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Category: Trend Following

“How we use mathematics to bring order to financial markets…”

Posted on by Michael Covel

Trend following insights:

Once you realised you are forecasting probability distribution conditional upon knowing something, then you can leave the technical analysis behind. You can then research conditional probability distribution on anything.

It is very advantageous to understand the level of uncertainty in the inferences you are making, and this is a fundamental mistake that human investors make.

Obviously, you can try and reduce that uncertainty by knowing more and more about the situation, like Warren Buffett. He reduces the uncertainty as much as he can by knowing as much as it is possible to know. That is a very different style to ours.

We have a much higher level of uncertainty than Warren Buffett when he makes an investment. But we have a much bigger and more dynamic portfolio. There are lots of ways to skin a cat, or lots of roads to Rome. My view is the success of our approach does not invalidate anybody else’s.

That is maybe not the only thing, but that is what I was: sufficiently desperate and needing to prove a point. Having these various motivations is what it takes to make you start a company–it does not just happen over a year and a half.

If you don’t know about this, dive in.

Source: Lawrence Gosling, Winton Capital’s Harding: How we use mathematics to bring order to financial markets. Investment Week, February 24, 2016. See http://www.investmentweek.co.uk/investment-week/interview/2447802/winton-capitals-harding-how-we-use-mathematics-to-bring-order-to-financial-markets.

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.

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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.

“If you don’t address those demons, you end up crashing and burning in some shape or form…”

Posted on by Michael Covel

Consider:

“All of these overachieving athletes, business people whoever they are, they have been driven by something in the past that has made them succeed beyond their wildest imagination. This allows them to blow ahead to be the best athlete or to get in the best schools to keep going and going and eventually that part, this overachieving behavior, will eventually crash and burn. It is something that is born out of trauma, it can be a little trauma or a big trauma – even if a teacher said ‘You are not the smartest kid in the class’ and you will say ‘I will show you’ and you become valedictorian and get into a top school. Your system re-organizes and your drive to overachieve dominates your life, but you can only do this overachieving for so long.”

“For Rafael Nadal or someone like (golfer) Tiger Woods, they were driven by their insecurity to achieve. There is some area in their life, where the original insecurity shows up, the negative self-talk, whispering in their ear, like the coach from their past who said they are never going to be any good, for example. These frozen parts and experiences from the past are stuck in old memories. They come back and sabotage you, guaranteed. We are all driven by demons. If you don’t address those demons, you end up crashing and burning in some shape or form.”

You think it’s all about making money? You better get that six inches between the ears in alignment too.

Source: Randy Walker, “A Diagnosis of Rafael Nadal’s Lack of Confidence.” World Tennis Magazine, July 2, 2015. See http://www.worldtennismagazine.com/archives/12059.

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.

Ed Seykota on Trading Heat

Posted on by Michael Covel

Ed Seykota adds:

Seasoned traders know the importance of risk management. If you risk little, you win little. If you risk too much, you eventually run to ruin. The optimum, of course, is somewhere in the middle.

Placing a trade with a predetermined stop-loss point can be compared to placing a bet: The more money risked, the larger the bet. Conservative betting produces conservative performance, while bold betting leads to spectacular ruin. A bold trader placing large bets feels pressure — or heat — from the volatility of the portfolio. A hot portfolio keeps more at risk than does a cold one. Portfolio heat seems to be associated with personality preference; bold traders prefer and are able to take more heat, while more conservative traders generally avoid the circumstances that give rise to heat. In portfolio management, we call the distributed bet size the heat of the portfolio. A diversified portfolio risking 2% on each of five instrument & has a total heat of 10%, as does a portfolio risking 5% on each of two instruments.

Our studies of heat show several factors, which are:

1. Trading systems have an inherent optimal heat.

2. Setting the heat level is far and away more important than fiddling with trade timing parameters.

3. Many traders are unaware of both these factors.

Don’t know yet? Dig in.

Enjoy one of my interviews with Ed Seykota here.

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.

Good Trading Does Not Equal Get Your Rocks Off Excitement

Posted on by Michael Covel

As George Soros put it:

If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.

Such straightforward wise advice and so ignored by millions.

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.

Ep. 478: Desert Island Prices with Michael Covel on Trend Following Radio

Posted on by Michael Covel
Desert Island Prices with Michael Covel on Trend Following Radio
Desert Island Prices with Michael Covel on Trend Following Radio

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Please enjoy my monologue Desert Island Prices with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.

In this episode of Trend Following Radio:

  • Black Swans
  • Anti-fragile
  • Market Crashes
  • Price action analysis
  • Shutting out the noise
  • Island trading
  • Price distribution
  • No free lunch

Mentions & Resources:

Listen to this episode:

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

Surprise, Surprise, Surprise: Prediction Doesn’t Work

Posted on by Michael Covel

Excerpt:

“This has basically never happened before in my whole life. I can remember 1½ percent rates. It certainly surprised all the economists. It surprised the people who created the life insurance industry in Japan, who basically all went broke because they guaranteed to pay a 3% interest rate. I think everybody’s been surprised by it, including all the people who are in the economics profession who kind of pretend they knew it all along. But I think practically everybody was flabbergasted. I was flabbergasted when they went low; when they went negative in Europe – I’m really flabbergasted. How many in this room would have predicted negative interest rates in Europe? Raise your hands. [No hands go up]. That’s exactly the way I feel. How can I be an expert in something I never even thought about that seems so unlikely. It’s new territory…

“I think something so strange and so important is likely to have consequences. I think it’s highly likely that the people who confidently think they know the consequences – none of whom predicted this – now they know what’s going to happen next? Again, the witch doctors. You ask me what’s going to happen? Hell, I don’t know what’s going to happen. I regard it all as very weird. If interest rates go to zero and all the governments in the world print money like crazy and prices go down – of course I’m confused. Anybody who is intelligent who is not confused doesn’t understand the situation very well. If you find it puzzling, your brain is working correctly.”

Shout out to Charles Munger, age 91, vice chairman of Berkshire Hathaway.

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.

No Memory Trading Courtesy of TurtleTrader William Eckhardt

Posted on by Michael Covel

William Eckhardt, the great trend-following trader, has spoken forcefully about the idea of not having a memory in your trading:

“Suppose two traders, A and B, are alike in most respects except the amount of money they have. Suppose A has 10 per cent less money but he initiates a trade first. He gets in earlier than B does. By the time B puts the trade on, the two traders have exactly the same equity. The best course of action has to be the same for both of these traders now. Mind you, these traders have very different entry prices. What this means is that once an initiation is made, it does not matter at all for subsequent decisions what the entry price was. It does not matter. Once you have made an initiation, what your initiation price was has no relevance. The trader must literally trade as though he doesn’t know what his initiation price is.”

Don’t forget it.

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.