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Tag: statistical thinking

Can’t Argue the Facts

Posted on by Michael Covel

Feedback in:

Hey Mike!

Just a quick one to say thanks for your podcast and your work. Just finished your book and have been listening to your podcast for about 6 months now. I’ve been studying in a share trading diploma here in Australia to get me started but as I’ve progressed I’ve noticed so many holes in the theories surrounding market timing in particular. I haven’t been content to just assume these methods work.

I’m a huge Oakland A’s fan and I’m a big sabermetrics guy. Trend Following looked like the most logical method of trading to me, but once you compared it to baseball it concreted it in my mind. It’s logical! You can’t argue a point (very well) with qualitative data. In my mind that applies to everything in life…. so why not trading?

Appreciate your insights.

[Name]

Thanks.

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Jean-Philippe Bouchaud: Tail Risk Premia vs. Pure Alpha

Posted on by Michael Covel

Jean-Philippe Bouchaud, Chairman of Capital Fund Management, passed along a new paper Tail Risk Premia vs. Pure Alpha.

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Murray Gell-Mann: Beauty and Truth in Physics

Posted on by Michael Covel

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Hit The !@#$ Home Run!

Posted on by Michael Covel

Some companies, and individuals, stress [focus on] the short-term performance of trend followers. They look at one month’s performance, see a down month, and panic. They have complete ignorance of the long-term objective–big money. How bad can it get? I have seen trend following traders make 100 percent in a year followed by a year where they lost 5 percent. That 5 percent loss causes some critics to not see the 100 percent number. That is insane thinking. Just like a baseball player’s batting average can have short-term up or down streaks over the course of a season, trend followers have streaks. Trend following performance will deviate from averages, but over time there is remarkable consistency when it comes to putting up big returns—as long as unpredictable home runs are allowed to happen naturally and unforced. The leading thinkers across varied fields, including insurance, casino gambling, and investing, all emphasize the same point. It’s the Babe Ruth effect: Even though Ruth struck out a lot, he was one of baseball’s greatest hitters. The home runs made up for his strikeouts. A trend follower coaching a baseball team would approach it like the former manager of the Baltimore Orioles. Earl Weaver designed his offenses to maximize the chance of a three-run homer. Weaver did not bunt or want guys who slapped singles. He wanted guys who hit big home runs. Trading is a waiting game. You sit, you wait, and you make a lot of money all at once. Profits come in bunches. The trick when going sideways between home runs is not to lose too much in between.

Note: From my book Trend Commandments. Shout to Michael Mauboussin.

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How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

Ep. 253: Perry Kaufman Interview with Michael Covel on Trend Following Radio

Posted on by Michael Covel
Perry Kaufman
Perry Kaufman

My guest today is Perry Kaufman, an American systematic trader, index developer, and quantitative financial theorist. He is considered a leading expert in the development of fully algorithmic trading programs.

The topic is systematic trading.

In this episode of Trend Following Radio we discuss:

  • How Kaufman came to the idea of 100% algorithmic trading systems
  • The difference between being systematic and being automated
  • Optimization vs. validation
  • The biggest advantages of testing
  • Why discretion is not part of Kaufman’s toolbox
  • The problem of tail events
  • Why discipline is the most important characteristic of a systematic trader
  • The “loose pants fit everyone” philosophy
  • Preparing yourself for uncertainty
  • Comparisons between risk management and risk measurement
  • The Sharpe ratio
  • High volatility trades vs. low volatility
  • Why Kaufman places equal weight on both risk management and the underlying system
  • Systematic trading in established mature markets vs. emerging markets

Listen to this episode:

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The Kelly Criterion Shocks Some and Inspires Others

Posted on by Michael Covel

Feedback:

Hey there Mike. I was reading the hedge fund Market Wizards where the Kelly criterion was mentioned. To be honest it shocked me that any professional trader would take it seriously. It seems like it directs the trader to risk far more money than any professional trader would ever dare to risk. It tells the trader to risk as much as 20 to 30% of his trading account Mike! This sounds like trader suicide to me. Even after applying the “conservative” method of cutting it in half as one trader in the book suggested you would still be risking 10 to 15% of your trading account on each trade which again is far more than any professional I have heard of risks on his trades. As best I can tell, the Kelly criterion is a totally useless formula for serious traders and I can’t figure out how it even made it into the book. The only professional I have ever heard of who suggests such large bets is Larry Williams in his book in which he advises risking over 10% for some traders which shocked me when I read that book. I was just wondering what are your thoughts on the Kelly criterion?

Dave Druz and Ed Seykota wrote a good piece called “Determining Optimal Risk”. Worth a read if you haven’t checked it out already. Kelly also discussed heavily here.

More information on dave richard trade chart system.

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.

“It’s the Autocorrelation, Stupid”

Posted on by Michael Covel

Forwarded from a friend at AHL comes a nice piece from Newedge: It’s the autocorrelation, stupid (PDF).

How can you move forward immediately to Trend Following profits? My books and my Flagship Course and Systems are trusted options by clients in 70+ countries.

Also jump in:

• Trend Following Podcast Guests
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• Performance
• Research
• Markets to Trade
• Crisis Times
• Trading Technology
• About Us

Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.