"The pleasure is to play, it makes no difference what you say. You win some, lose some, it's all the same to me." Michael Covel opens up with one of the greatest heavy metal songs of all time and notes some unexpected lessons that can be taken from the lyrics. Sticking with the theme of taking trend following inspiration from unexpected places, Covel then goes on to discuss several posts from Zen Habits, a blog that contains lessons from the perspective of Zen Buddhism. Covel discusses "Finding Peace With Uncertainty": "Why is not knowing so scary? If you roll a dice and don’t know what it will be, is that scary? No, it’s not the 'not knowing' that’s the problem it’s the possibility that what comes up on that dice will bring us pain, suffering, loss." Covel relates this to a recent experiment he did that illustrates trend following through the roll of dice. If you get a two or a six, you win three pennies. Any other number, you lose a penny. The two and the six only come up a third of the time, and even though you don't win many of the rolls, the wins are big. The winners, because they're bigger, pay for the losers. That's trend following. So, how do you deal with uncertainty? Extricate yourself from harmful ideas and strategies: lose the small things that have no positive impact on your trading, such as buy & hold strategies, watching CNBC, etc. Know the worst case scenario. Become comfortable with waiting, and stop obsessing on uncertainty. Voltaire said, "We never live; we are always in the expectation of living." That's the goal. It's not the expectation of living--it's the "right now" that's important. In the next section, Covel comments on some trading and life commandments--inspirational reminders that you need to hear, including "The Ten Most Foolish Things a Trader Can Do". Special offer with free DVD: http://www.trendfollowing.com/win.
Michael Covel talks to Darren Kottle. Kottle is the CEO of Caddo Capital Management a trend following firm. He talks about his roots, growing up in Shreveport, Louisiana. Shreveport was an oil town and Kottle talks about the experiences growing up in an entrepreneurial town. Covel and Kottle also discuss Kottle's early experiences in the market, starting off in a discount stock brokerage; his experiences working with a Nobel laureate Kenneth Arrow at Stanford; the sources of trend following profit; George Soros' concept of reflexivity; the importance and believing in your system to the core; thoughts on investment banks; the pivot point for Kottle to fully embrace a trend following system; what the Turtle story did for him when he first heard it; uncertainty vs. being wrong; and the percentage of people that truly understand that "it's all reflected in the price". Special free DVD offer: www.trendfollowing.com/win.
"It takes two to make things go right, it takes two to make it out of sight". That's a market for you. It takes you over there and me over here and we reach across to make a deal. That's what the market is: it's a bunch of hands shaking, except it's in the form of stocks or futures. Covel talks about "Pawn Stars" and how it's simply price discovery; two people coming together to find a price. Covel takes this and expands on how it's terribly complicated to get to a price. But here's the trick: except for trend followers nobody really wants to talk about how the stuff that gets to the price is waste product. The price is the smartest one out there. Covel also talks about the source of trend following profits in the zero sum game. Trend trader Dave Druz makes the case that it's the risk premium from hedgers. Covel talks about hedgers, the futures market, how it's very much like insurance in a way, and how it relates to the source of trend following profits. Covel also talks about a white paper called "The Winners and Losers of the Zero Sum Game: The Origins of Trading Profits, Price Efficiency, and Market Liquidity" by Lawrence Harris, and how it changed the direction of his own career. Special free DVD offer? Go: www.trendfollowing.com/win.
Michael Covel dives into the topic of cutting your losses, opening with a quote from "The Boxer" by Simon & Garfunkel: "The fighter still remains". It's a personal fight and personal responsibility for all those out there. And if you trade to money the fight to understand the topic of losses should be at the top of your list of concerns. Most people want to hear "instant profits"; they want to run away from discussing losses. However, knowing how to strategically approach losses is one of the most important concepts to understand as a trend following trader. Covel shares a note from a fan who made a connection between Covel's work and some of the ideas found in famed quarterback Joe Montana's book, "The Winning Spirit": "In training for success, we shouldn't hide from failure. Just like football players in the film room, we study failure. We want to see how it happens and which strategies work to keep us from making the same mistakes again." This doesn't just apply to trading: The loss cutting can be a relationship, a business, a family member--it can be anything. How do you know when to cut your losses and get out? Covel goes on to talk about the concepts of opportunity costs and sunk costs. When you've spent the money and it turns out to be "gone" you can't fret about it. It's over--it's a sunk cost. An opportunity cost is equally important: If you are doing A, you can't do B. It's a choice. If you invest your time, energy, or money in one relationship or one business, you can't spend your time, energy, or money with another. There is a cost to choosing one opportunity over another. Covel expands on these concepts relating them to familiar companies like Microsoft and Apple. Covel goes on to discuss how people have difficulty letting bygones be bygones; why people have difficulty with stop-losses in trading; and why having a system that forces you to take losses is the foundation of trend following trading success. A special offer from Michael Covel? Free DVD telling the story of a small town guy who made a trend following fortune. Delivered to your home or office: http://trendfollowing.com/win.
Michael Covel opens his monologue with a clip from the film, 'Patton'. He talks about persistence over time in relation to the film, relating it to some personal examples from his own life. Some people seem to have genetic disposition for certain skills; however, the drive to succeed supersedes any genetic disposition you may have. Dedication, persistence and the drive to achieve are the true keys to success. Covel leads into a clip of Maria Bartiromo talking with Ray Dalio of Bridgewater. Covel notes some things that Dalio goes into that have to do with trend following: having a strategic asset allocation mix that assumes you don't know what the future is going to hold; and the importance of the few big wins. However, Dalio says he isn't a trend following trader in the traditional sense: he's 100% systematic using fundamental information--not technicals. Covel goes on to surmise that there is evidence that some portion of Dalio's business is perhaps in the technical trend following space. Covel also talks managed futures: the origin of the term; how it describes an instrument and not a strategy; and its relation to trend following. Further topics include why you don't need a Ph.D. to be a trend following trader, and process vs. outcome. A special offer from Michael Covel? Free DVD telling the story of a small town guy who made a trend following fortune. Delivered to your home or office: http://trendfollowing.com/win.
It's common knowledge that if you throw a lobster into a pot of boiling water it will scream for its life. However, if you put the lobster in cool water and slowly bring it to a boil the lobster will accept its fate. Michael Covel notes that this is the scene for many investors today: they're like the live lobster in a pot of cold water as it's coming to a boil and they don't know what's coming. Covel presents this idea and several others in the context of gambling, chance, and uncertainty. Gambling can be a pejorative term for many, but Covel relates it to trading. Covel discusses an article entitled, "The Illusion of Control: Dancing With Chance" and relates its ideas to trend following trading. Covel also discusses a TED video from Dylan Evans. Evans talks about three different types of gamblers: problem gamblers, leisure gamblers, and expert gamblers. Covel extends Evans' categorization to traders. These different types of gamblers play for different reasons, handle profit and loss differently, and bet on different games. Are you a problem trader, a leisure trader or an expert trader? Do you trade for fun or for money? While problem gamblers will bet the farm, leisure gamblers know their limits (using a nascent kind of stop strategy), and expert gamblers aim for profit. A problem gambler will bet on anything, but an expert gambler will only bet on games with an element of skill. Covel also analyzes Evans' three ways to make decisions: setting a threshold (how much are you willing to lose?); bet sizing (how much do you bet on each trade?); and the expected value (if you follow your strategy, what is going to be your average winner and average loser?) If you look at the market price of a diversified portfolio of markets, have an entry and exit strategy, and have a bet sizing strategy, then you can make money over the long haul if you have a positive expected value. Please note: Michael Covel quotes Christopher Hitchens in this episode, which contains an f-bomb. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel opens with quotes from both Jay-Z and Malcolm Gladwell ("My goal of the day is to fully listen to my critics, even if they may not know exactly what they're critical of."). Jay-Z recently spoke with Russell Simmons about Occupy Wall Street, noting that he wasn't sure exactly what the message was behind the rally. Covel talks about the Occupy movement, about criticism he's received in support of Jay-Z's stance, trend following in general, and the culture of "trolling" that has popped up on the internet. Next, Covel covers some of the more technical details regarding trend following trading. How can you detect a trend? How can you measure it? For anyone with a pulse, it's really simple. A trend is from point A to point B. There are all kinds of different trend lengths, but you don't know the trend until it's over; you enter, you exit, and then you see where the trend was. The goal is to capture the "meat" in the middle. Covel covers the five basic precepts of trend following: What markets are you going to follow? What will be your signal to enter a trade? What will be your exit signal for getting out with a gain? What will your exit signal be for getting out with a loss? What will your bet size be? Covel also discusses drawdowns, speculation, and entry signals. He notes the connection between wildcatting/speculation and trend following, referencing P.T. Anderson's film about oil speculators, "There Will Be Blood". You can enter randomly, but if you can give yourself an edge on the entry, you should take it. Think about drilling an oil well: You show up and you start drilling holes. You can drill randomly, but if you do a little geological homework, you can find out where to drill to increase your odds. The same logic applies to trend following. You're going to drill a lot of holes: some of them are going to be dry, but you're going to hit a few gushers along the way. No one will care about the dry holes when you hit the gusher that pays for them all. You can either call Fidelity, give them all your money, and wait and hope that you have the timing correct for your own retirement; or you can craft your life around looking for the gushers with a strategy that gives you an edge. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks to trader, educator and author Dr. Alexander Elder. Besides his numerous other books, just about everybody involved in the trading space in the past 15+ years has Dr. Elder's international best-seller "Trading For A Living" on their shelves. Dr. Elder's unique and inspiring story starts with his dissatisfaction with the communist system in his home country of Estonia. At 23, while working as a ship's doctor, he jumped a Soviet Union ship in Africa and received political asylum in the United States; he also ended up on the KGB's wanted list. Dr. Elder worked as a psychiatrist in New York City and taught at Columbia University, and he shares with Covel how his experience as a psychiatrist provided him with a unique insight into trading. Dr. Elder's work has established him as one of today's leading experts on trading psychology and in the use of technical analysis with money management. Elder and Covel talk about the psychology of trading; how a high degree of education can sometimes be a hindrance; the most dangerous personality traits to have as a trader; the stages of trader development; the importance of money management; the importance of keeping records and diaries of your trades; the notion of exiting long positins and shorting weakness; the similarities and differences between traders in different geographic locations; and how financial markets can be like manic depressive patients. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel talks with trader Steve Brechtel. Over the past 20 years Brechtel has worked as a trader for three of the top 100 hedge funds in the world: Trout Trading (now Tewksbury Capital) in Chicago and Bermuda, Crabel Capital in Milwaukee, and now Two Sigma in NYC (a $10 billion fund) -- all short-term systematic funds. Considering the often secretive nature of hedge funds Brechtel's candid talk about Two Sigma required internal clearance from his company and is a rarity in the hedge fund world. Covel and Brechtel cover Brechtel's history, from his beginnings roughing it as a Pizza Hut manager while working an insurance job, to finding his way to Monroe Trout, to working at Crabel, to his career at Two Sigma today. They also discuss their mutual history in Virginia; why he was hired at Monroe Trout in the first place as a new trader and the advantages of having a beginner's mind; the difference between the short term/systematic traders that Brechtel worked for and the longer term trend following Covel talks about; the six strategies Brechtel learned trading the pits; what's changed and what's the same now that technology has evolved; Ayn Rand, objectivism, and Trout; Brechtel's transition from Trout to Crabel, and the differences between these two firms; and his work at Two Sigma today. Brechtel also has written a screenplay ("Unhedged") using hedge funds and high finance as its backdrop. He shares his experience in writing the script, how his movie differs from other Wall Street movies, and Covel talks with him about his experience in making his own documentary, "Broke: The New American Dream". Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
"You have to understand, most of these people are not ready to be unplugged. And many of them are so inured, so hopelessly dependent on the system, that they will fight to protect it." That quotation inpsired Michael Covel to analyze the two political conventions in America over the past few weeks offering a trend following perspective as an alternative. Within politics people seem to be marionettes attached to strings with invisible hands moving them all around. On either side of the aisle you have people blindly following "their guy" thinking their political win is the answer to their problems. Yet if you want the dollars in your account to go up clapping like a "happy seal" at one of this conventions ain't going to cut it. Covel compares today's landscape to the famous Twilight Zone episode where Roddy McDowall finds himself crash landed on Mars only to realize the comfortable home that has been made for him is a prison where he is exhibited like he's in a zoo--an "earthling in his natural habitat". Covel also notes how technology is arbitraging away the need for human capital and how no politician in America is honest enough to admit it. If so, how do you succeed in this environment? You have to pick an option that's not simply a political belief in "your guy". So what's a way out? Covel lines up some of the basic trend following concepts and applies the eight key features of the scientific method. However, if everyone adopts trend following how can it still be successful? The vast majority of invested assets are in buy and hold mutual funds and unless people stop gambling, stop watching CNBC, and stop drawing false parallels, trend following will never be adopted by the masses. However, the fact that most people are unable to adopt trend following gives you the leg up and a fantastic opportunity to mint cash. Get out of the human zoo. Stop being a marionette. Stop being manipulated. And do something big for yourself. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel speaks with trader, author and blogger Steve Burns. Burns has written two books (his most recent book "New Trader, Rich Trader: How to Make Money in the Stock Market" is available on Amazon) and operates an educational website. Burns is an up-and-comer, and Covel talks to him about his early start, his Nashville location and lessons learned along the way. Burns' start came during the tech bubble of the late 1990's, and he discusses how the bubble bursting helped to shift his perspective from a fundamental, buy and hold approach to the trend trading perspective he's adopted today. Covel expands on some of the chapter titles in Burns' book, such as "New traders try to prove they are right, rich traders admit when they're wrong," and "New traders bet the farm, rich traders carefully control position size." They also discuss the problems with buy and hold; how "rich" can be a mindset rather than a number; the role of luck and circumstance in trading; staying away from the need for constant action and waiting for the "fat pitch"; developing a robust system; staying away from predictive trading approaches; and viewing the markets as a video game as a means to help with trend trading understandings. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
Michael Covel discusses reducing decisions in our lives. He lays the foundation by exploring typical Yahoo Finance articles and a recent John Bogle piece titled 'Ten Rules of Investing', which basically pumps a buy & hold strategy. These articles are the digital stress and information overload of our lives. They don't help us make decisions; instead, they distract. Covel relates this to a white paper from the Bank of England called "The Dog and the Frisbee". Thousands of decisions and factors go into the simple act of a dog catching a frisbee, but does the dog ever think of all those factors? Does the dog crunch the higher math? No! This makes for an easy connection to trading. The objective is to reduce trading decisions down to a simple factors, and to make good buy and sell decisions with some sort of risk-management constraint. So, how do you reduce the buy/sell decision-making process down to something manageable? A trend following strategy and trade based on price. All of the Yahoo Finance, CNBC, and Bloomberg articles in the world won't help make better trading decisions--its all overload. Focusing on the thousands of factors that can go into any market decision will leave your head spinning; if you adopt a trend following approach, you can reduce all decision-making down to the price action up or down of the instrument you're trading. Simplicity in life and the markets--the key. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/win.
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.