Ed Seykota on Short Term

Ed Seykota was recently asked in his forum:

“I am new to trend following and wish to ask you what your favorite chart is for determining a given market’s trend? Daily, Weekly, Yearly, Hourly?”

Ed responded:

“Hmmm…your list seems to lack scaling options for minute, second, and millisecond. If you want to go for the really high frequency stuff, you might try trading visible light, in the range of one cycle per 10-15 seconds. Trading gamma rays, at around one cycle per 10-20 seconds, requires a lot of expensive instrumentation, whereas you can trade visible light “by eye.” I don’t know of even one short-term trader, however, who claims to show a profit at these frequencies. In general, higher frequency trading succumbs to declining profit potential against non-declining transaction costs. You might consider trading a chart with a long enough time scale that transaction costs are a minor factor – something like a daily price chart, going back a year or two.”

I agree with Ed’s pithy wisdom, but he is not saying short term is impossible.

There do exist shorter term systematic traders who have done quite well (Toby Crabel, Jim Simons). They would agree with Ed that their style is hard. The shorter you go the more you need great execution, fantastic data and multiple systems. To be a great shorter term mechanical trader is a different animal than trend following, but it is a style that a select few have mastered.