“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 the most famous trend following quotes of all time. It has been referenced by just about everyone who writes about trend following and system trading. When people read this quote for the first time, it tends to have a polarizing effect. They either strongly agree, or passionately disagree.
On the surface, most people think Seykota is describing traders who subconsciously hate the idea of having money. They might not be comfortable with the idea of having money, or they might lack enough self-esteem to believe that they deserve to be successful. These people will unknowingly sabotage their own trading accounts in order to give their subconscious what it wants.
While these types of traders certainly do exist, Seykota’s quote has a far more widespread application.
An Issue With Priorities
Traders with the obvious subconscious issues are not the only ones Seykota is talking about. Actually, his quote can be applied to any trader that does not make profitable trading a priority.
For some traders, the excitement of trading is bigger than the excitement of turning a profit. While they may not realize it, many traders are addicted to the action of the markets. The gambling nature driving these traders makes it difficult for them to apply proper risk control and they will eventually blow up. These traders lack success because excitement is what they most want out of the market. Profits are great, but they are a lesser concern.
Other traders are either unable or unwilling to put the proper time and effort into studying the market. By treating their trading like a hobby or a distraction, these traders are admitting that it is not a priority for them. They aren’t looking to the market for profits, they are just looking for something to do.
Some traders refuse to invest the time to find a system that fits their personality. They never develop the conviction, consistency, or discipline that is necessary to succeed. They are just looking to experiment. If they stumble into some profits, they will be thrilled, but that’s not the true priority.
The problem with all of these issues is that they are really hard to detect. We naturally assume that we are operating with our own best interests in mind. Therefore, we rarely suspect that we might be hindering our own trading efforts. Many traders continually get punched in the face without ever realizing that they are the ones doing the punching.
Seykota’s Approach
What Seykota is really doing here is placing a large mirror in front of traders, forcing them to take a deep look at themselves and their approaches.
“People’s trading performance probably reflects their priorities more than they would like to admit.” – Ed Seykota
Successful trading is not overly complicated. Some of the best approaches are simple moving average or breakout systems. The biggest issue separating a trader from success can usually be found within the trader. This can only be accomplished by thorough and honest self-analysis, which can be downright scary. It’s not fun to analyze your flaws.
Seykota forces us to take an honest look at our motivations, as well as the effort we are willing to put in. We all have built-in psychological flaws that work against us as traders. In order to find them, we must first be open to the fact that they exist. Then, and only then, will we be able to determine what we really want out of the market.