Trend Following (Updated Edition) – Michael Covel

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Exploring the Essential Features of “Trend Following (Updated Edition) – Michael Covel”

Michael Covel is the author of five books: including the international bestseller, Trend Following and his investigative narrative, The Complete TurtleTrader. Fascinated by traders that quietly generate spectacular returns, those going against the grain of investment orthodoxy, he has uncovered astonishing insights about how they think, strategize and execute their systems.

His cutting-edge and unorthodox perspectives have garnered international acclaim and have earned him invitations with: China Asset Management Co., Ltd., GIC Private Limited (Singapore sovereign wealth fund), BM&F Bovespa, Managed Funds Association, Bank of China Investment Management, Market Technicians Association. He also has the distinction of interviewing four Nobel Prize winners in economics, including Daniel Kahneman and Harry Markowitz and has been featured by major press, including: The Wall Street Journal, Bloomberg, CCTV, The Straits Times and Fox Business.

Covel’s Trend Following Podcast now has over 2.5M listens (trendfollowing.com/podcast) and has ranked as high as #2 on iTunes. He splits his time across USA and Asia and sees location independence as our future.

Editorial Reviews

Review

“Michael Covel’s Trend Following: Essential.”

–Ed Seykota, trend follower for 35 years and original Market Wizard

“For my staff, Michael Covel’s Trend Following is required reading.”

Larry Hite CEO, ISAM,

Originally profiled in The Market Wizards by Jack Schwager

“My favorite of the new TA [technical analysis] books is ‘Trend Following’ by Michael Covel. Straightforward, easy to read, this book is rich in details about why trend following is such a successful strategy amongst some of the world’s best-performing hedge funds.”

Barry Ritholtz, The Big Picture

“A mandatory reference for anyone serious about alternative investments.”

–Jon Sundt, president and CEO, Altergris

“I think that Michael’s Trend Following is an outstanding read from which all

investors can learn to trade markets better by limiting their risks and maximizing

their profits through a more disciplined approach to investments.”

Marc Faber

Managing Director, Marc Faber Limited

Editor, Gloom, Boom & Doom Report

“I think the book did a superb job of covering the philosophy and thinking behind

trend following (basically why it works). You might call it the Market Wizards of

Trend Following.”

Van K. Tharp, Ph.D.

Author of Trade Your Way to Financial Freedom

“Michael Covel does an excellent job of educating his readers about the little-known

opportunities available to them through one of the proven best hedge fund

strategies. This book is like gold to any smart investor.”

Christian Baha

Superfund

“Michael Covel’s book is the definitive guide to trend trading. Backed by real world

results from some of the biggest and best money managers in the United States, his

book will put you on the path to successful trend trading.”

Larry Connors

TradingMarkets.com

“Michael Covel’s Trend Following is a breakthrough book that captures the essence

of what really makes markets tick. Diligently researched and comprehensive in

scope, it will replace Market Wizards as the must-read bible for a new generation of

traders.”

Jonathan Hoenig

Fox News Contributor

“Trend Following: Definitely required reading for the aspiring trader.”

David S. Druz

Tactical Investment Management

“I think that this book documents a great deal of what has made Trend Following

Managers a successful part of the money management landscape (how they manage

risk and investment psychology). It serves as a strong educational justification on

why investors should consider using Trend Following Managers as a part of an

overall portfolio strategy.”

Tom Basso

Originally profiled in The New Market Wizards

From the Back Cover

Today, you need trend following more than ever. Read this bestselling book, and put it to work for you! 

• Real proof, real data, real results
  Includes over a decade of detailed performance charts
• All the Information You Need…in One Number
  Why the market price still tells you all you need to know to trade–and always will–in both bull and bear markets
• Pinpointing Targets of Opportunity
  What to trade, when to trade, and how much to trade
• Meet Today’s Leading Trend Followers
  Extraordinary trader profiles, from David Harding to John W. Henry to Ed Seykota 

About the Author

Discover the investment strategy that works in any market. The one strategy that works in up and down markets, good times and bad.

• ¿Trend Following¿ has become the classic trading book ¿ accepted by the great pro traders as their standard..  Learn how Trend Followers delivered fantastic returns while everyone else was losing their shirts.
• Simple charts and instructions help you use Trend Following no matter where the market goes next.
• Includes new profiles of top Trend Followers who¿ve kept right on profiting through the toughest markets.

Praise for Trend Following

“Michael Covel’s Trend Following: essential.”

—Ed Seykota, trend follower and original market wizard

“Trend Following by Michael Covel? I’m ‘long’ this book.”

—Bob Spear, developer of Trading Recipes Software

“Michael Covel’s Trend Following is a breakthrough book that captures the essence of what really makes markets tick. Diligently researched and comprehensive in scope, it will replace The Market Wizards as the must-read bible for a new generation of traders.”

—Jonathan Hoenig, portfolio manager, Capitalistpig Hedge
Fund LLC and Fox News contributor

“Investment books that have a lasting appeal offer insight that resonates with a large number of investors. We believe Michael Covel’s Trend Following will be such a book.”

—Richard E. Cripps, Legg Mason chief market strategist

“Please read Trend Following whether you think you have an interest in trend following or are not sure…Covel has hit a home run with it.”

—Gail Osten, editor-in-chief, Stocks,
Futures, & Options magazine

“Michael Covel has written the definitive book on trend following. With careful research and clear insight, he has captured the essence of the most successful of all trading strategies. Michael knows his subject matter and he writes about it with passion, conviction, and enthusiasm. This enjoyable and well written book is destined to become a classic.”

—Charles LeBeau, author of Technical Traders Guide to
Computer Analysis of the Futures Markets

“Trend Following is an engrossing and educational journey through the principles, pitfalls, players, and psychology of aggressive technical trading of the investment markets. It is rich in its wisdom and historical study.”

—Gerald Appel, president of Signalert Corporation and publisher
of Systems and Forecasts newsletter

“Conventional wisdom says buy low and sell high, but what do you do now that your favorite market—be it a stock, bond, or commodity—is at an all-time high or low? For a completely different perspective, from people who actually make money at this business, take a look inside. Michael Covel has written a timely and entertaining account of trend following—how it works, how to do it, and who can do it. While it’s not for everybody, it might be for you.”

—Charles Faulkner, NLP modeler and trading coach, featured in
numerous books including The New Market Wizards

“I think the book did a superb job of covering the philosophy and thinking behind trend following (basically, why it works). You might call it the Market Wizards of Trend Following.”

—Van K. Tharp, Ph.D., president, International Institute of Trading Mastery, Inc.
Van was originally profiled in The Market Wizards by Jack Schwager.

“I think that this book documents a great deal of what has made trend following managers a successful part of the money management landscape (how they manage risk and investment psychology). It serves as a strong educational justification on why investors should consider using trend following managers as a part of an overall portfolio strategy.”

—Tom Basso, retired CEO, Trendstat Capital Management, Inc. Tom was
originally profiled in The New Market Wizards by Jack Schwager.

“Michael Covel mixes a unique blend of trend following matters with the thoughts and quotes of successful traders, investors and society’s leaders. This is a valuable contribution and some of the best writing on trend following I’ve seen.”

—Robert (Bucky) Isaacson, managed money and trend
following pioneer for more than 30 years

“Trend Following: Definitely required reading for the aspiring trader.”

—David S. Druz, tactical investment management and trend follower for 25 years

“Michael Covel reveals the real secret about trading—that there is no secret. His points are peppered with wisdom from experts across the industry.”

—John Ehlers, president, MESA Software

Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets

Preface

“Men wanted for hazardous journey. Small wages. Bitter cold. Long months of complete darkness. Constant danger. Safe return doubtful. Honor and recognition in case of success.”1

This book is the result of a 14-year “hazardous journey” for the truth about trend following trading. It fills a void in a marketplace inundated with books about buying low and selling high, index investing, and all other types of fundamental analysis, but lacking any resource or, for that matter, practically any reference to what I believe is the single best strategy to consistently make money in the markets. That strategy is known as trend following. Author Van Tharp has described it succinctly:

“Let’s break down the term ‘trend following’ into its components. The first part is ‘trend.’ Every trader needs a trend to make money. If you think about it, no matter what the technique, if there is not a trend after you buy, then you will not be able to sell at higher prices … ‘following’ is the next part of the term. We use this word because trend followers always wait for the trend to shift first, then ‘follow’ it.”2

When it is a question of money, everyone is of the same religion.

Voltaire

Trend following trading seeks to capture the majority of a market trend, up or down, for profit. It aims for profits in all major asset classes—stocks, bonds, currencies, and commodities. Unfortunately, however simple the basic concepts about trend following are, they have been widely misunderstood by the public. My desire to correct this state of affairs is what, in part, launched my research. I wanted to be as objective as possible, so I based my writing on all available data:

• Trend followers’ month-by-month performance histories
• Trend followers’ published words and comments over the last 30 years
• News accounts of financial disasters
• News accounts of the losers in those financial disasters
• Charts of markets traded by trend followers
• Charts of markets traded by losers in the financial disasters

If I could have written a book comprising only numbers, charts, and graphs of trend following performance data, I would have. However, without any explanation, few readers would have appreciated the ramifications of what the data alone showed. Therefore, my approach to writing Trend Following became similar to the one Jim Collins describes in his book Good to Great, in which a team of researchers generated questions, accumulated data in their open-ended search for answers, and then energetically debated it.

Education rears disciples, imitators, and routinists, not pioneers of new ideas and creative geniuses. The schools are not nurseries of progress and improvement, but conservatories of tradition and unvarying modes of thought.

Ludwig von Mises

However, unlike Collins who was writing about generally well known public companies, trend followers form a sort of underground network of relatively unknown traders who, except for an occasional article, the mainstream press has virtually ignored. What I have attempted to do is lift the veil, for the first time, on who these enormously successful traders are, how they trade, and what is to be learned from their approach to trading that we might all apply to our own portfolios.

Trend Following challenges much of the conventional wisdom about successful trading and traders. To avoid the influences of conventional wisdom, I was determined to avoid being influenced by institutionalized knowledge defined by Wall Street and was adamant about fighting “flat earth” thinking. During my research, starting with an assumption and then finding data to support it was avoided. Instead, questions were asked and then, objectively, doggedly, and slowly, answers were revealed.

If there was one factor that motivated me to work in this manner, it was simple curiosity. The more I uncovered about trend followers, the more I wanted to know. For example, one of the earliest questions (without an answer already) was learning who profited when Barings Bank collapsed. My research unearthed a connection between Barings Bank and trend follower John W. Henry (now the majority owner of the Boston Red Sox). Henry’s track record generated new questions, such as, “How did he discover trend following in the first place?” and “Has his approach changed in any significant way in the past 30 years?”

I was also curious about who won the $1.9 billion hedge fund Long Term Capital Management lost during the summer of 1998. Why did the biggest banks on Wall Street invest $100 billion in an options pricing model with so much inherent risk? Further, considering what mutual fund and hedge fund managers lost during October 2008 and what successful trend followers earned during the same time, I could not understand why so few investors were oblivious to even the existence of trend following trading. Other questions quickly appeared:

• How do trend followers win in the zero-sum game of trading?
• Why has trend following been the most profitable style of trading?
• What is the philosophical framework of trend followers’ success?
• What are the timeless principles of trend following trading?
• What are trend followers’ worldview of market behavior?
• What are the reasons why trend following is enduring?

The important thing in science is not so much to obtain new facts as to discover new ways of thinking about them.

Sir William Bragg

Many of the trend followers studied are reclusive and extremely low key. Some discovered trend following on their own and used it to make their fortunes out of home offices. Bill Dunn, a successful trend follower who has beaten the markets for over 30 years, works out of a quiet, Spartan office in a Florida coastal town. For Wall Street, this approach to trading is tantamount to sacrilege. It goes against all the customs, rituals, trappings, and myths we have grown accustomed to with Wall Street success. In fact, it is my hope that my profiles of trend followers will correct the public’s misconception of a successful trader as a harried, intense workaholic who spends 24/7 in the labyrinth of a Wall Street trading firm, surrounded by monitors and screaming into a phone.

When the first edition of Trend Following hit the streets in April 2004 I hoped to assemble the first comprehensive look at trend following trading. Almost five years since initial publication, that goal was realized. How do I know? Since the first edition of Trend Following, I have met literally dozens of trend following traders managing collectively billions upon billions of dollars. Their feedback has been the validation. I never would have expected that an obscure book put together five years ago would lead me to having conversations with the likes of Nobel Prize winner Harry Markowitz and hedge fund managers Boone Pickens and David Harding, but it did.

Validation aside, October and November 2008 made me want another bite at the apple, another chance to “work” on this book. And lucky for me, the 2008 market chaos gave me that window. There is no doubt that October and November 2008 were the most historic market months since the Great Depression. Most people, most mutual funds, and most hedge funds lost unimaginable sums of money. It has long been said that “genius is leverage in a rising market,” and when the bubble popped in 2008 clearly people who had long been positioned as genius weren’t that smart after all. Already guessed where I am headed with this rant? Yes, while the rest of the world got creamed in 2008, trend followers made fortunes. Performance numbers for top trend following traders for October 2008 alone ranged from +5 percent to +40 percent. Making that much in one month when much of the rest of the world was losing big time is noteworthy to say the least. My publisher Jim Boyd agreed with me.

This new edition of Trend Following includes many new sections and insights, surrounding the same core timeless lessons from the first edition. I updated the book throughout and worked to make material accessible and interesting enough so it might give an occasional “aha” experience. However, if you’re looking for trading “secrets,” you need to look elsewhere. There is no such thing. If you’re in the mood for stories about what it’s like inside a typical Wall Street firm (at least in those firms before they all went under in 2008!) or how greedy traders sow the seeds of their own destruction, your needs will not be met with my writing. But if you are looking for something different, looking for something to fill a void in your understanding of how big returns are actually made year after year, but didn’t know where to turn for honest information, I hope my insights give you the confidence that ultimately helps you to make some big money.

Fish see the bait, but not the hook; men see the profit, but not the peril.

Chinese proverb

To be aware how fruitful the playful mood can be is to be immune to the propaganda of the alienated, which extols resentment as a fuel of achievement.

Eric Hoffer

Product details

Publisher ‏ : ‎ Ft Press; 1st edition (February 15, 2009)
Language ‏ : ‎ English

About the author

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Michael Covel

Michael Covel searches. He digs. He goes behind the curtain to reveal a state of mind the system doesn’t want you in.

Characterized as essential and required reading, Covel teaches beginners to seasoned pros how to generate profits with straightforward repeatable rules and is best known for popularizing the controversial trading strategy TREND FOLLOWING.

An avowed entrepreneur, Covel is the author of five books including the international bestseller, Trend Following and his investigative narrative, TurtleTrader. Fascinated by reclusive traders who have quietly generated spectacular returns for decades, those going against the investment orthodoxy of “efficient markets”, Covel has uncovered astonishing insights about human behavior, decision-making and trading systems.

His perspectives have garnered international acclaim and have earned him invitations with a host of organizations: China Asset Management, GIC Private Limited (Singapore sovereign wealth fund), BM&F Bovespa, Managed Funds Association, Bank of China Investment Management, Market Technicians Association and multiple hedge funds and mutual funds. He also has the distinction of interviewing five Nobel Prize winners in economics (so far), including Daniel Kahneman and Harry Markowitz and has been featured by major press, including The Wall Street Journal, Bloomberg, CCTV, The Straits Times and Fox Business.

His highly ranked podcast Trend Following™ reaches over one hundred eighty-eight countries with over 5 million listens. Guests include world-class thinkers, psychologists, economists and traders.

Covel posts on Twitter, publishes his blog and records a podcast weekly. His clients are in 70+ countries and he splits time across USA and Asia.

Customer reviews

Paul Brat
Trend Following is a must with Turtle Trading books by Covel
Reviewed in the United States on November 1, 2012

I have traded: Daytraded (30-50 trades a day, churning the acct. during the internet bubble) started with $30,000 and in a year was up over $200,000.
This is easy. Anything I read about, I bought after 9:45am and sold the 15-25 positions I bought before 10:45am with a net 70% winners. Go out for lunch with others from the sweatshop, returned at 2pm, 2:30-3pm buy 10-20 stocks, 300/500/1000 shares using margin, always the internet flyers (amazon, yahoo, dell, google, and a short list of 100. We had a new guy to follow, Jim Cramer, who was writing a newsletter to Jeff. Jeff would load up his positions (he would hold for 3,4,5 days, swing trade, AND he had traded for acct.s at Paine Webber for 4 years before opening his own acct.), anyway, he would load up his positions, and then tell the room (20-30 traders) what to buy… and create his own trend… I left the bubble on 2001 from all the fun of 1998, with Planet Hollywood bought at $24 and then at $2 (10,000shares… just like Hard Rock, I’m gonna get rich!) and another: Puma Tech. (bought out by Nokia for all their pattents at pennies on the dollar… I’m still deducting only $3000 a year off taxes from the $100K+ losses. I never harvested any money, never took $25,000 off the table, and deposited it into a bank acct. every 3 months… GREED and EMOTIONS. I was done trading, a broken man. Then my brother told me about “YThe Turtle Traders of Chicago.” I was leary. I went to Google, looked up Turtle Traders, and was excited. I went to our Amazon acct. and typed in the Turtle Traders. Thank God. Amazon matched me up. And then suggested more books. I read the offer made by Covel Trading on reading another of the books, and learning the Turtle Ways in more detail (Trend Following). I had already read Market Wizards, and More Market Wizards. I needed to at least learn what I was doing wrong. Oh Boy, my errors were listed one after another as I read. These books have given me hope again……….

But, now I read Trendtraders and Way of the Turtle and better understand that I was swept up into a hurricane, swept up in a massive trend, and was uneducted, and thought I was “lucky”.
Read these 2 books and Covel’s other course materials, and learn the proper way to trade, invest, harvest gains, manage money, use stops, and become emotionally cold. Sell the RED trades quickly, and let the green trades run, until they slow, and then sell. Have a sell target ready ever before we make a trade. I came back to the markets and lost moneis 3 more times since 2001. I would read Elder, and his system to id trends, and 13ema cross-overs etc. and lost, I read, reentered and now I am down to my last monies. I have read the Turtle, and the Trend Follower, both books completed this past month. I waited for my excitment to simmer down. I can now say after the second readings, I see my errors, and will humbly study, and follow Covel’s studies… I will add to this review in 6 more months after I venture into the shark filled waters of the trading world. I shall have paid too much money on ego, and not have found these excellent books, and trustworthy Covel trading systems. I traded next to my friend Tom’s Tradestation programmed computer, and still my money mismanagement was the achilles heal that had me still trying to hit homeruns EVERY time, and not realizing singles, and doubles, and even walks, are part of staying in the major leagues, not hitting a homerun only every 55 times up to the plate! Read these books! Hold back playing with your money, read these books, and go to the website. Ask for Mike, Michael Covel. There are better systems than LUCK.

Andrew James
I was recommended this book
Reviewed in the United Kingdom on January 19, 2016

Being fairly new to the game, I was recommended this book. A good read, not too dry, and I am already starting to see why trend following is so powerful – it works, even in today’s choppy trading environment! Highly recommended.

Alison
Neither here nor there
Reviewed in the United Kingdom on November 28, 2011

This book is basically a very long propaganda of the trend following advantages. I read it once quickly and then got into it again thinking that I may have missed something initially but nope – apart from defending the trend following approach there is no practical help “to make millions”.

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