Ep. 360: “Pas de Dough” with Michael Covel on Trend Following Radio

How I Made $2,000,000 in the Stock Market by Nicolas Darvas

How I Made $2,000,000 in the Stock Market by Nicolas Darvas

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A May 25, 1959 Time Magazine article called “Pas de Dough” was recently forwarded to Michael Covel. It was about a professional dancer named Nicolas Darvas, who had made two million dollars trading stocks. This was probably one of the first trend following articles to appear in a major publication.

Sports metaphors when it comes to trend following work great, but there are clearly others. For example, both trend following and dancing judge the public’s enthusiasm and use that as the indicator for the next move.

In this monologue, Covel talks about the article and Darvas’ book, breaks down the fundamentals of trend following, and explains why the philosophy behind trend following still applies today. He also comments on how trend following can be applied to the current black swan economic situations in China and Greece.

In this episode of Trend Following Radio:

  • What trend following and dancing have in common
  • The philosophical foundations of trend following
  • Stock trading and location independence
  • Why relying on “fundamentals” is fool’s gold
  • What being a silent partner in the trend means
  • Why Darvas’ thinking from 1959 still applies today
  • The importance of having no ego when it comes to trading

“The only sound reason for my buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering” –Nicolas Darvas

Mentions & Resources:

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Posted in Podcasts, Trading 101, Trend Following

When Will Your “A-ha” Moment Be?

Feedback in:

Hi Michael,

I just finished “The Little Book of Trading” and like “Trend Following” it is an extremely important work if someone has reached that point in their trading to accept there is indeed a better way, a correct way, a peaceful way if you will, to ride the “flow”.

I have bought Trend Following” at least a half dozen times and “The Complete Turtle Trader” the same (I hope you get royalties off used book sites) because I read, underline, highlight make notes etc. to the point where it’s difficult to go back and re-read them. I also have thrown them out on occasion when I convinced myself Trend Following wasn’t for me because I was “sold” on the idea of day-trading. I was a stock broker for 25 years and due to the fact that that industry was changing before my eyes via the internet, I decided that rather than fight it I would embrace it and thus I decided to go to New York and attend a day trading class and learn to trade on-line.

Seven years and a lot of frustration latter I have had my Aha moment, that moment came when I took the advice of Ed Seykota and Larry Hite (Market Wizards interviews) and looked at the BIG PICTURE, as Ed said “look at the chart from the other side of the room”. Instead of the 2, 5 and 15 minute charts people are trained to use for intra-day trading, I put up a long term chart on TradeStation and saw all my entries for thousands of trades and was amazed at how clearly I could see I was going against the trend on the losers and maybe more importantly how many correct entries should never have been closed out because the trend was STILL INTACT! Everything you discuss in your books was right in front of my eyes, there IS something called a trend and it CAN be followed or as I like to say “obeyed”. Perhaps, I could publish a book of charts showing my trades and how wrong they were and how right they could have been simply by looking at the charts from across the room. I have bought hundreds of books on the market and can’t recall one that was a complete manual on what not to do.

I also bought your movie and noticed the scene under the Whitehurst freeway where you went into an Ebay store (that store was right near the famous River Club of Georgetown which may have been before your time). I live in D.C. (without a car) and wanted to offer to buy you a cup of coffee if you’re ever back in Georgetown and have some time to meet a fan.

p.s. Have you ever read “How I made $2,000,000 in the Stock Market” by Nicholas Darvas? That book was written in 1960 and in my opinion is one of the best books ever written on operating in the stock market. Livermore’s “How to trade in stocks” 1940 is good but I’ve noticed some inconsistencies in the book such as when he says something to the effect that speculating is nothing more than “anticipating” moves…one shouldn’t anticipate, one should follow.

Best regards,
[Name]

Thanks for the great feedback!

Happy 4th of July!

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Posted in Book News, Endorsements, Feedback, Trend Following

Ep. 359: Campbell Harvey Interview with Michael Covel on Trend Following Radio

Campbell Harvey Interview with Michael Covel on Trend Following Radio

Campbell Harvey

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There is a common problem in finance when it comes to evaluating investment managers’ performance: the factor or skill vs. luck. When a manager performs well over a number of years, it is not clear whether the success can be attributed to the manager’s skill and strategy, or random luck. And vice versa, when a manager performs badly, it can be difficult to pin-point whether it was due to lack of skill, or simply bad luck.

Another factor that is commonly misunderstood in finance is risk. Understanding the differences between risk, volatility, and skew is essential to developing a well-performing trading strategy.

Campbell Harvey studies these phenomena. He is a finance professor at Duke university, and research associate with the National Bureau of Economic Research in Massachusetts. His research papers on these subjects have been published in many scientific journals.

In this episode, Campbell Harvey and Michael Covel discuss risk tolerance, evaluating trading strategies, Harry Markowitz’ classic paper on portfolio selection, and the importance of differentiating between volatility and skew.

In this episode of Trend Following Radio:

  • Survivorship bias, and not being fooled by randomness
  • Why people with higher risk tolerance experience much higher upsides
  • Understanding process vs. outcome
  • The difference between volatility and skew
  • The importance of recognizing that asset returns are rarely “normally distributed”
  • When it is appropriate to apply a general framework, and when it is not
  • The Sharpe ratio – is it always relevant?
  • Harry Markowitz, Jim Simons, and Nassim Taleb

“These people that are taking a lot of risk, with enough luck, will rise to the top. The person that is risk-averse is stuck in the middle” – Campbell Harvey

Mentions & Resources:

Rate and Review Trend Following Radio on iTunes

Want a FREE trend following DVD? Get it here.

Get the foundation to making money in up, down and *surprise markets on the Trend Following mailing list.

Have a question or comment about this episode? Post it below.

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Posted in Interviews, Podcasts, Risk Management, Trend Following

Another Rave of My Interview with Ed Seykota

Feedback in:

Loved that interview [Ed Seykota]. He had some good insights on… You!

[Name]

Thanks. Yes, he sees a great deal!

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Check Out the New Ed Seykota Podcast

Feedback in:

Hey Michael, Just wanted to say hello and compliment you on the interview with Ed. Well done!

Cheers,
[Name]

Thanks.

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Posted in Feedback, Trend Following

Trading Food For Thought

Interesting reads:

Enjoy.

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Posted in Psychology, Trading 101, Trend Following

How I Made $2,000,000 in the Stock Market by Nicolas Darvas

Excerpt: “Hungarian by birth, Nicolas Darvas trained as an economist at the University of Budapest. Reluctant to remain in Hungary until either the Nazis or the Soviets took over, he fled at the age of 23 with a forged exit visa and fifty pounds sterling to stave off hunger in Istanbul, Turkey. During his off hours as a dancer, he read some 200 books on the market and the great speculators, spending as much as eight hours a day studying. Darvas invested his money into a couple of stocks that had been hitting their 52-week high. He was utterly surprised that the stocks continued to rise and subsequently sold them to make a large profit. His main source of stock selection was Barron’s Magazine. At the age of 39, after accumulating his fortune, Darvas documented his techniques in the book, How I Made 2,000,000 in the Stock Market. The book describes his unique “Box System”, which he used to buy and sell stocks. Darvas’ book remains a classic stock market text to this day.”

How I Made $2,000,000 in the Stock Market by Nicolas Darvas

How I Made $2,000,000 in the Stock Market by Nicolas Darvas

How I Made $2,000,000 in the Stock Market by Nicolas Darvas

How I Made $2,000,000 in the Stock Market by Nicolas Darvas

On Amazon.

Yes, it is a form of trend following.

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Posted in Statistical Thinking, Systems Trading, Trading 101, Trend Following

The Mind

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Posted in Psychology, Trend Following

William Eckhardt Trend Following Feedback From India

Feedback in:

Hi Michael,

This is a fan of yours from India! I have been following you since some time and find your interactions quite interesting. I heard you mention Bill Eckhardt speech that he made [years back]…which you found interesting. Could you send me the link for it if possible? Thanks a lot.

Only an audio file that I have locally. Thanks for nice words!

William Eckhardt

William Eckhardt

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Posted in Endorsements, Trend Following

Ep. 358: The China Trip with Michael Covel on Trend Following Radio

Synopsis: Michael Covel presents a monologue today about his recent trip to Mainland China (Beijing). A trip that centered on his presentation to 1100 Chinese investors and traders. For those listeners that have not yet traveled to China–either for business or vacation–Covel offers a wide-ranging primer. There is no doubt that from a business perspective especially–the time for China is now. The population is massive, the energy is overwhelming and the desire is infectious. Regardless of your current understanding of China, your perception of their government or the many other misunderstandings so prevalent in the West–China has at its core a deep desire for business and success. The adrenaline is simply to be felt. And yes, they want to learn trend following too. Free trend following DVD: www.trendfollowing.com/win.

Michael Covel's Name Card at Recent Beijing Event

Michael Covel’s Name Card at Recent Beijing Event

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Posted in Feedback, Podcasts, Trading 101
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