Trend Following with Michael Covel

Michael Covel is the voice of Trend Following Radio with 2.5M+ listens. He is also the bestselling author of TurtleTrader & the classic Trend Following. Trading, economics, human behavior & entrepreneurship--all passionately explored. Guests over 300+ episodes include Nobel Prize winners Daniel Kahneman, Vernon Smith, Harry Markowitz & Robert Aumann. More notables: Tim Ferriss, Ed Seykota, Jim Rogers, Ewan Kirk, Larry Hite, Jean-Philippe Bouchaud, Jack Schwager, Marc Faber, Michael Mauboussin, James Altucher, Gerd Gigerenzer, Dan Ariely, Steven Kotler, Jason Fried, Sally Hogshead, Walter Williams and Tucker Max. All episodes always at www.trendfollowingradio.com/rss.
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Michael Covel is the voice of Trend Following Radio with 2.5M+ listens. He is also the bestselling author of TurtleTrader & the classic Trend Following. Trading, economics, human behavior & entrepreneurship--all passionately explored. Guests over 300+ episodes include Nobel Prize winners Daniel Kahneman, Vernon Smith, Harry Markowitz & Robert Aumann. More notables: Tim Ferriss, Ed Seykota, Jim Rogers, Ewan Kirk, Larry Hite, Jean-Philippe Bouchaud, Jack Schwager, Marc Faber, Michael Mauboussin, James Altucher, Gerd Gigerenzer, Dan Ariely, Steven Kotler, Jason Fried, Sally Hogshead, Walter Williams and Tucker Max. All episodes always at www.trendfollowingradio.com/rss.

Jul 27, 2015

There is often misunderstanding among the general public when it comes to probability and risk. For example, 20% of Americans believe they are in the top 1% of income earners, or are soon to be there. This is, of course, statistically impossible.

Statistical thinking needs to have a bigger focus in our society, especially since the amount of data we have to deal with on a daily basis is constantly increasing. We need systems to help us sift through the noise.

Today’s episode is a selection of excerpts from some of the brightest minds of today and yesterday, and their takes on systematic and statistical thinking. Michael Covel provides the commentary. Though this is not strictly a trend following episode, all the material is very much applicable and relevant for anyone in trading or business.

From Penn Jillette (of Penn & Teller) to Gerd Gigerenzer, to Daniel Dennett, to Richard Feynman, this episode is permeated with wisdom to help you cultivate a trend following mindset.

In this episode of Trend Following Radio:

  • Having a foundation, a system to get through the noise
  • Developing a statistical mindset
  • Understanding risk and knowing how to deal with it
  • Getting “under the hood” of any trading system
  • Richard Feynman’s lecture on computer heuristics
  • What computer heuristics have to do with systems trading
  • A trait that geniuses have in common
  • The importance of isolation and concentration in learning

Want a FREE Trend Following DVD? Get it here.

Jul 25, 2015

Bonus episode that discusses new trend following trading system available now. This episode is only for those listeners seeking a trend following trading system.

Jul 24, 2015

Today’s podcast guest is Chris Clarke, ex-Goldman Sachs executive director and founder of Lawrence Clarke Investment Management. Clarke has been developing trading systems for decades.

The conversation today gets into the psychology of systems trading. Trend following is inherently simple to understand, and does not require above-average intelligence once the system is in place. Yet so many people, including most fund managers, tend to downplay trend following and keep seeking the “holy grail” – a magical system that will supposedly make them money without any downside. An interesting metaphor for this that Chris offers is that of weight loss. Although the theory of it is simple (diet and exercise), most people keep seeking the magic bullet that will make them achieve results without following the system. Much the same with trading.

Another topic that Michael Covel and Chris Clarke talk about is understanding the difference between risk and drawdowns. Drawdowns are normal, and will be there for as long as trend following as a strategy exists, and the markets keep trending. Ultimately, trend following is about human nature, and that’s not about to change.

In this episode of Trend Following Radio:

  • Trusting the system once you choose it
  • Being prepared to trade no matter which way the markets go
  • The importance of edge, and why most gamblers lose
  • Looking at the math behind trading strategies
  • Understanding “market truths”
  • Drawdowns vs. risks

Want a FREE trend following DVD? Get it here.

Jul 20, 2015

An article recently appeared in Forbes, entitled “What Jurassic World Can Teach Investors About The Stock Market”. In it is an interview with Ben Carlson on why simplicity trumps complexity when it comes to investment strategies. Although not explicitly about trend following, the article brings up points about the poor historical performance of financially engineered assets and the superiority of simple systems.

In this monologue, Michael Covel talks about his desire to seek the truth, and the importance of taking personal responsibility for your actions. He also breaks apart the Forbes article on simplicity vs. complexity, and the logical reasons why trend following systems have historically performed better than others.

Also in this episode: the recent study that shows that metal-heads from the 80s are happier and better adapted than their peers.

In this episode of Trend Following Radio:

  • Why simple strategies are better than complex ones
  • The importance of defining your risk as a number
  • How risk and reward are two sides of the same coin
  • Why going for the average is a losing strategy
  • The difference between hiring a financial advisor and an trader
Jul 17, 2015

Continuing the theme of speculation and gambling from the previous episode, today’s Trend Following Radio guest is Blair Hull. Hull got his start playing blackjack in Nevada casinos, and later moved onto trading. He founded his investment firm, Hull Investments, in 1999. The company, which leveraged technological innovations and quantitative models, was one of the world’s premier market-making firms, trading on 28 exchanges in nine countries.

The parallels in Hull’s approach to gambling and trading are many. He stresses the importance of objectivity and sticking to the system, especially during a losing streak when emotions run high. It’s not only about brain power, it’s about discipline.

In this interview, Blair Hull and Michael Covel talk about the parallels between blackjack and stock trading, the importance of money management and discipline when following systems, and the future of trading and market prediction.

In this episode of Trend Following Radio:

  • The importance of having a strategy and sticking to it
  • Why money management and discipline are key to trading success
  • Objectivity vs. emotions in blackjack and stock trading
  • Choosing the right markers and variables
  • Consumption as a function of income and wealth
  • The future of market prediction and machine learning

Want to get a FREE Trend Following DVD? Find it here: http://www.trendfollowing.com/win

Jul 13, 2015

Speculation has become a pejorative for some in recent times. A quick search yields the following definition of speculation: “forming a theory about a subject without firm evidence.” Yet if we look at the origin of the word, “speculor” means “to observe” in Latin. To speculate is to observe, and to make decisions based on those observations. In business and in life, there are ultimately two choices: to speculate or to gamble. The difference between the two is simple: the first has a strategy behind it; the second does not. The first relies on predetermined parameters for making decisions; while the second leaves decisions up to circumstance or emotion. In this monologue, Michael Covel talks about the philosophical foundation of success: speculation. This episode features many notable quotes from famous economists and traders, going back as far as the 1800s. The wisdom of these men is the foundation of trend following, and is as relevant today as ever. In this episode of the Trend Following podcast: why speculation is such an important concept, the philosophy behind trend following, watching results rather than causes, cutting short your losses, timeless excerpts from as early as the 1800s, and the early beginnings of Wall Street. Free trend following DVD: www.trendfollowing.com/win.

Jul 10, 2015

Francisco Vaca can be called a “second generation turtle trader”. He worked with Richard Dennis at C & D Commodities, and for the last 15 years has been closely associated with Paul Rabar. He is now the Co-Chief Investment Officer at Rabar Market Research. Before he became a trader, Vaca was a particle physicist and worked at the famous Fermi lab. This is not an insignificant fact, as his background in mathematics and statistics became very useful in his career as a trader. In this second interview with Michael Covel, Francisco Vaca talks about evaluating the short-term and long-term performance data of fund managers, the benefit of using trend following systems across the entire time spectrum, trend anticipating techniques, and using modern technology in trading. In this episode of Trend Following Radio: the importance of distinguishing between long term and short term track records, “alpha” and “beta” trading strategies, how the holding period length affects the risk-reward profile and return streaks, the benefits of diversification across different holding times, using high frequency trading technology in long term trend following, how correlations are often misinterpreted, and knowing the limitations of your tools. Get a FREE Trend Following DVD: http://trendfollowing.com/win.

Jul 6, 2015

A May 25, 1959 Time Magazine article called “Pas de Dough” was recently forwarded to Michael Covel. It was about a professional dancer named Nicolas Darvas, who had made two million dollars trading stocks. This was probably one of the first trend following articles to appear in a major publication. Sports metaphors when it comes to trend following work great, but there are clearly others. For example, both trend following and dancing judge the public’s enthusiasm and use that as the indicator for the next move. In this monologue, Covel talks about the article and Darvas' book, breaks down the fundamentals of trend following, and explains why the philosophy behind trend following still applies today. He also comments on how trend following can be applied to the current black swan economic situations in China and Greece. What trend following and dancing have in common, the philosophical foundations of trend following, stock trading and location independence, why relying on “fundamentals” is fool’s gold, what being a silent partner in the trend means, why Darvas’ thinking from 1959 still applies today, the importance of having no ego when it comes to trading. Free trend following DVD: www.trendfollowing.com/win.

Jul 3, 2015

There is a common problem in finance when it comes to evaluating investment managers’ performance: the factor or skill vs. luck. When a manager performs well over a number of years, it is not clear whether the success can be attributed to the manager’s skill and strategy, or random luck. And vice versa, when a manager performs badly, it can be difficult to pin-point whether it was due to lack of skill, or simply bad luck. Another factor that is commonly misunderstood in finance is risk. Understanding the differences between risk, volatility, and skew is essential to developing a well-performing trading strategy. Campbell Harvey studies these phenomena. He is a finance professor at Duke university, and research associate with the National Bureau of Economic Research in Massachusetts. His research papers on these subjects have been published in many scientific journals. In this episode, Campbell Harvey and Michael Covel discuss risk tolerance, evaluating trading strategies, Harry Markowitz’ classic paper on portfolio selection, and the importance of differentiating between volatility and skew. In this episode of Trend Following Radio: Survivorship bias, and not being fooled by randomness, Why people with higher risk tolerance experience much higher upsides, Understanding process vs. outcome, The difference between volatility and skew, The importance of recognizing that asset returns are rarely “normally distributed”, When it is appropriate to apply a general framework, and when it is not, The Sharpe ratio – is it always relevant?, Harry Markowitz, Jim Simons, and Nassim Taleb. For more information and a free DVD: trendfollowing.com/win.

Jun 29, 2015

Michael Covel presents a monologue today about his recent trip to Mainland China (Beijing). A trip that centered on his presentation to 1100 Chinese investors and traders. For those listeners that have not yet traveled to China--either for business or vacation--Covel offers a wide-ranging primer. There is no doubt that from a business perspective especially--the time for China is now. The population is massive, the energy is overwhelming and the desire is infectious. Regardless of your current understanding of China, your perception of their government or the many other misunderstandings so prevalent in the West--China has at its core a deep desire for business and success. The adrenaline is simply to be felt. And yes, they want to learn trend following too. Free trend following DVD: www.trendfollowing.com/win.

Jun 26, 2015

Today on the podcast Michael Covel speaks with Dr. Jonathan Fader. Fader is a licensed clinical psychologist and is the team psychologist to the NY Mets baseball team. Fader also writes a blog for Psychology Today entitled 'The New You'. He maintains an active clinical practice, is an assistant professor of Family Medicine at the Albert Einstein College of Medicine and teaches in the Beth Israel Residency Program in Family Medicine in New York City. Fader and Covel discuss motivational interviewing, sport psychology techniques, process v. outcome, the mistake of focusing only on results, mental state and stress, mindfulness, Facebook distraction, Eastern traditions, the moment of now, and quieting the mind. Issues discussed apply to life, trading, sports and business--Fader offers insights we can all use. More on Fader at www.jonathanfader.com. If you would like a free trend following DVD go here: www.trendfollowing.com/win.

Jun 22, 2015

Michel Covel offers a take about passion -- the critical element of your success. An excerpt from the recent Birdman film and comments from Pink Floyd's Roger Waters help make the case. In Birdman the Michael Keaton character approaches a critic in a dive bar. Everyone is afraid to approach the critic, the fake gatekeeper. Keaton shows the passion. Are you afraid of the gatekeeper? Great. You have already lost. Next, Roger Waters talking about the classic song Brain Damage from the Dark Side of the Moon reveals his motivation, his passion. "Got to keep the loonies on the path." It doesn't matter your endeavor, trading, investing, entrepreneur--if passion is missing you are the walking dead, already 2 steps behind. The good news? Passion can be turned on instantly. It is in your power.

Jun 19, 2015

Michael Covel speaks with Ed Seykota on his second visit to the podcast. Originally profiled in the classic book 'The Market Wizards', Seykota has played a pivotal role in the growth of trend following trading for 40 years. This conversation breaks down into three parts: Govopoly, the Trading Tribe and trend following. Govopoly is Seykota's most recent book. In it he sees the economy transforming from a free and open societal structure to a controlled structure. The Govopoly system is taking over. It's not about another election to solve this, or to try and fix it. It is what it is and best we can all do is to cope with it. Seykota sees the Trading Tribe as one means of coping. The Trading Tribe is an association of people who commit to excellence, personal growth and supporting and receiving support from each other. The members of the Trading Tribe trade roles, becoming in turn senders and receivers for each other. Lastly, Seykota and Covel discuss trend following. Specifically, Seykota shares early experiences with Richard Donchian and his solo time with mainframes testing some of the first trend systems via computer. Finally, Seykota shares his motivation for his life (and some insights about puzzles). For more: www.seykota.com. If you would like a free trend following DVD go www.trendfollowing.com/win.

Jun 15, 2015

Michael Covel discusses one of Michael Mauboussin's white papers, “The Babe Ruth Effect”. This paper first caught Covel’s eye over a decade ago. It makes the critical point that big wins can pay for small losses (expected value thinking). Covel discusses the expected value mindset and how it relates to other fields, especially venture capital through a blog entry by Chris Dixon. Next, Covel connects a podcast episode titled “Good Bubbles, Bad Bubbles, and Where Unicorns Come From” with Bill Janeway, a venture capitalist and partner at Warburg Pincus. Covel shares a few excerpts covering liquidity and survivorship bias (all in this frequency v. magnitude mindset and all relating back to the Babe Ruth effect). Covel brings these topics to trend following as well. Want a free trend following DVD? Go to trendfollowing.com/win.

Jun 12, 2015

Michael Covel speaks with Steve Burns on his third appearance on the podcast. Steve Burns has been investing in the stock market for over 20 years. He is the author of seven books, ranks near the top 500 of all reviewers on Amazon.com, and is one of the sites top reviewers for books about trading. Additionally, Burns has singlehandedly developed an exceptional Twitter following. Today, Burns and Covel answer questions from readers of Burns' forum. Covel and Burns discuss the self-publishing world; how one goes about making choices in social media; getting over the obstacle of fundamentals; mindfulness and the writings of Alan Watts; backtesting processes; brand new traders being introduced to a model that loses 60% of the time; survivorship bias; predictive vs. reactive technical analysis. For more information on Steve Burns, visit newtraderu.com. Want a free trend following DVD? Go to trendfollowing.com/win.

Jun 8, 2015

Michael Covel speaks with Tim Larkin on today’s podcast. Larkin is one of America’s leading Pro-Victim Rights and Personal Safety Advocates. He has had a 25 year career where he has trained over 10,000 clients in 52 countries in how to deal with imminent violence. His books include How To Survive The Most Critical 5 Seconds Of Your Life and Survive The Unthinkable. Covel and Larkin discuss the Virginia Tech killings and why it is important to study violence; looking at sports injuries for the purpose of self-defense; honor in fighting; the relation between prison gang leaders and CEOs; the importance of focusing on the man and his mind rather than the tool; avoidable acts of violence; why the United Kingdom did not allow Larkin into the country; and avoiding violence from a game theory perspective. For more information on Tim Larkin, visit targetfocustraining.com. Want a free trend following DVD? Go to trendfollowing.com/win.

Jun 5, 2015

Michael Covel offers a reminder of how to think and act when responding to certain types of questioning and the translation to markets. Covel can think of no more perfect example than the “greed” exchange between Milton Friedman and Phil Donahue. Covel discusses Milton Friedman more and brings and expands the discussion into the general take-down of bullshit. Covel also discusses the importance of 'losers' (see: zero sum) in the market and why people acting irrationally offers perpetual opportunities for trend following traders. Next, a personal anecdote regarding a pre-interview for a podcast, Maria Bartiromo, and the fundamental question: “Why will trend following continue to excel?” Finally, Covel moves onto a healthy bit of advice in risk management for your trading. Want a free trend following DVD? Go to trendfollowing.com/win.

Jun 1, 2015

Michael Covel speaks with Mike Melissinos and Glenn Graham on today’s “emerging trend following trader” episode. In 2011, Melissinos started Melissinos Trading in his parents’ house in New Jersey. Covel and Melissinos discuss Melissinos’ career and beginnings; his history with Bear Sterns; Melissinos’ introduction to trend following; “find trends, align with trends, and manage risks”; the similarities between crude oil, copper, sugar, the Euro, and wheat; and trading based purely on price. For more information on Mike Melissinos, visit melissinostrading.com. Glenn Graham’s firm is Golden Point Capital. Graham has had extensive experience in quantitative trading strategy development in the futures space. He holds the designation of Chartered Alternative Investment Analyst (CAIA), a designation focusing on the alternative asset classes. Graham and Covel discuss Graham’s early trading track record; niche markets and hedging; Graham’s early trading experiences and his history at a high frequency trading firm; early influences in trend style trading; the parallels between trading and backgammon; the importance of the size of your winners over winning percentage; and style drift. For more information on Glenn Graham, visit goldenpointcap.com. For a free DVD: trendfollowing.com/win.

May 29, 2015

Michael Covel speaks with Donald MacKenzie on today’s podcast. MacKenzie is a Professor of Sociology at the University of Edinburgh, Scotland. He works on the sociology of markets, focusing on automated trading, the use of mathematical models, and the evaluation and trading of bonds. MacKenzie has worked in the past on topics ranging from the sociology of nuclear weapons to the meaning of proof in the context of computer systems critical to safety or security. Covel and MacKenzie discuss economic models; self-fulfilling prophecies and economics; our beliefs and the social world; the definition of performativity; Mackenzie’s analysis and study of the Black-Scholes model; Long Term Capital Management; reflexivity; the intellectual gap between purveyors of the efficient market hypothesis vs. behavioral economists as reflected in the 2014 Nobel Prize winners; and the arms race in high frequency trading. Donald MacKenzie’s book mentioned is called An Engine, Not A Camera: How Financial Models Shape Markets. Want a free trend following DVD? Go to trendfollowing.com/win.

May 25, 2015

Today on the podcast, Michael Covel opens up with a monologue and closes with an interview of him covering trend following 'fundamentals'. Covel opens up by discussing how the phrase “black box” is used to marginalize those who practice trend following trading. Next, Covel plays an interview clip from James Simons, the chairman of Renaissance Technologies, who generated for himself over 14B USD all through models. The second part of today’s episode are highlights of Andrew Horowitz’s interview with Covel--an interview *of* Covel this time. Covel and Horowitz discuss the TurtleTrader story; black boxes, emotions, and computers; what trend following is from the most basic level; the question of “why”, and why it might not be as important as many people think; finding which markets to enter; finding the optimal bet size; and how Fed intervention plays into the market. Want a free trend following DVD? Go to trendfollowing.com/win.

May 22, 2015

Michael Covel speaks with Kathryn Kaminski on her second visit to the podcast. Kaminski is Director of Investment Strategies at Campbell and Co--the famed CTA started by Keith Campbell. Today, Kaminski outlines her new whitepaper, specifically diving into correlation among traders (CTAs). Covel and Kaminski discuss correlation between fund managers and strategies; the media’s misrepresentation of systematic strategies; diversification in the CTA and equity world; and why one trend following strategy is similar to just one stock. To view the paper see: www.campbell.com. Want a free trend following DVD, go to: www.trendfollowing.com/win.

May 18, 2015

Michael Covel speaks with Gavin Serkin on today’s podcast. Serkin has been writing about developing economies for the better part of two decades as the Editor of Portfolio International magazine and more recently as the head of the emerging markets international desk at Bloomberg News in London. Serkin led Bloomberg’s coverage of the credit and derivatives markets from 2004 to 2008, winning the Society of American Business Editors & Writers’ Best in Business Award and the Society of Professional Journalists’ Deadline Club Award. Frontier, his new book, is a vivid travelogue of ten countries with the potential to lead economic growth in the coming decade. Covel and Serkin talk about safety issues in frontier lands; men and women in frontier countries; global brands and the direction we’re headed; going through Vietnam with Mark Mobius; Myanmar and violence; relations between the US, China, Vietnam, and Myanmar; Nigeria’s economy and where it’s headed. For more information on Gavin Serkin, visit frontierfunds.org. Want a free trend following DVD? Go to trendfollowing.com/win.

May 15, 2015

Michael Covel speaks with Spyros Makridakis on the show today. Makridakis is the Rector of the Neapolis University of Pafos NUP and an Emeritus Professor of Decision Sciences at INSEAD as well as the University of Piraeus and one of the world's leading experts on forecasting, with many journal articles and books on the subject. He is famous as the organizer of the Makridakis Competitions, known in the forecasting literature as the M-Competitions. His calling is to poke holes in the notion that we can forecast with accuracy. Covel and Makridakis discuss known knowns, known unknowns, and unknown unknowns; the two main types of uncertainty--“subway” and “coconut”; Jim Collins, one of the best-selling business book authors of all time, and why it might not have any use to us; medicine and chance; the placebo effect; acceptance of an uncertain world; and the illusion of control. Whitepapers mentioned in episode: http://www.michaelcovel.com/2015/04/23/spyros-makridakis-interview-followup. Want a free trend following DVD? Go to trendfollowing.com/win.

May 11, 2015

Michael Covel speaks with Martin Lueck on today’s podcast. Lueck holds an M.A. in Physics from Oxford University and currently is the Research Director and President of Aspect Capital. Lueck was originally with Adam, Harding and Lueck Limited (AHL), which he co-founded with Michael Adam and David Harding. At AHL, Martin initially focused on trading system research before taking on responsibility for the further development of the proprietary software language which provided the platform for all of AHL’s product engineering and implementation. Covel and Lueck discuss when he first saw quantitative, systematic styles in action; the beginnings of AHL; early coding experiences; early decisions that lead to a completely systematic strategy; diversification; what percentage of the educated financial audience grasps the strategies that are used at Aspect; behavioral economics; and bringing new potential opportunities into Aspect. Want a free trend following DVD? Go to trendfollowing.com/win.

May 8, 2015

Michael Covel speaks with Ryan Holiday on his third visit to the podcast. Holiday is an American author, writer, and marketer. He is the media strategist behind authors Tucker Max and Robert Greene, the former Director of Marketing for American Apparel and an editor-at-large for the New York Observer. Today, Covel and Holiday discuss the process of writing a book. Whether or not you want to write a book yourself, the timeless topics Covel and Holiday cover apply not just to writing, but to life. Covel and Holiday discuss the idea of always being in a research mindset; why some people don’t take advantage of standing on the shoulders of the giants that came before them; to know where you’re going and to have a plan when it comes to writing; why it’s “all material”; the idea of listening to the same song over and over again; the “flow” state and its importance in writing; the importance of having a purpose in your writing; discipline and commitments; outsourcing and hiring experts for your writing project. For more information on Ryan Holiday, visit ryanholiday.net. Want a free trend following DVD? Go to trendfollowing.com/win.

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