Ep. 376: Overcoming Bias with Michael Covel on Trend Following Radio

Leda Braga

Leda Braga

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Human beings have a strange habit of trusting other humans, even when the trust isn’t warranted. Everywhere in mainstream media, statistics are used and misused to convey an agenda. All too often, people ignore the agenda and buy into this engineered information.

To be successful, both in life and in trading, a person must move beyond this behavior. You need to be a skeptic. You can’t put blind faith into a system that doesn’t make its agenda clear. You probably shouldn’t trust it even if the agenda does seem clear. This is just as true when considering pollsters like Frank Luntz as it is when listening to the sales pitches of discretionary traders on Wall Street.

In today’s episode Michael Covel discusses the biases we have as human beings that lead us to poor investing decisions. Most notably, it is a bias that prevents us from trusting algorithmic trading, even when a human alternative is demonstrably worse. Through entertaining and insightful clips, Michael demonstrates why algorithms deserve our trust: their accountability and their ability to be back tested through different market conditions.

The episode is full of interesting sound clips and passages from bright minds such as Penn Jillette, Leda Braga, Daniel Dennett, Lasse Pedersen, and David Harding.

In this episode of Trend Following Radio:

  • The use and misuse of statistics
  • Using skepticism to your advantage
  • The advantages of algorithmic trading
  • Leda Braga on why ‘Black Box’ isn’t a fair term
  • Daniel Dennett’s simplifications of algorithms and computing
  • Trend following as simple agnostic rules that can easily be passed to a computer
  • Efficient market theory failure during surprises

“You want to be a contrarian. You want to be on the other side of the coin. Don’t be with everyone. Stand to the side. That’s where the opportunity is…” – Michael Covel

Mentions & Resources:

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Posted in Podcasts, Psychology, Statistical Thinking, Systems Trading, Trend Following

Are You Profiting From the Market Panic?

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Michael,

I received a call from my dad asking if I was OK with the market panic selloff. Even though I had explained how I trade he and many others still think a drop in markets is bad for everyone. Naturally the panic selling was not the start of the down trend so I was nicely short the Dow prior to sell off.

I still can’t believe how robust this system is. Conceptually, I felt I understood it in the past but you just don’t get it until you trade it. And I am still amazed that the general market still thinks that you can only profit from stocks and commodities going up. At the same time I am profiting from that ignorance, so I am inclined to enjoy it.

Regards,
[Name]

Thanks.

Posted in Trend Following

Trading Food for Thought

Interesting reads:

Enjoy.

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The Podcast of Michael Covel

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Dear Michael,

This is my review of your podcast, free for you to place anywhere you like under my name “Moshe Shalom, Israel”:

The podcast of Michael Covel is a treasure of knowledge. It brings you the basics about trading but also can enrich the most experienced of money managers. Michael is discussing all the topics with his great guests in a casual manner of an experienced host. His questions and remarks are a great addendum to the insights Of his guests and you see very quickly that he knows the “inside baseball” of the subjects discussed. This is not a “trend-following” only podcast. You have guests on many aspects of life, success, and zen-like attitude to survive the many twists and turns of life. Trading systems, risk management, and customer relations are the core of a very eclectic range of subjects that I found very interesting. I am sure that anyone that will listen too will feel the same mixture of pleasure and knowledge.

Thanks for everything,
Moshe Shalom, Israel

Thanks!

Posted in Trend Following

Ep. 375: Mark Sleeman Interview with Michael Covel on Trend Following Radio

Mark Sleeman

Mark Sleeman

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Today’s guest is Mark Sleeman of MS Capital Management. Mark is a self-taught trend following trader who’s been trading since the late 80s.

Michael Covel asks Mark about the road that led him to trend following and his early experiences as an trader. Mark talks about how, in the beginning, he was only looking for a way to make money. But with his engineering background, when he happened upon systems trading, everything fell into place. So confident was Mark in both his system and his own abilities, in fact, that he was willing to sell his house to get started (to raise trading capital).

Mark points out that investing based on “bottoms and tops” alone is pointless since no one can predict where the market will turn. The key to smart investing is a diversified portfolio that can sustain small losses long enough to catch those big wins. Trend following is the only proven system with decades of empirical data to back it up, and it’s the only way to trade if you want to become a long term survivor.

Other areas of discussion include the psychology of trading, understanding that patience doesn’t come naturally (has to be learned), and the importance of maintaining a life outside the markets.

In this episode of Trend Following Radio:

  • The fallacy of “buy low, sell high”
  • The psychology of trading
  • Keeping your losses small
  • The importance of maintaining a life
  • Focusing on the strategy, not the instrument
  • Understanding that patience has to be learned

“You’ve gotta be robust because you’re gonna see good markets and you’re gonna see bad markets. I’ve certainly seen both, and expect to see more of both.” – Mark Sleeman

Mentions & Resources:

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.

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Posted in Interviews, Podcasts, Psychology, Statistical Thinking, Trend Following

How Successful is Cold Calling?

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Did you ever do any podcasts that covers the probability and numbers game aspect of cold calling and sales? Was listening to one of your podcast episodes and seems to be a lot of similarities between trend following and cold calling.

Lots of small losses (the people who say no) and then the big gainers (the companies who say yes and become great customers).

Discipline, having and following a system, managing your bankroll (which in sales is time), cutting your losses (move on to the next call), letting your winners run (developing a long standing client who does a lot of business with you, tracking and analyzing metrics (best days to call, best times to call, best approach to use, best questioning strategies, etc).

[Name]

Know any good write-ups on cold calling and math?

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Posted in Feedback, Trend Following

Questions: Flagship vs Standard

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Hi Michael,

Thank you for sending me the 2 DVDs which I received recently. I find the interviews and information very motivating.

I am interested to purchase the system, but would firstly like to have a better understanding of what will be included in the package. From a review of the Flagship vs Standard package there are various manuals and DVDs. My questions:

a) Is there a software program included in the package which can be used to assist in making trading decision?

b) If no software is included, will the manual teach me to develop the software program?

c) Since there are hundreds of pages in various manuals, are there standard Trend Trading templates for use?

d) From your students feedback, what is average time needed to develop a fully functional Trend Trading System.

Thank you for your time and appreciate receiving your response.

Regards
[Name]

1. All decisions are derived from rules we provide. Those rules are easily understood. A computer and or third party software helps to automate, but it’s only following the decision-making of the rules. One could of course execute those rules with pencil/paper, but automation makes life easier. We help clients with third party software options/advice, but we provide the most important part of good trend following in Flagship–the logic.

2. You will not develop software. There are many third party apps, many, that you can put rules we teach into.

3. There are base/standard rules. The pages included are mostly examples, reinforcements, lessons, psych issues, etc. Not 100s of pages of rules.

4. You will have a full trend following system once you become a client. Learning can take place in as few as 6 weeks (rough guide; remember the Turtles).

There is also a comparison of the two packages here.

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Trading Food for Thought

Interesting reads:

Enjoy.

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“Improve Our Odds While Controlling the Risk”

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Hi Michael,

I am interested in more information about your new trading system, Spinosaurus. Please send me the PDF that you mentioned in your July 25th podcast episode.

I have read one of your books, bought your movie, “Broke”, from Amazon.com, and have been a podcast listener/fan for over 2 years now. I am a William O’Neill-style, long [term] stock trader, but as a computer programmer and system architect by trade, I am refining my own trading style on more of a trend following rooted philosophy. That is why I cannot stop listening to your podcast. It is great from your insight/commentary to the top-notch and interesting guests that you showcase! I would say it rivals the quality of TED Talks for me.

Anyway, I appreciate you making this information available so those traders like me can continue to learn and improve our odds while controlling the risk. Take care!

Sincerely,
[Name]

Thanks for the nice words.

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Posted in Feedback, Risk Management, Trading 101, Trend Following

Ep. 374: The Death Cross with Michael Covel on Trend Following Radio

Barry Ritholtz

Barry Ritholtz

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Today, Michael Covel reads a recent piece from Barry Ritholtz about the Death Cross: that foreboding moment when the 50 day MA falls below the 200 day MA. Then Michael looks at how a Twitter debate between Cliff Asness of AQR and Jerry Parker of Chesapeake Capital, sparked by the article, led to an examination of momentum v. trend following.

The so-called Death Cross is viewed by many to be an omen, a signal of dark days to come. And while that could be partly correct in the context of a complete system, the Death Cross is just a signal. It’s a mistake to think of it in apocalyptic terms that something will happen in 6 months time, etc. The Death Cross is the type of signal that can work for the investor with a robust, diversified portfolio within a system that doesn’t aim to predict the future. This is all about what’s happening in the present price, so you can take action now.

Michael also plays and comments on a Bloomberg interview with Barry Ritholtz, discusses the folly of predictive technical analysis, and hammers home the fact that trend following is the only proven form of quantitative trading.

In this episode of Trend Following Radio:

  • The importance of ignoring old concepts
  • Trend Following is about taking action
  • Why no one can predict where the market is headed
  • Incorporating the Death Cross into a diversified portfolio
  • Understanding momentum trading
  • The idea of “heuristics”

“Woe to the unwary trader who relies on the urban legends to inform an outlook.” – Barry Ritholtz

Mentions & Resources:

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.

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