My interview with upstart trend following trader Darren Kottle is live. More.

Steve Burns makes his 1st appearance on the podcast. Listen now.

Feedback in:

Hello sir, Next year I am going to university and I m not sure which program is the best to become a trader. The first choice I have is to do one year in Honours Economics and Finance and then apply to Honours Investing Management program and the second choice is to go in Mathematics and then do a MBA. Do you know which one is the best option? Or is there any other programs that are good to become a trader? Thank you.

If you want to become a trader I can’t think of a worst place than to be at a university. Just the way it is. A better option (and its not self serving for you weenies out there!)? Read these this blog and this one everyday and grab my books. My film? That too. Just saved you a whole bunch of soon to be wasted time and money.

Trader Brad Rathe (see: linkedin) is on the podcast now. Rathe started in the “pits” and is off the floor running a trend/systematic focused fund of funds along with his own global macro fund.

Listen to our conversation on iTunes.

Feedback in from a reader:

Michael, Hello. First of all, thank you for all of your efforts. I have read all of your books and listened to nearly all of the podcast episodes, and am a big fan. Keep it coming! They are really interesting and needed! I like that the podcast have a good amount of “bite” to them. You can tell how much conviction you have about this subject.

Late last year I backed my way into becoming a trend following trader. I lost a lot of money (for me) in a very short period of time (when the government debt-ceiling situation was going on last summer), and stopped trading for months. I told myself, I would not trade until I “figured this shit out.” What I ended up w/ is a trend following, systematic approach. I used to read a ton of news, watch CNBC, take “hot” tips, etc. but have quickly learned that true wealth is not built that way. This year I was lucky enough to find your resources, and am glad I did. It is helping me take the system that I developed last year and build it out completely and with confidence. I’ve truly learned a lot.

Anyhow, I wanted to give you a few ideas for your podcast:

• I think it would be interesting to interview X amount of traders – half fundamental/news oriented and half system/trend followers. You could do this verbally or via a form… Then, 2 years or so down the road, talk to them again and see what has happened in their trading career and the results they’ve had, etc. The reason I say this is b/c if you had interviewed me from 12 months ago and again now, it would be comical! I had no selling plan (and I am very plan-oriented!) or consistent strategy. It would be a performance battle of fundamentalist vs. technical.
• Brett Steenbarger is an outstanding author as you know – he would be a great interview.
• Entrepreneurship vs. our education/factory system that isn’t working – I know you just had one podcast on this (and mention it frequently), but more on this would be great. We, as a country, are not in good shape going forward.
• Selfishly, I would like to hear more detail on position sizing and risk management – my automated strategy trades only stocks currently, but I have a diversified group and plan to trade international stocks in the near future as I ramp up my trading to my full account value.
• The relationship between sports and investing/life… I played college football and can relate nearly everything to the sport, just like you can to baseball. I think sports are my most important degree – more so than mechanical engineering and business.
• Seth Godin – this is a stretch, but he is brilliant. At least talk about “prajna” that he refers to… Central to being a linchpin is the ability to “see things as they truly are” or what the Buddhist might call “prajna”.
• More about this: in your opinion, can trend following be successful with stocks?

Here are some good articles that you may enjoy: 1, 2, 3.

Also, you’ve mentioned that you attend some conferences; are there any that you would recommend for trend following/system traders? I would love to go to some, but haven’t found anything great just yet. I live in Jacksonville, FL but am mobile.

This is quite funny – one of those “free money” schemes…

Sorry for the long-ass email, but hopefully you have found some value here. Keep up the good work. I have included more information on me in case you’re interested.

[name]

My story in a nutshell:

• 26 years old
• Mechanical engineer by degree, minor in Business
• College football player – team captain, ESPN Academic All District 1st Team, yada yada
• Currently work for a Fortune 4 “big oil” company.
• Will not be working for “the man” in the near future – I am no doubt an entrepreneur at heart.
• I’ve been a version of a trend follower since late last year – I trade different time frames than most of what you do, but everything you teach still applies.
• I created my own system from using the problem solving method (engineer) – I wrote down everything I hated about the market/trading, and found a solution for each one of those things – ultimately, it came to a programmed trend following system.
• I have tested it, programmed it myself, and tried to poke holes in it for the last 7 months.
• I just started my automated trading this week on my own money now that I feel very confident in it and have countless paper results.
• I believe my personality and skills will allow me to be a successful trader – unemotional, disciplined, logical, calculated, frugal (risk mgmt), ambitious, efficient, I know what I don’t know (self-aware), entrepreneurial, etc…
• My edge is in the math and in mastering my psychology. I try to take pride in seeing reality, which is so rare in the world.
• I’ve read well over 100 books in the past 1.5 years – Trend Following and The Complete TurtleTrader are in my top 12. The Little Book of Trading is in my top 30. Excellent books!
• I don’t even have cable TV and don’t remember the last time my TV was turned on other than when my family is in town – maybe last year. Once you realize that CNBC is a business and entertainment, you can only watch it for the laughs. People really listen to Jim Cramer? I did.
• Planning to step away from my company within 12 months as I want to be 100% in the investment industry; I want to start my own fund after learning from another great trend following trader for some time… The biggest thing I battle with is if/when to leave my company, but I have a sweet set up now where I am able to trade and learn (work from home!), so I am getting results under my belt at low risk… However, entrepreneurship is inevitable, no doubt about it.
• Motto on life: ONE

Thanks for the great feedback!

Mike Dever was my first guest on my new 2012 podcast, but today on his second appearance he provides even more “must-listen-to-insights” for the systematic/trend trading community. Dever’s 30+ years of experience is not to be missed:

Listen Now on iTunes! (it’s free so get listening)

Also, Dever’s great book “Jackass Investing” should be on your investing shelf:

Michael Shell writes:

If you believe that markets are efficient and the best you can do is buy, hold, and rebalance to an allocation of stocks, bond, or passive index funds; I have a secret for you. The paradox of the Efficient Market Hypothesis (EMH) is that if everyone believed the market was efficient it wouldn’t be efficient anymore. It takes trades to buy value or sell bubbles to bring prices closer to efficiency if prices are to reflect “all known information”.

Exchange Traded Funds (ETFs) are primarily passive index funds and are used by asset allocators as well as tactical rotators, trend followers, and traders. Because many so-called “active managers” who are really relative return funds (closet index) failed to protect investors from the same level of losses as the lower cost passive indices, many asset allocators are now turning more to passive indices. Since more and more money is flowing to passive index funds, especially for the “long term” the market will get less and less efficient.

Now, you may consider that those who exploit market inefficiencies would like you to buy and hold index funds. No matter how much they write their propaganda, those who know what you don’t have zero incentive to convince you otherwise, and a whole lot of incentive to gas you up to keep doing what you are doing.

I just want to say “thank you” to those who passively place their hard earned money in stocks, bonds, etc. and keep it there no matter what happens next. We sincerely appreciate you.

An email in:

Michael, I am a new trader (Options trading). I currently trade from a Roth IRA account or paper trade and don’t have the funds to open a cash or margin account significant enough to overcome commissions and fees. I’m hoping you can direct me to mentors in trading that could help give me some seed money for my trading account that I can eventually return the money I make back to them. I see you from time to time on Fox News but I don’t have Fox Business in my channel lineup (costs more). In time though…Take care Michael, Paul T.

Thanks for writing Paul, but to be honest with you I am still looking for the money tree too. Haven’t found it yet. You might find some good ways to approach your start here.

Note: The real lesson with the famed TurtleTraders (book) was not that they were staked with initial capital, but that they could learn rules and profit.

Bernard Drury (PDF) is a trend trader today, but he started as a fundamental grain trader. He is in my new book.

Disclaimers:

Our firm can not promise you will earn like returns of traders, charts or examples (real or hypothetical) mentioned. All past performance is not necessarily an indication of future results. Data presented is for educational purposes. This information is not designed to be used as an invitation for investment with any adviser profiled. All data on this site is direct from the CFTC, SEC, Yahoo Finance, Google, IASG and disclosure documents by managers mentioned herein. We assume all data to be accurate, but assume no responsibility for errors, omissions or clerical errors made by sources.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

From William Eckhardt:

“An important feature of our approach is that we work almost exclusively with price, past and current. One reason for this is that to make any progress in the early stages of quantitative investigation you usually have to reduce the relevant factors to one or two crucial variables. Price is definitely the variable traders live and die by, so it is the obvious candidate for investigation. The other reason is that in a system that’s making good use of price information, it is very difficult to add other information without degradation. Pure price systems are close enough to the North Pole that any departure tends to bring you farther south.”

More from a conversation never heard on CNBC:

“Many systematic traders spend the majority of their time searching for good places to initiate. It just seems to be part of human nature to focus on the most hopeful point of the trading cycle. Our research indicated that liquidations are vastly more important than initiations. If you initiate purely randomly, you do surprisingly well with a good liquidation criterion. In contract, random liquidations will kill the best system.”

More from Eckhardt can be found in my 2nd book.

Feedback in tonight:

Hey Mike, I know your a busy guy, but I think your a great guy to ask this question to! I’ll try and be brief. Background: I’m 26 years old, 1st Class Economics graduate. Since the age of 14 I have always been entrepreneurial, wheeling and dealing etc. I’ve dabbled in trading, import/export etc. Recently, I’ve been going more towards professional gambling and trading. It’s tough starting out, I don’t work (never had a real job) and hard to build up from scratch. I have been offered a job with N.C.R (ATM people) and the money is quite good, it’s a graduate sales position. However, I think I would be selling out getting a job. Deep down I know I don’t want to do it long term etc, I have zero part of me that wants to work in an office or even work for someone else for a long period of time. My question to you is, if you were giving advice, would you say “do the job, try save some of the money, and then use this for your other money making ventures.” Or “fuck the job, it will grind your entrepreneurial spirit out of you, you will end up there for years, and live to regret it.” I’ve watched your movie broke etc, guys like Larry Hite are my hero, and I see so many similarities between myself and guys like that, characteristics, backgrounds etc. Anyway any thoughts? Much appreciated when you have the time.
Cheers,
Barry from Scotland

There are no short answers (or cuts), but I have some views:

1. Read Trend Following.
2. Read The Complete TurtleTrader.
3. Watch my film Broke (I know you have, but everyone is seeing this answer).
4. Read my other recommended books here. Don’t underestimate what I have on that list. Those books changed my life.
5. Watch The Godfather.
6. Watch The Godfather II.
7. Watch No Country for Old Men.
8. Watch Patton.
9. Watch V.
10. Sit down with me for a few days of consulting and I can map out for anyone a successful way to approach taking on life. There is a formula.

That’s 15 years of ‘the school of hard knocks’ in 10 easy steps.

I had the opportunity to spend time with and interview trend follower Bernard Drury a few years back. Drury has done quite well as a trend trader and I hope to talk with him again in the near future! Some background (PDF).

A great line from famed trend follower Larry Hite:

“Life is nothing more than a series of bets and bets are really nothing more than questions and their answers. There is no real difference between, ‘Should I take another hit on this Blackjack hand?’ and ‘Should I get out of the way of that speeding and wildly careening bus?’ Each shares two universal truths: a set of probabilities of potential outcomes and the singular outcome that takes place. Everyday we place hundreds if not thousands of bets – large and small, some seemingly well considered and others made without a second thought. The vast majority of the latter, life’s little gambles made without any thought, might certainly be trivial. ‘Should I tie my shoes?’ Seems to offer no big risk, nor any big reward. While others, such as the aforementioned ‘speeding and wildly careening bus’ would seem to have greater impact on our lives. However, if deciding not to tie your shoes that morning causes you to trip and fall down in the middle of the road when you finally decide to fold your hand and give that careening bus plenty of leeway, well then, in hindsight the trivial has suddenly become paramount.”

You can think like that, or you can buy and hold and follow logic like this about famed mutual fund manager Peter Lynch:

Peter Lynch, the man who helped put Fidelity Investments on the map, is famous for saying, “Invest in what you know,” by utilizing your “local knowledge.” This local knowledge are those few things in which we have some expertise. Supposedly, all of us possess this expertise (although I have doubts about some I know) and can apply it to our investments selections. If Peter Lynch can pick up some of his best ideas by following his wife and daughter through the mall to see where they shop, I see no reason why the rest of us can’t start “green investing” by looking at the products we already use. From automobiles to household cleaners, there’s a world of Green out there waiting to be put to the test.

Sorry buddy, that logic is a stretch. What about “Crocs” (as one example):

…there are profits to be made on the upside to a super-hot consumer product or trend or stock, but be ready to hit the exits or even be short if the trend turns sour.

Bingo.