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World-renowned trading strategist Michael Covel helps you master and profit from trend following: the only strategy proven to work in any market environment!
Trend following is the only investment strategy repeatedly proven to work in any market environment! Now, in two remarkable eBooks, the world's #1 trend following author reveals why it works so well, and shows how you can apply it to earn exceptional, consistent profit in your own trades. In Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets, MichaelCovel teaches all the fundamental concepts and techniques you'll need, demonstrating how to understand price movements well enough to consistently profit from them. Covel presents updated profiles of top trend followers who've kept right on profiting through the toughest markets. He even presents simple charts created from their actual trades: powerful visual support for the power of trend following! Next, in Trend Commandments: Trading for Exceptional Returns, Covel distills the essential wisdom of this strategy into fascinating, bite-sized pieces that any investor can understand and use: real moneymaking insights from true winners, backed by real performance results. Learn how one of the biggest names in trend following made over 20% in August 2010 alone… and why this strategy keeps making big money when everyone else is dropping like a stone… and how to escape the cycle of "panic, fear, hope, and return-to-panic" in today's age of non-stop financial crisis!
From world-renowned trend following expert and author Michael Covel
Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets
Foreword xiii
Preface xvii
Acknowledgments xxi
Part I 1
1 Trend Following 3
The Market 3
Winning Versus Losing 4
Investor Versus Trader 6
Fundamental Versus Technical 7
Discretionary Versus Mechanical 11
In Plain Sight 12
Change 15
Modus Operandi: Price 17
Follow the Trend 18
Loss 22
Conclusion 23
2 Great Trend Followers 27
David Harding 29
Bill Dunn 32
John W Henry 45
Ed Seykota 58
Keith Campbell 67
Jerry Parker 71
Salem Abraham 74
Richard Dennis 78
Richard Donchian 85
Jesse Livermore and Dickson Watts 90
Part II 95
3 Performance Data 97
Absolute Returns 98
Fear of Volatility and Confusion with Risk 99
Drawdowns 106
Correlation 111
Zero Sum Nature of the Markets 114
George Soros and Zero Sum 116
4 Big Events, Crashes, and Panics 123
Event #1: 2008 Stock Market Bubble and Crash 126
Day-by-Day Analysis 136
Event #2: 2000–2002 Stock Market Bubble 138
Event #3: Long-Term Capital Management Collapse 151
Event #4: Asian Contagion 164
Event #5: Barings Bank 168
Event #6: Metallgesellschaft 172
Final Thoughts 175
The Always “New” Coming Storm 178
5 Baseball: Thinking Outside the Batter’s Box 181
The Home Run 182
Moneyball and Billy Beane 185
John W Henry Enters the Game 186
Red Sox 2003–2007 188
Part III 191
6 Human Behavior 193
Prospect Theory 194
Emotional Intelligence: Daniel Goleman 200
Charles Faulkner 201
Ed Seykota’s Trading Tribe 202
Curiosity Is the Answer, Not Degrees 204
Commitment to Habitual Success 206
7 Decision Making 211
Occam’s Razor 212
Fast and Frugal Decision Making 213
The Innovator’s Dilemma 216
Process Versus Outcome 218
8 Science of Trading 221
Critical Thinking 222
Chaos Theory: Linear Versus Nonlinear 224
Compounding 229
9 Holy Grails 231
Buy and Hold 232
Warren Buffett 234
Losers Average Losers 235
Crash and Panic 238
Analysis Paralysis 241
Final Thoughts 243
Part IV 245
10 Trading Systems 247
Risk, Reward, and Uncertainty 248
Five Questions for a Trading System 253
Your Trading System 265
Frequently Asked Questions 266
11 The Game 277
Slow Acceptance 278
Blame Game 279
Understand the Game 280
Decrease Leverage; Decrease Return 281
Fortune Favors the Bold 282
Afterword 285
Acceptance 285
Inefficient Markets 288
Trend Following Critics 290
Critic Geetesh Bhardwaj 294
Final Thoughts 296
Foreword to the First Edition by Charles Faulkner 299
Appendices 303
Introduction to Appendices 305
A Trend Following for Stocks 307
Does Trend Following Work on Stocks? 307
Short Selling 318
Tax Efficiency 318
The Capitalism Distribution: Observations of Individual
Common Stock Returns, 1983–2006 331
Charts 338
B Performance Guide 347
Trend Following Historical Performance Data 347
Abraham Trading Company 347
Campbell & Company, Inc.—Financial Metals & Energy—
Large Program 349
Chesapeake Capital Corporation—Diversified Program 352
Clarke Capital Management, Inc.—Millennium Program 354
Drury Capital, Inc.—Diversified Trend Following Program 355
DUNN Capital Management, Inc.—World Monetary Assets 356
Eckhardt Trading Company—Standard Program 359
John W Henry & Company, Inc.—Financials and Metals Program 361
Millburn Ridgefield Corporation—Diversified Program 363
Rabar Market Research, Inc.—Diversified 366
Sunrise Capital Partners LLC—Expanded Diversified 368
Superfund 370
Transtrend B.V.—Diversified Trend Program—Enhanced Risk (USD) 371
Winton Capital Management Ltd—Diversified Winton Futures Fund 372
Risk Disclaimer 374
C Short-Term Trading 375
D Personality Traits of Successful Traders 377
E Trend Following Models 381
F Trading System Example from Mechanica 385
System Background Information 385
System Details 386
A Canadian Dollar Trade 388
System Performance 389
Summary 392
G Critical Questions for Trading Systems 395
Resources 397
Endnotes 399
Bibliography 423
Index 431
TREND COMMANDMENTS: Trading for Exceptional Returns
Acknowledgments 1
Ignition 3
Expectations 9
Jargon 11
Show Me the Money 15
Blowing Bubbles 25
Speculari 29
Fundamentals Are Religion 33
Everything Flows 39
Systematic Trend Following 41
Change 45
No Prediction 47
Price Action 51
Place Your Bet 55
Trading Systems 59
Trade Everything 65
Drawdown 69
Entry 73
This Way to the Egress 75
Losers Average Losers 79
Home Run 81
Robust 85
Push the Button 87
Wash, Rinse, Repeat 91
Zero-Sum 95
Crash and Burn 97
Inefficient Markets 101
Benchmark 105
Haters 109
The Root of All Evil 113
Panicky Sheep 117
IQ vs EQ 123
Commitment 127
Decide Now 131
Science 135
Statistical Thinking 137
Aha! 143
Hero Worship 147
Buy and Hope 151
Convert 155
Oracle of Omaha 157
A Seinfeld Moment 161
Snow Job 165
Twit Me a River 169
Goldline 173
Intoxication 175
Parliament of Whores 181
Crowded House 185
Black Box 187
Lucky Monkey 189
Honest 193
Under the Radar 199
Ethos 201
Games People Play 205
Blood Hound 207
Epilogue 211
Extras 213
Surprise, Surprise, Surprise 215
Origins 221
Cheat Sheet 235
Quick Commandments 239
Bibliography 242
Endnotes 246
About Trend Following & Michael Covel 265
Index 267