Beyond the Rules: Ed Seykota's Intuitive Approach to Trading.

The Limits of Mechanical Systems

Ed Seykota is rightly celebrated as a pioneer of mechanical trading. His computerized systems were revolutionary in their time and laid the foundation for modern algorithmic trading. However, to view Seykota as a purely mechanical trader is to miss a important dimension of his genius. He understood that while mechanical systems are essential for discipline and consistency, they are not enough. The market is a complex, adaptive system, and no set of rules can capture all of its nuances. This is where intuition comes in.

The Role of "Feel" in Trading

In his writings and interviews, Seykota often spoke of the importance of "feel" in trading. This is not a mystical sixth sense, but a deep, intuitive understanding of the market that is developed through years of experience. It is the ability to recognize subtle patterns and shifts in market sentiment that a mechanical system might miss. This "feel" is not a substitute for a mechanical system, but a complement to it. It can help a trader to know when to be aggressive and when to be cautious, when to press their bets and when to take profits.

The Trading Tribe and the Development of Intuition

The Trading Tribe, which Seykota founded, was not just about processing emotions. It was also about developing intuition. By sharing their experiences and observations, traders could begin to see the market in a new light. They could learn to trust their gut feelings, not as a basis for making decisions, but as a source of information. This is a subtle but important distinction. Intuition is not about making impulsive decisions based on a hunch. It is about using all of your available information, including your subconscious pattern-recognition abilities, to make the best possible decision.

Cultivating Your Own Intuition

So how can a trader cultivate their own intuition? The first step is to become a keen observer of the market. Pay attention to not just the price action, but also the news, the sentiment, and the behavior of other traders. Keep a trading journal and record not just your trades, but also your thoughts and feelings. Over time, you will begin to see patterns that you were not aware of before. The second step is to learn to trust yourself. This is perhaps the most difficult part. We are often taught to distrust our own judgment and to rely on external authorities. But in trading, you are the ultimate authority. You are the one who has to make the decisions and live with the consequences. By learning to trust your own intuition, you can become a more complete and successful trader.