Michael Covel: News & Info.

Brett Steenbarger in a recent article titled Coping With Risk and Uncertainty offers:

“What constitutes a source of stress is highly dependent upon our perception. If we define something as a threat, we will experience it as threatening, and that will trigger a stress response. For some people, public speaking is an everyday activity, not to be feared at all. It might even be something enjoyable. Others view public speaking as a potentially humiliating event. Their perception of threat triggers the stress response that we call performance anxiety. Cognitive psychologists, however, remind us that it is not the public speaking event itself that is generating the anxiety, but rather our processing of that event. Take away the perception of threat and the anxiety diminishes.”

This paragraph struck me. How many times have you ever heard someone say, “that’s too risky”, when talking about trading? Traders will have different perceptions of risk depending on their “processing” or “understanding”. Saying that something is “risky”, without further explanation or discovery, is plain lazy. Thanks to Dr. Steenbarger for the pearl of wisdom!

Even though James Altucher refuses to recognize trend following as viable, I do appreciate and thank him for his mention of my blog and book Trend Following in his ‘RealMoney.com Blog Watch’ for December 17, 2005.

Feedback recently posted about the book “Trend Following”:

“This book is another pie-in-the-sky book. Technical analysis is not the end all to investing in markets. Sure, the author has empirical data but…so what. He fails to mention the enormous DD’s one has to endure in order to make money. It is proven that mechanical trading systems do not hold their weight in gold. By and by, they become obosolete [sic] because…they were curtailed to a selective time frame that no longer supports their viability in the wake of present time. Relying solely on mechanical trading systems that are derivatives of technical analysis is futile to longevity investing in the markets unless you have a lot of money you can use to weather the storm with. This strategy is best suitable for CTA’s and hedge funds…people who have the money to put up and stay in the game with…if the situation gets kind of murky.”

1. I wonder if this reader read p. 6-10 of the book?
2. I wonder if this reader read p. 246 of the book (last paragraph)?
3. I wonder if this reader understands that the Nasdaq is in a 55% drawdown spanning 5.5 years?
4. I wonder where it is proven “that mechanical trading systems do not hold their weight in gold?” What does that mean exactly?
5. I wonder what “By and by, they become obosolete because…they were curtailed to a selective time frame that no longer supports their viablilty in the wake of present time” actually means? If readers can interpret for me, send in an email.

In terms of trend following becoming obsolete, that cry has been screamed by skeptics for over 30 years. I know some very wealthy trend followers who must wake up every day dreading their “obsolescence”!

The Market Technicians Association’s December 2005 Newsletter Technically Speaking leads with an article of mine titled Risk Equalization (PDF).

“I want to say again what a great benefit this course and your website have been to my trading. I am trading with calm and tempered enthusiasm that I attribute directly to the lessons I have learned through your materials. Drawdowns are expected and therefore of little concern as my stops are in place if the market reverses against my positions. I no longer calculate every dollar that I could have ‘won’ if I had only picked the top or gotten in at the very start of the move. I still have colleagues that agonize over the ‘what if’s’, and then over-optimize their systems based on recent occurrences. I have thankfully learned to stay the course, and stay true to my decision making process. A process that is un-altered by the news and views of the community and the press. A process that focuses simply on price. When to get in, when to add more, with how much, and when to get out are all rock solid non discretionary rules, regardless of the market, the cycle or the funnymentals.”

I just learned that a trend following fund bought 3000 copies of the new and expanded edition of Trend Following.

Jason Wells sent me feedback on “gold”:

“The question that everyone seems obsessed with is, “Why is gold rising when the dollar is also near a high and inflation is tame?” The answers given by financial pundits in the mainstream press are varied and no one agrees what the true answer is. A recent article in the Washington Post seemed to hit the nail on the head: “Gold