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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

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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:

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Is Your Only Strategy “Trust”?

Peter Schiff states:

“The Fed’s failure yesterday to announce some sort of tapering of its QE program, despite the consensus of an overwhelming percentage of economists who expected action, once again reveals the degree to which mainstream analysts have overestimated the strength of our current economy. The Fed understands, as the market seems not to, that the current “recovery” could not survive without continuation of massive monetary stimulus. Mainstream economists have mistaken the symptoms of the Fed’s monetary expansion, most notably rising stock and real estate prices, as signs of real and sustainable growth. But the current asset price bubbles have nothing to do with the real economy. To the contrary, they are setting up for a painful correction that will likely be worse than the one we experienced five years ago. Following this playbook, the Fed will likely maintain the pretense that tapering is a near term possibility and that it has a credible plan on the shelf to bring an end to QE. In reality the Fed is stalling for time and hoping that the economy will inexplicably roar back to life. Unfortunately, hope is not a strategy.”

Stanley Druckenmiller (from Zero Hedge) states:

“A stock market at an all-time high would suggest we don’t have a problem with financial conditions.” In fact, Druckenmiller continues, the Fed “blew it… they had a freebie,” they could have started the process to “get us off the dope.” This action, or inaction, he warns “is going to make it so much harder for the next Chairman to start the process.” In fact, he concludes, that from beginning to end – once markets adjust from these subsidized prices – that the wealth effect of QE will have been negative not positive…this has forced us to buy securities at subsidized prices and when they adjust, at whatever point in the future, they will adjust immediately and on no volume.”

I don’t know the timing of when their wisdom will unfold, they don’t either.

But it will.

And what will you do?

Do you have a plan beyond trusting daddy government to tuck you in at night?

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