Ep. 394: Everyone Needs a Trading System to Profit with Michael Covel on Trend Following Radio

Market Wizards
Market Wizards

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On today’s episode of Trend Following Radio Michael talks the timelessness of sticking with your system. Michael uses Jack Schwager and his books Market Wizards and The New Market Wizards as prime examples of timelessness. Although they were written years back, he argues they have not lost an ounce of value in today’s trading world. Michael harps on critics that say the Market Wizards books have no place in 2015 markets, noting that one of the great concepts introduced in Schwagers’ books was the notion of “systems”. Although the concept of having a system had been around for over 100 years, Schwager was one of the first to present and teach in an interview format.

Michael then segues into a clip with Howard Lindzon of Stock Twits. Howard further makes the point that having “Any system is better than no system”. He goes on to say, “You have to have a system to beat another system.” Howard talks about Jerry Parker, his trading style and why he has become so successful. Covel asks listeners, “What kind of system do you want? What are the risks and rewards? There are all kinds of systems out there. Have you done the work to find out the pros and cons? What kind of life do you want to have?” The system you choose will dictate that. People who tell you the Schwager books are dated are the same people that will sell you anything. These people go off of gut, intuition or even magical feelings, and that is their decision-making process. Trust that the highest achievers and money-makers on Wall Street trust their systems, painstakingly researched and developed. When times are good they leave it alone, and when times are bad they leave it alone.

Covel plays one last legacy excerpt from Bill Dunn. Dunn lays out that his approach is long term trend following and quantitative. His company does not override their signals ever and they have serious risk management programs in place. They have a 1% probability of losing 20% or more in a one month period. However, the client can choose more or less risk. He shows how his firm does not correlate with the S&P and their positions and trades are completely transparent to their clients. Dunn makes it clear that his performance is not a result of anyone’s judgment. It is a result of long tested simulations and models. Timelessness personified.

In this episode of Trend Following Radio:

  • Human nature doesn’t change
  • Timelessness
  • Behavioral finance
  • Sticking with a system
  • Risk management
  • Bill Dunn on trend following

“Find the wizard behind the right curtain and you have a chance.” – Michael Covel

“The system protects you from being human.” – Howard Lindzon

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You might like my 2017 epic release: Trend Following: How to Make a Fortune in Bull, Bear and Black Swan Markets (Fifth Edition). Revised and extended with twice as much content. Out April 24th 2017.