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Ep. 614: Two Trading Legends with Michael Covel on Trend Following Radio

Tom DeMark
Tom DeMark

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Very experienced guys make great interviews. They bring age, perspective and wisdom to the table. Tom DeMark and Perry Kaufman are two men that have previously been on the podcast that exemplify this statement. Michael went back into the archives to bring these men and their interviews on the podcast today.

Perry Kaufman is an American systematic trader, index developer, and quantitative financial theorist. He is considered a leading expert in the development of fully algorithmic trading programs. He currently is president of Kaufman Analytics.

Tom DeMark is founder and CEO of DeMark Analytics and the creator of the DeMark Indicators. Tom considers himself a market timer and believes that fundamentals are critical; however, he and Michael still have a lot in common. His work is price and technically driven.

In this episode of Trend Following Radio:

  • Price movement
  • Fundamentals
  • Technical analysis behind the scenes
  • Elliott wave
  • The Fibonacci sequence
  • Forecasting
  • George Soros
  • Michael Steinhardt
  • Paul Jones
  • Steve Cohen
  • Computerizing indicators
  • 100% algorithmic trading
  • Systematic vs. Automated
  • Optimization vs. Validation
  • Tail events
  • Discipline

Mentions & Resources:

43 Kick Ass Trading Rules for Bitcoin and Crypto Trading

43 Kick Ass Trading Rules for Bitcoin and Crypto Trading
43 Kick Ass Trading Rules for Bitcoin and Crypto Trading

My Bitcoin related podcast episodes: Roger Ver (ep. 600), Michael Covel (ep. 616), Andreas Antonopoulos (ep. 335), Jeffrey Tucker (ep. 591), Brad Rotter (ep. 177) and Ryan Moran (ep. 601).

43 Kick Ass Trading Rules for Bitcoin and Crypto Trading

These are some of my favorite money-making gems pulled from the historical wisdom of trend trading pioneers Richard Donchian, William Dunnigan, Amos Hostetter, Jesse Livermore, Roy Longstreet, and Dickson Watts all for the modern day Bitcoin trader:

  1. Don’t fight the Bitcoin tape!*
  2. Like sharp instruments and strong spirits, leverage confers many benefits, but only when used with care.
  3. Limit losses and ride profits, irrespective of all other rules.
  4. Of all the speculative blunders, there are few greater than trying to average a losing game.
  5. Always sell what shows you a loss and keep what shows you a profit.
  6. You can’t force Bitcoin into giving you something it doesn’t have to give.
  7. Talk is cheap and Bitcoin rumors are even cheaper.
  8. Courage in a speculator is merely the confidence to act on the decision of his mind.
  9. A loss never bothers me after I take it. But being wrong, not taking the loss, that is what does the damage to the Bitcoin pocketbook and to the soul.
  10. The Bitcoin trend is evident to a man who has an open mind and reasonably clear sight.
  11. In a narrow market, when price moves within a narrow range, the thing to do is to watch the market, read the Bitcoin tape to determine the limits of prices, and make up your mind that you will not take an interest until the price breaks through the limit in either direction.
  12. Watch Bitcoin with one objective: to determine the direction of price tendency.
  13. Bitcoin prices, like everything else, move along the line of least resistance.
  14. It cost me a million dollars to learn that the dangerous enemy to a trader is the susceptibility to the urging of magnetic personality combined with a brilliant mind.
  15. Have a profit? Forget it. Have a loss? Forget it even quicker.
  16. It was never my thinking that made the big money for me. It was my sitting, my sitting tight.
  17. There is only one side to the Bitcoin market and it is not the bull side or the bear side, but the right side.
  18. If you don’t know what’s going on, don’t do anything. Bitcoin is never wrong, opinions often are.
  19. Don’t be too curious about the reasons behind Bitcoin moves. The smarter you are, the longer it takes.
  20. When time is up, markets will reverse.
  21. Don’t expect the Bitcoin tape to be a lecturer. It’s enough to see that something is wrong.
  22. Don’t imagine that Bitcoin that once sold at 17000 is cheap at 15000.
  23. A man does not swear eternal allegiance to either the bear or bull side of Bitcoin. People believe what it pleases them to believe.
  24. Trend followers plan when they will get out before they ever get in. Know every day what your portfolio is worth.
  25. Calculate what your risks are on any given day for all Bitcoin positions.
  26. Controlling risk is not the same thing as avoiding risk. If managing risk is an integral part of your philosophy, when your risk level goes up or down, you simply adjust.
  27. Buy Bitcoin market strength and sell market weakness.
  28. Keep a positive attitude, no matter how much you lose.
  29. Don’t take the Bitcoin market home.
  30. Dream big dreams and think tall. Very few people set goals too high. A man becomes what he thinks about all day long.
  31. In the world of money, in a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word. Nobody.
  32. When the Bitcoin ship starts to sink, don’t pray…jump!
  33. Assimilate into your very bones a set of trading rules that works for you. Thou shall not trade against the Bitcoin trend up or down.
  34. There is nothing new on Wall Street. There can’t be, because speculation is as old as the hills.
  35. Whatever happens in Bitcoin today has happened before and will happen again.
  36. An ability to shift on a dime in Bitcoin is critical when shifting time comes.
  37. A common deception—self-deception.
  38. Fools try to prove that they are right. Wise men try to find when they are wrong.
  39. All see; few observe, fewer still compare.
  40. The foolishness of the many is the opportunity of the few.
  41. The man who conforms never transforms.
  42. Some men are alive after they are dead; others are dead while still alive.
  43. The unpardonable sin–not to make money in Bitcoin.

Lastly, consider William Worthington Fowler’s wisdom circa 1870:

“To the merchant and banker, it is a financial centre, collecting and distributing money, regulating the exchanges of a continent and striking balances of trade with London and Frankfort. To the outside observer and novice, it is a kind of work-shop thronged by cunning artisans who work in precious metals, where vessels of gold and silver are wrought or made to shine with fresh luster, and where old china is fire-gilt as good as new. The moralist and philosopher look upon it as a gambling-den, a cage of unclean birds, an abomination where men drive a horrible trade, fattening and battening on the substance of their friends and neighbors—or perhaps a kind of modern coliseum where gladiatorial combats are joined, and bulls, bears, and other ferocious beasts gore and tear each other for public amusement. The brokers regard it as a place of business where, in mercantile parlance, they may ply a legitimate trade, buying and selling for others on commission. To the speculators, it is a caravansera where they may load or unload their camels and drive them away betimes to some pleasant oasis. To the financial commanders it is an arsenal in which their arms and chariots are stored, the stronghold to be defended or besieged, the field for strategy, battles and plunder.”

Follow these trend following rules and you can make a money up and down and up and down in Bitcoin.

Note: Proven trading systems for Bitcoin trading.


*What’s tape? The old time way (pre-internet) to get stock quotes:

Stock Quotes Before Internet
Stock Quotes Before Internet

Ken Tropin: Robust Trading Systems

A very successful trend follower (Ken Tropin) offered:

“In order for a system to be successful, it has to be what I call robust. Robust means that I can test that system in a market I designed it around. Say I’m using it in the treasury bonds, and then if I switch that market and I try that system in the Euro, it still works. And if I change its parameters, it still works. And if I switch it over to corn — something totally different than treasury bonds — it still works. And if I look at some data that was out of sample from what I designed it around, it still works. Then I have something that might be interesting and have a chance of living in the future. Because the nature of data is it changes a little all the time. And so the key to success in systems trading is to have what I call a loose fitting suit. I can’t have a suit that’s so tight and perfectly proportioned to me that if I gain two pounds, it won’t fit the data anymore.”

Indeed.

Ep. 613: Matt Smith Interview with Michael Covel on Trend Following Radio

Matt Smith
Matt Smith

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Matt Smith is CEO of Royalty Exchange, an online rights platform where users sell portions of their royalty income and investors bid on it. The primary goal of Royalty Exchange is to make royalty streams investable. They have held over 200 auctions in the last 18 months where artists and investors interact in the buying and selling of royalties. Recently Matt launched a sister company Royalty Flow–created to purchase larger royalty streams and get more investors involved.

What is the process of Royalty Flow? Investors can buy shares through a platform called Folio, those shares are then transferred to a major exchange like Nasdaq. Royalty Flow was created after being approached to buy Eminem’s royalties. Royalty Flow provides a way for a pool of investors to purchase. What are motivations for investors to buy royalties? Investors view this as a hedging strategy because it is uncorrelated to their other portfolios. In contrast, what are some motivations for selling off royalties?

There are hundreds of thousands of investors that contribute to artists getting their music out there – music producers, song writers, etc., not just performers. Those contributors have royalties. Artists and their contributors see the advantages to diversification and investors see a sense of security in having a steady flow of income outside of their Wall Street portfolios.

In this episode of Trend Following Radio:

  • Streaming music
  • Music royalties
  • ICO’s
  • SEC regulations
  • Sesame Street royalties
  • Eminem royalties

“There should be consequences for poor decisions. That’s called life.” – Matt Smith

Mentions & Resources:

Ep. 612: A Troll Attacks with Michael Covel on Trend Following Radio

Michael Covel and Larry Hite
Michael Covel and Larry Hite

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Larry Hite recently called Michael and left him a voicemail regarding podcast episode #606. Larry has seen his share of ups and downs and has had a great career so praise from Larry was a nice surprise. Michael follows Larry’s praise by sharing a recent Facebook conversation with a critic. The conversation ensued regarding a post quoting Sam Harris. The back and forth that began with this Facebook “friend” starts with her calling Michael dogmatic (among other things) and by the end of the banter she evolves to calling him a cult leader. What is the takeaway from this conversation? Develop a system for dealing with people and their opinions. What is a key thing to keep in mind while developing that system? Not everyone’s opinion matters.

In this episode of Trend Following Radio:

  • Trend Following 5th Edition
  • Dogmatic
  • Trend following performance
  • How to filter trolls
  • Sock puppets
  • Sorting the real from the fake

Mentions & Resources:

Everybody’s Doing It: Short Volatility Strategies and Shadow Financial Insurers by Vineer Bhansali and Larry Harris

Vineer Bhansali alerted me to Everybody’s Doing It: Short Volatility Strategies and Shadow Financial Insurers.

Abstract: The extraordinary growth of short volatility strategies creates risks that may trigger the next serious market crash. A low yield, low volatility environment has drawn various market participants into essentially similar short volatility-contingent strategies with a common non-linear risk factor. We discuss these strategies, their commonalities, and the generally unrecognized risks that they would pose if everyone unwinds simultaneously. Volatility selling investors essentially provide “shadow financial insurance.” Market participants and regulators would benefit from preparing for large, self-reinforcing technical unwinds that may occur when central banks change policy or when macro or political events affect investor confidence.

Authors: Vineer Bhansali and Larry Harris.

“I can’t decide whether I love your books or podcast more…”

Feedback in:

Hi Michael,

I have been trading commodity futures since 1996 on and off and credit you as the source of the vast majority of my market knowledge over the years. Thank you for all your work. (I can’t decide whether I love your books or the podcasts more.)

I have attached an article on the craziness of market predictions that appeared in “The Australian” newspaper only today [Wall Street got its 2017 market predictions wrong; Nov. 24, 2017], just in case you haven’t seen it. How can almost an entire industry be built on the idea that human beings can predict the future?

Keep up the great work!

Kind regards,
[Name]

Thanks!