Michael Covel: News & Info.

I am preparing an in-person trader training program. This would be on top and beyond the course materials, lessons, and books I have shared over the years. The program will incorporate unique trading research and ideas that I have assembled over the last 4 years, audio interviews I have conducted with top traders since 2005 and full length video interviews conducted for my documentary film over the course of 2007 and 2008. Those who have an interest can contact me now to be kept informed of dates, times, and pricing. These trading events will initially only be in San Diego, CA.

The author (old pro) of this, saw the comments for that post, and responded:

I really enjoyed some of the comments on my post. Some of the guys are right on. The manager I referred to is a very disciplined trend follower who has a rule based system he follows religiously. The losses took five weeks not two days. A large % of the losses were incurred via being short the financials which were in fact in clear and well defined downtrends prior to the so-called intervention. It is obvious from some of the comments that all contributors are not traders but rather observers and there is nothing wrong with that. But I will pass the comments along to my friend. He has averaged a net return of 24% per year the last five years following his rules.

I included this 2004 “Economist” article excerpt in my November 2005 expanded edition of my first book “Trend Following”:

“The size of banks bets is rising rapidly the world over. This is because potential returns have fallen as fast as markets have risen, so banks have had to bet more in order to continue generating huge profits. The present situation is not dissimilar to the one that preceded the collapse of LTCM . . . banks are walking themselves to the edge of the cliff. This is because as all past financial crises have shown the risk-management models they use woefully underestimate the savage effects of big shocks, when everybody is trying to wriggle out of their positions at the same time . . . By regulatory fiat, when banks positions sour they must either stump up more capital or reduce their exposures. Invariably, when markets are panicking, they do the latter. Since everyone else is heading for the exits at the same time, these become more than a little crowded, moving prices against those trying to get out, and requiring still more unwinding of positions. It has happened many times before with more or less calamitous consequences . . . It could well happen again. There are any number of potential flash points: a rout in the dollar, say, or a huge spike in the oil price, or a big emerging market getting into trouble again. If it does happen, the chain reaction could be particularly devastating this time.”

Now that was a great prediction!

Times are crazy. Stocks up. Stocks down. Bonds up. Bonds down. Commodities up. Commodities down. Extreme volatility is everywhere. Does anyone really think that prediction is remotely possible? Does anyone really think the best way to weather this storm is to “buy and hold” long only? Does that feel like a solution? The Turtles may have started back in the early 1980s, but the messages and lessons derived from their success then and now are timeless.

Michael Gibbons sent me this note today (that he sent his subscribers):

“…you should know that I rarely (if ever) talk about the news. My view as a trader for 38 years is that market moves create the news, not that the news creates market moves. Therefore, to say that this news event caused the market to do thus and so - is absurd. No one knows why the markets do anything (although many traders with great hubris think they know), but it is a claim that cannot be epistemologically defended in my view. I have made immense trading profits for my clients and myself precisely because I do not listen to the news or any outside influences. I follow a 100% non-emotional and highly disciplined mechanical trading strategy. And finally, to make money trading, we need only to know that markets move- not why they move. All of my trading methods are primarily based on price because price is reality. Trends in motion will stay in motion until they reverse.”

I see the Washington Mutual headlines. I see the steady drumbeat that tries to predict what will happen next. But does any of that matter? How is any of that needed to make buy and sell decisions when the chart looks like this? That’s a 52 week range from around $39 to around $2.

From the Washington Post comes a piece of wisdom from Mark Cuban about what book to read that will help to understand the current financial crisis:

“I don’t think there is such a book. In my humble opinion, people who actually believe they can understand all the issues are the ones that got us to where we are today. In reality, there are so many variables and so little data, it’s all a guess. I don’t think a book exists that can explain it. Is there a book out there called ‘No One Has a Clue What Is Going On and the Whole World Is Guessing’?”

And if you can’t understand it all (which is of course what many top traders believe) then the quant view of the world, the stats view of the world, the odds view of the world - sure makes a tremendous amount of common sense to deal with constant uncertainty.

I would tell Chinese investors to just hang in there. This chart is just screaming out to investors to “hold” on and be patient…isn’t it?

I get where the author is trying to go here, but I am not so sure about the usefulness of such data. From my perspective and cutting to the chase, if any market explodes upward, and let’s assume that market is a staple (i.e. oil, wheat, etc.), then it seems like for the average person (who is of course always constrained with limited time). their best option is to:

1. put on a hedge in the market of concern.

2. trade the market of concern in the direction that market is moving…for potential profit.