Thursday, August 7, 2014

Trend following by Michael Covel review

I Just finished Michael Covel's Trend following. The book reads like a Rah Rah piece making the argument for trend following.  It argues that it is the best method, taking on victor Neiderhoff and even Warren Buffett in the process.

I get that it works for those who can do it well as the book notes that  John Henry started with 16k. and now owns Boston Red Sox.

The Trend Following has heavy doses of Trader profiles, such as the Turtle traders, who imparting their wisdom in Twitter size quotes.  For example,

Ed Seykota: "Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money."
Ed Seykota: "To avoid  whipsaws and losses, stop trading."
Ed Seykota: "Risk no more than you can afford to lose, and also risk enough so that a win is meaningful."
Ed Seykcota: "Trend Following is an exercise in observing and responding to the ever-present moment of now."
Ed Seykcota:"Fundamentalists and anticipators may have difficulties with risk control since a trade keeps looking 'better' the more it goes against them."
Ed Seykota: "Until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarkett


Unfortunately,  There was very little "meat" regarding how to do it. Position size, risk control, profit taking.  In that regard the book was disappointing.  It took over 200 pages before systems were discussed.

1. How does the system determine what market to buy or sell at any time?
2. How does the system determine how much of a market to buy or sell at any time?
3. How does the system determine when you buy or sell a market?
4.How does the system determine when you get out of losing position?
5. How does the system determine when you get out of a winning position? 

I would have like to see what the trading wizards responses would be to these questions.  

 The book does very little in attempting to answer these questions.  There is the basic don't take a loss of more than 2% of your portfolio on a trade.  I have that rule as well but that hasn't given me the 18,000% return that some of the traders profiled have earned.   I wanted to know when, how do we get into a trend?   How do you get out,   How do you trail your stop? Seykota mentions  he uses Donchian Channels but they are not explained by the book.  This will be a topic of more research.

In short this book is not particularly helpful.  Undoubtedly, it discusses a great strategy but it doesn't do it well.  Save your money.


1 comment:

  1. I know this is an old post, but can't help to point out that Michael Covel is no better than Tim Sykes. Snake oil salesmen.

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