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Ep. 625: Quick to Condemn and Attack with Michael Covel on Trend Following Radio

The CNBC Trading Floor
The CNBC “Trading Floor”

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Cognitive dissonance is everywhere. Michael quotes from an article by Alwyn Lau titled “Quick to Attack and Condemn: Why We do It.” Trumps presidency has produced arguably the greatest case of cognitive dissonance in history.

Many cognitive dissonance with the markets. What is the best way to counter cognitive dissonance? Take a minute, stop, and look for an alternative explanation. Stop hallucinating and start studying. Read perspectives from both sides and educate yourself.

Staying attached to news and breaking headlines only feeds the problem. Are you in cognitive dissonance about markets? Politics? Have you given yourself a back test?

In this episode of Trend Following Radio:

  • Cognitive dissonance
  • Donald Trump
  • Fact checking
  • Bitcoin
  • Breaking news

“The more certain you are of a perspective, the more severe your dissonance or mental torture will be when something threatens that perspective.” – Alwyn Lau

Mentions & Resources:

“Jump into a fresh start for 2018…”

Trend Following, 5th Edition: How to Make a Fortune in Bull, Bear and Black Swan Markets
Trend Following, 5th Edition: How to Make a Fortune in Bull, Bear and Black Swan Markets

Feedback in:

Michael,

I wanted to write to you after listening to your Monday Podcast ‘EP: 622 Whatever You Think Think the Opposite’ which I listened to on the drive in to work on Wednesday with a huge grin on my face as I found the timing uncanny as I had handed in my resignation to my workplace on the Monday that week.

The points you made on the Podcast about making the leap, health and 2018 going to be great all resonate with me.

In an exit interview with my general manager he asked if I had taken a lot of knowledge from working there, the truthful answer is that I had from the time on the commute which allowed and focused my attention to your Trend Following Podcasts. Over the past 7-8 months I have totally changed my approach to trading throwing out the fundamentals and focusing my attention to my understanding of trend following. So far this has been a really motivating and interesting learning curve, consuming books and podcasts and building a huge passion which I’ve also radiated outwards to other friends with investment interests. The results so far even over the most recent few months have given me the confidence to back myself and leave the stability and reliance on a fixed income where I was not challenged, getting unfit at my desk and hardly motivated or allowed to demonstrate any passion.

I look forward after my 4 week notice period to dedicating my time to developing my trend following knowledge, developing our more systematic approaches and focusing on better administration of prior trades.

What can I say but Thank You for changing my direction and giving me the confidence to JUMP into a fresh start for 2018, the Trend Following journey ahead is one that I am really looking forward to.

Regards,
[Name]
(keep up the good work)

Thanks!

“You inspired me to build and trade the system…”

Feedback in:

Hi Michael,

I am a reader of your blog, your books and I recently started listening to your podcast (review coming soon).

You inspired me to build and trade the system… with confidence and discipline. I have a few years of discretionary trading experience, with no consistent profits.

So I’d like to start trading a mechanical trend following system.

Here is the system I came up with, inspired by [name], with my optimization of markets choice and parameters.

Enter long if EMA 150 is above EMA 350 and if we have a new 120 days High, on a closing basis. Stop 3 ATRs below last high, on close. Reverse for short.

Apply it to commodities and forex (it unfortunately is losing money on S&P and TNOTES in backtests, also some markets are not available with my broker, so this uses what I had available, about 15 markets, corn, wheat, soybean, gold, oil, forex 4 majors and a few crosses).

Here is how the result looks like:

Compounded Annual Rate 8%, max drawdown 17%, so CAR/MDD around 0.50. This is achieved with 2% risk per trade. Position size based on ATR. Results look good, but there is a 6 year drawdown or flat period. I guess most trend following systems had a worse period, but was it that bad with other systems, too? My key question… do you think this system is good enough to trade it? I know this is my own decision, but I guess you have sees tens of trend following systems… is this system OK? Or shall I keep searching for a better one? Please advise. Thanks a lot. To be clear, of course I am not asking for an investment advise. I am asking for your perspective on the quality of this system. Thank you! I will be really grateful for your perspective.

For reference, the list of markets:

FCOPPER
FGOLD
FCORN
FNATGAS
FOIL
FRICE
FSOYBEAN
FWHEAT
AUDUSD
EURUSD
GBPUSD
NZDUSD
USDCAD
USDJPY
AUDNZD
EURAUD
EURGBP

The parameters are channel length (120 days high to go long) and two EMAs length and ATR coefficient. All parameters were solid and stable, i.e. they worked OK on a wide range, e.g. any channel above 50 is profitable. ATR any from 2.5 to 6 is profitable, etc. I also did not cherry-picked the best optimized result, but I took parameter values that had the most surrounding values positive. If I remove EMA filter, i.e. just take 120 days high, without waiting for EMAs cross, the profits (return rate) is more is less the same (slightly smaller), but drawdowns are much deeper. So I keep the EMA cross as a filter. From list of markets I removed S&P, TNOTES and DAX and Bund as it was losing money there, consistently. To make money on S&P this system needs 7*ATR stop, but then loses on commodities and forex. Would you trade it? Is the dinosaur system you are offering much superior to this one? (I noticed in the PDF you shared, the list of futures, it was tested on markets that I have no access to, such as gasoline… I wonder what would be test results of your system on my list of markets).

Thanks!
[Name]

Welcome to your journey!

Ep. 624: Do You Got Any Edge with Michael Covel on Trend Following Radio

Henry Clews
Henry Clews

Subscribe to Trend Following Radio on iTunes

Michael is a big fan of University of Alabama’s head coach, Nick Saban. Saban has a process. He sticks with that process day after day, year after year. Saban wants the biggest, strongest and fastest men he can find on his defensive line. Why does the greatest college coach not recruit quarterbacks? When you have the biggest and fastest players otherwise controlling the line of scrimmage why would you want the next Brett Favre? Saban breaks down his football team just like a great trader would break down their system.

Michael switches gears and discuses an email back and forth he recently had with a young man who landed an interview with a successful trend following trader. Michael relates his conversation with this nervous young man to an interview experience he had back in 1994 with the ex-CEO of Salomon Brothers. Michael made sure he had a process for navigating the interview. He approached the interview like, “Maybe something good will happen. Maybe something bad will happen but why not put the odds on my side?”

In this episode of Trend Following Radio:

  • Interview preparation
  • Diversification
  • Edge
  • Having a process
  • Gender reassignment

“The Edge… there is no honest way to explain it because the only people who really know where it is are the ones who have gone over.” –Hunter S. Thompson

Mentions & Resources:

Switch Your Investment Thinking, Switch Your Investment Odds

There was a great story on author Seth Godin’s web site. He had a college professor who worked as an engineering consultant. There was a 40-story office tower in Boston with a serious problem—an unsightly dark smudge was coming through the drywall. The multimillion-dollar fix would be to rip out all the drywall. Godin’s former professor was hired in a last-ditch effort. He said, “I think I can fix it, but it will cost you $45,000.” The owners instantly agreed. The professor wrote down the name of a common hardware store chemical. “Here,” he said and sent a $45,000 bill. It was a bargain.

Start here to improve your odds.

Seth Godin
Seth Godin

A view on life with inspirations in Godin’s work.

Ep. 623: Benjamin Hardy Interview with Michael Covel on Trend Following Radio

Benjamin Hardy
Benjamin Hardy

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Ben Hardy started blogging in May of 2015 and in just under three years has gained over 300,000 email subscribers and become the most followed writer on Medium.com. Ben is also just a few months away from his PHD in organizational psychology at age 29. His three foster children, as well as personal experiences, inspired his new book, “Willpower Doesn’t Work: Discover the Hidden Keys to Success.”

Ben sees willpower as a fight against the natural environment and consequentially, a losing battle. Getting out of typical environments helps to see things from the outside and remove yourself from the echo chamber of mass society. Experiencing emotion, both good and bad, is also important. Finding a sacred space that triggers good emotions is important to mix into daily routine – a place to go everyday that re-centers you, and you look forward to going.

How does Ben have time to write new articles, with great content, and continue growing his following? We live in an information world and having the right writing skills can help grow a business immensely. He is a big proponent of re-purposing evergreen material. Also, learning how to structure content and write headlines are some of the quickest ways to see boosts in traffic. Lastly, publishing your content on the right platforms is key. The three websites Ben believes provide the best opportunity for you to see massive growth are all covered in this great conversation.

In this episode of Trend Following Radio:

  • Western and eastern philosophy
  • Getting out of your environment
  • Sacred space
  • Morning routines
  • Squeeze page

Mentions & Resources:

“You’re killing it [on the trend following podcast]…”

Ed Seykota Essentials
Ed Seykota Essentials

Feedback in:

You’re killing it on the podcasts! Cheers!

Which podcast struck you?

I’m generalizing. This mega one I’m listening to on my commute into work (#620), is brilliant, as are many others. Loved those replays of previous great interviews (ie Ed Seykota, other market wizards etc) as I’ve only started listening to your podcasts since I bought your trading course, so I’ve missed a lot of great material from the past. Also off the top of my head I recall some good crypto stuff – which was interesting, the self defense one recently was interesting, and I bought his book. Also, it freaks me out how many Objectivist/Libertarian/Rothbardian/Hayak/Von Mises folks are in this space. I guess this is where we all hide. I wonder why that is?… perhaps no matter how screwed up your country is, you can play in the relative freedom of the markets? Don’t know. Keep up the great work!

Thanks!