Michael Covel is the author of the internationally bestselling book Trend Following

Self-Control for Trading

May 30, 2004

Self-Control is the Path

Thanks to Ed Seykota (Seykota.com) for the link.

Covered Call Reality

"People always get excited when they hear about this strategy called 'covered call writing.' They like the idea of picking up income - who doesn't - but rarely grasp the significance of the fact when the train leaves the station heading north, they won't be on it."
Don Chance

Bestseller #9

May 29, 2004

Trend Following: How Great Traders Make Millions in Up or Down Markets is now the #9 bestseller at Amazon for all business and investing books. Thanks again for the support!

Why the Rich Live Longer

May 26, 2004

Read: http://www.forbes.com/forbes/2004/0607/113_print.html

Intrade.com

May 24, 2004

Intrade is a trading exchange for politics, current events, financial indicators & other unique contracts...

Profits Do Not Cause High Prices

May 23, 2004

Read: http://mises.org/fullstory.asp?control=1520

John Ehlers Endorsement

May 21, 2004

A long time author in the field of technical analysis, John Ehlers offered this endorsement of Trend Following: How Great Traders Make Millions in Up or Down Markets:

"Michael Covel reveals the real secret about trading - that there is no secret. His points are peppered with wisdom from experts across the industry."
John Ehlers

I thank John for talking the time to offer feedback!

Zero-Sum Insight

May 20, 2004

Trend followers go to the market to trade trends. However, not all market players are trying to do the same thing. Fannie Mae could be making change in their bond portfolio. A major investment bank could be trading a strategy that will not tolerate volatility. Bottom line people trade for different reasons for different goals. George Crapple, a trend follower with 25+ years in experience, makes the point:

"So while it may be a zero some game, a lot of people don't care. It's not that they're stupid; it's not speculative frenzy; they're just using these markets for a completely different purpose."
George Crapple
Millburn Ridgefield

Robert (Bucky) Isaacson Review

May 19, 2004

I am honored to offer an endorsement from Robert (Bucky) Isaacson for Trend Following:

"Michael Covel mixes a unique blend of trend following matters with the thoughts and quotes of successful traders, investors and society's leaders. This is a valuable contribution and some of the best writing on trend following I've seen."
Robert (Bucky) Isaacson

Bucky currently runs Future Funding Consultants and is a member of the Board of Directors of the National Introducing Brokers Association. A true pioneer, in the early 1970s he teamed with Keith Campbell and Chet Conrad to help launch one of the first trend following commodity funds. Today, Keith Campbell's company is considered one of the most successful trend following firms. Futures Magazine was blunt about Isaacson's pioneering role:

"There also was the launch of commodity funds by Richard Donchian and an industry that was developed by a small band of traders, including Robert "Bucky" Isaacson, Keith Campbell..."
Futures Magazine
February 2002

Gas Prices Rise

May 18, 2004

In USA today there is a piece about the price of gas going up and here is what the so-called expert had to say:

"Some oil analysts say the worst for the climb in gasoline costs is probably over, provided oil costs don't increase much more".

How in the world would you make a trading decision from this analyst? Do you get in? Get out? How much do you buy or sell of gasoline if you are trading it? Does anyone really believe this analyst (or any analyst) can predict anything? Analyst comments like these were supposed to be dead and buried with the dot-com bubble.

Holy Grails

I have been asked: "will everyone like your book?"

There are definitely some that will not like the book:

1.) Wall Street businesses built off commissions or buy and hold lore.
2.) Warren Buffett true believers.
3.) Students of Richard Dennis that failed to find success.
4.) Proponents of market prediction.

Ed Seykota and Trading Tribe

May 17, 2004

Ed Seykota was one of many participants in the Trend Following book project. His Trading Tribe contributions (in the book) are gentle reminders of what he feels to be the keys to great trading.

You can read more about Seykota's tribe here.

Trend Following Contributions

May 16, 2004

The appendix of my book Trend Following offers some valuable contributions from:

1.) Bob Spear of Trading Recipes
2.) Paul Mulvaney of Mulvaney Capital
3.) Brett Steenbarger

Their additions added to the overall thrust of the book.

Practice and More Practice

May 15, 2004

This excerpt from 'The Learning Curve' by Atul Gawande speaks directly to the importance of practice:

"There have now been many studies of elite performers--concert violinists, chess grandmasters, professional ice-skaters, mathematicians, and so forth--and the biggest difference researchers find between them and lesser performers is the amount of deliberate practice they've accumulated. Indeed, the most important talent may be the talent for practice itself. K. Anders Ericsson, a cognitive psychologist and expert on performance, notes that the most important role that innate factors play may be in a person's willingness to engage in sustained training. He has found, for example, that top performers dislike practicing just as much as others do. (That's why, for example, athletes and musicians usually quit practicing when they retire.) But, more than others, they have the will to keep at it anyway."

Sources: Gerard E. Dallal, Ph.D.

Trend Following Positions

May 14, 2004

Monthly commentary from a large Trend Following trader came across my desk today. They are now ready (after reversals in April) to benefit from rising interest rates and rising energy prices. Of course, they also remind the reader that they have no idea if the markets will continue in a beneficial direction. It all gets back to the idea that prediction is impossible and this trader honestly admits such.

Bestseller!

May 12, 2004

The book Trend Following has made many of the bestselling lists at Amazon:

1.) New Releases: #10
2.) Investing: #20
3.) Investing (General): #10

Thank you for your interest!

The Risk Debate

May 10, 2004

I had conversations with two groups today. One group runs a fund that combines many traders together into a portfolio that aims for good returns, but less drawdown. The other group works with a trend following legend who shoots for absolute returns. Is there a right direction? Should you as a trader (or investor with traders) have multiple trading approaches combined or one great absolute return strategy? It is an interesting (and useful) debate. There will always be fierce arguments from each side for their point of view, but the choice ultimately comes down to what you want in your life and your performance.

No Prediction Possible

May 09, 2004

You want to predict the market direction? Think again:

"It took me a long time to figure out that no one really understands why the market does what it does or where it's going. It's a delusion to think that you or any one else can know where the market is going. I have sat through hundreds of hours of seminars in which the presenter made it seem as if he or she had some secret method of divining where the markets were going. Either they were deluded or they were putting us on. I have seen many complex Fibonacci measuring methods for determining how high or low the market would move, how much a market would retrace its latest big move, and when to buy or sell based on this analysis. None has ever made consistent money for me. It also has taken me a long time to understand that no one knows when the market will move. There are many individuals who write newsletters and/or books, or teach seminars, who will tell you that they know when the market will move. Most Elliott Wave practitioners, cycle experts, or Fibonacci time traders will try to predict when the market will move, presumably in the direction they have also predicted. I personally have not been able to figure out how to know when the market is going to move. And you know what? When I tried to predict, I was usually wrong, and I invariably missed the big move I was anticipating, because it wasn't time. It was when I finally concluded that I would never be able to predict when the market will move that I started to be more successful in my trading. My frustration level declined dramatically, and I was at peace knowing that it was OK not to be able to predict or understand the markets."
Charlie Wright
Chairman of Fall River Capital, LLC

Book Table of Contents

May 08, 2004

Trend Following Table of Contents and Trend Following Acknowledgements.

Lessons Learned

May 07, 2004

Readers have been asking what were some of the biggest lessons to emerge from the book research. A few that come to mind include:

1.) Short-term focus: There are many that simply do not understand the concept of risk or volatility. When they see a down month for trend followers these people think there must be a problem. The reality? Down months happen. They are expected. The more you risk, the more you make and the larger the drawdown. We still to this day see people not understanding the absolute return benefits over time.

2.) Richard Dennis' students: Not all of his students were/are successful. In fact, some are failures by any measure. Interestingly, the reasons seem to go right back to a lack of discipline and or poor personal psychology, not the trading strategy itself.

3.) Long Term Capital Management: Trend followers were the winners to LTCM's losing. The performance data almost looks like a direct wire transfer in the zero-sum game.

If this blog does it's job over time it will be to further expand on the book's topics and debates.

Now Available at Amazon

May 06, 2004

Trend Following is available now at Amazon.com.

Amazon Update

May 05, 2004

Amazon has shipped their initial orders. Other retailers will also have the book. The publisher has started the second printing, but unfortunately the publishing world's "just-in-time-inventory" doesn't work great when there is strong demand!

Trend Following Book Update

May 03, 2004

If your local bookstore is out of stock of Trend Following, please do not hesitate to ask them to re-order. Most stores are extremely responsive in this regard. A swift kick may be needed for the less than helpful!

Correlation and Trend Following

Ponder the statement:

"Statistics alone can never prove causality, but it can show you where to look."

True trend following traders, if trading similar markets, will typically have very similar winning months and very similar losing months. A good historical example is the summer of 1998 (when Long Term Capital Management went bust). During August and September 1998 most trend followers had winning months. Interestingly, July 1998 was a losing month for most trend followers. Comparing monthly performance numbers of trend followers is best done through correlation analysis. Correlation, however, does not prove causality. It tells us where to begin the investigation. So when looking at correlations among trend followers, especially very large monthly gains or losses, it makes sense to look for the other side of the trade to better understand "why".

Warren Buffett Is Confusing

May 01, 2004

Consider a recent media report:

"During 2002 we entered the foreign currency market for the first time in my life...In 2003, we enlarged our position, as I became increasingly bearish on the dollar." Buffett made clear that he's not entirely comfortable -- personally or professionally -- making currency bets. "The cemetary for seers has a huge section set aside for macro forecasters," he quipped. He explained that the trade deficit has him spooked. "In recent years our country's trade deficit has been force-feeding huge amounts of claims on, and ownership in, America to the rest of the world," he said. "Late in 2002, however, the world started choking on this diet, and the dollar's value began to slide against major currencies." He noted that at yearend, Berkshire held approximately $12 billion in foreign exchange contracts, within five (unspecified) currencies. He also said Berkshire owns about $1 billion worth of high-yield bonds denominated in euros."
CNN/Money
March 8, 2004

Now consider today's media headline:

"Buffett called hedge funds a "fad" that was more about Wall Street marketing than sound investing. People that are now investing in hedge funds in aggregate are going to be disappointed," Buffett, who is known as the "Oracle of Omaha," said. The fees that hedge fund managers charge were unfair, he said."
Reuters
May 1, 2004

Hedge funds trade currencies. Buffett trades currencies. Contradiction here?