Ed Seykota: The Market Wizard's Risk Rules and Trend System

Ed Seykota is the systematic trend follower interviewed in Jack Schwager's 1989 book Market Wizards, in a chapter titled "Ed Seykota: Everybody Gets What They Want". Since 2003 he has published his own answers to readers on seykota.com, together with the Trading Tribe, a group process about traders' feelings, and a public Trading Systems Project with tested rules.

His own pages are the best primary source on how he thinks about trading, so this page works from them: his risk management essay, his worked example of an exponential moving average crossover system, and the books and services his site lists. Figures that circulate online about his returns and private life had no source we could check, so they are left out.

Market Wizards and the trend following idea

The book's table of contents, in the Internet Archive catalog, lists his chapter alongside those on Richard Dennis, Paul Tudor Jones and Larry Hite. His resources page on seykota.com lists an entry on Richard Donchian, the pioneer of trend following rules. The common thread is the one his crossover tutorial makes explicit: a mechanical rule decides the entry, the exit and the size, so that the trader only has to follow it. For the general method, see our guide to trend trading.

Seykota's risk management essay

Seykota's essay "Risk Management" on seykota.com, marked 2003 and 2015, starts from a coin that pays 2 to 1 with a 50% chance of heads. Betting a fixed fraction of equity on each toss, he shows that the result depends on the fraction: bet too little and you make little, bet too much and you go broke. He calls these the Timid Trader Rule and the Bold Trader Rule.

The figures are from his Figure 3, starting with $1,000. The curve draws his formula for every fraction, not only the six rows: equity grows for any bet between 0% and 50%, fastest at 25%, and a 50% bet only gets back to the start after ten tosses even though the coin is in the bettor's favor. Past 50%, the same favorable coin destroys the account. Our check of the 25% row: each head and tail pair multiplies equity by 1.5 times 0.75, or 1.125, and five pairs give 1.125 to the fifth power, or $1,802.03 on $1,000.

Portfolio heat and the uncle point

Two terms from the same essay matter more than the formula. Portfolio heat is the total risk of all open positions taken together. The uncle point is "the amount of draw down that provokes a loss of confidence in either the investors or the fund management"; past it, someone gives up and the fund dies. He regrets that the uncle point gets little mention when a fund is sold, because a mismatch between investors and managers can make one side give up just when the other most needs support.

A worked example: Seykota's exponential crossover system

In his Trading Systems Project, Seykota publishes a simple system and invites readers to reproduce it "to the penny". The system trades one instrument, an S&P 500 continuous futures contract, from the long side only. It buys when a fast exponential average crosses above a slow one and sells when it crosses back below, with each order filled halfway between the next day's open and its high for a buy, or its low for a sale, as an allowance for slippage.

Position size comes from volatility. In his example, on August 31, 1982, equity is $1,000,000 and the heat is 10%, so the risk budget is $100,000. The average true range is 3.115 and the multiplier 5, so the risk per unit is 15.575. The size is 100,000 divided by 15.575, or 6,420.5 units, rounded to the nearest 250 units, one S&P 500 contract on his page: 6,500. That first trade, bought on September 1, 1982 at 119.525 and sold on December 20, 1983 at 159.60, made $260,487.50. The run with a slow lag of 150 and a fast lag of 15 ends with about 3.3 times the stake, and the 325 and 85 run with about 13.6 times; his page does not give the end date of the test in the text we read.

Books, the Trading Tribe and what is not known

The site lists The Trading Tribe and Govopoly in the 39th Day, and its store page, dated March 31, 2026, offered a guide to starting a Trading Tribe, a title on the Govopoly system and a booklet on the Rocks process. The Trading Tribe Process page describes the process as "educational technology to facilitate personal growth" and says it "seems to communicate best in person".

What is not published by any source we could verify: his net worth, a dated record of his returns, and a dated news report on his current status. The birth date and the MIT degrees repeated across the web come from encyclopedia entries that cite no source, and his own site gives no biography, so we do not repeat them. His site was online on November 1, 2026. Other trend followers are covered in our famous traders section, including the Turtle Traders.