Michael Martin writes ‘Trends Persist, Regardless of What You Think You Know’:

Media reports on the health of the markets. Earning reports from firms around the world. Central banks and their policies. Influential analysts upgrading and downgrading stocks. The quarterly number. The Whisper number. The aftermarket activity. Fast Money. Mad Money. Madmen. How do you filter all these electrons to make sense out of them?

There are too many of these valuable electrons being flung around the world each day. White noise and statistical noise. Those are trends unto themselves. Nothing wrong with it. Just know it for what it is. I talked about Ritual versus Process in one of my blog posts. Know what makes you money and what feels good. Sometimes they are not related.

But you can’t trade on most of this knowledge, especially about the economy or the market health. That information you can use to formulate a macro call as a discretionary trader. Another difficulty is that you might be right on your ideology, but horrible with your timing and thus lose money. Traders, especially new students of the markets, need to have a definable and measurable action plan each day.

Television, Twitter, Facebook fan pages, and RSS feeds & emails from leading blogs provide us with great entertainment. Some, and I mean very few, actually teach us something. And as a teacher, I believe in knowledge for the sake of knowledge. But the best teachers are not always easy to find.

Michael Covel has done a great job in bringing together some of the most hibernating, reclusive, and socially awkward people in his film, Broke: The New American Dream. There are cool poker players and some hot (and very stupid) models who punctuate the screens.

But listen closer and you’ll get learned wisdom from Larry Hite, a guy I first read about in Market Wizards. He founded a firm called Mint Management which he had had as 50/50 partners with what was then called E. D. & F. Man, now MF Global. (There is a physical cash market commodity trading firm that spun off when Man Financial IPO’d and separated the brokerage from the physical commodity business). Mint is still around, albeit with yet another name. Mint was the first CTA to have over $1 billion in AUM.

In Broke, you’ll see a lot of Salem Abraham of ATC. He lives in God’s country - Canadian, Texas. He’s not too flashy, the way the media would make your believe commodity traders are supposed to be. No, he likes to fish and go on bike rides with his kids. Abraham, who learned the craft from Jerry Parker Jr. of Chesapeake Capital, is equally talented as he is unassuming.

Very refreshing to listen to Salem and Larry compared what’s on TV. I tend to enjoy their electrons much more that what had come off my HDTV before I turned off my cable. Watching their interviews reminded me of my interview with Bill Dunn of Dunn Capital Management and the Reason Foundation. I think what makes them so refreshing and informative is that we’re not bombarded with their electrons every day in one form or another.

At the end of the day, there’s not much to say about any trading vehicle. It’s either up, down, or flat. And you’ll never know which of the fundamentals is at work. You might be smart, you might be lucky, you might be both. You still need to have a plan. Position sizing and Risk Management are what save lives.

In order to capitalize on your luck and smarts, and to develop a career as a trader, you need to be able to systematize your thoughts. Once you do that, you can test your ideas and see how they would have done over time. Think that’s a waste of time? Tell that to Bill Dunn who revealed in my interview with him that he’s not taken a single discretionary trade in his WMA, which has a track record going back to 1984. Are you smarter than Bill Dunn? Maybe you are, but it’s going to take a few decades to convince others. And, you’re competing against his system that has performed well consistently.

“But MM, trading system software is so expensive…”

Yes, probably true. You get what you pay for usually. If you want a cheap way to test an idea on the S&P for example, go to Yahoo! finance and download the free data there and upload it to a Google Docs spreadsheet. You can calculate the moving averages and “the highest high of the past 20 days” etc. by hand. Have fun!

“But MM, hypothetical results are not predictive - so why bother?”

You don’t need predictions. And you don’t need the Platinum league education that you have either. You need to learn to trust that birds fly south for the winter on some level. Trends persist. I won’t bet you the actual day that they leave, but I’ll bet you they leave. See the difference? One is a day trader, the other is a trend follower. Rather corny, yes, but it makes the point and as a teacher that’s all that matters to me. Oh, one more thing: don’t go get an MBA. Save your money. Learn to trade and you’ll have all the liberty and independence you’ll ever want.

“MM, Trading is legalized gambling.”

Please click the X in the corner of the screen and go back to focusing on obtaining tenure or getting paid for 8 hours of work while only putting in 5 hour of quality work. Please be serious. There are similar tools that traders and professional gamblers can use, such as Mathematical Expectation or Bayes Theorem. Anything else is your imagination.

Earnings Drive Stocks. What Drives Commodity Markets?

Unlike stocks, commodities are cyclical in nature. (Stocks are secular). Cycles repeat themselves too. Each year decades and decades of economic power descends upon the grains, metals, softs, and credit market futures to name a few. Human behavior is measured in the supply and demand numbers for each commodity. And those forces cause prices to rise or fall.

There are old crops and new crops, there are seasonal tendencies, there are investors, and there are hedgers. Each party comes to the market and they are happy to meet one another. They look at the price as the single most important piece of information you can input into your decision making process.

What do you look at to make your trading decisions? Do you make a watch list from Fast Money? Or do you buy what Dennis Gartman says to buy? Or Jim Rogers and Victor Sperandeo? No one is going to care about your money more than you. You are responsible for it’s growth and decay. Not Obama. Not your failed bank. Not your broker or RIA. And certainly not the jackass who gave you the last tip on investing. You are responsible for your own plan.

Covel’s site is full of free information and he’s been providing it for 11 years on my count. I’ve been a reader of his sites for almost that long. I don’t think there is a better site that offers as much free information on system trading in the world.

My only disagreement with Martin? The bikini models in my film were not stupid! Actually, I found them savvy women who took advantage of their physical attributes, but at the same time off camera they were not push overs.

Feedback in today:

Mike, I wanted to thank you again for taking the time and effort to put together the trading course. The material is fantastic.  It lays out the ground work for YOU (meaning Me) to make your own decisions regarding investing. You take out all the people and companies that can cloud your judgment.

I just finished watching Broke. It was the last item of the course for me. I am glad I saved it for last because it cemented the ideals behind the theory of trend trading. When you interview all the people that have had a rough go because of their own decisions, but yet still want to place blame on something else, made me realize that I now can be different. Different in thinking, different in doing, different in acting, and by different I mean not in a bad way.

Thank you for opening my eyes to a different than the herd style of investing. The theory makes perfect sense to me. I have started to incorporate it into my investing. My big problem will be trying to deal with being wrong 60% of the time. It has been drilled into my head that you have to have a 70% winning percentage if you want to make money. I now realize that this is scalping and not what I want to do. I want to ride the wave of the trend until it is done.

When I always looked at charts and see a big long trend in a direction. I always asked myself how can I get in that trend and ride to the end. I now know the way to do it. And I can’t wait to take responsibility for my own investments without having to listen or think about what others say or do. I will have a plan in place and I will run with it.

Thanks again. This is the best Christmas present I ever gave to myself.

-Chris C.

Feedback in today:

Michael, Thank you for sending me your film on DVD. I thought it was an excellent film for beginning and veteran speculators. It’s a great reminder of what makes or breaks traders in our business. I found Jim Rogers statement about mutual funds very interesting. I am aware of his thoughts about the US in general, but he really laid into Wall Street. Many of my veteran clients are also not fond of Wall Street or even buying stocks in general. I dislike mutual funds but am still a believer of a self-directed stock portfolio. When new traders enter or research the futures arena, I generally give them the “train wreck” story of what can happen trading derivatives. But in reality only trading can instill this sense of humility and discipline traders develop over time as the trains come off the tracks on occasion. Not one successful futures trader interviewed appeared the least bit “cocky” like you might expect with Wall Street folks. Your movie complements my “train wreck” story. I am excited about the prospects of an increased appetite in commodities. There will be many road blocks along the way as institutional investors find the best way to diversify into our field whether through veteran funds of CTAs or through ETFs, etc. Either way, the demand is there. I will recommend your movie to my clients and prospects. I think it is ideal for individuals learning how become “traders or speculators” (I do not think it is particularly appropriate for everyday mom and pop long-term investors as it is biased towards a handful of successful futures traders with little positive portrayals of equity managers). Thanks again.

xxx xxx
Global Execution Services
MF Global
Private Client Group
141 West Jackson Blvd.
Suite 1800A
Chicago, IL 60604
http://www.mfglobalfutures.com

Thank you for the review, but I do disagree 100% on one issue. The film is for everyone. If people don’t learn how the best do it they will in the long run be left with average returns.

Martin writes:

I read about Salem Abraham in Michael Covel’s The Complete TurtleTrader and Trend Following books. Abraham’s story is unique and his credentials, especially his trading performance, are impeccable. So when I heard about the Market Wizard Mentoring DVD featuring this second generation “Turtle,” I couldn’t wait to see it. After seeing the DVD, I highly recommend it. It’s a tremendous experience to watch a casual 1.5 hour conversation as Michael Covel picks Salem Abraham’s brain. Abraham tells the story of how he got started and of his influences growing up. He shares the major lessons he learned along the way and offers his advice. He teaches about probability and risk. I was blown away! I was getting a lesson in probability from one of the top traders in the world! I think the best part of watching this DVD is not just the content but the nuances you get when you “read between the lines”: the way he thinks; his confidence and mindset towards trading. I had some high expectations and this DVD definitely delivers!

Bill writes:

My two cents on your next project: Make another film. Don’t get me wrong, your books are great. However, you are a great storyteller, and your no-bullshit attitude is a huge part of your appeal. It comes through much stronger on the camera as opposed to the printed page. Maybe do both a film and book and spin a book out of it? Enjoyed the NYIF webinar even without the video. Keep up the great work.

Joaquin writes:

I consider “Broke” to be one of the most brutally honest and accurate assessments of the financial services industry, media, crowd psychology, and investing/trading knowledge ever produced. As a risk professional with long-held similar views, I can’t begin tell you how much a voice like yours is needed to offset the traditional flawed investment paradigm that is spoon fed to the general public as wisdom. I have posted your Youtube preview on my website and am recommending your film and services to all of my clients, neighbors, and friends. Awesome job Mr. Covel! Keep speaking truth to power, you are doing an immeasurable public service by doing so.

Martin writes:

Although I had never heard of Kevin Bruce prior to watching Michael Covel’s movie, “Broke: the New American Dream”, the fact that he had earned over $100M caught my attention. The Kevin Bruce DVD offers a closer look at this extraordinary trader. A truly unique aspect of Bruce’s story is that he taught himself to trade and developed his own style of trading without the help of any real trading mentor. He researched his own methodology to identify trends while working at a gas station! His research gave him such conviction that his trading methodology would work. It’s clear that this confidence and conviction was a main component of his success. As he tells his story, analyzing his journey step by step, he offers little pearls of trading wisdom that you almost miss the first time watching the DVD. Clearly, this is one of those DVDs that you need to watch several times (while taking notes) to get the full benefit. It’s also extremely motivating to see someone, who started from scratch yet with the correct approach, reach such lofty heights of trading success.

Thanks!

Here is a second recent review of my Salem Abraham DVD:

The Market Wizard DVD featuring Salem Abraham is an 89 minute discussion with one of the best trend following traders. The discussion is conducted by Michael Covel in Abraham’s hometown of Canadian located in northern Texas. This DVD is packed with great information for anyone who wants a better understanding of how Salem Abraham has become such a talented trader. Salem suggests a person should play to their strengths in trading and life. He says: “A duck ought to be in a swimming race and not a running race.” This piece of wisdom is very important in risk management. Salem commented about how significant the internet was on commerce. Trading can be done anywhere. You do not have to be located in a major city like Chicago to have a successful track record. Also mentioned, is the decrease in trading disputes due to electronic trading. The occurrence of an extreme event is something any veteran or wise trader respects. Salem talks about the importance of considering the extreme events into everyday risk management. For example, if all trades have a 99 percent probability of working favorably, betting all will eventually lead to broke. Therefore, it is necessary to consider all outcomes and know that there are things that can•t be planned for. It’s ok to lose, is an important and difficult thing to accept for many traders. Salem explains that a losing bet is not always a bad bet and a winning bet is not always a good bet. The degree of risk relative to reward will determine a great trade from a bad trade. Topics of discussion range from real estate to parenting with Salem. Watching this DVD was a great way to reaffirm the knowledge I have gained through my own personal experiences. When going through a draw down, having a great DVD like this may be helpful in sticking to the system. I recommend this DVD to everyone! Jonathan R. Keag

This DVD can be purchased individually or within one of our course options.

A recent review of my Salem Abraham DVD:

All I can say is that [Salem Abrahma DVD] was the rare opportunity to hear timeless advice from one of the country’s greatest traders who probably no one has heard of. I can’t tell you how much I enjoyed watching this interview. Salem…gets the point across. He tells you everything that you need to know to be a successful trader and investor. I love the point about passing up the good ideas and waiting for the great ideas (be patient). Don’t pay any attention to the news, let the market tell you what to do. Know your absolute worst case scenario and then plan on something happening that you never expect (risk management). If I had to sum up this interview in a phrase…Trading is all about risk and knowing your worst case loss at all times. I also loved the part when he spoke about passion, discipline, confidence and doing what you love to do. I can’t tell you how true this is. I am trapped in a job as a financial advisor and it is hard for me to get to work everyday, but I use my time to my advantage to back test trading ideas that I hope can make me the next Salem. I have a passion for trend following and your materials have helped in the greatest way. I need to watch this DVD again in order to fully take in all his wisdom and advice, but it sure was a great educational piece. I loved it! Phil S.

This DVD is here in our course options.

Feedback in tonight:

Michael, I just wanted to say thanks for all you do. My brother read your book back in 2005 and gave it to me to read. It changed our trading and, I believe, our lives. Please indulge a little background. My brother is 8 years my senior. He’s in the construction business and I’m in the insurance business. Pretty different professionally, but not philosophically. What we had most in common was a fascination of the financial markets and figuring out a way to profit from them. He and I have both spent most of our adult lives educating ourselves on economic and financial issues and continue to do so on a daily basis. We would categorize ourselves as followers of Austrian economic thought and free market libertarians. We had been dabbling in the futures markets for over a decade and could never find an approach that would work for us.  Unfortunately, we followed various gurus on our way to losing money year after year and depleted several different trading accounts. We had always focused on systematic approaches to trading because we both felt that we couldn’t trust ourselves to maintain any trading consistency with soft rules or instinct. Our problem was that we lacked any understanding of trading systems and all of their component parts. As a result, we chose to follow the complicated black box systems designed by others. These systems all focused on picking tops/bottoms or otherwise predicting market direction in some way. We didn’t realize it at the time, but in retrospect, the one thing positive we took away from these experiences was the understanding that our greatest attribute as traders was our discipline. We took every single trading signal from every guru we ever followed, come hell or high water. The better educated we became, the more we realized that NOBODY really knows anything about the direction of markets. To design or follow a systematic approach to trading based on the premise that market direction was predictable was a ticket to the poor house. We’d heard about trend following methods but only in a disparaging light. We quit trading for 5 years. Then we both read Trend Following. It was the proverbial “ah ha” moment that we had spent 20 years looking for. Sometimes the truth is so hard to see because it’s right in front of your face. To make a long story a little shorter, my brother purchased your course in late 2005 and we starting our little trading company in Feb 2006 with $100,000 in seed money. We trade a basket of 10 futures markets using the rules in your course (although with a lower risk %). We never deviate and we take every signal, subject to the our risk management rules. We spend no more that 1/2 hour a day on our trading business. We have tripled our account balance to $300,000 in the intervening 3.5 years without ever adding any more capital. We have not had a losing year yet, although I’m sure we will eventually. We made just under 100% return in 2008, which would have been much greater had our capital base been larger or if we had been comfortable with a greater per trade risk %. We had to beg off some trades that were immensely profitable in fall 2008 due to our position limits and % risk rules. Unfortunate, sure, but we slept great and still doubled our money in the greatest financial debacle of our lifetimes. 2008 was only the beginning. Government interference in markets always makes for great trend trading opportunities. The size and scope of government today simply means that trends are only going to be bigger and will occur with more frequency. We’re ready and waiting. We can’t thank you enough for sharing the wisdom of trend following with us. We truly believe that significant trading wealth is simply a matter of time for us thanks to the education you provided…mixed in with a big helping of discipline! Thanks again Michael!
xxx, IL USA

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