This article is one in a series looking at Jack Schwager’s classic investment books. The goal is to study interviews with famous traders and apply their wisdom to daily fantasy sports.

Ed Seykota is recognized as one of the most influential traders of the 20th century. He pioneered the concept of mechanical system trading and used this method to harness the power of modern computing. He is an icon among trend-following traders and was also one of the first traders to explore psychology.

At the time of this interview, Schwager reported that Seykota was up an astounding 250,000 percent over 16 years for one of his first investors. Since he’s mostly a system-based trader, Seykota has had plenty of time to investigate the psychological factors that drive traders to produce both profits and losses. Let’s dive into those concepts and see if we can find some wisdom to apply to the DFS world.

Seeing the Bigger Picture

Systems trading is ultimately discretionary. The manager still has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading base as a function of equity change. These decisions are quite important — often more important than trade timing.

Seykota believes that the actual timing of a trade is relatively unimportant. The same exact trading system can produce dramatically different results depending on a broad range of discretionary decisions made by the trader. In this respect, even the most rigid trading systems still have a discretionary element.

Like traders determining which markets to play before considering the particular positions to buy or sell, DFS players should use their discretion in deciding which games they want to target before bothering with selecting individual players.

One of the best tools to help with those types of discretionary decisions is our Vegas Dashboard. Having the right overview of a slate and the teams (which can be thought of as ‘markets of players’) is often more important than having the right opinion on a particular player. The Vegas Dashboard enables DFS players to see that bigger picture.

While you might like a specific hitter’s individual matchup, the Vegas Dashboard could help you make the discretionary decision to go in a different direction and opt to stack a lineup with a high projected total. (By the way, stacks can easily be incorporated into rosters via our Lineup Builder in our Player Models.)

Protect Your Bankroll

The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.

Seykota is known for comments like this that are humorous on the surface but also have a degree of depth to them. This is his way of stressing the point that guarding against losses is the most important thing that a trader can do. (With his focus on loss prevention, he’s similar to Paul Tudor Jones.) As long as you preserve some amount of capital, you will always live to fight another day.

Because every DFS slate is its own separate entity, we don’t have to worry about cutting ongoing losses in the way that traders do. However, we do have to be vigilant in protecting our bankrolls at all times.

The best way to protect your bankroll is to avoid rostering players who destroy lineups the way tanking stocks with poor fundamentals and technical indicators ruin portfolios. This won’t always be possible, but by using the FantasyLabs Tools to monitor our performance metrics like Plus/Minus and Consistency Rating, you can form an educated opinion about the odds of any given player ruining a slate.

Especially useful is our Dud Rating metric, which calculates the percentage of games in which a player has finished at least one-half a standard deviation below his salary-based expectations. In particular it can be helpful to compare a player’s Dud Rating for the year versus the last month. This will give you an idea of whether the player is trending in a positive or negative direction. Comparisons of this type can be made quickly with our Trends tool.

Know When to Trust Your Gut

Gut feel is important. If ignored, it may come out in subtle ways by coloring your logic. It can be dealt with through meditation and reflection to determine what’s behind it. If it persists, then it might be a valuable subconscious analysis of some subtle information. Otherwise, it might be a dangerous sublimation of an inner desire for excitement and not reflect market conditions. Be sensitive to the subtle differences between “intuition” and “into wishing.”

As Seykota says, allowing some room for gut feel is important. If you don’t at least acknowledge a desire to make gut decisions, they are likely to come out in other ways and sabotage your trading. Recognizing when your gut is guiding you can be critical to stopping bad decisions before they are made.

DFS players constantly make choices between players their models like and players their guts like. Understanding that each is going to be wrong at times can make this even more confusing. Fortunately, you can use your model — or maybe even A/B testing — to determine which method (gut or model) is more likely to be correct.

I often use the overall rating for a player in my model as a way to determine how serious I should take my gut feeling on a player. If a player my gut likes has a high rating but is still behind a few better options, I might go with my gut — especially if I think I can gain an edge in ownership, which can be tracked across stakes in our DFS Ownership Dashboard. But if the player I like is buried at the bottom of the list in bright red, I’ll go in a different direction.

Seykota and DFS

Seykota’s passion for trading shines through in this entire interview. He is a guy who is obsessed with mastering his craft, and that is precisely the reason he has been so successful. If you are the type of person who is willing to bring that level of passion to DFS, then maybe you can become a DFS Market Wizard.