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Ep. 739: Peter Borish Interview with Michael Covel on Trend Following Radio

Peter Borish
Peter Borish

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Peter Borish is chief strategist of Quad Capital. He is a trading coach, helps recruit new traders and develop the company’s trading strategy. He also is a founding member of the Robin Hood Foundation. The Robin Hood Foundation has made great strides in their charity work and continue to do bigger and better things. Peter believes that the quality of life for those around you is much more important than the material possessions that can be accumulated.

What has been a big change over the course of Peter’s career when looking at his younger trading days up until now? When he was younger he took greater risks because he had more time to recover potential losses. He was applying innovative techniques at high costs and was ok with doing that. He tells his clients two things: 1) Never minimize the pain when looking backwards from a positive outcome and 2) If you survive, you win.

What advice does Peter give to the younger generation of traders trying to make it on Wall Street? Relationships matter. When you are younger and have success you think that success is going to continue. The markets are a humbling place and you will not always win. Peter has learned that building those personal relationships gets traders through the down times. Those connections need to be cultivated because you never know when that time will pay off.

In this episode of Trend Following Radio:

  • Compounding
  • Individual responsibility for retirement
  • Tax rates
  • Robin Hood
  • Paul Tudor Jones
  • High frequency trading
  • Risk management
  • Game theory
  • AI in trading

Mentions & Resources:

“Trend following is not predicting the market…”

Feedback in:

Dear Sir/Madam,

I am curious as to what your thoughts are on this topic. I have recently been reading the book Trend Following by Michael Covel. I think it is an interesting book, detailing some of the successful trend traders and why they were so successful (mostly their down-to-earth simplicity first mentality it seems). However, he makes a number of statements that are difficult for me to agree with. The first is that trend following is not predicting the market, please allow me to explain. If I paraphrase him: “Trend following is not predicting the market because the method simply waits for a trend to occur upwards or downwards, and when it is confirmed via some methodology, you get on the trend and ride it out.” The problem I have with this is the fact that it is simply impossible to invest in the stock market without some degree of prediction. In this situation, a trader follows a trend because he has ‘confirmed’ it. Yet this confirming the trend, which simply means that the trader believes that it is indeed a lasting trend, is still nothing but predicting that it is indeed a trend. For example, if a trader gets on a trend when a stock has risen from $80 to $100, if he is in no way predicting the market, there is also no way to say if this trend will continue or not. There are two options, yes or no, and because the trader makes ‘no predictions’ the odds are simply even. However, the trader expects the trend to continue, based on the fact that the trend has started and often continues when it starts in a particular fashion. That is still a prediction. Then why is it that Michael Covel and other trend traders so often make the statement that they don’t predict the markets, they just ‘follow’ the markets, when you only follow someone or something when you have an idea of where it is going?

Furthermore, the statement that the stock market is a zero sum game seems flawed. The overall economy sees an average growth of around 1.9% yearly. That means that if I were to pick 100 random stocks from every sector one year and simply wait it out, I would expect to see a portfolio growth of around 1.9%, following the average economy. However, if the stock market is a zero sum game, I would expect to see a growth of exactly 0%, because on average, I would lose as much as I would win. Is this because inflation is also accounted for in the book? If so, it is not made clear.

I would like to make clear I am in no way trying to undermine the method of trend following, I am simply eager to learn. I look forward to hearing your opinion on the subject.

Sincerely,
[Name]

Futures markets are zero sum. And you don’t trend follow one market in isolation. Need a basket of markets and from that basket every year there is no way, no way at all, to predict the yearly winners.

“I had to find a set of rules that would remove my own stupid self…”

Feedback in:

Hello,

Well, after trying to be the smart guy and beat the markets for many years (and blowing a few accounts) I painfully realized that I am simply not capable finding highs and lows. I needed to change my thinking and go with the markets and not try to hit the highs and lows. That was a huge mental undertaking for me, since I am a “contrarian” by nature.

It took me a good 3-4 years to find a strategy that both suited my trading style but also a strategy that I could translate into absolute rules. I don’t use EAs or other automated trading, but I needed a set of rules that I could follow that would remove my own “biases” and discretionary way of trading. Simply put, I was losing all faith in my own abilities as a trader and I had to find a set of rules that would remove my “own stupid self”. Since then I haven’t really looked back. I am actually stunned by the simplicity and at first I couldn’t believe how well this works. It is actually a matter of “leaving your brain” at the door. If I only had done this exercise 20 years ago…

My strategy; I trade price trends on the weekly timeframe, with the 4HR for entry/exit, SMA100 is my reference and entry of long/short. I have the weekly pivots plotted. Pivots serve as moving SL when price moves too far away from the SMA100, and also as Support/Resistance for new/multiple positions in the same (weekly) wave. Initial SL 2 x ATR, no TP. Position size is 2% of free equity. I trade FX, Indices and Equities, all CFDs.

I am originally from Norway, but I moved to a warmer and better suited place three years ago. I trade full time.

Best Regards,
[Name]

Thanks for the feedback, but I would exit the day trading. Day trading as a trend follower? Not seen that evidence.

“Interesting piece of research… looking at various investment strategies going back to 1800.”

Feedback in:

Hey Michael:

Love your contributions to Trend Following – Big Fan!

Interesting piece of research recently by a Dutch investment house looking at various investment strategies going back to 1800.
Included periods of 2 World Wars, Multiple Recessions and down turns.

Result:

Number 1 Strategy: Trend Following
Number 2 Strategy: Carry Trade
Number 3 Strategy: Seasonality

I am fully aware that I don’t need to convince you of the benefit of Trend Following but its nice to have definitive Research over extended periods. Clearly we are on the Right Path when it comes to Investing!!

Link to information below: here.

Maybe be nice to interview one of the Researchers in future podcast?

Take Care,
[Name]

Thanks!

More and better LONG LOOK BACK research? Here.

“Actionable steps are for get-rich-quick’ers, and they just don’t get it yet…”

Feedback in:

Dear Mr. Covel,

Thank you for writing your book, “Trend Following”. I already had about a year’s experience of profitable trading under my belt while reading it, when this came to me: You can’t teach people how to trade, no more than you can teach someone what to do for each move of a chess game before they sit down to play their opponent. Like in chess, the market’s next move is unpredictable. We have an idea of what is most probable to happen next, but anything *can* happen. You can teach people how markets work, just like you can teach people how chess works. But how each person plays is up to their knowledge of the rules, and their experience playing. That experience is what tells them what move their opponent is most likely to make next. This understanding came to me about 20% through your book, while I was reading its negative reviews on Amazon. People complained there were “No actionable steps”. People wanted you to tell them what to do next with their pawn, then what to do next with their rook, then what to do after that with their queen. They want to be spoon-fed trading. But it doesn’t work like that. They want Ed Seykota to email them the code that his systematic trading bot runs on. Like you say, there is no secret sauce. Bill Dunn, John W. Henry, Richard Donchian, and Jesse Livermore are giving us the rules of the game, and telling us how markets work, which is infinitely more valuable than a static, spoon-fed, “buy when this indicator does this”, then “sell when you see it do that”. Actionable steps are for get-rich-quick’ers, and they just don’t get it yet. Thanks for shining a light on this space. Your work is getting me closer to where I want to be in life.

[Name]

Thanks!

Ep. 737: Ethan Kross Interview with Michael Covel on Trend Following Radio

Ethan Kross
Ethan Kross

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Ethan Kross is a professor of psychology at the University of Michigan. His research seeks to “Understand factors enabling people to adaptively regulate triggered impulses and emotions that undermine their goals and compromise their health.” He wants to resolve a key paradox in coping literature by finding insights and translating those insights to the rest of the world.

What got Ethan into studying behavior and how the mind works? Around the age of 4 or 5, whenever Ethan would get upset, his dad would ask him to “go inside” and look within himself to figure out why he was feeling how he was feeling. For years Ethan would do this as a positive coping mechanism. When he got to college he learned that when most look inside themselves to dig deeper, this takes them to a negative place. Introspection seemed to only prolong their negative feelings. This resonated with him and started him down his current path of asking “Why?”

Much of his work is focused on social media. In early 2010 Ethan became increasingly interested in Facebook. He found himself looking around his classroom and in the hallway–relentlessly seeing students with open Facebook windows on their phone. He wondered: “Are these students happier now that they have social media in their lives?” Ethan started digging and found research that was all over the place. Some studies would say, “People who are on Facebook are more happy” and then he would come across another study saying the complete opposite. He concluded that the methods in which those studies were using to gather data were grossly inefficient.

In this episode of Trend Following Radio:

  • Thinking objectively
  • Passive and interactive activities on social media
  • Experian sampling
  • Regulation on social media
  • LeBron James move from the Cavaliers
  • Self talk
  • Dealing with problems under stressed.

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