Michael Covel speaks with Jon Boorman, CMT, a market technician, analyst, and trader with 25 years of experience in global equity, forex, and futures markets. Boorman employs trend following and momentum strategies to generate actionable trade ideas. Boorman has been with many big firms in the past 25 years, but now works on his own outside of the infrastructure of the big investment banks and brokerage firms. Covel and Boorman discuss what it was like working within the big firms; Boorman’s beginnings and how he found his way to where he is today; what advice Boorman would have for newcomers, and whether the training Boorman went through is still relevant to up-and-comers today; how regardless of your access, success comes down to the individual; price-based trend following vs. other technical analysis; Boorman’s early “a-ha” moments towards trend following; trend following complexity, and why it can be “simple, but not easy”; trading your own personality; Van Tharp, risk management and position sizing; trend predicting vs. trend following; the fantasy of calling tops and bottoms; why the major media outlets don’t give trend following proper coverage, and why trend followers don’t make good “copy”; mistaken emphasis on entries rather than exits; the idea that Boorman “no longer having a need to be right” after he left Lehman Brothers; alpha capture; acceptance of trend following amongst the larger financial community; and understanding the legendary trend following traders such as Bill Dunn and Jerry Parker.
Hi Mike. Thank you for the latest newsletter and for introducing me to Asacker and Watts. The podcast with Tom Asacker is superb. The final part, listening to Alan Watts moved me to tears, what he said is so true and said so eloquently. I have two daughters and hope to convince them to work for themselves when they get through their education. I hope they will listen to your podcast at some point – they’re aged 11 and 13. Your own story of itself is inspirational and proof that belief is crucial. Incidentally, JOB, stands for; JUST OVER BROKE! I heard that many years ago, and how true it is. Which ever part of the world you’re in, have a good day.
Are you a gimp? Like that classic scene from Pulp Fiction, the gimp is the average investor. The gimp is the investor that isn’t in control, either by their own choice or choices put upon them. They are left to the machinations and maneuvers of forces. They don’t think clearly; they don’t know how to make a decision. Their decision is simple: sit tight and trust the powers that be. That’s what Covel calls “Gimp Investing”. If you don’t want to be a gimp investor you have to figure out a way to think; a way to be skeptical. Skepticism is where it begins. If you can be a skeptic, then you have a chance. Covel talks about “digging” for information; taking the information that’s given to you and sorting it out for truth. Covel moves on to the comparison between digging for information and digging for dinosaurs. This idea of thinking and seeing what the data shows–not just trusting the system and the stories–is exactly what skepticism is all about. Jack Horner, the paleontologist, is one of the greats in his field. He’s figured out that dinosaurs built nests, lived in colonies, traveled in herds, and that their skulls changed shape from childhood into adulthood. Most of this was not common knowledge until Horner came around. Horner walked into it wide-eyed; he didn’t have a plan. He said, “What can I deduce from this that makes the most sense?” Covel talks about how much this compares to his early experience with looking at the data of trend following traders. Trend following is the other side of the coin to gimp investing. It says if you’re willing to take those small losses, you’re almost invincible. As long as you can come back to play the next day and you can take those small losses, it puts you in the position where if the black swan comes in, you’re prepared. When the gimp style stops working trend following gives you a chance to survive. Covel ends with a clip of Jack Horner. It’s useful to hear how an expert goes on to learn. It’s not linear learning; if you’re trying to make chaos a straight line you’re going to have a rough life. Attach Horner’s words to good trend following trading and it all connects.
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Wherever you go, gambling and the lottery is how most people think about making money. It is one of the biggest scams put upon the average guy. Most of it is run by the government, too. As Abba so eloquently put in their song “Money Money Money”, that’s what people dream about. But even when people open up and want to learn something new they often come to Michael Covel asking for the secrets. Covel’s answers? There are no secrets; there is only knowledge that you do not yet possess. On today’s show Covel launches into a clip from CNBC. Do trend following traders care what Bernanke thinks? Covel talks about propaganda; storylines in the news and whether these “arguments” are as real as they seem; and how real traders go with the flow. Ultimately it’s about science; the science of what the market is doing. Covel reads a blog excerpt from Sean Carroll, and goes over a three-part definition of what makes up science to further comment on the CNBC clip. Covel just wants to make the point: you have to look through the haze to find out what’s really going on. You have to break it down to science. The most successful trend following trader alive today, David Harding, is a scientist. Going through the whole process of thinking about trend following from a scientific perspective, Covel is showing you the light.
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Michael Covel is a skeptic, and that’s how he likes it. If you’ve listened to him more than once, it’s probably because you relate. He wants you to show him the truth. He’s agnostic to the market, too; he knows that price is the only truth. Covel starts off today’s episode with a song from XTC that reflects that sort of agnosticism. In a continuing search for more truth, Covel spends the rest of the episode providing commentary on a speech called “God Is A Genius Because He Is A Sloth” by Hugh Hendry, who has become a fairly noteworthy hedge fund manager in recent years. Covel points out that Hendry doesn’t appear to be a trend following trader; at least not in the classical sense. But his response to questions will make you think. Covel discusses elements of Hendry’s speech that includes the impossibility of being able to predict the future; emotional intelligence; “not wanting to know”; why procrastination can kill you; disciplined curiosity; being agnostic to the market; being wary of “the brightest guy in the room”; and why falling in love with your analysis is not risk management. Hendry gets right at some of the root essence of being a trend following trader. Although he isn’t a technical trend following trader by definition, he sure sounds like one.
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Michael Covel talks about getting “picked” on today’s episode of the podcast. Starting off with Blind Melon’s “No Rain” Covel sets the groundwork for what’s inspiring him today. This isn’t a trading specific podcast today, at least for those of you out there that think that trading psychology and trading philosophy are irrelevant. Covel meets people all the time looking for the “secret sauce”. Today, you aren’t going to get the secret sauce; or at least the secret as you perceive it to be. Inspired by Seth Godin’s recent thoughts on being picked Covel talks about Marc Maron, a comedian who recently has found success through his own podcast. Covel talks about how Maron wasn’t picked through traditional means: Meeting with Lorne Michaels of Saturday Night Live, Maron’s meeting went sideways, he was rejected, and he ultimately had to carve out his own path. Maron started a podcast which became viral, and now even though Lorne Michaels did not pick Marc Maron, Maron sits with his own destiny in front of him, chosen by him. All because he looked at the world slightly differently. Today, he enjoys massive success through an IFC television show, a new book, and a top rated podcast all because of setting out on his own path. Circumstances forced him to do this, but he learned that being picked was not the end all be all. Covel relates this back to his audience: you weren’t picked for the trading job, you weren’t picked for the investment banking team, and you’re already psyching yourself out. A lot of people do this: they don’t get picked and then complain for the rest of their lives and essentilly quit. If you don’t see the relevance in picking yourself to success in trading, you might not ever see it. Godin received complaints through his article on Marc Maron and Covel has received similar complaints which he retells here in the podcast. Some people want to do specific things. Doing “this” requires being picked: “I want to play the flute in this particular orchestra”, “I want to trade for Goldman Sachs”. At the end of it all, there is a great Buddhist thought: “Live like a mighty river”. A mighty river flows. A mighty river does not complain. A mighty river gets it done. Covel talks about his own experience of not being “picked” for CNBC. They were looking for Jim Cramer, Jr. Covel went into the meeting with his eyes wide open and was looking to get the experience to pass along to you today that CNBC, behind the scenes, is a farce. Covel wanted to see behind the scenes for himself, and he got that opportunity being interviewed for CNBC. Covel wasn’t picked by CNBC, but they weren’t picked by Covel either. That’s the attitude to have. Covel concludes with a recent story about being picked that he experienced himself in Thailand, and with what Godin says in his blog post: The problem is that it’s frightening to pick yourself, Godin says. “It’s far easier to put your future into someone else’s hands than it is to slog your way forward, owning the results as you go.”
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Michael Covel discusses an article titled “21 Ways Rich People Think Differently Than Average People”. The word rich may not be the best term here as Covel notes, “being rich or poor doesn’t stop you from being a schmuck.” Covel makes a more clear distinction between average people and people of high character. He goes through the list and offers commentary on statements such as “average people think money is the root of all evil; rich people believe poverty is the root of all evil.” Money, Covel maintains, is just a medium of exchange and that’s all it is. It’s what you make of it that becomes good or bad. Readers will see that many of the precepts and principles in this article are straight out of Trend Following 101. Further, commentary includes seeing money through the eyes of emotion vs. seeing it logically; following your passion vs. working for the man; setting low expectations vs. challenging yourself; knowing the markets are driven by emotion and greed; being a slave to debt; surviving vs. thriving; education vs. entertainment; finding comfort in uncertainty; and trend follower Larry Hite’s concept of asymmetric bets. Next, Covel discusses “An Investor’s Guide to Famous Last Words” from The Motley Fool. Covel used to spend time ripping The Motley Fool for pumping buy and hold, and in the end pulls no punches in revealing the author to be a die hard “value” guy (despite agreeing on certain points).