|Trend Following: How Great Traders Make Millions in Up or Down Markets
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"How did John W. Henry quietly become rich enough to buy the Boston Red Sox? How have traders like Keith Campbell, Bill Dunn, Jerry Parker, and Salem Abraham consistently generated immense wealth in bull and bear markets? The key is trend following -- the only strategy proven to consistently make money. Michael Covel reveals the "underground" network of little-known traders and hedge fund managers who've been following trend for decades. He introduces its fundamental concepts and techniques, showing why market prices contain all the information investors need, and how to understand price movements well enough to profit from them. Using 100 pages of easy-to-understand charts from top trend followers, Covel proves the strategy works -- and shows why only a technical system based on following price trends can win over the long term. Covel presents more than a decade's worth of data: even more backtested trend following results. Covel thoroughly debunks misinformation and failed advice. This timely book capitalizes on today's intense volatility and uncertainty to give investors what they're desperately searching for: a strategy that really works.
- All sizzle, no steak
I understand lots of folks like this book and the purpose of this review is not to offend them. My concerns fall into two primary areas.
1. Covel has a hard time defining what a trend follower actually is. After reading this book several times, I'm still not sure he ever does it. It seems to me that he thinks a trend follower is a swing trader who takes positions longer than a day but shorter than a year. He uses program trading with technical indicators like moving average crosses and oscillators. Unfortunately, there are a number of other ways to follow trends as well, but the book doesn't go there. Frankly, all systems based on technical analysis are "trend following" systems since TA is backward looking by nature.
2. Covel is rather dismissive of other systems that don't fit neatly into his thesis. For example, in the chapter entitled Holy Grails, he goes out of his way to rip Warren Buffet. You may or may not be a fan of Buffet, but you can't argue with his results. More importantly, why go there? Scuba divers and bass fisherman both use boats and play in the water, but beyond that there is no similarity in what they do. The same is true of a comparison between a value investor like Buffet and short term traders. They are in different businesses. Warren Buffet can take care of himself, but reading this particular part of the book was painful. As good as some of the swing traders in the book are, none have amassed the fortune Buffet has with his strategy. Covel looks small when he criticizes Buffet for not investing in firms like Cisco and Microsoft.
I had hoped for a book that provided me with some insight of how great traders think. I got very little of that, so I am naturally disappointed. I understand that Ed Seykota is great. I understand that John Henry is great. I understand that Michael is friends with a lot of really great people. I don't care, but I understand it now.
Like a lot of writers in the sales/business field, Covel is first and foremost a self-promoter. After reading this book, it appears to me that he falls firmly into the Kiyosaki camp. The stories are charming, they cause the reader to get excited, but at the end of the day they leave him hungry and there's always this nagging doubt that none of the anecdotal stories are true. That's because the purpose of the book isn't really to help the reader, but to sell more books, or a system. In short, the goal appears to be to sell Michael Covel, not to help you become a better trader. ...more info
For 200 pages you read how much trend followers made, trend followers are so great, they are always winners.... It's almost like the book is promoting some money managers. Seriously the book is pretty bad, I almost feel embarrassed to write a review. According to the author you don't need to know anything about what you are really buying, as long as it trends up. So I wonder if Mr. Covel would buy a bag of dirt for $10 just because it was $7 last week. I don't want to get to the dynamics of trends and explain that after you buy a up-trending security you may lose money. But I wonder if Mr. Covel plays rulette and bets on red after red hits 3 in a row, thinking the new trend is red. I had the feeling that this book is written to increase the number of trend followers so when the time comes some people can dump the stocks easier. I wonder how Mr. Covel knows that you wont be the one standing without a chair when the music stops. Anyway, I will say one thing, buying this book may cost you a lot more than its price....more info
- Where's the Beef?
I agree with all the other reviewers who complain that this book is big on generalizations and has almost nothing to say on how to actually identify and follow a trend. I've rarely read a trading book with so little practical information or one that repeated generalizations so many times....more info
- data mining and overly verbose
This book was filled with anecdotal reports of traders can have done better than buy and hold through trend following, but the results seemed to be a case of data mining to me. The benefits over buy and hold in the examples were small, but individual years' returns departed so much from the market that these trading methods would be psychologically very difficult to stick with. Finally, there was no comparison of trend following to a broadly diversified and regularly rebalanced portfolio, which should be superior to straight buy-and-hold on a risk-adjusted basis.
The actual "how" to implement trend following was roughly only 30 pages worth of the appendix....more info
- The book that changed me (as a trader)
I think the title says it all. This is a great book not because of any single sentence or in some great secret formula explained within. Instead it's a great book because after reading it, and absorbing it all, it changed me as a trader. I now ride the market long as it trends up, ride the market short while it trends down, and quietly sit on the sidelines if the market is not trending.
There are some sample programs as an appendix that have actual how-to info on developing mechanical trading systems based on these ideas. I found them to be invaluable in understanding and as further insight into perhaps how the highly successful trend traders profiled in the book actually trade.
If you are willing to leave the 95% of unsuccessful retail traders who sadly spend all of their energy trying to predict the market, and instead want to become part of the 5% that consistently beat the market then perhaps this book is for you. Happy trading....more info
- Great read for all types of traders
As a student of the market for decades I was blown away by this book. It is one of the top five investment books of all time. The author describes what trend following is and who the players are. It simplifies the issue of how to profit in the market. How can anyone argue with the cold hard performance numbers.
It does not give you the save all formula for trading. It does not provide the secret forumulas on how to make money. They don't exist. It does provide valuable information from existing trend followers who have been using the method for years - decades.
Its easy to read and quick to comprehend. Should be on every traders bookcase.
Well worth the money....more info
- Financial Manna from Heaven
Having been an active investor for over 20 years, I found the
material very enlightening. The basic strategy of trend
following opened my eyes to the opportunities in both bull and
bear markets. Wished I had read this book a few years ago!...more info
- The Tony Robbins of trading....
Michael Covel [...] did quite well in my opinion in researching and bringing out a message to the masses in what makes a successful trader with his new book. [...] I applaud Mike for debunking the Buy and Hold strategy and the message of there is no one to blame but yourself for your own losses in trading. [...]
With Mike, one has to see and not look whereby you have to see things for what they could be and not for what they are on the surface. His new book is written with good intentions in educating and empowering the individual trader to master his or her destiny through self-discovery and research. If you are someone who is looking for a quick answer and a quick fix, you have come to the wrong place. Yet if you are someone who has an open mind and decides to take control of his or her life and destiny, Mike's message is a good start. (...) ...more info
- For Both Traders and Investors
I was a trader for many years before I became aware of the trend following approach utilized by the traders in Covel's book. One certainly does not have to be a trader or financial professional to benefit from the wisdom found in the text. There are good traders and bad traders. There are good money managers and bad ones. Readers are actually told to either hire a trend following manager or learn from the masters outlined in the book - make a choice. As a former financial advisor for a major international investment bank, I found Covel's book very informative and educational....more info
- Trend Following
Congratulations Michael - Great Work !
If a person is willing to truly focus on and "fully absorb
the timeless wisdom" on the pages of your new book,
the vital truths are All there. (Of course if they aren't,
no book can help much...)
Bill G. - Asset Manager
Eastern Research & Trading...more info
- Acceptance with Traders
I found the following endorsements helpful:
"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."
Portfolio Manager, Capitalistpig Hedge Fund LLC
Fox News Contributor
"Michael Covel's Trend Following: Essential."
Trend Follower for 35 years and Original Market Wizard
The Trading Tribe
"Trend Following by Michael Covel? I'm long this book."
Developer of Trading Recipes Software
"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."
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. Rich in its wisdom and historical study."
President, Signalert Corporation
Nothing fancy. No crazy promises. Just the facts. If you are a gambler, you won't like it....more info
- Very Insightful
For those of you who are lazy and do not want to do the hard work and simply want to gleem trading tips off a book, this is not for you.
However, for the ones who have an open mind, and would like to learn about WHY trend following works, this is the book....more info
- Excellent reading; good detail
Winners and losers seems to be the thrust here. Why do trend followers win? Why do others lose? Author has good matter of fact style. Fine effort....more info
- An honest look at buy and hold and the markets
This book is a definite must read for anyone who invests in the markets. Michael Covel does not waste words or hold back his opinions about Wall Street and other trading strategies or holy grails as he calls them. At first I found this a little off-putting. But he comes back at you with so much data and other material that it is hard to ignore his arguments. All I can say is that after reading this book I think most readers will question their buy and hold trading strategies. I know I am. In fact, this may be the book that actually changes the way I look at the markets....more info
- Trend Following and Baseball
You don't have to be a trader to enjoy this book, but it helps if you are a stat-head and know your baseball. In one chapter Covel uses the game to break down trend following and how it works. I knew John Henry as the owner of the Boston Red Sox but when Covel explains how Henry who is a trend follower, uses the same strategies to run his baseball team that he does in trading, that was when I appreciated what he was talking about. Here's what I mean: "part of the problem from John W. Henry's perspective is baseball's old guards' love of the Adonis athlete over pure production - hitting, power, plate discipline. Are you smarter than the market? If you could find the data that would prove otherwise but still enable you to win, would you be able to set aside your ego and play the game by a set of rules? If so, you might be on the same path as John. W. Henry." But even if you're only a marginal fan of baseball, and you're an investor, you should still read this book. It pitches a basic truth about investing that anyone can use. If you have enough good data like baseball has stats, you can use that data to make profitable investments if you have discipline. In my opinion that's sound economical advice....more info
- bad bad bad too bad
4 thumbs down, way down.
this is a bad book, the writer tries to convince you with his statistics while he doesn't know statistics....more info
- Excellent introduction
Covel's book is a fine introduction to trend following. I was always curious about this style of trading since I read Market Wizards, and this book answers a lot of questions about the basic methodologies, and convinced me that using a simple, disciplined trend following system on as many markets as I was interested in trading was the way to go.
Yes, it's true that market's spend less time trending than not. That's not a reason to not use trend following. First, you can trade multiple markets, and the chances are good that one or more of them will be trending when the others aren't. But, even if you trade one market exclusively, trend following will keep you in the trends when they're occuring so you'll be able to be trading in the correct direction and not get yourself seriously hurt.
Where the book is weak is in giving instruction in how to actually put together a system. It would have been helpful to at least discuss Donchian's methods in enough detail that a trader could actually use them as a starting point. As such, I had to search all over the internet to get the details I was looking for.
Another qualm I have is that many of these traders who did very well were managing other people's money, and taking a cut. That's very different than somebody starting out with their own capital and trading it exclusively. For example, Henry and Dennis wound up making upwards of several hundred million dollars over their careers, but started with a few thousand dollars or even less of their own money. Eventually they traded for customers. Had they not done so, it is far less likely that they'd have become as rich as they did....more info
- Solid Treatise on Trend Following
Consistently making money in the markets is every trader's dream. Unfortunately, most traders fail because they lack a fully tested trading plan, they are negatively influenced by their emotions, and they lack the key personality traits. For those individuals looking for a reliable method to trade the markets, Covel offers a comprehensive guide to trend trading that is informative, practical, and that can be implemented using simple technical tools.
Trend trading seeks to capture the majority of an up trend or down trend in the major asset classes - equities, bonds, commodities and currencies. Since no one can predict future trends, one must wait until a trend become a matter of record. Trend followers use only price (open, high, low, close) as the determinate of the trend, without regard to the accompanying volume.
According to Covel, he wrote the book to unmask very successful, reclusive and low-key trend followers - how they think, how they trade, and what can be learned from them. Firstly, trend followers are traders not investors. Secondly, their goal is to make money not buy-and-hold. Trend following continues to be a successful trading strategy because markets behave in similar ways as they did 300 years ago. Trend trading is a disciplined objective approach based on specific rules. There is no discretion used in making trading decisions.
Trend followers do not guess, if they must buy or sell. They know what to do because they have a pre-established plan. They are basically technical traders that base their buy and sell decisions on price movement. They react rather than to try to predict the market direction. Covel pinpoints three methods to determine the trend, including moving averages (crossovers), Donchian Channels (high/low breakouts), and Bollinger Bands (standard deviation breakouts).
Covel provides a peak through the door of highly successful trend traders who are not well known, but have amassed fortunes using their trading techniques. The book is aimed at traders who want to trade their own account or who want to hire a trader to manage their money. This expanded edition of the original book provides additional resources illustrating the positive results attainable using specific trading strategies.
One 60-page chapter is devoted to profiling the personalities, insights, and performance of ten outstanding trend followers with long-term track records. They all have different approaches and systems, but they are all exceptional traders in both up and down markets. These traders know themselves very well, and they've been able to separate their emotions from their trading decisions, thereby being able to develop trading systems they are the most comfortable. Another chapter focuses on the performance data of 23 trend following traders including their absolute annualized and compounded returns from January 1993 through June 2003. Moreover, there is a penetrating discussion of volatility, drawdowns, and performance correlation among traders. Interestingly, the trend followers usually track the same markets at the same time.
Covel covers the trend followers' performance during big events (Long-Term Capital Management fiasco in 1998, September 11, 2001 terrorist attack, and the 1999-2002 stock market bubble) to show how successful they were during these difficult times. Even though these events were unpredictable, the trend followers were usually on the right side of trend.
Additional perceptive chapters reflect on a comparison of the similarities of baseball and trend following, and how human behavior impacts trading decisions and trading success. Another chapter discusses the improbability of finding the `holy grail'.
Covel also provides supplementary appendices showing detailed 15-year back-tested results using three trend tracking methods previously mentioned, using 20 different futures markets including currencies, commodities, and financials. Detailed performance results are provided including complete trading statistics (long only, short only, and long and short combined), portfolio equity and drawdown curves. For each strategy, Covel delineates the specific buy and sell rules and position sizing.
Another appendix provides the performance of 23 trend following firms for at least 10 years, including yearly and monthly performance, and line charts of performance and asset growth. One appendix includes an explanation of the personality traits of successful traders that was written by Brett Steenbarger, author of Psychology of Trading. And another appendix provides fourteen questions a trader should ask about his chosen trading system.
The book is peppered with over 100 quotes of traders and others that further enhance the tenets detailed. In addition, there is an extensive bibliography and footnotes. In summary, Covel provides a comprehensive review of time-tested non-emotional trend following strategies of the masters, and backs them up with extensive performance data. Technicians, and new and experienced traders will find this book to be well worth their time. This is one of the most exceptional books on trading that I've come across, and I highly recommend it. I will need to re-read again to absorb the wisdom provided.
- The Purpose is Knowing Where to Look
I should give a disclaimer that I am quoted in this book a few times. That does not bias me however. Covel has made it his mission to increase the exposure of trend-following as a trading methodology.
Trend-following, quantitative/systematic trading, and the futures markets are typically underallocated, underexposed, and neglected corners of the investment world. Fundamental traders continue to trash "black-boxes" while selling their "crystal balls". The concept they miss is I would much rather have logic AND historical analysis supporting my trading than simply logic alone.
The point of the book is demonstrating that trend-following makes logical sense and has a decades long proven track record by the top traders in the field. It will not teach you how to trade. It will simply point you in the right direction. From my experience, though, knowing where to look is the most important step.
- One Big Idea
There are two kinds of finance books. The ones written by traders, and the ones written by finance writers. Books written by traders are steeped in experience, but often badly put together. The ones written by finance writers are sleek and professional looking, but lack the realism of people who have been battle hardened by hundreds of trades.
This is one of the latter. The writer has gotten hold of one idea, "Trend Following", and beats it to death. The problem that he goes well beyond his brief.
For instance, he claims that Jesse Livermore was a trend follower. Nothing could be farther from the truth. Livermore was a momentum trader. His motto was "no stock is too high to buy, or too low to short". Livermore loved breakouts, and didn't limit his trades to the middle of the move.
What is more, the writer lets Ed Seykota get away with his Dr. Seuss witticisms, without having him divulge any of his trading methods. There is nothing new to that, because the same thing happened in The Market Wizards. However, it is not exactly informative.
Without trying to sound like Ed Seykota, trend following only works when there is a trend to follow. Unfortunately, 80% of the time, markets move sideways. ...more info
- Reinterating the obvious...
This book is another pie-in-the-sky book. Technical analysis is not the end all to investing in markets. Sure, the author has empirical data but...so what. He fails to mention the enormous DD's one has to endure in order to make money. It is proven that mechanical trading systems do not hold their weight in gold. By and by, they become obosolete because... they were curtailed to a selective time frame that no longer supports their viablilty in the wake of present time. Relying solely on mechanical trading systems that are derivatives of technical analysis is futile to longevity investing in the markets unless you have a lot of money you can use to weather the storm with. This strategy is best suitable for CTA's and hedge funds...people who have the money to put up and stay in the game with... if the situation gets kind of murky....more info
- Too much fluff.
This book lacks any real substance. I was hoping to have sample systems used by trend-followers, but all you get are statistics about how "if you had invested X dollars using trend-follower's (Bill Dunn, John W. Henry, etc...) system you would have an amazing Y dollars today!" You learn that trend-followers made their millions following trends (honestly that's about as deep is it gets). You mostly get figures showing that you want to get into an equity in the middle part of the up/down trend and buy/sell when the trend turns (duh). That's great that these guys made plenty of money using trend-following, but that does not help me understand how they do it. I would certainly look elsewhere for trend-following information. ...more info
This is a book very much in the tradition of Jack Schwager's Market Wizards. Like Schwager, author Michael Covel interviewed a number of great traders and attempted to capture the essence of each trader's approach to trading. The author does a good job of presenting the basics of trend following. Though much of what he says will come as no news to anyone who has read very widely in the literature of trading, his liberal quotations from other authors enliven what would otherwise be an uphill read. The author has a good eye for a snappy quote, and we believe that even if you buy this book only for the quotations, you will certainly get your money's worth. What you earn from following the trend masters' stock tips is entirely up to you....more info
- Readable, but far from helpful
About four years ago I read the original edition of it, wrote a review with a five star rating on Amazon which Amazon had never published for a reason I never know. Neverthless, I put it on my Listmania List for Traders for years. Today, after I finished the expanded edition, I removed it from my Listmania List. I admit that my expectation had been raised. I am not satisfied with histories/philosophies/tactics of highly successful trend followers. I already buy into the Trend Following Strategy so the tons of arguments from the author against "Buy and Hold" become meaningless to me. I want to look more into each, for something that I can readily copy and profit. In short, still a good (but over stretched) introduction to trend following. Readable with plenty of quotes from great traders, but definitely not on any aspiring trend followers/traders top priority list. ...more info
- Not much substance
I did not find any useable information in this book. I did, however, find a lot of fluff and hype between ideas that have been around for years. Why are trading books like this written?
I recommend instead "Evidence-Based Technical Analysis" by David Aronson. That book has measurably helped my trading.