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Ep. 360: Pas de Dough with Michael Covel on Trend Following Radio

Pas de Dough with Michael Covel on Trend Following Radio
Pas de Dough with Michael Covel on Trend Following Radio

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A May 25, 1959 Time Magazine article called “Pas de Dough” was recently forwarded to Michael Covel. It was about a professional dancer named Nicolas Darvas, who had made two million dollars trading stocks. This was probably one of the first trend following articles to appear in a major publication.

Sports metaphors when it comes to trend following work great, but there are clearly others. For example, both trend following and dancing judge the public’s enthusiasm and use that as the indicator for the next move.

In this monologue, Covel talks about the article and Darvas’ book, breaks down the fundamentals of trend following, and explains why the philosophy behind trend following still applies today. He also comments on how trend following can be applied to the current black swan economic situations in China and Greece.

In this episode of Trend Following Radio:

  • What trend following and dancing have in common
  • The philosophical foundations of trend following
  • Stock trading and location independence
  • Why relying on “fundamentals” is fool’s gold
  • What being a silent partner in the trend means
  • Why Darvas’ thinking from 1959 still applies today
  • The importance of having no ego when it comes to trading

“The only sound reason for my buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering” —Nicolas Darvas

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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

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