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Tag: Trend Following

Austrian School and Trend Following

Posted on by Michael Covel

Feedback in:

Mr. Covel, I am currently reading “Capital and Its Structure” by Ludwig Lachmann. Lachmann was an Austrian School economist who studied under Hayek at LSE in the 1930s. This book is one of the seminal works on Austrian capital theory. Towards the end of the second chapter, Lachmann develops the concept of “meaningful” and “meaningless” price movements and links them to random and permanent economic forces. He then gives an example. Lachmann’s treatment of his idea in the example is essentially a Nicholas Darvas box theory, breakout, trend following description of price movements in the economy. Lachmann is not referring to stock or commodity prices per say, but upon reading his example I immediately linked it with trend following. The relevant passage can be found here, starting on p. 30 (p. 40 of the PDF version of the book).
Sincerely,
Augustus Van Dusen

Nice find!

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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. 129: Skepticism and Agnosticism with Michael Covel on Trend Following Radio

Posted on by Michael Covel
Skepticism and Agnosticism with Michael Covel on Trend Following Radio
Skepticism and Agnosticism with Michael Covel on Trend Following Radio

Please enjoy my monologue Skepticism & Agnosticism with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.

Listen to this episode:

Want to learn more Trend Following? Watch my video here.

Risk Management, Stops, Exits, Losers and Winners

Posted on by Michael Covel

Feedback in:

Hello Michael, thanks for accepting my friend inquiry. First, I want to say that I am a big fan of your podcast and interviews. Really great stuff. About myself? I have traded for 5 years, but have not traded profitably. I think my largest hurdle is not holding onto the winners. I do not give my entries enough room. Therefore I keep my losers very short, but very often see the position run after stopped out. In a nutshell my strategy is to move the stop to the entry point as soon as the position has a little bit of room. But so many times the position turns around just to touch my stop and then move on. Do you have any advice for me? Would you say that’s just risk management and part of the business? Because I think I miss too many good trades with this strategy. Thanks a lot in advance and have a nice time in Asia.

Frank

My first advice would be to read one of my books. Not a dodge to your question, but my books are filled with the necessary detail not easily put in one email response.

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.

Money Management Clarity Called For

Posted on by Michael Covel

Feedback in:

I listened to your recent podcast with Jason Russell. The part concerning the importance of money management was interesting. My question: what is meant by money management? It seems to be a term that everyone uses but never really defines and it’s always good, right, just and American. Any trade you do that reduces your risk and volatility is good? And, the big question: when do money management trades become discretionary trades that are used in place of following the system? Back in the early ’90s when I sat in front of my CQG and got spooked by volatility I would override my system exits and reduce my positions only to have to buy them back a few days later. I correctly called that discretion and a lack of discipline – a trader must follow the system and enter and exit only when the system rules dictate it. Now, all of these ideas can be programmed and can be called “money management” when, in my opinion, they are little more than systematized discretion. Is it no less discretion and panic driven when the computer is telling you to do it? So many of the trades are not part of the system – entry, exit, stop loss – that produced the 2000 trade sample size that makes one feel that should rely on a trend following system. What’s the difference between a necessary sample size and “it’s worked in the past?” A lot. CTAs need to face this issue.

Thanks for the feedback [Name].

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.

No Day Trading. Please, No Day Trading

Posted on by Michael Covel

A recent dialogue on Facebook:

Shankar: Does trend following work on intra-day as well?

Covel: No. But why would one want to trade intra-day?

Shankar: Frankly I don’t know…but what I wanted to ask was does it work even on a shorter time frame i.e 5 minute charts. It should work right?

Covel: No. But why would anyone try to trade 5 minute charts? There is no system that trades 5 minute charts. None. Anyone who says that there is… is suspect.

Shankar: Any trading is for generating more profits… is it?

Covel: Day trading is not for more profits.

Shankar: Very surprising…

Covel: It is a fantasy. Find me the track records of the great day traders to match the track records of the great trend followers. Let me save you the research: they don’t exist. Why is that surprising?

Shankar: Lots of strategies have been there. I am talking about an Indian contest. Surprising because lot of people keep talking about it.

Covel: There is nothing special about Indian markets. All markets are the same. Talk about it, yes. Talk. Many people talk about doing drugs. Does their talk force you to want to take drugs too?

Shankar: No.

Covel: Trust, but verify.

Shankar: Ok.

Covel: When you can verify day trading, let me know.

Shankar: Why would trend following not work on smaller time frames?

Covel: Why should they?

Shankar: The philosophy is the same right? There are going to be trends in the shorter time frame as well.

Covel: How is it the same to trade long term trends that exceed a year or longer … and that is the same as a 5 minute bar? I talk about these issues in my books extensively.

Shankar: As long as you are running the profits and cutting the losses.

Covel: Go find the proof for the 5 minute bar trend followers. I will wait!

Shankar: Ideally if the philosophy is the same, it should work on all time frames. Hey this is just a question out of inquisitiveness. I appreciate the work you have done. And let me tell you all traders badly need to know the work you have been doing.

Covel: Ideally? Why?

Shankar: I am talking about from the trend following philosophy point of view, also, if you do the back testing on the shorter time frames, you do get good results.

Covel: You get good results, really? Find me the real proof as asked. I will wait.

More on day trading here and here.

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:

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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.

How Do the Famed Macro Hedge Funds Really Trade?

Posted on by Michael Covel

How does Ray Dalio, George Soros and Paul Tudor Jones trade? The other big macro traders you read about in the books? How do they make their money? They are all fundamental guys who have big opinions about the directions of major markets (currencies, bonds, stocks, metals, energies, etc.) and use all of their intelligence to make the right bets year after year decade after decade? That’s their process?

Hold that thought.

How do trend followers trade? That answer is the foundation of my books. How can you be sure how trend followers trade? Their performance data for starters. You can see their performance data. You can look at the markets moving and see where the profits originated. And over the years the performance of trend following traders can also be compared to other trend followers where you can see the correlation of their performance. So not only does the story of what trend followers do to make money make sense, you can see the proof.

Confidence builder 101.

Now back to the big macro traders (many of which are positioned as fundamental traders; Dalio, for example, says he is 100% systematic using only fundamentals) that don’t hold themselves out as trend followers, but seem to trade the same markets making money off the big moves across all markets (just like trend following traders). Traders like Dalio, Soros, Simons, etc. are harder to analyze as their performance numbers are not as public (like trend following traders). Plus, even when the big macro traders give hints of what they do–are their words believable? You mean I should just accept that the big macro funds trade using fundamentals? Trust the media accounts? Trust the press releases?

Think about it this way. Consider “Argo” the winner of 2013 Oscar for Best Film.

What did Roger Ebert say about the film?

The craft in this film is rare. It is so easy to manufacture a thriller from chases and gunfire, and so very hard to fine-tune it out of exquisite timing and a plot that’s so clear to us we wonder why it isn’t obvious to the Iranians. After all, who in their right mind would believe a space opera was being filmed in Iran during the hostage crisis?

After all, who in their right mind would believe the most famous macro hedge funds promoted for decades as fundamentally-based are really classic technical trend followers? Look at it this way: If the American government in the late 1970s could pull off the Canadian Caper (the basis of the film Argo) with fantastic subterfuge, isn’t it possible that some of the richest men on the planet could disguise their trading technique to sell a story to investors? Do I know this to be 100% true? No, but draw your own conclusions, do your own homework and try hard to not blindly accept press accounts.

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
• Frequently Asked Questions
• 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.

Nomadic Podcast, Heavy Metal and Yoga Feedback

Posted on by Michael Covel

From Oct 25, 2012:

On a similar note, I’ve basically spent the past 3 years of my life wandering the globe as a vagabond, with a major emphasis on southeast Asia. So I have a lot of knowledge and recommendations for your upcoming trip (which I look forward to following on the blog/podcast). I am also very likely to be in SE Asia starting fairly soon, so it’s possible that our paths will cross. I’m in LA now, for about 2 more weeks. Anyway, I’ve long wanted to reach out and tell you this stuff, though I have no idea why. I hope you didn’t read this and think “this guy’s some kind of crazy stalker,” because I’m not. But the commonalities have definitely contributed to your podcast resonating so strongly with me.

Regards,
Paul

Thanks for the note Paul. Definitely working toward the SE Asia venture and will definitely want your insight soon! Thanks for reaching out.

From Dec 5, 2012:

I’m in Ubud now, for about 10 days. I imagine that when you talk of coming to Bali, you’re probably talking about Ubud. You must know that the Kuta area, where the bombs have gone off, is pretty much 20 year old drunken Aussie tourist hell. Ubud is a great spiritual place, just lacking a beach (which kind of sucks, but it has lots of other attributes that make up for it in the short term.) I’m basically doing 4-6 hours of yoga a day at an awesome studio called Radiantly Alive, which I highly recommend. No need to go to an expensive yoga retreat here. You can create your own for about 1/4 the price and have more flexibility. Given your path in yoga, you’ll love it here. And the food is great too.

PS: I’m reading Tony Iommi’s autobiography right now. It’s pretty boring, as is Tony himself. Ozzy’s was much better. I hope a Dio biography comes out at some point.

Thanks Paul, perhaps once I get to new year and clear through holidays I circle back for some more great insights!

From May 6, 2013:

Michael, I just wanted to follow up with you on a couple of notes I made listening to your podcasts. First, I love how you used the old school version of NIB, with the long slow bass intro, in the podcast with the John Wooden recording. Nothing like drawing it out at the beginning, before it would really be identifiable as Sabbath style music (unless you know the song, of course.) What could go better together than Wooden and Sabbath?

Second, you talked about Lemmy in another podcast. It reminded me of how I saw Motorhead open for Sabbath twice, including once in 1995 in a small club in West Hartford, CT. I was front row center for Sabbath, though with Tony Martin singing, it was only moderately good. But the club itself had two sides. The other side was a really low grade strip club. My buddies and I wandered over there after the show, and it was mostly deserted. The Sabbath guys were sitting up in a balcony area, and Lemmy was down admiring and interacting with the heinous strippers. He was in all his glory. If it wasn’t so funny, I’d have to say it was sad. But Lemmy isn’t picky.

I hope you’ve enjoyed your Asian trip as much as it sounds on the podcasts. I’m at the beach in Thailand now after a month long tantric yoga course in Rishikesh, India (the “Yoga capital of the world”) and then a few weeks in Nepal, trekking in the Himalayas.

I still recommend Ubud, Bali highly for a place to go nuts with yoga, great food, and good looking western yoga chicks from all over the world.

Cheers,
Paul

Thanks Paul! Sounds like I will definitely have to be checking out Ubud!

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
• Frequently Asked Questions
• 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.