Subscribe now and watch my free trend following VIDEO.

Yoga, Podcasts and Trend Following

Feedback in:

Michael,

I am the guy who was a member years ago, then recently renewed. I was hounding you in regards to the TradeStation systems that you built. I was also the guy who has been doing yoga, but only with YouTube videos. I used the funds that I won from the super bowl boxes for private lessons at a studio. It was fantastic. My practice grew exponentially. Unfortunately Spring Break with the family came right after the private lessons and I have regressed. I started up again recently, but again only at home. The studio that I like has classes that do not match with my schedule at this time. I enjoy yoga, but my practice is not where I would like. I will need to change my schedule to get my practice to grow. As far as trading goes. I have been watching my portfolio of symbols using a charting software. I haven’t been able to get involved with Trade Station. My wife and I have been having some life changing discussions about our finances. She is starting to come round to understand Trend Following, but so far I haven’t been a good salesmen. I have been listening to your podcasts, and love them. I hadn’t used my phone to listen to them before and now I can’t wait for my commute! I look forward to seeing the notification that you have a new podcast available. I finally figured out how to download older episodes so I will have days of the podcast to listen to. Have you ever had Josh Brown on? One of the podcast that I recently listened to you read an article of Josh’s that was fantastic. It was about everyone being a technical trader. If you haven’t had him on, that would be one for the not miss category. I also loved the stuff that you have done recently with basketball. The part about the Celtics coach and the audio of Gregg Popovich was filled with some great nuggets. I guess this is a long (very long) winded way of saying thanks. I appreciate all the material that you have out there for your students and for all. Someday I will pull the trigger for the TS code. I see that as my only way because of my business.

Thanks again,
[Name]

Thanks.

Josh is a busy guy, but he knows I welcome him any time.

Do Yoga
Do Yoga

Ep. 418: Everyone is a Closet Trend Follower with Michael Covel on Trend Following Radio

Everyone is a Closet Trend Follower with Michael Covel on Trend Following Radio
Everyone is a Closet Trend Follower with Michael Covel on Trend Following Radio

Subscribe to Trend Following Radio on iTunes

Today on Trend Following Radio Michael Covel starts off quoting famed trader Stanley Druckenmiller. Stanley shares his views on betting big and diversification. Michael expands on Stanley’s views by stressing how crucial diversification is to a portfolio’s success. You must be open to many markets to handle your risk management. And when markets start to go your way, you have to “bet the ranch.” When one market in your portfolio takes off you need to go big and make the most of it. This is where your profits will come from. Note: Stanley Druckenmiller had two big mentors in his life. One of the two influences was George Soros. The two have been business partners for years now and have made a fortune trading trends. These men do not tout themselves as trend following traders but Michael describes them as “kissing cousins” to trend following.

Michael then reads an article from Josh Brown titled, “Everyone is a closet technician.” In the article, Josh claims everyone is a technician. What is a technician? Josh defines them as, “Someone who cuts right to the chase and studies actual prices and behavior instead of puzzling over the causes of prices and behavior like everyone else.” He says that investors only pay lip service to fundamentals. Technicians find truth and meaning in price and the action that is currently happening. They respect the idea of sentiment. Sentiment is how valuations come to be. Prices change and with that the truth is constantly changing. Technicians do not waste their time with the “Why” question. Hindsight bias is a slippery slope. Josh says, “Fundamentalists will share their reasons with anyone willing to listen. The technicians will take these reasons with stride and focus on what is happening, not ‘why.’ The ‘why’ will always be much more apparent after the fact. After it doesn’t matter.” Price will do its thing regardless of what people predict. Michael doesn’t believe the people on CNBC throwing out predictions are technicians. Trend followers are the only people who fit the mold of what Josh describes in the article.

In this episode of Trend Following Radio:

  • What is a technician?
  • Diversification
  • Risk management
  • Trading off price

“Price creates the reality for investors because investors take their behavioral cues from price and the media fashions their headlines from it.” – Josh Brown

Mentions & Resources:

Listen to this episode:

Get the foundation to making money in up, down and *surprise markets on the Trend Following mailing list.

Legacy of the Legendary Trader Jesse Livermore

Jesse Livermore was an outstanding trader. The insights he shared with the world are invaluable. Josh Brown wrote a great article featured on www.ritholtz.com pointing out some of his great nuggets of wisdom as well as how he would react in this day and age with news outlets streaming 24/7:

There are those who would convince you that it is somehow smart or in your best interest to be manically switching your investments around, back and forth, long and short, on a daily basis. To pay attention to this kind of overstimulation is the height of madness, even for professional traders.

The most storied and important trader who ever lived, Jesse Livermore, would be tuning these daily buy and sell calls out were he alive and operating today. Because while he was a trader, he was not of the mindset that there was always some kind of action to be taking.

Jesse Livermore’s legacy is a bit of a double-edged sword…

On the one hand, he was the first to codify the ancient language of supply and demand that is every bit as relevant 100 years later as it was when he first relayed it to biographer Edwin Lefèvre. Livermore himself sums it up thusly: “I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.”

On the other hand, Livermore’s undoing came at precisely the moments in which he ignored his own advice. After repeated admonitions about tipsters, for example, Jesse allowed a tip on cotton to lead to a massive loss which grew even larger as he sat on it – violating yet another of his own cardinal rules.

And of course, other than for a few moments of temporary triumph in the trading pits and bucket shops of the era, Jesse Livermore was not a happy man. “Things haven’t gone well with me,” he informed one of his many wives by handwritten note, before putting a bullet through his own head in the cloakroom of the Sherry-Netherland Hotel.

But he did leave behind a wealth of knowledge about the art of speculation. His exploits (and cautionary tales of woe) have educated, influenced and inspired every generation of trader since Reminiscences was first published in 1923.

In my opinion, some of the most useful bits of knowledge we get from the book concern Jesse’s discussion of timeframes and patience. Many traders, particularly rookies, approach the game with the idea that they’re supposed to be constantly doing something – in and out, with a trembling finger poised to click the mouse again and again. Consequently, they get on the treadmill of booking wins and losses without ever really moving the needle. They end up with tons of brokerage commissions and taxes to show for their efforts, but not much else.

Being a trader doesn’t mean one must always be executing a trade, just as being a house painter doesn’t mean that every surface needs an endless series of coats.

Many rookies are surprised to learn that Livermore, the idol of so many great traders, advocated a lower maintenance, higher patience approach as he matured. In his early days, Livermore was dependent on the short-term funding and scalping activity of the bucket shops. Once he graduated and had his own capital, he was able to lengthen position holding times and could even afford to do nothing for extended periods.

Here are nine surprising things Jesse Livermore said regarding excessive trading:

  • “Money is made by sitting, not trading.”
  • “It takes time to make money.”
  • “It was never my thinking that made the big money for me, it always was sitting.”
  • “Nobody can catch all the fluctuations.”
  • “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”
  • “Buy right, sit tight.”
  • “Men who can both be right and sit tight are uncommon.”
  • “Don’t give me timing, give me time.”

and finally, the most important thing: “There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”

Jesse was a trader but he knew the value of staying with positions and sometimes not trading at all. Once he began to follow tips from others or trade when he should have abstained, all of his progress had come undone, and with it, his sanity.

We are fortunate to be able to learn from his mistakes and to sidestep the errors that eventually cost him everything.

Jesse Livermore Books:

• How to Trade in Stocks (PDF)
• Reminiscences of a Stock Operator (PDF)

Recommended Trend Following Posts and Podcasts

Twenty Eight Years On Wall Street

Trend Following Wisdom of Jesse Livermore

Reminiscences of a Stockbroker

Bitcoin Trend Following

On Holding

Striving for Excellence

Learn to be a trend following trader.
Sign up free today.