Episode 19. Price Is The Only Issue That Matters. Trend Following Manifesto with Michael Covel

Michael Covel checks in from the road - in sweaty, humid Virginia, on his way back from a speaking engagement in Vancouver. Covel discusses a Bloomberg television interview with Cole Wilcox of Longboard Asset Management (featured in Covel's Little Book of Trading). Wilcox discusses how his strategy is purely based on price trends and catching the big waves when they come along, as opposed to any sort of predictive or fundamental analysis. The Bloomberg reporters simply can't wrap their heads around the fact that Wilcox doesn't have any specific picks or predictions in the market. They ask about specific markets and push to create some sort of narrative (Where do you see energy going? Where do you see fixed income going? Where do you see stock indices going?). Covel notes that if the reporters don't have a story, they don't have a business - that's the bottom line. Wilcox's bottom line is price and profitability; nothing else matters. Despite the fact that Wilcox doesn't know where the market is going, that doesn't stop the Bloomberg folks from thinking that there is a way to figure it out. Covel relates this to a recent speech he gave in Vancouver. One of the slides he used in his presentation, a quote from trader Paul Tudor Jones, states that fundamentals are religion: "The illusion has been created that there is an explanation for everything, with the primary task to find that explanation". This is precisely what the Bloomberg reporters were doing to Cole Wilcox: they want an explanation, a story, a narrative. Trend following drives a stake through the primary tenet of modern financial theory: the efficient market hypothesis. How do you reduce your decision-making to something that's easily digestible? You reduce it to price. There is an illusion that we can control the market; trend following dispenses with this illusion so you can follow the waves and concentrate on what really matters - the price. It's ok to say "I don't know what's going to happen", but you have no choice but to build a strategy around not knowing the outcome. Special Offer: receive free DVD delivered to your home or office: www.trendfollowing.com/free.html.