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Seykota Wisdom

At Ed Seykota’s forum he was recently asked:

I’ve written my own function to flag limit up/downs. When I finish, I start thinking – what is the right thing to do once I am in a limit up position trying to buy? OK, under the trend-following principle, my only concern is to follow the trend, and so I just keep updating buy orders until I get filled. After one day of limit up, no problem. Two days, no problem. Three days, I’m guessing there is small hesitation. What about a week? Can I comfortably buy after it has gone a week of limit-ups? What about two weeks? I see myself having doubts if I am in a situation to buy after days after days after days of limit ups. I feel like [I am] missing out on the trade. In those particular conditions, there is a huge selection bias that the very fact that I get filled likely means that the move is over (If I’m trying to hop on a runaway train, but it won’t let me get on in its initial burst and I’m trying to catch-up, then logically if I do catch it up it just indicates that it must have slowed down significantly). Can you please share some of your experience?

Seykota response:

Playing for comfort and searching for meanings are both counter-productive to trend following…Getting comfortable is one way to make sure you miss some good moves.

Of course Seykota, as he is famous for, mentions that this trader’s issue may be an entry point for joining a trading tribe.

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