Seykota
Transforming Investment
Ed Seykota, a pioneer in trading systems, is a prime example of this evolution. He began using punch cards in the early days of computer systems to test futures market trading ideas. Influenced by Richard Donchian, Seykota is a forerunner of the "Trend Following" concept. His most notable achievement? "Transforming $5,000 into $15 million in just 12 years."
The Early Years
Born in 1946 in the Netherlands, Seykota moved to the United States during his youth. He graduated from MIT in 1969 with a degree in Electrical Engineering and Management. His career in a brokerage firm began in 1970, where he developed a system using an IBM mainframe. However, a misalignment of objectives with his employer led him to venture out on his own at 23, managing a handful of accounts.
The Remarkable Growth
One of Seykota's clients achieved a staggering 240,000% growth from an initial $5,000 in 1988, resulting in over $12 million. This wasn't a stroke of luck but a testament to Seykota's belief in strict trading rules and discipline.
Seykota's Trading Principles
Seykota established five guiding principles for his trading approach:
Minimize Losses: Focus on capital preservation first; profits are secondary.
Ride on Profits: Seek an asymmetric risk-reward balance.
Bet Small Amounts: Control emotions by limiting risk.
Stick to Your Rules: Discipline is key to success.
Balance Rules and Intuition: Sometimes, intuition is as important as rules.
Insightful Quotes from Ed Seykota
Seykota's wisdom is encapsulated in his quotes:
“Until you master the basic literature and spend some time with successful operators, you should confine your operations to the supermarket.”
“There are old investors and there are bold investors, but there are very no old, bold investors.”
These quotes highlight the importance of knowledge, experience, and caution in the volatile world of trading. Seykota's journey and insights remind us that success in financial markets requires a blend of strategy, discipline, and adaptability.