Seykota EMA Crossover with ATR Risk Sizing

📈 A Tribute to Ed Seykota’s Timeless Trend-Following and Risk Discipline
Overview

This strategy is inspired by the trading principles of Ed Seykota, one of the most influential trend followers in modern market history.
It combines a classic exponential moving average (EMA) crossover system with ATR-based risk sizing and optional trailing stops, closely modeled on the ideas and system examples Seykota published on his website.

The strategy enters long positions when a short-term EMA crosses above a longer-term EMA (confirming an uptrend), and exits either on a bearish crossover or when price closes below an ATR-based trailing stop.

⚙️ Core Components
1. EMA Trend System

Buy Signal: Fast EMA crosses above Slow EMA → establishes trend direction

Sell Signal: Fast EMA crosses below Slow EMA → trend reverses

Typical defaults:

Fast EMA = 20

Slow EMA = 200

This aligns with Seykota’s timeless philosophy:

“Follow the trend. Ride winners. Cut losses.”

2. ATR Risk Sizing (The 1% Rule)

When the “Enable ATR Position Sizing” box is checked, the system applies Seykota’s version of risk-based position sizing:

Each trade risks a fixed percent of account equity (default = 1%).

Risk per trade = (Account Equity × Risk %) ÷ (ATR × Multiplier).

Stop distance = ATR × Multiplier (default = 5×).

ATR defines volatility — higher volatility leads to smaller positions — keeping risk consistent across changing market conditions.

When the checkbox is off, the strategy uses your default TradingView position sizing (for example, 100% of equity per trade).

3. ATR Trailing Stop (Optional – Not Seykota’s Original Method)

This feature is available in this script, but it is not the exact exit logic Seykota used in his original trading systems.

Seykota’s trend-following systems typically exited trades based on support/resistance breaks or moving average reversals, not a continuously updating volatility-based stop.
He managed trades using trend structure and long-term signals, rather than a mechanical trailing formula.

However, the ATR trailing stop is included here as a modern optional enhancement for users who prefer smoother, automatic exits.

When enabled, the stop automatically trails the price according to:

Stop = Close – (ATR × Multiplier)

As price rises, the stop ratchets upward — locking in gains while giving the trade enough room to breathe.
This reflects Seykota’s broader risk principle:

“The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses.”

While practical and popular today, this ATR-based trailing stop was not part of Seykota’s original mechanical systems.
If you prefer to stay closer to his authentic approach, you can simply disable this option and rely on EMA crossovers (or a longer-term filter) for exits.

4. About Dynamic Risk Scaling

Seykota practiced what he called dynamic risk control or “heat management” — adjusting exposure based on portfolio equity and drawdown:

New equity highs → full risk (e.g., 1%)

10% drawdown → reduce exposure (e.g., 0.9%)

25% drawdown → reduce further (e.g., 0.75%)

Never below a “heat floor” (e.g., 0.25%)

However, TradingView cannot dynamically resize open positions based on drawdown. This feature does not affect open trades or past results.

Therefore, this script focuses on ATR-based risk sizing only.
Dynamic risk scaling should be calculated externally, before placing trades.

I’ll soon publish a simple calculator (Google Sheets or web tool) that automatically computes the adjusted risk percentage and position size based on your account equity and drawdown level — so you can apply Seykota’s true “heat control” method in your portfolio tracking.

🧭 How to Use This Strategy

Apply to any trending instrument (e.g., QQQ, SPY, CL1!, GC1!, BTCUSD).

Set your preferred parameters:

Fast EMA = 20

Slow EMA = 200

ATR Period = 20

ATR Multiplier = 5

Check “Enable ATR Position Sizing” to use the 1% risk rule.

Optionally enable “Use ATR Trailing Stop Exit” for automatic volatility-based exits.

Run the backtest and fine-tune parameters for your instrument and timeframe.

🏁 Philosophy

This strategy captures the essence of Seykota’s trading wisdom:

“The trend is your friend — until the end, when it bends.”

It’s not about prediction — it’s about process, discipline, and letting winners run while controlling risk.
ATR sizing and optional trailing stops simply automate the timeless rules that made Seykota a legend.