Home Trading Strategies 10 Powerful Trading Lessons from a Market Wizard (Ed Seykota)

10 Powerful Trading Lessons from a Market Wizard (Ed Seykota)

10 Powerful Trading Lessons from a Market Wizard (Ed Seykota)

hey hey what’s up my friend so in today’s video I want to share with you ten trading lessons right from Etsy Kota who is right a market wizard he has been featured in a book ride by Jack Swagger market visit is one of the traders being featured and also according to sources right Etsy Kota has taken a five thousand dollars trading account and transform it into a fifteen million dollars account within a twelve year period so that is insane all right so a brief introduction about Etsy Kota is that he is a primarily a systematic trend follower okay a private trader he doesn’t know trait for any you know hedge funds or anything but rather just for private clients and if you want to find information about him online it’s quite because he doesn’t really do much interviews he doesn’t really share is a trading strategy or you know post videos and stuff like that right so the only way to get so-called this knowledge sure is you know to scour around the internet read the market research book right and kind of appease the puzzles together so this is what this video is all about I want to share with you the ten best trading lessons right from Etsy Kota and how it can improve your trading results okay so if you’re excited right then here’s one thing that I would like you to do is to you know subscribe to my youtube channel so you’re always you know up-to-date whenever I publish a new video do it right now and hit the thumbs up button okay I would really appreciate it have you done it okay then let’s begin so the first lesson that I want to share with you is is this right is here’s what I said if I were buying right my buy point would be above the market I try to identify a point at which I expect the market momentum to be strong in the direction of the trade so as to reduce my probable risk what does it mean right so simply put right this gives you a strong clue that Etsy Kota likes to trade breakout so for example the market let’s say it’s an arranged right he could possibly right be placing a buy stop order above the heights right and go along on the breakout so you can see that you know if I were buying my point would be above the market so let’s say the market is somewhere trading around here he’ll be looking to buy above the market which is here okay and expect the market momentum to be strong in the direction of the trade so this is where you can see that his trading momentum with the momentum towards the upside so this gives you a very strong clue that at Socata he is you know most likely a breakup trader and it’s common right for a lot of systemic trend followers to be trading breakouts or even moving average crossover second lesson right I said protective stops right at the same time I enter my trade I normally move these stops in to lock in profit esta you know the trend continues so this is a very again very simple example so let me just share with you this chart over here okay I have no idea you know what his exact trading strategy is right by the core concept goes something like this let’s say you know he were to buy a breakup okay the market trade above this Heinz he go along on the breakout say somewhere here and then he set a protective stop-loss so there are many ways to set a stop loss you can use the average true range you can use the moving average you can use the structure of the market you know many ways but let’s assume right you know he’s using a trailing stop loss I don’t know which technique he use but let’s say no he is using a moving average like this blue line over here this is the 50 period moving average you can use this to trail your stop-loss right and only exit the trade if the price you know breaks and close below the 50 ma so this is what you mean by you know trilling your stop-loss you only exit the trader if the price hits your trailing stop loss if it doesn’t hit your trailing stop loss you would stay in the trade right and right the trend know for as long as possible so this is what it means right buy set they protected stops at the same time he entered a trade and normally move these stops in to lock in a profit as the trend continues the third lesson the markets are the same now as they were five to ten years ago because they keep changing and and just here’s the thing right if you think about the markets it can generally be in one of four categories so let me share with you you know what these are so just let me just remove get some space so the markets are generally can be in what I call an uptrend and but and I’m advancing stage right market is in an uptrend advancing stage but you know that no uptrend lasts forever so this is where it goes into a distribution stage where the market goes into a range like this and when a market breaks down after this our distribution stage is what we move on into downtrend or otherwise known as a declining stitch and then no downtrend lasts forever you would then go back into a range okay where the buyers start to accumulate their positions and then finally break out right and start this entire uptrend once again so this other pretty much the four stages of the market right Stage one is an uptrend stage two sorry Stage one over here is the accumulation stage let me just redraw this right so stage one okay you study the works of Richard Wyckoff you’d be familiar I saw this stage one accumulation stage breakout stage two going to arrange stage three and break down its stage four so one two three and four so the market typically cycles between one of this four stages and this is why right you see that at the Kota he says right the markets are the same as they were find the ten years ago because they keep changing so the market is always you know changing between one stage to another sometimes I agree is not easy to kind of know classify what stage the market is in especially when it’s in a transition maybe transiting from a distribution stage to a declining stage so sometimes it may not be obvious but generally it’s within one of these four stages and as a trader it’s important to expose yourself our experience right these four different types of market conditions because if you if you do not have you know the experience with it for example Bitcoin in 2017 massive uptrend you know heading higher and higher every month and then what happen in 2018 it collapse and lost sixty percent of its value so you’re unaware of this you know four stages of the market you think that man this market is going up trend forever you will never back down and this is where it can really hurt when the reversal comes right so you want to be aware that the markets are always changing between one of these four stages and if you are prepared right for it to change this is where you would have you know proper stop-loss in place right to protect your downside okay so this is important right markets are always changing lesson number four speculate with less than 10% of your liquid net worth right risk less than 1% of your speculative account on a trade this tends to keep fluctuations in your trading account small relative to net worth this is a mouthful but let me just explain right what he means so this means our let’s say I’m a multi-millionaire I wish that’s the case I’m a multi-millionaire I have you know 10 million write in liquid net worth in the bank right so what it’s a code I mean today let’s say you you know ten million dollars you know lying somewhere you want to take like ten percent of your liquid net worth which is this one over here 10 percent is 1 million dollars and use it to treat the markets ok so 1 million dollars is for trading the other 90% I don’t know maybe it’s for investments you know buying property whatever but basically he says that you want to put his 10 percent into your trading okay and risk less than 1% of your speculative account speculative account on a trade so this means that every million dollars right the million dollars is in your trading account you want to risk 1% of it so each trade right you don’t want to lose more than $10,000 which is 1% of this 1 million so this is how you would go about managing your risk and he says that this is it that helps you to you know keep fluctuations in your trading account small relative to your network which is relative to this 10 million dollars over here so you can see that how you know how it’s ACOTA is quite a conservative trader he doesn’t really you know bet the phone okay so so you compare this to you know young you know gunslinger traders day let’s say their net worth is like $50,000 and each trade right they I put on is like what five thousand ten thousand dollars can you see you know how much of their net worth is on the line in their trading and when you have a huge percentage of your net worth on the line when you’re trading it’s gonna mess up your trading psychology because your net worth is you know fluctuating up and now right you know one woman you know you are rich one moment you’re so poor so this is why you know you do want to have this kind of you know huge volatility in your equity curve you don’t have this huge volatility right where your network you know spikes up and down so this is one approach to kind of know contain the fluctuations of your net worth okay but for me personally I find that ten percent is a little bit low maybe because I’m I’m still you know I’m young right so from I’m willing to risk up to 50% of my liquid net worth in trading it doesn’t mean I’m risking 50% on on each trade right what it means is that you know let’s say back to the ten million dollar example right I’m willing to put five million dollars right into trading fifty percent of my liquid network so one percent of this five million right would be about fifty thousand dollars risk per trade right using the same concepts that we have talked about right risking a one percent of your trading a cup okay so this is for me my own personal preference I’m comfortable with fifty percent but it may not be for you maybe you are more of a ten percent or it may be some of you or maybe you know thirty or forty I don’t know but this is pretty much the concept that it’s ACOTA once to share with you try to keep the fluctuations in your trading accounts small relative to your net worth number five pyramiding instructions appear on dollar bills right it’s smaller and smaller amount on the way up right and keep your eye open on the top so this is a very simple let’s let’s talk about share sciences since this is something that is much easier to relate so let’s say you know the you’re buying a stock like Amazon right market is in an uptrend you buy the breakout over here say you buy a hundred shares then a market continues in your favor okay and this point say you wanna buy the you know scale in your trade meaning you want to know buying more shares because the market has moved in your favor at this point in some right you don’t want to buy another hundred shares why is that right it’s simple right because if you were to buy another hundred shares a five hundred shares on the first attempt and you’re to buy another hundred shares on this second scale entry okay what is happening is that now okay your overall position size your overall average share price that your long it’s higher okay so basically if you were to you know buy an equal amount or even a more amount of shares right when the pullback comes right which you can be sure it will happen right you will not be able to end or the pullback because you know you’re buying near the heights alright so in order for you to kind of withstand the pullback what you want to do is to when you’re scaling your traits you want to buy lesser number of shares right so maybe you can buy one quarter of your original size so let’s say originally you bought hundred shares subsequent skill injuries you wanna buy one quart of it is 25 okay so this is a general rule and if you do this right you can better endure the pullback when it comes okay because if you don’t write if you if the market goes in your favor you buy more shares a lot of missed I love a mistake right that traders make is that the 500 shares market go in their favor you find out 200 shares the market goes in their favor you buy another 400 shares but when the pullback comes right just a small poo bag right it’s gonna wipe out all of their open profits and if you don’t want that to happen to you you better skill in smaller as the price moves in your favor true you’ll make less money but you would be able to hold the treat longer and write the trend longer okay so this is a very important lesson especially for traders who want to scale in their trade don’t go all in don’t go overboard in fact it’s more smarter right to go small on subsequent scaling traits lesson number six right periods during which trend following systems are highly successful will lead to their increased popularity as the number of system users increases and a market shift from training to directionals price action this systems become unprofitable and undercapitalized and inexperienced traders will get shaken out longevity is the key to success so there are two parts over here I so if you recall right the we spoke about the four stages of the market so you can see that over here the markets shift right from training to directionless price action you can see that you know this is a strong clue that you know it’s a kata is telling you that the markets are not always the same and this is where the four stages of the market comes in from an uptrend into a potential distribution stage right when the market goes into a range in periods like this right this is where no trend-following systems they won’t do well and traders who are inexperienced right they would say that oh man a strategy doesn’t work where you know it’s not working anymore let me you know hop on to something new and try something else and this is why you know any trading systems that you trade whether it’s trend-following mean reversion or whatever they will have the a drawdown period so it’s important to understand right how deep the drawdown is could potentially be if for example if you back test it and you realize that your strategy has a maximum drawdown of 20% right then going forward right 20% is the bare minimum that you should expect it could even be 30 or 40 percent right your deepest drawdown is always in the future not in the past so if you’re back testing results shows that you have a maximum drawdown of 20% you want to double it right and expect that you know you could potentially face up to 40% draw downs in the future okay so that’s one second thing is that you have to you know embrace the drawdown when it comes right because just because a drawdown is here doesn’t mean that the system doesn’t work right it’s part and parcel of trading so you have to stick to it have the discipline to continue trading your strategy right or else right when the good times have written right you have ready hop on to another trading system and you miss the big move okay so this is why you know it’s important to really understand drawdown all right and to know that you would be underwater most of the time especially for you know systemic trend-following so this is what you know at the Kota is saying right whenever a system gets popular like Bitcoin gets popular whenever the stock markets get popular wherever whatever it’s hot right it’s not gonna last forever and chances are right it’s gonna be unpopular and you have to be prepared for it same goes for systems same goes for in on market conditions number seven systems don’t need to be changed the trick is for trader to develop a system with which is compatible what does it mean right symbol most of you watching this video now you probably have a full time job right so this means that you want to be trading a system right that complements your lifestyle so if you have a full-time job clearly right you can be trading all time all that oh all day long right you would probably have to adopt systems right that requires you know 30 minutes to an hour a day like maybe trading off the daily timeframe or even mechanical or no systems where you don’t need much time to train so this is what you mean by no systems don’t need to betray Tony to be changed right the trick is for you the trader to find a systems that suits you so what this means is that if you have a full time job you shouldn’t be scalping the market you shouldn’t be day trading the market because your time commitment doesn’t warrant such an activity so this is important right and many traders just just don’t get it or anything Oh day trading is is the is where the action is where’s the excitement is right well that’s a losing proposition right if you have a full time job right you can try day trading with a full time job you would lose your soul show social circle of friends you’ll be more stressed and chances are you lose money because you know there is just not enough time to devote to the day trading and beaver given your circumstance okay number it if you can take a small loss right sooner or later you will take the model of all losses so I’m not sure about you right but often when I am on social media I see an equity curve that looks like this you know whoa looks like looks like a very smooth our uptrend and this is a rate flex I’m telling you that chances are this trading system doesn’t cut their losses okay and if you don’t cut your losses right maybe let’s say you know out of hundred treats you don’t cut your losses the first 90 treats right somehow the market goes back in your favor you didn’t take a loss on the 91st trade right is where the market does that huge reversal and you see your equity curve looks like this right now I’m not sure if you all have studied the lesson the four million dollar trading lesson that I share on YouTube is the same thing okay you may be lucky once twice three four five all the way up to you know the 90 of time one a 91st time right you won’t be lucky I mean the market does a reversal it’s gonna sting real bad in fact let me share with you you know what I mean so if you look at the Bitcoin example okay so it’s just it’s a beautiful example so Bitcoin if you look at it let’s just look at the monthly chart right monthly chart so you can see that generally Bitcoin okay over here in 2016 to the hole of 2017 I’m gonna zoom in right the markets everyman right it’s been green even it is not green right is down a small man and before you know it it quickly reversed so you can see that if you to buy somewhere about here okay let me just just get the chance closer okay let’s say you buy somewhere here and there’s a 1400 level or maybe known let me just yeah 1400 level okay you can hold this trade right this is where okay a steep drawdown might have come in right where pretty much comes to a low of 3,000 okay and in closing near it is not a great example let me share another example let’s say we let’s use the weekly timeframe okay so let’s say over here where things get really exciting right over here right you can buy over here okay and just hold on to the trade market goes in your favor right for you know one two three four weeks okay and then after which right right now you can see that the market now is just reverse the right all the way towards the downside okay that’s not really a very good example also okay so let me see if I can find a better example wasted four million dollars okay let me try this again right so basically my point being set is that you may escape right once twice three four five six seven eight nine ten times right but there will be a time right we had a market right reverse all the way and you pretty much lose everything okay so I wish I can you know give a good example on the chat but I didn’t I didn’t prepare for this but anyway I have a video called the four million dollar trading lesson on YouTube right you can search for it all right and you will pretty much explain to you this particular concept and number nine a losing trader can do little to transform himself into a winning trader a losing trader is not going to want to transform himself that’s the kind of thing winning traders do so this is important right so often I see traders they blame their broker a break they blame the strategy they blame their platform they blame everything except themselves and the problem with blaming someone else or something else is that you don’t take responsibility of your actions and if you don’t take responsibility for your actions right you give up the power to be in control because this is where you know you can’t improve yourself further because it’s not your fault it’s not my fault if it’s not your fault then there’s no room for improvement right because it’s not your fault to start with so this is why you have to take responsibility for your actions where is it financially right oh you have poor relationships or you know or whatever you have to be accountable to yourself only by being accountable to yourself only then right can you look back and find ways to improve but if you throw away your responsibility you know out of the window and there’s nothing to be accountable to there’s no way you can improve on it so the first step to to becoming a winning trader is to take 100% responsibility okay and finally I handle losing streaks by trimming down my activity right I just waited out trying to create during a losing streak is emotionally devastating trying to play catch-up this little so to be honest right I am a little bit puzzled when I I see this coat I mean I cannot stand it if it’s from a discretionary trader but for a systems trader okay usually we don’t reduce our size doing the drone up because right we have no idea when the drawdown comes because if you were to reduce your size during the drawdown okay and when a winners come right and you do not increase your size back to its original sighs you will not be able to no catch up on you know whatever losses that you hit okay so this is a little bit uh to me it’s a surprising coming from a systems trader but if you’re a discretionary trader okay then this right is a is a very powerful technique right where you are trading right you are having a losing streak maybe five six losing streaks in a row emotionally you’re not stable right this is where you want to know trim down the activity on your trade maybe you are used to you know risking five hundred dollars per trade right and after you know six losing trades right you might want to risk say $200 instead reducing your risk per trade to a more a smaller level since now you’re not emotionally stable all right and you want to get back your mojo right so this is one technique then you can use right to basically trim down the size of your trades right during losing period so this way you know your drawdown will be uh you will have a softer landing thatch right and you don’t mess up and you know double down or triple down and create even a bigger hole okay so this is one technique that you can use to control reduce your drawdown right and it’s very applicable to discretionary traders okay so with debts in right i I’ve come to us the end of today’s video if you enjoyed it right again right subscribe to my youtube channel and hit the thumbs up button any feedback or comment just let me know below and if you’re a learn more about my trading methodology right especially a trend following since ETSU Kota is a trend follower go down to my website right and download this ultimate trend following guide just click this orange button right and I’ll send this guy to your email for free right you’ll learn how to write massive trends and market right I know and no profiting you know whether it’s an uptrend or downtrend bull markets or bear markets okay so with that said I’ve come towards the end of today’s video and we that’s it I’ll talk to you soon you


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