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Category: Trend Following

Ep. 242: Jean-Philippe Bouchaud Interview with Michael Covel on Trend Following Radio

Posted on by Michael Covel
Jean-Philippe Bouchaud
Jean-Philippe Bouchaud

My guest today is Jean-Philippe Bouchaud, the Chairman of the multi-strategy quantitative hedge fund Capital Fund Management (5B+ AUM) and co-supervisor of the research team. He is a well known authority in the field of Econophysics, co-author of “Theory of Financial Risks and Derivative Pricing”, a Professor of École Polytechnique where he teaches Complex Systems and has his Ph.D in theoretical physics from École Normale Supérieure.

The topic is Trend Following.

In this episode of Trend Following Radio we discuss:

  • Bouchaud’s physics background and how it collided with the world of classical economics
  • The Black-Scholes model, and its still use; experimenting with simulation
  • Bouchaud and his colleague’s paper, “Two Centuries of Trend Following“
  • The efficient market hypothesis
  • Why the existence of trends is one of the most statistically significant anomalies in financial markets
  • How trends predate trend following
  • Why classical economics has no framework through which to understand “wild markets”
  • Benign randomness vs. wild randomness
  • Accepting uncertainty
  • Differences between physicists and economists

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Trend Following Goes Against Established Orthodoxy

Posted on by Michael Covel

Trend following can be a counterintuitive. It goes against the orthodoxy of buy and hold, fundamental analysis, value investing, Warren Buffett, EMH and Federal-Reserve-Trust-the-Government ZIRP policy. Further, it is not day trading, HFT, Elliott wave or candlestick patterns. All market prediction strategies are false narratives.

Trend following is something different. Trend following reacts to market movements.

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 Podcast Guests
• Frequently Asked Questions
• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
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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.

Leave Your Analysis at the Door

Posted on by Michael Covel

Feedback in:

Dear Micheal, I have a question for you that you might be having an answer for it. The question is related to those that try to ignore your market views only because its not based on fundamentals but based on TA [technical analysis], which is a huge debate that has been going on for centuries. For example, when you do your analysis and come up with a result that [the] market is indicting weakness in the medium term but market continues going higher and after few weeks or a month markets start to sell off aggressively and losing 15% in 1 week. Those people come to you and tell you, “But you where bearish for a long time and market went up and if we sold at that time we would have lost that the extra profit,” while if you told them [the] market could drop tomorrow, and it did they will also say that there was not enough time to get out as your call was late. How do you over come such debate? Appreciate your thoughts. Thanks in advance.

I am a trend follower. None of this debate or analysis applies. Have you read my first two books?

Note: Asking to read my books is not a dodge to his question, but rather an answer that will make his life better if he listens.

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.

Two Centuries of Trend Following

Posted on by Michael Covel

A recent trend following paper:

Synopsis: We establish the existence of anomalous excess returns based on trend following strategies across four asset classes (commodities, currencies, stock indices, bonds) and over very long time scales. We use for our studies both futures time series, that exist since 1960, and spot time series that allow us to go back to 1800 on commodities and indices. The overall t-stat of the excess returns is approx 5 since 1960 and approx 10 since 1800, after accounting for the overall upward drift of these markets. The effect is very stable, both across time and asset classes. It makes the existence of trends one of the most statistically significant anomalies in financial markets. When analyzing the trend following signal further, we find a clear saturation effect for large signals, suggesting that fundamentalist traders do not attempt to resist “weak trends”, but step in when their own signal becomes strong enough. Finally, we study the performance of trend following in the recent period. We find no sign of a statistical degradation of long trends, whereas shorter trends have significantly withered.

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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.

Dr. Phil Doesn’t Work Here

Posted on by Michael Covel

A recent exchange:

Mary: I’ll start by mentioning that I love most of the podcasts. I am also so appreciative that you created the Broke dvd, and The Complete TurtleTrader book. Ironically, many of us that don’t follow the herd still like to know that there are others out there like us. I listened to podcast episode 231 recently, and I wanted to give feedback, because you asked your listeners to! Episode 231 felt to me like I was being subjected to an infomercial. Every time you mentioned the words ‘Trend Following’, I felt like I was being asked to send you a 10k check. Trend following is certainly the subject of that podcast, but it sounded more like a pitch for the program you are selling. I didn’t hear the specifics of the report you were discussing. I’m not implying anything negative about your program because I haven’t tried it, and I don’t mind that you are selling it, I just don’t want to get to the end of a 30 minute podcast and feel that I listened to a live ad. That being said I can usually trust and count on your podcasts to be very valuable and I am a lunchtime listener. It makes my day!

Mike: Everyone is entitled to their opinion. People can judge my world off one podcast, or more than one, or none. People can read my books and draw conclusions, or not. Thanks for your feedback.

Mary: Thanks for the response, but no response would have been better in this case. ‘Thanks for being a loyal listener!!’ Would have been more appropriate.

Not sure what to say. Dr. Phil I am not.

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. 238: Larry Hite and Alex Greyserman Interview with Michael Covel on Trend Following Radio

Posted on by Michael Covel
Larry Hite and Alex Greyserman
Larry Hite and Alex Greyserman

My guests today are Larry Hite and Alex Greyserman.

Hite is a hedge fund manager and is one of the forefathers of system trading. He was famously featured in the Market Wizards book. A few years ago he started ISAM with Stanley Fink. Greyserman has 25 years of experience in the CTA industry, and was originally hired by Larry Hite at Mint.

Greyserman is Chief Scientist at ISAM (PhD in Statistics). He is also a professor at Columbia University.

The topic is Trend Following.

In this episode of Trend Following Radio we discuss:

  • Singapore, and Covel’s recent excursions in Asia
  • How the game has stayed the same despite zero interest rate policy
  • What people are missing when they say “trend following is dead”
  • How you’ll never get perfection
  • Their 800 year study, the premise, and what was found out
  • Measuring human nature
  • The difference between divergent and convergent strategies
  • Risk management
  • Having “perfect” knowledge
  • Using long trends and getting whipsawed in shorter trends
  • The asset class of trend following compared to the NASDAQ buy and hold, etc.
  • What’s changed about human nature through all the booms and busts
  • Insurance, hedging your risk, and the risk transference process
  • Asymmetrical leverage
  • Adjusting to new environments
  • How those that survive are the most adaptable to the environment
  • How trend following automatically adjusts to what’s happening

Listen to this episode:

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High Frequency Trading Hype

Posted on by Michael Covel

Feedback in:

Hello Michael, out of interest as there is a lot of concern around HFT [high frequency trading] trading firms. What are your thoughts on their impact on the markets?

What’s market behavior? Buyers and sellers? What’s HFT? Buying and selling? Who programmed the HFT? Buyers and sellers?

Note: I don’t condone illegal behaviors, but if you can buy and sell, and if you can’t stop market rigging, and if you are not glued to a screen with day trading insanity, it doesn’t matter from a trend following perspective.

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.