You never know a trend until it is over. Consider an excerpt:
Trend followers know that attempting to pinpoint the beginning of a trending market is futile. When trends begin, they often arise from a flat market that doesn’t appear to be trending in any direction. The idea is to take small bets early on in a market to see if the trend does, indeed, mature and get big enough to make big money. How do trend following strategies succeed? One fund offers:
“The ability of trend following strategies to succeed depends on two obvious but important assumptions about markets. First, it assumes that price trends occur regularly in markets. Secondly, it assumes that trading systems can be created to profit from these trends. The basic trading strategy that all trend followers try to systematize is to ‘cut losses’ and ‘let profits run.’”
I asked Charles Faulkner, a modeler of top traders, to expand upon what at first glance appears to be a simple idea:
“…the first rule of trading is to, ‘Cut your losses, and let your profits run.’ And then, that it’s the hardest thing to do. Seldom do any of them wonder why, and yet this is exactly where the efficient market hypothesis breaks down, and the psychological nature of the markets shows through. When we lose or misplace something, we expect to find it later. The cat comes back. We find our car keys. But we know a dollar on the street will not be there with the next person who passes by. So experience teaches us that losses are unlikely and gains are hard. ‘A bird in the hand is worth two in the bush.’ This is when I tell them that they earn their trading profits by doing the hard thing—by going against human nature. This is where the discipline comes in, the psychological preparation, the months of system testing that give the trader the confidence to actually trade against his natural tendencies.”
And now to the mailbag:
Hi Michael, thank you for your books and I’m writing to ask if I may please submit a question. My question is in relation to time frames and identifying the current market type i.e. trending or ranging, in order to determine the profit taking strategy. I am trying to decide to take profit at the previous high or low or to let profits run to a larger time frame high or low. How do I determine if the current market type is a trending market or a ranging/mean reversion market so I can decide how to take profit.
Is it possible to have parameters to determine the market type and hence the profit target strategy. Or is there a different or better way to approach this as I don’t want to take half profit and let half run as I want to take full profit depending on the market type.
Trend following does not define a profit target before entry. Big distinction. You also can’t define a trend until it’s over so attempting to jump back and forth between mean reversion is iffy. Trend following has clear entry and exit signals, with proper bet sizing, over a diverse portfolio of the world’s most liquid markets. Again, you can’t define a trend until it’s over. That means sticking to clear entry and exit signals.
I have to totally disagree with the comments made by Mark R. I have been a subscriber for the last month, and have to tell you that I am reading every word that comes across your newsletters or videos. I am 65 years old and have “tried” with no real instruction, to be a trader since I was in my 20’s. Needless to say, I have lost quite a lot of money, but have learned a lot. The most important thing that I have learned, in my opinion, is that most if not all of the “prediction” type newsletters, courses, etc., are not worth the money you pay for them. Your newsletter is the first that makes total sense to me. I wish that I had come across someone like you much sooner in my life, but I do understand that it’s never too late and will continue to trade. This time with trading rules, stop loss knowledge and discipline. In short, I don’t know how old Mark R. may be, but if he could make use of my years of experience on the wrong things to do, I would highly encourage him to stay the course with the right (and proven) way of trading. I was kind of like him, always looking for the quick hit, but he can believe me when I say, you can hit one occasionally and show a really big gain, but it can never be consistent, and will certainly never work without a system of loss control. I thank you so much, not only the stock recommendations, but also for the instruction. I love knowing how it’s done and why.
How and why motivates me too.
Feedback in that addresses some bad language on my podcast:
Mr. Covel: I enjoy your podcasts very much. In fact I usually listen to them twice. Today’s podcast about Trump was very persuasive. In the primary I voted for Carson. I believe he is a good man that would make honest decisions. I think Trumps moral compass points at what works for him, not right or wrong, not honest or dishonest. I had intended to cast a write in vote of ” no confidence” this fall. But after listening to you, if Trump wins the nomination, I will be voting for him. If he wins, I will invest in his businesses. I think they will finally be profitable for shareholders.
About bad language. It is a great way to add emphasis, garner attention, or express outrage. I too think it might be a sign of intelligence, knowing the appropriate time to curse. Please do not let your valid valuable points get lost because of other peoples sensibilities. I will listen regardless. I am starving for truth.
Keep up the good work.
Agree, the truth is quite awesome.
More feedback about sometimes bad language on my podcast:
Mike, I was not offended by your language. Sometimes friggin or frickin just doesn’t punctuate the point. I’m really enjoying the podcasts; have been going through the archives. Speaking of trends… how about getting Gerald Celente?
So, you’re a Catcher. What do you think of the Buster Posey rule (or should it be the Ray Fosse rule)?
Why do they hate Trump? In short, they are afraid of getting hanged on pay-per-view (would boost the economy). And, of course, they are New World Order, Globalist, CFR lunatic scumbags. They enrich themselves and get more power by engineering a take-down of the USA to third world status. 1984, Brave New World, Tragedy and Hope, and The Road to Serfdom are cautionary tales to those of us with empathy. To those assholes, that’s the playbook.
We live in interesting times.
Stay cool Brother, I’ve gotta run out and get me a Lotto ticket.
My lottery view!
Feedback from another listener:
I accepted your invitation to review podcasts. I’m trying to pace my binge listening. You’re to be congratulated in your growth as an interviewer, an opinion I believe I heard you share. Keep it up. If you would spend an issue discussing N — risk management Turtle style — I wouldn’t object a bit.
Myth: If you save for decades and invest in 401(k)s, IRAs, and a home, these investments will grow steadily, allowing twenty to thirty years of secure, peaceful retirement.
Reality: Though this might have been true at some point in the last century, it is not true any longer. If you want to get ahead and enjoy a life of prosperity, you must invest in the last safe investment: yourself, and your own skills, value to others, relationships, and ability to generate happiness in your life consistently.
Business strategist Bryan Franklin and Michael Ellsberg, author of The Education of Millionaires team up here to present a blueprint for building “True Wealth,” the ability to generate not just financial wealth, but also the experiences you cherish most: security, freedom, creative expression and love.
His interview has sparked much feedback. Consider an email from one listener:
Michael, Once again, thanks for your podcast. It is something I look forward to on a regular basis.
At the end of one of the podcasts I listened to recently, you asked listeners to leave a review to help you maintain the excellent guests you’re able to bring on, so I left a review on iTunes.
Additionally, I have a question following some of the topics you and Michael Ellsberg discussed in episode 427.
You two were talking about how often times young people rush to buy property, and how getting a mortgage isn’t something that makes a lot of sense in reality, in some scenarios.
As a 26-year old who is married and just had my first child 2 weeks ago, this sparked a train of thought in my mind. I’m fortunate to be a solutions consultant at a [company], and my wife has a great job as well, and we began entertaining the idea of buying a house for more space.
I’m listening to your podcast and using other resources to try to educate myself to the point I can trade/trend follow with our money and get out of the long term buy and hold cycle. I know I have a long ways to go and am in no way a numbers person/trader yet.
Your podcast got me thinking and I began to run some rough numbers in an obvious vacuum:
Assuming a $250,000 house and a 20% ($50,000) down payment and a monthly Principal + Interest + Tax + Insurance of $2,000, and $5,000 of upkeep per year, after 15 years the total cost of the house/mortgage would be $485,000.
If your house appreciated 3%, 4%, and 5% per year, after 15 years it would be worth $390,000, $450,000 and $520,000 respectively.
In two of those 3 situations, you’ve lost money on your house. Even with leftover income savings after each month, assuming 3% ROI on investments and 3% home appreciation, based on my family’s current budget, we’d only break even. (see attached spreadsheet)
Then I thought, “what if we invested the same down payment + extra income saved from renting a property cheaper than the $2,000 mortgage”.
Summarizing, in a vacuum, after subtracting the cost of renting, a $95,000 profit would be realized assuming 3% ROI on investments/trading after 15 years.
In short, is this train of thought crazy? Is this why you and Michael Ellsberg seemed less than enthusiastic about the idea of taking out a mortgage and buying a house? I know I’m not a numbers person, have I grossly overlooked significant factors beyond mortgage tax deductions?
Any insight or thoughts would be greatly appreciated!
We’ve delayed buying a property and are currently renting a larger apartment with more space.
I’ve attached a simple spreadsheet that maps the numbers behind going with a mortgage versus investing the down payment and continually adding from reduced cost savings.
Thanks again for your podcast!
There is no short answer, but I would recommend reading all you can from 07-09 on real estate. Maybe check my film: here.
Property is not a buy and hold investment.
More feedback in:
[Name] here in Loma Linda, CA; here for prostate radiation (proton) treatment. Getting ready for the next chapter of my life. It was either as the line from movie ‘Shaw Shank Redemption’ – ‘either get busy living, or get busy dying’. I’ve chosen the former!
Must say I thoroughly enjoy your podcasts. I recently signed onto your service and am a true believer in ‘Trend Following’. However, I suspect there is much I need to learn before I can say I fully understand it in all it’s complexity and nuances and to the point where I can say I’ve accomplished any degree of success in the application of same. I retired from the AF quite a few years ago and after retiring I worked overseas as a defense contractor (Saudi, Kuwait, GE, Portugal, Oman, Iraq & Afghanistan). During Vietnam War I served 2 tours in Thailand and I visited Ho Chi Min City one time after the war. I share your fondness of that part of the globe.
Anyhow Michael, not to talk your ears off just want to tell you I appreciate your work and I am looking forward to learning all that I possibly can from you going forward. Also, I have to agree, Trump would perhaps be a good thing in that he’d shake things up more than any other current candidate. My view: government is a necessary evil (humans, many anyway, require structure/direction) It would please me no end were government to do government types of activities, e.g., managing critical government functions and a whole lot less meddling. The less government the better IMHO!
Again, Thanks Michael,
Agreed, SE Asia is cool.
A question about translations:
My name is [Name]. From Turkiye (Turkey). I want to learn your lessons or strategy, but my language is not good. If you send me PDF i can read, but if you want to teach live lessons, sorry.
My book in Turkish: here. My books have been translated from English into Chinese (Simplified and Traditional), German, Japanese, Hungarian, Arabic, Russian, Korean, Turkish, Portuguese, French, Romanian, Polish and Thai. I have said it time and time again, trend following is for everyone. Doesn’t matter your location, age, or what background you come from. Everyone can be a trend following trader.
Dear Michael, I tell everyone I meet, young or old about your excellent podcasts. I’m even getting my wife to listen to them. You and your tribe are a breath of fresh air.
Thanks so much,
Jim Rogers podcast feedback:
Every time you are interviewing Jim Rogers I am so humbled. He is such a success in everything he is doing. Thank you so much for giving me this interview. I just love your conversation with him! I have listened to all of them and please let him come to Vietnam and you show him around.
I would love to have him much more often on your podcast (I know he is a regular guest). Happy gains for you.
All the best
I like Jim too.
I would like to know more about your ETF research. I’m looking at learning forex trading and would like to be a profitable one. I bought 2 of your famous books; The Complete TurtleTrader, and Trend Following. I find them informative and well after listening to some of your podcasts on trendfollowing.com, I feel so confident that I can do it.
Is there any advise that you would have for me and do you by any chance have any resource centers in San Diego or Seattle?
Thank you and I will be grateful with your response,