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Ep. 371: Alexander Ineichen Interview with Michael Covel on Trend Following Radio

Alexander Ineichen
Alexander Ineichen

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Today’s guest is Alexander Ineichen founder of Ineichen Research and Management. He is the author of several books including “Absolute Returns” and “Asymmetric Returns”. Inehichen has been researching and writing about trend trading strategy for decades.

The conversation today focuses on the notion of simplicity as sophistication. Michael Covel and Alexander Ineichen discuss the habit of investors to get caught up in market forecasting fantasies. Often, as research shows, people are drawn toward the excitement of what they perceive as the financial industry dream. They get distracted by what could be the future when they should be directing their attention at what’s happening in the moment. This is also what trend following is all about.

Ineichen explains his particular method of nowcasting, which involves combining hard market trends with socio-economic data from other fields. The end goal is to create a far more robust and stable system for the vast majority of investors. He aims to eliminate the “show element” of forecasting and analyze what’s happening on the ground – now.

Michael and Alexander also discuss the difficulty of investing in tech – prediction doesn’t work there either.

In this episode of Trend Following Radio:

  • Seeing through the market forecasting flash
  • The importance of “check box” methodology
  • Simplification as sophistication
  • The concept of nowcasting
  • Understanding the whole, so you know what can be eliminated
  • Learning to watch for trend reversals

“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” – George Soros

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Authority v. Tradition Is Central to Your Speculative Decisions

“Because we’ve always done it that way.”

Those are the words of someone likely to lose big–soon. Authority is not a wise foundation for speculative moneymaking decisions. Consider:

Appeal to authority is bad, but appeal to tradition is even worse. Experts aren’t infallible, but at least expertise is usually hard-won and retains some applicability over time. By contrast, tradition is often totally arbitrary or based on reasons that retain no relevance whatsoever. Also, an expert can issue a correction but tradition remains immutable and sacred (source: Jeff Darcy).

I would argue that almost all fundamental style investing falls into a category of tradition. Very few look for an alternative such as trend following. They figure that since it appears that everyone has invested or traded a certain way–that it must be the only way. They forget to dig deeper and forget to look for the truth behind why investing/trading works. Always searching for the “why?” is part of my February 25th presentation in Tokyo.

Thomas Stridsman on Trend Following Trading

A good article on trend following trading (PDF):

“…being a systematic trend follower also induces some pain from time to time, but overall results move slowly in the right direction. Trend followers need to learn to sit on their hands from time to time, and other times endure the pain from what seems like a never-ending string of whipsaw trades. That just comes with the style.”

More.

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