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My guest today is Alexander Elder. He has written some of the most popular trading books of the last 30 years. He grew up in Estonia among a successful family of doctors. Alexander followed in his family’s footsteps, becoming a doctor and making his way on a cargo ship. He ran from his ship to a U.S. Embassy, escaping from his country. His decision to jump ship was literally the best decision of his life. He is author of Trading for a Living, considered a modern classic among traders, an international best-seller, translated into 16 languages, and recently newly revised and released under the title, The New Trading for a Living.

The topic is his book The New Trading for a Living: Psychology, Discipline, Trading Tools and Systems, Risk Control, Trade Management (Wiley Trading).

In this episode of Trend Following Radio we discuss:

• Robustness
• Persistence
• Importance of record keeping
• Systems trading
• Skiing and yoga – staying in the moment of now

“The best buying opportunities occur at the point of maximum danger.” – Alexander Elder

Mentions & Resources:

• Alexander Elder
• The New Trading for a Living
• @Dr_A_Elder

Listen to this episode:

• Listen to this podcast on iTunes. (Please leave a rating!)
• Listen on Spotify.
• Listen on Stitcher.
• Libysn RSS.
• Download as MP3 by right-clicking here and choosing “save as.”
• Free Video.

Want to learn more Trend Following? Watch my video here.

Feedback in:

Michael,

I am reading this book titled “The Hard Thing about Hard Things” and came across the passage below and I instantly thought of you. It starts on page 51 in the book. In reference to looking at companies to acquire:

Surprisingly, among the four existing network automation players, the company that we thought had the best product architecture, Rendition Networks, had the lowest revenues. This made some of our business people skeptical of our technical evaluation. However, if I’d learned anything it was that conventional wisdom had nothing to do with the truth and the efficient market hypothesis was deceptive. How else could one explain Opsware trading at half of the cash we had in the bank when we had a $20 million a year contract and fifty of the smartest engineers in the world? No, markets weren’t “efficient” at finding the truth; they were just very efficient at converging on a conclusion–often the wrong conclusion.

Enjoy and keep up with the great podcasts!

Sincerely,
[Name]

Thanks! My preface here (PDF) makes the case too.

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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:

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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:

Jason Zweig once made a key observation during an interview with Russ Roberts (via The Irrelevant Investor):

I think if there’s one overriding theme to the book, one of the things I’ve tried to get across in The Devil’s Financial Dictionary is the importance of just being humble before the financial markets. I mean people are humble before nature- think about when you stand on the rim of the Grand Canyon, or you walk to the edge of the ocean, or you look up at the stars, people feel this sense of awe and wonder and smallness because we are small when we compare ourselves with the natural world. Well individuals, and for that matter, policy makers, are small when we compare ourselves with the financial markets, but most of us forget that. And we think, oh we’ll we have better data or we know something the other guy doesn’t, and in fact we should have that same sense of just being a spec of sand on a long beach and just remember that whatever we know is very small compared to the totality of the information that’s out there.

This begs the question, what is your edge as a financial advisor? If your edge is “knowing something the other guy doesn’t” how realistic is that edge? So much of what goes on in the investment management business is centered around people believing that they have insight into why a given security is mispriced. Taking Zweig’s advice to stay humble as it relates to the totality of the information that is out there goes to the essence of technical analysis. For technicians, and specifically those adhering to a trend following/relative strength-based approach to investing, our edge has nothing to do with identifying mispriced securities. The prices are what they are—the simple intersection of supply and demand. Our edge is having a disciplined method of identifying and participating in the strongest trends in the market. Thanks to the power of technology, our trend following models see and incorporate all information in the market that is relevant to our buy and sell signals.

Exactly.

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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:

Keep up the good work Michael. I have all your books and the movie. Mind you, I was a top Global Fund Manager handling billions and a successful Stockbroker… but it didn’t always “work”. I did have my stop losses so if the fundamentals failed me I did cut, but not as a matter of course and yes often took profits far too early… got the butter missed the cream. Now I have an integrated system and I have been very successful. A big thank you for the conversion therapy. ”Entry/Exit – the stock doesn’t know you.” I am now a devoted “Trendy”,and have the profits to prove it works… really works.

Thank you,
[Name]

Thanks.

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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:

Hello Michael,

The main mindset change for me was the investment dogma around “more information is better irrespective of quantity.” Information was a drug and listening to all the ‘commentators’ made me believe everyone was smarter than I and I questioned my own thinking. I was a believer in that fundamentals were key and to ignore price.

I have learned that it is all noise and I do not need it to trade better. I learned that the commentators were not smarter just louder. I learned that the mainstream investment management industry (“the herd”) are not really investing just marketing. I learned to question more using my thinking supported by facts and not be drowned out by the noise.

Listening to your podcast and reading your books were enlightening. I have switched the noise off and walked away. This included quitting a 27 year corporate career in investment management (yes I was part of the herd as a mainstream portfolio manager). I have rethought “fundamentals” and am of the belief that price is the only truth in the trading game the rest can be manipulated.

I now search out new interesting ideas. I trade options using a momentum strategy, tinker with AI trading strategies (has it’s challenges but is enjoyable) and am developing my own trend following model. I am more Zen in my trading in that I am no longer reactive, I am less stressed and enjoy life (and trading) much better. Whether I succeed or not who knows, I am not going to die wondering “what if”.

I look forward to visiting one day and buy you a beer (or green tea). In the meantime keep doing what you are doing, as I for one, am appreciative.

Cheers
[Name]

Sounds like a plan!

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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.

Please enjoy my monologue Asymmetric Information and Entrepreneurship with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.

Listen to this episode:

• Listen to this podcast on iTunes. (Please leave a rating!)
• Listen on Spotify.
• Listen on Stitcher.
• Libysn RSS.
• Download as MP3 by right-clicking here and choosing “save as.”
• Free Video.

Want to learn more Trend Following? Watch my video here.

Feedback in:

Hi Michael,

It’s funny, I was actually thinking of sending you a message. I’ve read Trend Following a few times, I listen to your podcasts (I went back to the beginning archives). I love the interviews and caliber of guests. I’ve thought about signing up for the course back in February. My biggest hesitations – time and mental capacity. I’m currently studying to sit for the CFA (blasphemy!). I passed level 1 December and I had a small window of time before I hit the books again. I knew your course was only 12 or 18 months depending on the package and I knew that I didn’t have that much time to devote (I had less than 6 months). I ended up signing up with another course that had lifetime access. I studied his course, it’s a bit more chart reading and less quantitative / backwards testable. Nonetheless, I studied his methods and tried back testing charts up until I needed to set that aside and get back to the CFA.

Anyway, I wanted to reach out and let you know that I like your interviews, I like commentary on the website, the research and thought that went behind the book. I like the differing opinion from the rest of the financial industry. One day, I plan to sign up with your course, but for now, it’s is just not in the cards. I wish I could take advantage of the offer, but I’m basically on an information diet.

My Ah-ha moment was the email about the limiting losses. For some reason, I couldn’t conceptualize the 1-2% rule until I read it in one of the emails. I understand limiting losses, cutting losses, etc., but I always thought, that the plan was to only put 1-2% into a trade. If you have a $100k account, $1-$2k / position, as opposed to an $X position, with a $1k-$2k, stop loss.

The thing that I still can’t understand is how to build the rules and how to test the rules. I understand that the rules are not what earn the returns, but following the rules earns the rewards, and that is my missing piece. I’ve tried a few theories, but I don’t know how to test it properly. I’ve searched the Internet a bit, but I haven’t had the time to fully devote a deep dive, so that is currently where I am. Otherwise, I like the non-prediction of markets, the psychological discipline required and of course, the returns.

[Name]

Be persistent. You can win!

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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.