Most of the guys that I knew who lost a lot of money actually tended to be more right than wrong. They just lost a lot on a few big losers. I believe that people put too much of a premium on being right. In some ways, it’s one of the drawbacks for people who went to the best schools and always got straight As—they are too used to always being right. It gets back to people and emotions. Everyone is happy to take lots of little winners—it makes them feel good. When their trades go against them, on the other hand, they hold on because they don’t want to accept being wrong. Many times, these trades come back and they are able to capture their small profit. To me, that kind of trading is a little bit like picking up nickels in front of a steamroller.
Thankfully, the markets don’t care about me or you or where we went to school. They don’t care if you’re short or tall. I was never very good in school and I wasn’t a good athlete either. With my background, the way I saw it, I never had any problem with the idea that I could be wrong. So, I have always built in an assumption of wrongness to anything that I do. We now kindly refer to this practice as risk management, but I just wanted to answer the question: “What’s the worst thing that could happen to me?” I never wanted to do anything that could kill me. Knowing that I was not likely to be right that often, I had to trade in a way that would make me a lot of money when I was right and not lose me a lot of money when I was wrong. If that wasn’t enough, it also had to be simple enough for me to understand.
After many years of searching and learning things the hard way, I evolved my own version of trend following. The idea made sense and I had some good examples to follow. Still, I wanted to prove to myself that it worked without betting real money. I had to test what would have happened had I traded that way in the past. These were the early days of computers and we even had to “borrow” time on university computers to test and prove our theories. It was a painstaking task, but it gave me the comfort that I needed. Now, in reading Trend Following, the do-it-yourselfers might argue that having a book that illustrates these same basic principles takes some of the fun out of it.
Actually, Covel, like any good trend follower, has not focused solely on the endpoint. He gives you a deep understanding of the most important part: the path. Unlike so many other books that have been written about investing, Trend Following goes beyond the results to explore the journey of this outstanding group of traders.
For my staff… Covel’s Trend Following is required reading. For my daughters at home, it has finally settled the question I seemed never to have been able to clearly answer myself, “Daddy, what do you do for a living?” This book captures and conveys what so many traders have taken careers and large losses to learn. And lucky for all of us, you don’t have to be Phi Beta Kappa to understand it.
Some feedback from someone searching for some answers:
A friend who is way more successful at trading than I, sent me a link to listen to your podcasts. I have invested more than I care to mention here, on investment training, still not showing ANY positive return. Can you help? Hope so.
Thanks in advance,
I can help. Yes. Links to check out:
Feel free to follow-up.
Note: My background: www.trendfollowing.com/about
A nice follow up email from the friend mentioned above:
Thank you for responding to my friend [Name] recently.
I have totally enjoyed listening to your podcasts. When I ran across your website, (I would have liked it to have been years ago) I started listening to your podcasts. Started on the oldest and currently listening to #83 with the great Tom Basso. So I have a long ways to go.
When I first started listening I thought what a great idea. I know people are available because years ago before the internet, I spent 30 minutes + on the phone with Mark Faber who was living in Hong Kong at the time. Mark was very easy to talk with and forth coming with information so I applaud you for doing what you have done and are doing.
I do have a question. What are the top 3 companies offering either software or services to test various strategies? I have done all of my research by hand due to the fact that I have pretty much come up empty handed as far as a fairly inexpensive and simple to use system.
If you have a podcast that covers this just let me know which one and I will listen to that first. Let me know how I can help you.