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The Trend Following “Farm Life”

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Mr. Covel, first of all, I would like to thank you for the wealth of information that you have provided to the general public regarding trend following. I stumbled onto your podcasts only a couple short weeks ago and have been addicted since then, as I am already through 35 of them. I have a few questions for you regarding becoming a flagship program member, but first may give you a brief history of what led me to you. My background may be somewhat unique compared to most of the clients that you work with. I returned to family farm about 5 years ago after working 6 years for the US Government and a graduate degree. We farm grains (corn and soybeans) and occasionally feed live cattle. I am used to being very successful in most of my endeavors but four years ago, we bought live cattle for the first time since I returned to farm. Using a break even analysis, we figured that selling cattle at $92 would net us a small profit so we decided to hedge (short) Oct live cattle rather than leaving over $2 million of risk open to the market. We rode the positions short all the way up into the high $120s, sending over $150k of margin money into our account. As you can imagine, this stung a bit as we did the same amount of work (a lot) to raise these animals but received $150k less than if we had simply been out of the market altogether. I knew that there had to be some way to take advantage of the market, rather than being taken advantage of by it and I vowed to find out how. I researched books and ended up buying a couple of Japanese candlestick books, read them and tried implementing the strategies. These strategies simply did not work. Sometimes the reversal patterns reversed, other times they simply signaled a pull back and the market took right off in the same direction again. A couple months later, I read Landry’s Layman’s Guide to Trading Stocks and it made much more sense to me. The thing that I found odd was that he advocated buying on pullbacks, almost the direct opposite of the candlestick books. This greatly confused me and, frustratedly, I walked away from the idea for a couple of years. Grain prices were good, so marketing did not seem to be a huge issue. If we got $5.50 for corn, it wasn’t as good as $6.50, but it was still good enough. Fast forward to this year and, again, we entered the cattle market short contracts at $130.25. Again, we rode them, according to our brokers advice, all the way up to $162 for a loss of close to another $150k. This lit the fire in me again and I vowed that I would never dump large amounts of money to people who weren’t doing the actual physical labor that I was doing, but were still being rewarded (probably more than I was) by the increase in price. Just think, in 1 market over 3 years, I lost nearly $300k of margin money, so I know the power of the trend and how significant huge swings can be. I read the Landry book again and it made much more sense to me this time. This is also when I stumbled upon your podcasts, and, as I said earlier was hooked instantly. The more I listen, the more addicted I am becoming. The light bulb really went off in my head during your podcast with Vaca. His analogy of futures and insurance companies opened my eyes as to how this whole thing really works. The problem is that no one from our industry looks at the markets this way. Every day we are blasted with fundamental analysis that is compete garbage. Long story short, I ordered the turtle book a couple weeks ago and have read it twice already. It’s an amazing story and guide. I have also recently ordered your trend following book and the 2 market wizards books and am halfway through them, as well. I have also read all of the free information on your site. I apologize for being so long winded but I hope that all of this information helps you to understand where I am coming from. I have no doubt that I can succeed in this trend following space on my own, as I am a quick learner and understand many of the trend following principles, as well as how the futures market works. However, the opportunity to be mentored by you and your team is a great opportunity and I feel will help me to reach my goals much, much faster. I feel like I’m coming along on the theory but putting it into practice is a whole other ballgame. My questions are:

1. Does your Flagship program assist me in finding the best trading software/platform to use for my own trading?
2. Does your Flagship program allow me to ask you and your team questions directly, if any may arise?
3. Would there be any special considerations for my account since I have possession of the some of the commodities that I will be trading?

I look forward to your response.

Respectfully,
[Name]

1. Yes.
2. Yes.
3. You may have some margin benefits depending on your exact situation, but overall a trend following strategy is speculative and not a hedge.

Note: Much more depth on Flagship here and here.

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