Michael Covel talks to Courtney Smith, a trader, author, money manager, educator, and speaker. Smith has been trading for forty-plus years; he's written seven books and is a frequent commentator on television. Smith has had a long and varied career, and Michael Covel talks with him about his start, and his experiences with trend trading and Richard Donchian's systems (and the experience of testing these systems on computers in the mid-70s). Smith and Covel also discuss today's climate for trading, and how it compares to what times felt like in the 1970's; the psychological components to trading systems; the importance of speculators (and why they're often unfairly put in the position as a political whipping-boy); "hope" in the marketplace; drawdowns; how "markets are markets"; high frequency trading; the informational value of studying track records; the idea of being "flat" in the market; the importance of ignoring television; and trading methods that should be avoided. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to Charles Faulkner, a trader, mentor and author who has been featured in Jack Schwager's "Market Wizards" series. Faulkner is an international expert on modeling the knowledge and performance of exceptional individuals, teams and organizations, and applying the latest research in cognitive neuroscience and linguistics. Faulkner discusses his upcoming book, "Higher Level Trading: The Five Stages to Trader and Investor Mastery". Covel and Faulkner talk in detail about Faulkner's idea of "system one" and "system two" - a dual-process theory of how the brain works - and how it relates to trading. They connect trading with topics as neuroscience and behavioral finance. Further topics include herding, bubbles, and panics and how they relate to "mirror neurons", group think, and sheep behavior; the idea of making sense of the world through our bodies (and how this might be relevant to trading); neurolinguistics (the relationship between the neurology of the brain and the language we use); how our brains crave stories (and how we have to be careful how we use them); and the importance of using money to buy experiences over objects. Note: This is Faulkner's 2nd appearance on the podcast. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to James Altucher. From hedge fund manager, to author, to blogger to angel investor, Altucher has a wide and varied career bringing a very honest perspective to life, the cerebral side of the equation, health, and happiness. You can have all the systems in the world, but if you don't have the six inches between your ears figured out, it's all for nothing. Covel and Altucher talk about transparency; the connection between yoga and trading; greed; happiness; expectations; some of Altucher's early influences; physical, emotional, and mental health; and honesty. For those of you constantly searching (in vain) for the moneymaking secret, the free ride, the lunch someone else buys, Altucher's life work at 'Altucher Confidential' is daily must reading (http://www.jamesaltucher.com). Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to David Cheval. Cheval was an inside witness to Richard Dennis and Bill Eckhardt's famed Turtle experiment. Through the involvement of his former wife, famed original TurtleTrader Liz Cheval (www.emccta.com), David Cheval's history and background for the Turtle story comes from a unique vantage point. Cheval talks with Covel about the events surrounding the Turtle experiment, including his own interesting part in alerting his former wife to the opportunity (he is still an investor in her firm). They also discuss Cheval's progression from a runner on the Chicago pits, to the formation of his CPO (Dearborn Capital Management), to his career in law today; the presence of Richard Dennis on the Chicago Board of Trade in the years prior to the Turtle experiment; some of the lessons that can be gleaned from some of the most successful Turtles; the difference between volatility and risk; and why basic trend following philosophies are timeless. Cheval's oral history is a nice addition to Michael Covel's classic TurtleTrader book "The Complete TurtleTrader" (www.turtletrader.com). Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to Michael Gibbons. Gibbons is a market timer (otherwise known as a trend following trader) who runs a firm called Gibbons Trading (gibbonstrading.com). Gibbons started as an economics major and quickly realized that much of what he was taught in academia didn't add up. He has been trading since 1971, and was one of the first to discover what is now known as stock index arbitrage. He was one of the first to use computerized trading and currently provides his proprietary research primarily to large traders and hedge funds. Gibbons talks to Covel about how he got started in the markets; the fallacies of buy & hold and fundamental analysis; trading prices apart from everything else (and how this is close to playing the market like a video game, i.e. pong); the problem of when the media is simply "making things up"; how trading can be primarily psychological; the problems of the efficient market hypothesis (EMH) and academia; the benefits of having a trend following strategy during chaotic times; the danger of gurus; and separating your ego from your trading. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel picks up the thread from last week's episode on the global chatroom that is Twitter, StockTwits, and other social networking services. Covel received some feedback from a listener that took exception with Covel's characterization of Twitter and StockTwits, noting that the service isn't limited to one style of trading. Covel doesn't disagree, but notes that it's entirely irrelevant. If you're in the market to make money using a price-based trend following system, any other information is extraneous. The non-stop continuous flow of information never ends; it's simply a distraction. Covel also discusses the importance of consistency: If you don't have consistency in your thought process, how can you have consistency in your process of trading? Be consistent with your use of price as the basis of your system. Covel also discusses a great passage by Milton Friedman. Friedman discusses the impossibility of a single man manufacturing a pencil by himself. There are thousands of people who cooperate together to make a pencil, all motivated by the presence of a market. It's a marvelous example of how you can get a complex structure of cooperation and coordination which no individual planned; rather, it is coordinated by the market. It was not directed under the hand of state centralized authority. While the connections to trend following and Friedman's point may not be obvious, there is a connection on the psychological side. To the person who wants to get ahead on their own, the answer is there. Either you want the state to do/fix things for you, or you go out and try and get things done on your own. Everyone has to choose their path.
Michael Covel speaks with Ralph Vince. If you've done your homework on trading systems, specifically about optimal bet sizes, you have run across Vince's work before. Vince is self-taught and has crafted some extremely detailed, comprehensive looks at optimal betting strategy for traders over the last 20-plus years. Covel discusses whether coming up outside of the typical educational institutions affected Vince's outlook - and how learning outside of institutions can work better for some than others. Covel and Vince also discuss optimal bet sizes; whether Ed Thorp's work and the Kelly criteria had any effect on Vince's work; the importance of knowing the optimal spot depending on your criteria; why maximizing profits can result in a large drawdown - and why you should be happy about that; if diversification really does give you a free lunch; and the importance of learning the wrong approach. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
"More Ways to Win." Michael Covel talks to Howard Getson, an entrepreneur and president & CEO of Capitalogix. For those that recall Covel's Dave Stendahl's interview, Getson is an associate of Stendahl. Getson has a degree in psychology and philosophy from Duke University, an MBA and law degree from Northwestern, and has practiced corporate law. Getson is running a hedge fund today as well as a quant research shop, and he's in the business of systematically finding edges through all sorts of different approaches - not only trend following. Getson started his first business in the sixth grade, and he has always had the mind of an entrepreneur. He talks about his legal background and how being a practicing corporate attorney influenced his trading and other business practices - as well as how a diverse background can help. Covel and Getson also discuss the "E-gene", and how entrepreneurism is at the core of what both Getson and Covel practice. In 1991, Getson left his law practice, became the CEO of a fast-growing technology company, and started trading. Covel and Getson pick up Getson's progress from there, and discuss how hunches can be dangerous; turning your hobby into your business; recognizing patterns; the "three levels of mastery" - cognitive, emotional, and physical; how minimum standards can define your life; how systematic trading can define your minimum standards; and controlling emotions through automation. They also discuss the importance of travel with a focus on Southeast Asia in particular and why this area of the world is so important to keep an eye on. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Let's face it you don't stand an outside chance if you don't have a good strategy. Covel plays the Turtles' pop classic, "Outside Chance", and notes that for many people, the fantasy is quick, easy money that pays off like the lottery. However, you don't stand much of a chance if you play the game like this. But how do you go about a strategy that gives you more than an outside chance of winning? The first step is to train the space in between your ears and develop a better philosophy. Covel plays a clip from "Choke", a documentary on UFC fighting champion and jiu jitsu practitioner Rickson Gracie. In jiu jitsu, everything is based on leverage. Gracie talks about momentum, putting yourself in the right position, and reacting to what your opponent gives you in the "moment of now". Your strategy must not be to anticipate what is going to happen, but to react. It's all about getting leverage on your opponent, getting in the right position, and adapting to the situation. Markets are the same way: they're going up and down constantly like a "bucking bronco", as trader Bill Dunn famously said. It's difficult to accept. Most people want to have control of their environment, but we're all in a great wave, and the only choice is to ride it with a strategy in place. Rickson Gracie teaches the philosophy, but once you move beyond that, you must know how to execute this "moment of now" strategy. Covel discusses a clip from author Malcolm Gladwell (Blink, The Tipping Point, Outliers) to illustrate this point. Gladwell's example focuses on emergency room doctors, and how diagnosing chest pain can be enhanced by simply limiting the number of factors to be considered. If you reduce the number of data points for a doctor to consider, and limit it to the four most important factors, his ability to become a better diagnostician increases exponentially. It's the same in trading, except there is only one factor worth consideration: price action. How many different data points can you actually digest? How are you going to take an action to buy or sell with millions of data points? It's simple: you must reduce the variables to something more manageable by focusing on price. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel interviews Van Tharp. Van Tharp runs the Van Tharp Institute and is the author of four acclaimed books published by McGraw Hill: Super Trader, Trade Your Way to Financial Freedom, Safe Strategies for Financial Freedom, and Financial Freedom Through Electronic Day Trading. He was also featured in Jack Schwager's Market Wizard's: Interviews with Great Traders. Van Tharp received his Ph.D. in psychology, is a certified Master Practitioner of Neuro Linguistic Programming (NLP), a Certified Master Time Line Therapist, a certified Modeler of NLP, and an Assistant Trainer of NLP. He has used his expertise in NLP to create the successful models of trading and investing upon which so much of his work is based. Tharp also was also considered for the original Turtle program with Richard Dennis and Bill Eckhardt. Covel uses Tharp's psychological expertise to explain why trading psychology is so important to being a successful trader. Many people attribute the phrase "trading psychology" to Tharp, and he's also done a lot of work in the area of position sizing. Covel and Tharp discuss these topics in addition to the importance of happiness in relation to trading psychology; the influence of Tom Basso, Bill Eckhardt, and Ed Seykota (and his concept of "market's money"); and the notion of self-sabotage. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
When shouldn't you take a bet? Michael Covel talks about the importance of waiting, and of not doing anything if there's no move. It's not smart to have a trading strategy that says, "I must make a certain amount each day". You must wait, be patient, and have a plan, but not act if there's nothing to do. Trend following puts you in the position to benefit when something big or unexpected happens, and teaches you that when you're put in the right position, you jump on it. Covel talks about the importance of waiting, and how the best strategy to employ is to follow price movement. Covel excerpts a TED talk from Baba Shiv regarding when it's the right move to take the figurative "passenger seat" instead of the "driver's seat". Shiv's example is based on medical decisions, but this extends to every facet of life--especially trading. Baba Shiv reduced it to the simplest factors, and with trading it's a good idea to do the same. In this case, it's price. Reducing yourself to the passenger seat in following price movement is the best move you can make, and Covel explains why. Don't follow the news, don't follow the tweets; follow the price. Covel also discusses an article in the Wall Street Journal from Robert Shiller, talking about a home price rebound. Shiller discusses house prices, whether we're at the bottom, and momentum. Momentum (the tendency for prices to keep moving in the same direction) is caused by "feedback loops" according to Shiller. Covel contends that the article states that we need to make another fake bubble to make everyone happy again. In the article, Shiller also contends that momentum doesn't apply to the stock market, but is exclusive to the housing market. Covel notes that, of course, the same feedback loops and the same momentum does happen in the stock market. While it's great that Shiller makes these observations about momentum, bubbles, and feedback loops, you can't predict these things. You have to have a strategy to take advantage of them when they do happen. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel discusses the constant onslaught of information on the news, particularly through Twitter and other social media services such as StockTwits. If following the global chatter about market information is so important, how come the world's greatest traders don't do it? Covel refers to an interview on CNBC with the CEO of StockTwits. This day-to-day, mob-rule idea of following "trends" is sheep behavior, and following the news so tightly all day long is akin to sitting at the craps table in Vegas. Are you in the market to make money, or to talk about the market? Do you want to make a profit, or do you want to sit around talking about your trades at cocktail parties or on Twitter? Trading is not a group activity. If you have to constantly bounce your ideas off of others, it isn't good technique. Your basic system should tell you when to pull the trigger or take a loss. True trend following is the total antithesis of looking at day-to-day, minute-to-minute Twitter talk. The important principles include following a diversified group of markets, having a good entry strategy, knowing how much to bet of your limited capital, and knowing when to get out of the market. Taking an action based on random Twitter or StockTwits chat is not the way to be a great trader. Accepting the fact that you don't know which way the market is headed is really the ticket to success. The news and information never stop, and building your strategy around "I don't know" is one of the most important things you can do. It opens up a world of opportunity. Wait for the movement. Wait for the trending price. And put yourself in the position to make big money when the big moves happen. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Covel relates this to a recent speech he gave in Vancouver. One of the slides he used in his presentation, a quote from trader Paul Tudor Jones, states that fundamentals are religion: "The illusion has been created that there is an explanation for everything, with the primary task to find that explanation". This is precisely what news reporters do: they want an explanation, a story, a narrative. Trend following drives a stake through the primary tenet of modern financial theory: the efficient market hypothesis. How do you reduce your decision-making to something that's easily digestible? You reduce it to price. There is an illusion that we can control the market; trend following dispenses with this illusion so you can follow the waves and concentrate on what really matters - the price. It's ok to say "I don't know what's going to happen", but you have no choice but to build a strategy around not knowing the outcome.