Chan Chimes In
From “Chan” comes feedback:
Dear sir, We have purchased your book titled trend following and we could hardly finish half of the book as it was poorly written with no concrete information that we can learn from. Then we came to know of another book also written by you. On the safe side we did not buy it but we borrowed it from the local library. Regret to say but your writings is a rambling of nonsensical writings with no information that we can learn. Your writings is poor when compared to William J Oneil where a lot of information can be learnt from the book. Yours sincerely, Chan
Apparently Chan doesn’t like my writings!
Armando Added:
June 9th, 2008 at 6:05 pm
Hi Chan, Are you trying to learn how to make money or are you trying to find a “good book”? If you want a good book I recommend you purchase “War and Peace” or “The Adventures of Don Quixote”, if you’d like to make money then I recommend that you read a book that tells you step-by-step how to implement a time-tested system for trading successfully (don’t worry you don’t have to buy anything, you’ve already got the book - it’s called “The Complete TurtleTrader”)!
Matt - Trading System Reviews Added:
June 10th, 2008 at 4:04 am
I think part of the problem is that most people don’t know what they are supposed to be looking for, especially when they start out. Most seem to think that if they are told what shares to buy they will make money. Things like position sizing, exit points, risk management etc don’t enter their heads. Until you understand all the elements of a trading system you will see books that give you lots of intricate set-ups and ‘how to’s as being good value and ones that discuss, in a slightly more philosophical manner, trading systems as a whole as ‘rambling’.
If I could make a suggestion to Chan, it would be to read Van K Tharp’s ‘Trade your way to financial freedom’ first, then come back to Trend Following and The Complete Turtle Trader as they are some of the only books that talk across all areas of trading, not just entries and exits - whether you like the writing syle is another matter!
Brandon Added:
June 10th, 2008 at 8:52 am
The fascinating thing about Chan’s perspective is that it’s a great illustration in real time of just how wide the spectrum of reaction can be to a particular item. For example, some people like Chan can read “Trend Following” and gain nothing while others like myself can read it and have an “Aha!” moment causing a 4 year odyssey to build a system with an age and a platform to manage money for a living. I think the key is being skeptical enough to not take anything at face value, but being open-minded enough to realize that anything’s possible. In truth, I’m thrilled that everyone doesn’t ‘get it’ because it would be more difficult to capture trends if everyone did the same thing.
Jake Andrews Added:
June 10th, 2008 at 2:50 pm
NOT RELATED TO ARTICLE:
I think Brandon mentions something interesting to me, “Having the Aha moment causing a 4 year odyssey to build a system…”. I think many people would concur that they too have been on their hunt to find their system. I am currently developing a system with some of my college friends, with the hopes to turn this into a hedge fund deal once we have years of trading experience, and returns that bring in clients. A question I want to pose for the whole Audience, of Mike’s site, is this :
How many of you are currently in system development right now?
What are some of the obstacles you have encountered since developing your system?
If you already have a system, are you currently trading it? if so, then what other issues have you encountered that you did not forshadow?
I am willing to work on collaborating with you, Brandon, and others on system development if that sounds like something people are interested in? Either way my email is
jwandrew@mtu.edu
feel free to email me if you feel that a correspondence is something that sounds interesting. Thank you
Jake Andrews
Tina Vickery Added:
June 10th, 2008 at 5:47 pm
I don’t know how much trading or investing Chan has done in his life, but I would suggest he read both books again. For me the most informative parts of the books was how to manage risk by position size and stop loss. I was completely new to learning trading at the time. And the price will be your guide to the formula used to set your stop loss…meaning if the price goes down to X amount, then how much you could lose can be calculated. If you decide you are only willing to lose 3% on a bet, then you can figure out where to set your stop loss and get out. Its in the book. Read again Chan. I was very confused when I first read the books myself. But read again, and also read anything you can find on trend trading. This will help.
Tina
Sai Added:
June 10th, 2008 at 6:06 pm
I can kinda see Chan’s point of view here. I finished reading the book about a week and half ago and am trying to understand some of the trading systems in the appendix. I agree that there is quite a bit of “storytelling” in the 1st half of the book; albeit each anecdote or commentary by a TFer (Ed Seykota, for example) has a definite lesson and a message to be learnt. Where I thought the book was not very clear is the actual implementation of the TF strategy. In appendix A, for example, the 1st trading system uses the SP500 index and charts a very basic strategy using the 50/100 SMA crossovers (go long when the 50 x’s over the 100; go short when the 100 x’s the 50; cover yourself w/ appropriate stop loss points). 515 trades were recorded in total from the period of 1990-2004 (p270). Yet when you actually try to do this manually (i.e using any basic charting software to see where the 50/100 SMAs x’d over and then just recording the results, far less trades were recorded). The actual wealth-lab script used (for those of us who are not programming-inclined) would be very useful to see how this was done. Also, what is confusing is that level of drawdowns - if stop losses are set appropriately, then dont they serve as default exit points and shouldnt you not experience the severe drawdowns? what would also be useful to know is if you do get stopped out, when do you get back in; what is the appropriate entry point again?
I really like the message in this book; the returns gained by TFers speak for themselves. heck CNBC just mentioned Jim Simmons 3-4 days ago as outperforming the mkt with ludicrously high returns. However, the lack of details about TF renders the underlying message in this book as a bit obfuscative. If the basic tenet of TF is price following (and all the other rules outlined), then formulating a system should be straightforward. yet it doesnt seem to be. technical indicators are pooh-pooed (sp?:); yet SMAs, donchian channels are used to craft the trading systems in appendix A. Furthermore, by seeing the rather long durations of quite a few TF positions illustrated in the book, a lot of these look like the much maligned buy-and-hold strategies, when one takes into account the massive drawdowns a certain position may experience (i.e a position may be at, say -20%, and then make its way back upto the trend its on).
If someone can provide the actual scripts used on wealthlab that mimic the trading systems in appendix A, I’d really appreciate it.
Overall, I really do like the book and am trying to formulate a simple trading system for which to use it in…If anyone would like to discuss further, please email me (saipiyer@yahoo.com). Thanks
Michael Covel Added:
June 10th, 2008 at 6:21 pm
Sai have you read my second book on the Turtles?
Sai Added:
June 10th, 2008 at 7:05 pm
Hi Michael, I havent read Complete Turtle Trader yet. But I’m getting it ASAP! Perhaps some of the questions to the issues that I posted may be addressed in it (?). Thanks!
Brandon Added:
June 10th, 2008 at 8:31 pm
I meant ’system with an edge’ not ’system with an age’ in my comment above.
Hey Michael, love the new site design, but how ’bout a spell check on your comment tool for boneheads like me…
Jake, you’re off to a good start by familiarizing yourself with Michael’s work. My partner and I are only 18 months or so into managing client funds so I don’t know if we should be giving advice, but the main obstacle is between your ears. Only build a system that you know you can stick with when markets are choppy, such as now. Your simulated results mean nothing if you can’t follow it when it matters. Van Tharp, Steenbarger, and Mark Douglas offer some good resources on this topic. Simplicity and conservative assumptions (i.e. slippage, commissions) are key in system building because complex rules may give you great test results, but are much harder to follow, in my opinion.
Tina Vickery Added:
June 10th, 2008 at 8:34 pm
Sai,maybe when one position is in a 20% drawdown, it is balanced within the many bets taking place….meaning it is possible that other bets are expieriencing very high returns at the same time one is at 20% drawdown. So the overall portfolio is giving returns at that point.
Michael Mehrle Added:
June 10th, 2008 at 8:44 pm
I bought both of your books and read The Complete Turtle Trader in a weekend - couldn’t put it down. Just started on Trend Trading, which probably will take me a bit longer.
In the end you’ll if you put yourself out there, someone is going to crawl out of the woodwork and throw crap at you. Don’t worry about that - it’s the same kind of people who keep telling me that trend trading doesn’t work. These are the same people who are getting reamed in the market this week - I for one am smiling all the way to the bank.
Making money in the market is actually quite easy - as long as one has the stomach to stick with the system. Once you tune out all the noise the path is clear - your book helped me along a great deal and I really appreciate the painstaking research to uncover the ‘mystery’.
I also love your podcast excerpts - both in content as well as delivery. Great stuff - keep it up.
Michael Covel Added:
June 10th, 2008 at 8:46 pm
Michael I don’t mind the crap being thrown as long as we all can learn from it!
Dogwood Added:
June 10th, 2008 at 11:06 pm
I think the issue may be that Chan, and to a certain extent maybe Sai, bought Trend Following expecting more of a “How To” approach, when in fact the book is heavy on the philosophical/conceptual basis behind trend following and system trading. while The Complete Turtle Trader goes into more detail on the specific rules of the Turtles.
I don’t think Michael should provide computer code for specific systems in his books because a system needs to fit the personality and trading goals of the individual trader. Providing code may result in someone rushing out to trade the system without completely educating themselves on how it works, negatively and positively.
Sai, if you want the computer code for specific systems, I would suggest visiting Wealth-Lab.com and browsing through the ChartScript Center. Select the View by Family option where you will find literally thousands of trading systems available for testing, tweaking and experimenting. Some are great and tradable as is, others are pure trash but fun to experiment with anyway. In fact, there are 25 scripts just using moving averages.
Also, you can find other scripts and ideas by reading the forums. Quite often new users with limited Wealth-Lab or programming experience will ask for assistance in programming an idea, and either staff or other traders/programmers will crank out the code for you.
As for drawdowns, every system has a drawdown of some size at some point in time. A stop loss may help reduce the size of the drawdown but it will not eliminate the drawdown. Also, if you’re not careful, a stop loss poorly placed will negatively impact the system’s profitability.
Sai Added:
June 11th, 2008 at 12:15 pm
Thanks all! points all well taken. I should have read Turtle Trader before TF, but that’s no big deal since I’m well on the way to doing that. As for scripts, no, providing scripts will not prompt me to go out and try this out. Its just so that I can get a clear understanding as to the programming; like I said, I’m not a programmer and having details on how the systems work would help me design my own, rather than blindly going out and trying something out. As for drawdowns, like I said before, I really get the concepts in the book - drawdowns will be part of the TF paradigm and totally get that. My only confusion was that if you’ve placed appropriate trailing stops, then the extent of the drawdown would be the % lost with respect to the trailing stop. In any case, I’m sure this will become clearer as I plow through Complete Turtle Trader.
Doug Added:
June 11th, 2008 at 1:00 pm
Learning how to trade has been one surprise after another. First surprise is that there is no easy how-to about it. Second surprise is that it is not a particularly exciting way to make a living; in fact, if it’s exciting, it’s probably a terrible way to make a living, but a great way to get excitement. Another surprise is that, no matter how “smart” you are, or how intricately you design your indicators, since the market is inherently “chaotic” in a mathematical, fractal sense, neither fundamental analysis nor technical analysis will work. Another surprise is that you don’t have to know what happens next to profit from what happens next. Another surprise is how important money management is, start to finish, top to bottom. There are hundreds or perhaps thousnands of books about hot indicators, infallible systems, how to turn option accounts into ATMs, which fundamentals will show you the future, and very very few books about money management (I can think of only, maybe, five).
Surprises are good, and good for you (if they don’t kill you, like a surprise tornado or grizzly bear in the tent . . .), but you have to be prepared for the surprise and the fact that it will change the way you view the world.
I had dinner the other night with a chaos expert, not in the financial field but in the physics world. It was amazing, I realized, that analyzing the markets this way we are applying very real science (which can be used for meteorology, flood warnings, tectonics, crop yields, etc.) to an activity where the data point inputs are generated by human emotions alone, some of them we label “analysis” or “prediction” and some of them we label “greed” or “fear”.
In any event I’m pretty sure Chan won’t think this little note has anything to offer, either.
Dogwood Added:
June 11th, 2008 at 3:08 pm
Chan said: My only confusion was that if you’ve placed appropriate trailing stops, then the extent of the drawdown would be the % lost with respect to the trailing stop.
Multiplied by the number of consecutive losing trades, plus the amount of money lost on open but underwater trades that have yet to trigger a stop loss.
Dogwood Added:
June 11th, 2008 at 3:09 pm
That should be “Sai said….”
James O. Rohrbach Added:
June 12th, 2008 at 12:04 am
Those who interpret Michael’s work should be careful to not use those interpretations to try to convince others that they are Trend Followers.
William Added:
June 12th, 2008 at 3:46 am
I smile as I read Chan’s post. It is good to know there are those willing to trade with an attitude like his. I would certainly have a more difficult time making money without them.
I have read both of Michael’s books and have read many others. They all have something to learn from. If I disagree then I am challenged to examine why. If I find it too easy to agree then I skeptically challenge the premise. This is the process I undertake to distill my beliefs from all the noise and circumstance of the current environment.
There are very concise and clear instructions in Michael’s books that will enable you to work out simple to follow trading rules. Much of the book discusses the traders that employ a trend following method. Without this necessary background the methods discussed lose credibility. You need to know there are those who can apply the methods successfully to instill a belief that the approach is a worthy undertaking. One needs to research and develop trading rules that suit individual circumstance. It is work and it is dedication.
I think Chan is looking for a free ticket - he won’t find one no matter how hard he looks. Perhaps he should read a coupon book.
Dennis Added:
June 12th, 2008 at 10:03 am
In the early part of the century when I trusted a broker to pick stocks, I lost 75% of my original investment in the tech bubble and never got it back. Studying since then, I have learned about position sizing and stop losses and some other things and so now the most I can lose on the whole account is the amount of all my stop losses at once, which would be extremely rare and would be totally inconceivable to be anywhere near 70%. The only thing I can think of that could give me a greater loss than my total stop losses is a catastrophic market downturn or some other catastrophic event. But you have to be in it to benefit from the upswings. The more you study the less you will be like me in the early part of the century.
Chuck Added:
June 12th, 2008 at 12:52 pm
It sounds to me like Chan was expecting some great secret to be revealed and was disappointed.
The biggest secret of trading is that there is no big secret. As a host of a cable trading show once said, “It’s not that complicated.” This is not to say it isn’t hard. The activities that you need to do to trade are fairly basic, but you do have to work hard to get these basics right. You need to develop and execute a money management plan, which is boring. You need to develop and execute an exit plan (no fun). Most beginners think that it’s all about picking the entry and the profits will take care of themselves. They are convinced that there is some secret to picking winners and nobody will tell them what it is.
Doug Added:
June 12th, 2008 at 3:10 pm
I think the most interesting and valuable thing I have learned from several years of studying trend following (and markets in general) is NOT that you have to be a trend follower to make money, but rather to understand WHY and HOW it is possible to make money by following trend breakout and breakdown signals. Once you understand that, and all that it entails, you are empowered with more knowledge about how markets work, and how money management has to work, than 80+% of the people and professionals “in the market.” How many people really know and really understand: “you don’t need to know what will happen next in order to profit from what(ever) happens next.”??
Leo Bebb Added:
June 12th, 2008 at 5:06 pm
What I meant to say was: It is quite obvious that what Chan is looking for is data on how a trend following trading system can be developed.
Alex Added:
June 12th, 2008 at 7:53 pm
Folks:
We shall be glad that there are people like Chan who did not get anything by reading Covel’s book. This showed that there are plenty of others who cannot accept Trend Following. As such, the way of Trend Following would not easily fall into “death system” in the near future.
Chris J Dugan Added:
June 16th, 2008 at 9:35 am
If you can pick up 1 or 2 good lessons or identify a single different perspective on a subject when you digest a book it’s worth the price of the book.
It appears Chan may simply be on the hunt for the “Holy Grail”…good luck with that one Chan.
Sai Added:
June 16th, 2008 at 7:18 pm
I just got thru 1/2 of the Complete Turtle Trader (post chapter 5) and now have gotten a grasp of the exact details of the original TT system. the results pretty much speak for themselves. I do think that the CTT should be read before reading TF; it just makes more logical sense that way…unless of course you’re already familiar w/ the turtles and the original story. In any case, there is a wealth of insight and knowledge that can be found for any trader from both books and does give enough detail to start formulating one’s own TF system…