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Lever Carefully and Wait for Stops

Trend Following Is Not “Eyeballing”

When do I enter and exit? When do trend followers know it is the right time to enter or exit? Some feedback:

Michael, how do you know when a trend starts, and when a trend ends? I’m not asking for your precise signals, but you never mention that somewhere in your writings or student presentations there actually is some precise signal for entering and a precise signal for exiting. And what are the signals for confirming that a trend is in existence? I would feel much better about you if you just said that you did indeed have proprietary signals for the existence of a trend, a signal for entering, a signal for exiting, and that you impart this to your students. I hope you won’t say that you just eyeball a trend and make a judgement without signals as to the entry and exit.
Thanks.

You have read chapter 5 of my book The Complete TurtleTrader? It is a system walk through with entries/exits. Yes, my systems/training at www.trendfollowing.com has exact entry/exits. In terms of trend existence–a trend can never be measured or properly known until after an exit signal. There is no eyeballing in the trend following world. This is about systems.

Ep. 103: Playing the Game with Michael Covel on Trend Following Radio

Playing the Game with Michael Covel on Trend Following Radio
Playing the Game with Michael Covel on Trend Following Radio

Michael Covel returns for his first podcast since going abroad in Southeast Asia. Currently in Thailand, Covel catches us up on where he’s been so far. He notes the history of past conflicts in the area and his thoughts from a mountain view six-thousand feet above the ground looking onto the landscape below. Since leaving the US Covel has especially enjoyed not paying attention to the news coming from America. The idea of noise is after all pointless from a trend following perspective. If you can get away from it, either physically (like Covel) or mentally, it’s a good idea to eliminate it in your life. Along the lines of what’s needed and not needed, Covel plays a video called “What Do Prices Know That You Don’t?”, a clip from a Duke professor that discusses relying on price to make decisions. Even though the video doesn’t come from a direct trend following perspective, it illustrates the danger of too much information. It’s easy to play the game of waiting for one more news report, watching one more episode of Bill O’Reilly, or trusting the promises of one last politician. That’s where we are right now: we’re in a game. So, if you are in a game, how do you navigate it? What do you do? What decisions do you make? And what happens when the game doesn’t go the way the government has said? So, what lies ahead? Covel reads a piece of writing from Transtrend’s newsletter regarding the role of the government and what you can expect, followed by a piece from John Hussman. Both readings seem to agree on one thing: something will happen at some point. Are you prepared? Or do you just want to just trust that the government will forever be able to prop up the market? Hussman makes the point to not follow prices, which Covel disagrees with–if the Chinese stock market is going up, you want to be long. The issue isn’t what to do in a market that’s going up; the issue is having an exit strategy. Covel’s view is to be long and be happy in a rising market, but have an exit strategy. That’s the solution. If you can’t wrap your arms around that you might think about getting out of the markets completely. Even if you don’t ultimately adopt a trend following strategy, if you’re going to be trading, it’s of dire importance to understand the concept of trend following. It’s essential to have it in your arsenal of tools. Covel wraps up and shares some other observations about Asia, his upcoming presentations abroad, announces an upcoming audiobook version of The Complete TurtleTrader, and discusses what you can expect from the podcast in the coming months.

Listen to this episode:

Learn A Stop Loss Method from the Stoics

An excerpt from The Power of Negative Thinking:

Ancient philosophers and spiritual teachers understood the need to balance the positive with the negative, optimism with pessimism, a striving for success and security with an openness to failure and uncertainty. The Stoics recommended “the premeditation of evils,” or deliberately visualizing the worst-case scenario. This tends to reduce anxiety about the future: when you soberly picture how badly things could go in reality, you usually conclude that you could cope. Besides, they noted, imagining that you might lose the relationships and possessions you currently enjoy increases your gratitude for having them now. Positive thinking, by contrast, always leans into the future, ignoring present pleasures.

More:

The social critic Barbara Ehrenreich has persuasively argued that the all-positive approach, with its rejection of the possibility of failure, helped bring on our present financial crises. The psychological evidence, backed by ancient wisdom, certainly suggests that it is not the recipe for success that it purports to be.

A good stoic primer. Also, a video.

Nicholas Darvas: Trend Trader

From a Time Magazine article in 1959:

Darvas places his buy orders for levels that he considers breakout points on the upside. At the same time, he places a stop-loss sell order just below his buy order, so that if the stock does not move straight up after he buys, he will be sold out and his loss cut. “I have no ego in the stock market,” he says. “If I make a mistake I admit it immediately and get out fast.” Darvas thinks his system is the height of conservatism. Says he: “If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn’t you call that good odds?” If he has a big profit in a stock, he puts the stop-loss order just below the level at which a sliding stock should meet support. He bought Universal Controls at 18, sold it at 83 on the way down after it had hit 102. “I never bought a stock at the low or sold one at the high in my life,” says Darvas. “I am satisfied to be along for most of the ride.”

I can’t recall the last time the financial press reported that a 1959 Time Magazine article might actually be good for one’s portfolio health.

Learn more about Nicholas Darvas trader here

Goldline Starting to Tarnish

I just called the Goldline guys.

First thing I asked, “If I buy gold from you when do I ever sell?”

The punk on the phone (and that is being charitable) said:

“Gold has never crashed.”

“If gold was to go again from $800 to $200 you would have plenty of warning to sell.”

I asked who was going to give me that warning. He said, drum roll please….they would. Everyone should call and have this conversation. Block your number and only give them your first name. Ask them the same questions I did before they get any details from you. It’s an experience!

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