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Ep. 400: Special Tom Basso Compilation with Michael Covel on Trend Following Radio

Tom Basso
Tom Basso

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Today marks 400 episodes on Trend Following radio. To celebrate Michael has put together a compilation of Tom Basso interviews. Tom has been on Trend Following Radio four times and his interviews have been among the most popular episodes airing on the show. Michael plays the interviews back to back and throws in a bonus interview at the beginning. The bonus excerpt is a Tom Basso presentation from the early to mid 1990s.

Tom Basso is most famously known as “Mr. Serenity” in Jack Schwager’s “The New Market Wizards”. Now retired from managing client money, Tom was president and founder of Trendstat Capital Management. He became a registered investment advisor in 1980, a registered commodities advisor in 1984, and was elected to the board of the National Futures Association in 1998.

Throughout this 4 1/2 hour podcast Michael and Tom cover a broad range of topics including: Tom’s background and how he got into trading, speculation, emotional rushes, emotional devastation, catastrophic events, separating trading from politics, behavioral economics, advice to newcomers entering the CTA industry, location independence, time management, stoicism, black swans, and the importance of routine.

Michael and Tom also go through listener questions spanning topics including: trading regrets, money management vs. trading, tinkering with current systems, drawdowns, one-system vs. multiple systems, thoughts on Alan Watts, emotions during both losing and winning periods, exit strategies, practice trading vs. live trading, money management, risk control, how to handle skeptics, serenity, John W. Henry, coin flip entry method, percent betting, comfort with uncertainty, initial capital at risk vs. unrealized gains, and fighting against your gut reaction. This podcast includes a wealth of knowledge worth listening to over and over again.

In this episode of Trend Following Radio:

  • Speculation
  • Fighting against emotions
  • Catastrophic events
  • Separating trading from politics
  • Advice to newcomers entering the CTA industry
  • Time Management
  • The importance of routine
  • Money management vs. Trading

“I realized that every time I had a loss, I needed to learn something from the experience and view the loss as tuition at the College of Trading. As long as you learn something from a loss, it’s not really a loss.” – Tom Basso

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5 Minute Bar or Weekly Bar: The Same Thing! Not Exactly the Same

Consider as a foundation to this post:

“The window on analysis is shrinking. People are moving so fast now that they don’t have time to think. They’re scanning, swiping, clicking, liking, tweeting and moving on at full velocity. They’re making decisions based on feelings, not facts. They are often choosing not because of what they think, but because of how something makes them feel.”

So, I was having a conversation with a guy online. A video out there had made the declarative statement that good trading was about switching between time frames: 5 minute bar to weekly bar to whatever. The video implied it’s all about switching. I said to this guy: “It sounds plausible to switch from 5 minute to weekly bar?” He offered:

Let’s say my trading approach is to trade when a particular technical pattern appears. Is it not plausible that I might look on a number of timescales to find instances of that pattern (either manually or getting a computer to do the spade work)?…However, personally I don’t think that published stats are the be all and end all [made in response to my call for empirical data]. For example, if someone who seems plausible tells me that they have traded the (say) the five minute chart using a particular method and made a profit over thousands of trades, I regard that as evidence. Also, I’m more interested in the theoretical underpinnings of a methodology than the empirical evidence, given that markets change and are designed to remove edges over time.

Try to make a system out of those feelings. Try to code those feelings. This inane interchange brought to mind a great line from Graham Greene’s The Quiet American:

“He was impregnably armored by his good intentions and his ignorance.”

Indeed. A failure to communicate:

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