Author: Michael Covel

Gary Stone:

In baseball, even the best hitters fail most of the time. A player with a batting average of .300 actually hits the ball, on average 3 times out of 10. That means only 30% of his swings are successful hits! (The batting average (BA) is defined by the number of hits divided by ‘at bats’. It is usually reported to three decimal places and pronounced as if it were multiplied by 1,000: a player with a batting average of .300 is “batting three-hundred.) A player with a batting average above .300 is considered exceptional. One of the games most recognised players, Babe Ruth, had a batting average of .342 (34.2%). The ability to cope with this constant failure requires a strong mind, a short memory, humility, and a sense of humour. Each miss means the next home run is one step closer.

Players need to be able to process new information during the game in a dynamic and changing environment. They need a coach or mentor who they listen to and respond to. They also need to be able to adapt to changing life situations (marriage, children, divorce etc etc) whilst still operating at a high level. They need to be able to control the level of intensity and keep everything in perspective.

These same habits apply to our endeavours as traders and investors in the financial markets. By being aware of these psychological skills we can better master the traits required to achieve long term success.

Great insights.

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Feedback in:

I thought I might like to tell you all that I love you for what you have brought to my life. In 2009, I started by trying to trade the market. I had great success in the beginning but since I had no real foundation that initial success didn’t last.

Years of frustration, followed by frustration… Last year I started reading. Really reading! No TV, no radio, no MSM, nothing. Just read books and listened to some podcasts. I started with Mark Douglas and then went to Jack Schwager’s books. That led me to Van Tharp and Michael Covel. I love, love, love Michael’s writing and podcasts. Awesome one on Jesse Livermore!

You might ask “what is my edge?” I basically use the Donchian Channel, I use a 2ATR trailing stop and then I stay out of my own way. I don’t buy the bottom and I have to give back some from the top to tell me the trade is over. But I have a written plan and so far, I am profitable – so there’s a clue. So I’ll let you know after two or three years/decades how it is going.

What’s my plan? My plan is to grow and prosper – spiritually, financially and in every way imaginable. My plan is to create “Infinite Wealth.” My plan is to do well enough to take several of Van’s and Alan’s workshops. I would also like to have a beer with Michael. I think those are all very realistic goals.

It must be a nice thing to have lived a life that has so profoundly changed the lives of others for the better. Blessings on you all. I am blessed to have found you.

Regards,
[Name]

Thanks for the nice words. Sure, on the beer!

How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us

Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Feedback in:

Thanks for the audio links, Michael. I’ve listened to these (about to listen to the excerpt of your audiobook “TurtleTrader”) and they are worth a re-hear to pick up morsels I missed the first time through. At 65, it’s increasingly important for me to do that.

I have a critically important trading question, one that has dogged me for over 20 years, an answer to which I’ve not found, and am hoping TF traders have a fairly standard approach to addressing. What happens when 44 stocks pop up on a TF screen one day? Background follows:

I threw the Trend Following algorithm located in the Appendix (or was it Chap 12?) of your book “Trend Following”, just for fun, into ToS. Not hard to screen, and I limited my universe to stocks and ETFs with Regular and Weekly Options—just to ensure sufficient liquidity of the securities traded. I also built its mirror for bear trend following.

I wanted to see how many stocks would pop up on the screen. For a number of days, I’d see a couple, maybe one, where the volume of the candidate stock also exceeded its five-day SMA on the day it popped up; I’m tracking each daily list in its entirety for about 60 days to see if above-average volume is an effective 2nd-round screen.

I’m paper trading these for now and for at least two more months while I work the kinks out of my understanding of the choice of 39-period (days in my case) High of Highs and the 13-day TS. I’m comfortable with this kind of strategy—catch some fresh blood or a renewed uptrend, catch a long-term climber, and 13 is one of Tom DeMark’s Sacred Numbers (just kidding—I respect his work a lot). Also built the mirror screen for shorting. I know, I could wind up holding a position for 12 times that length, but the first 60 days are enough for me to start noticing some tendencies. I’m also a fan of backtesting to exclude stocks that don’t often follow through on a High of Highs signal, but I haven’t done so yet for this experiment.

Well, on Friday my old nemesis appeared—about 44 stocks had passed my Bear TF initial screen. No way I would buy 44 new puts—my balances aren’t high enough to sustain such a thing. However, any screen that pushes that many candidates through are usually useless to me, as I have a knack for picking the worst 5 out of a pile of 40 candidates. The Worst 5. I’ve not tried a simple random sample of the candidates, nor have I tried to backtest each candidate yet.

If you have a podcast that addresses this question, I’ll be glad to listen to it. Thanks for your time.

Sincerely,
[Name]

Great question. It is an issue that I have helped clients with for over a decade (www.trendfollowing.com/products).

Trend following at its essence has 5 issues:

1. What market do you buy or sell at any time?
2. How much of a market do you buy or sell at any time?
3. When do you buy or sell a market?
4. When do you get out of a losing position?
5. When do you get out of a winning position?

Said another way (Bill Eckhardt inspired):

1. What is the state of the market?
2. What is the volatility of the market?
3. What is the equity being traded?
4. What is the system or the trading orientation?
5. What is the risk aversion of the trader or client?

To your question, its #1. Narrowing the portfolio. One of the keys with trend following is to narrow the portfolio so you don’t trade everything and if there are competing signals that you have a ranking system.

How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

• Trend Following Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us

Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.