Systematic Trading research and development, with a flavour of Trend Following
Au.Tra.Sy blog – Automated trading System header image 2

Covel's Trend Following: A review

December 1st, 2009 · 21 Comments · Books

Trend Following by Michael CovelBefore I start let me state that this book has raised some controversies.
However I really like it (I own two different editions of it) and I’ll explain why.

What this book is not

If you are looking for the Holy Grail of trading systems and/or a complete “turn-key” trading system: look elsewhere as this is not what this book is set to achieve. It will not reveal any trading secrets; however reading this book will make you realise that this is not what is important…

Trend Following: essentials of a trading philosophy

It looks like Michael Covel appreciated the concept of Market Wizards from Jack Schwager and drew inspiration from it. In a clever mix, Covel managed to overlay and enrich all the foundations of trend following with great trend follower insights.

The book covers the principles of the trend following trading philosophy and its multiple aspects: discipline, drawdowns, risk and money management, behavioral biases, prediction vs. reaction, etc. It makes for a very interesting read – both instructive and interactive.

Even with an automated trading system, you have to be in agreement with the strategy philosophy. This book helps you understand the philosophy of trend following in greater detail – you can then decide whether it suits you. Additionally it can help you strengthen your belief during the inevitable low points such as drawdowns while trading a trend following system.

Inside Trend Wizard minds: 10 years of research

The world of trend followers is relatively discreet: barely anybody has heard of Ed Seykota or Bill Dunn – but John Meriwether opening up his third hedge fund (after blowing up his previous 2 – including LTCM!) makes it to the first page of Bloomberg and the FT.

Michael Covel has spent 10 years researching and interviewing for this book. This allowed him to get in the head of the greatest trend following traders. This results in extensive quotes/pearls of wisdon from Ed Seykota, Dave Harding, Bill Dunn, John W Henry, all the greatest Trend Following Wizards. It really gives you great insights on the way they think and how they apply their market philosophy to trend following. And this is information that is not readily available anywhere else.

New Edition addition

I have read both earlier and newest (post-2008) editions and I think the later version is worth it. Many references to the major events of 2008 help to put the text in the present context and add some relevancy (especially with trend followers outstanding performance during these times).

Additonally there is a new appendix covering in detail Trend Following for Stocks, which is of interest.

Controversies

One of the main message of Trend Following (the trading philosophy and the book) is that we cannot predict. It forces society to admit that we are no as sophisticated as we think. It also points to the fact that chance might have much more to do with success of so-called “experts” rather than their “expert prediction abilities”.
One such “expert trader” Victor Niederhoffer slams the book:

I get the same sort of value from these books [Trend Following] as I do from studying the Keech cult, supernatural operators such as Uri Geller and horosope readers

You can tell that Covel takes some pleasure describing the latest blow-up from Niederhoffer’s fund in 2007 in his “Big Events” chapter.
Some people have also raised the question as to why Michael Covel primarily seems to be marketing his books and courses rather than trading for himself. Whether this is a valid point or not, this does not remove any quality from the book.

You can check and follow Michael Covel on his trend following blog to make your opinion.

In closing

I find this book very inspiring and motivating.
If you are new to trend following, this is a must-read: it will introduce you to all the basic concepts.
If you already believe in trend following, this is a must-read: it will reinforce your beliefs and motivation.
If you do not believe in trend following: this is a must-read: it is not too late to change your mind and this is the best book for it!

I have read Trend Following about 3 times now; this is a book that lives on my trading bookshelf – I know that every time I need a boost for motivation, a re-read will provide me just that.

As Larry Hite says:

The way I see it, you have two choices – you can do what I did and work for 30-plus years, cobbling together scraps of information, seeking to create a money-making strategy, or you can spend a few days reading Covel’s book and skip that three-decade learning curve.

Related Posts with Thumbnails

Tags: ·

21 Comments so far ↓

  • Mark

    Trend Following does work. However, Covel made it sound easy … if only you buy his turtle course…

  • Jez

    @Mark, completely agree with you and maybe I should have mentioned that in the review. What you realise when you start devising your own systems is that the “devil is in the details” and is not as easy as it sounds to implement. Trend Following’s underlying concept is pretty simple.. Unfortunately simple does not mean easy!

  • Milktrader

    And what’s his beef with Curtis Faith? He goes to some length to post depositions about a firm that Curtis was involved in that was being investigated for stuff that seemed unrelated to anything Curtis had to do with.

    These are distracting and not to say the book doesn’t have merit, but his personal vendetta is off-putting.

  • Tom

    Hey Jez. Really like the site.

    While I do like his book. He clearly has access to some pretty big names, but I do find his constant self promotion annoying. I have his course and to be honest I found it to be overpriced. It’s really nothing more than what you could find at the Trading Blox forum .

    And yes Milk, he has serious issues when it comes to Curtis Faith. He really goes to great lengths to discredit him, in his books and on any forum that mentions his name, almost to the point where I wonder if it’s an obsession.

  • Mark

    Well, Curtis Faith started it by releasing the original turtle systems for free on the web (later charged $30 to support web hosting), because he was sick of those charlatans who preyed on the mystery of the turtle legend. Curtis himself is not without his own fault, but his contribution to the trend following community (such as starting the Trading Blox software, a must have for serious LTTF) is undeniable.

  • Jez

    @Mark, Milk and Tom: Yes Covel and Faith definitely “have some history” and it does not really add anything to their “message”. I personally try to ignore this (and the self-promotion – that you might find in any trading books) and focus on the info content of the book. As I mentioned all the quotes from great trend followers are great, if only for inspiration/motivation!

    What I find peculiar though is that Covel promotes Trading Blox on his website and Trading Blox promote Covel books on theirs… ;-)

  • Mark

    Yep. There was another fallout by Curtis Faith which resulted in Trading Blox being taken over by Tim Arnold. Fortunately Tim has continued to develop and provide excellent support for Trading Blox. He is a LTTF trader himself.

    I agree that Covel’s book does provide a lot of food for thoughts. I have been trying to ignore what he said but paying more attention of quotes from those successful traders.

  • M. Covel

    Damn, are some of you guys really the weenies and whiners you appear to be?! Either way I welcome the opportunity to counter assorted conspiracy theories, supposed feuds and other nonsensical statements about vendettas:

    1. There is NO other book that tells the Turtle story from start until today beyond my book “The Complete TurtleTrader.” My book actually focuses on the true winners and success stories along with all of the rules and philosophies. My effort got behind the scenes, found the true facts, and tied it all together with performance numbers never before published. It names all the names and puts many stories out in public that were never known before. Look, no one is stupid in here (at least I hope). We all know what is on the pages of “The Complete TurtleTrader.”

    2. Curtis Faith’s firm was Acceleration Capital and was built on his reputation. He owned 50% of it. Faith was clearly not just “involved.” The firm in question was barred by the CFTC and if not for my efforts those depositions would have never been made public. Does anyone really think there was anything admirable going on in this firm? Those depositions, my other interviews with other Turtles, contact with Faith business associates, and emails from a Faith family member …paint a picture entirely opposite to Faith describing himself as the most “successful turtle” who supposedly made “$31.5″ for Dennis 25 years ago. Come on kids! Jerry Parker is a billionaire and Faith has made comments about his own solvency in the last few years. His most successful Turtle line is simply not accurate. Bottom line, I understand the need for some to shoot the messenger of Michael Covel. I am the one who has spoken out and put the facts on the table. However, the shots coming from people who either don’t know the facts or who are purposefully twisting the facts, are missing the mark.

    3. The research effort that went into my TurtleTrader book was lengthy. It was not easy. For 20 plus years this story was buried in whispers and myths – not anymore. And as far as I can tell there is only one Turtle (and a few followers) unhappy with my effort who will do or say anything to preserve the shattered mystique.

    4. Lastly, I should note that the review here in question was about my ‘Trend Following’ book. That book was an entirely different effort and covers some of the best trend following traders to have ever laced it up. For those readers not looking to rehabilitate failed Turtles you may want to check out the interviews and relationships I have established across the trend following industry. I help a good number of clients every day. Some will also find my new documentary film of real value — as a cross section of great trend followers are seen on film for the first time.

    Maybe if you some of you guys are going to take a swing at me you should at least punch harder!

    MC

    P.S. Jez thanks for the review!

  • Mark

    Hehe. As Tom mentioned, now we talk about “obsession” :-)

  • M. Covel

    Clearly, I am obsessed in getting the trend following and turtle story accurate. Is that the best you got in response? :-)

  • Milktrader

    Mike:

    I’m puzzled as to why you posted CFTC depositions regarding the investigation of a trading firm that Curtis Faith was involved in. I didn’t read the second depo (I can go back, I suppose), but from reading what investigators were getting at in the first PDF file, it appears there was a rogue accountant that was stealing from the company cash register to get his teeth fixed, etc. Yes, the deposition mentions Curtis Faith as a partner (sort of silent, no?), but it didn’t appear to me that there was criminal wrongdoing on his part.

    Are you suggesting that C Faith is unscrupulous, criminal, unethical, an outright fraud?

    If he was a Turtle and you interviewed Turtles other than him and you both wrote a book about it, it’s all cool, right? What am I missing?

  • M. Covel

    To answer your question…some background first:

    Curtis Faith started a money management firm called Acceleration Capital with Yuri Plyam. Faith talked about the firm’s beginning:

    “…I approached Yuri Plyam at Castle Trading several weeks ago about the possibility of our partnering to form a series of commodities pools targeted at the investor with between $25K and $1 million.”

    Faith was a managing member of Acceleration Capital (website listed Curtis Faith’s name through Feb 07). Firm disclosures stated:

    “Acceleration Capital, LLC has also been registered with the National Futures Association since 09/08/03. Curtis Faith and Yuri Plyam are both listed principals and registered Associated Persons of Acceleration Capital, LLC since 09/08/03 and associate members of the NFA. The Managing Members of the partnership are Curtis Michael Faith (Mr. Faith), and Yuri Plyam (Mr. Plyam). They will supervise all the Partnership’s investment and administrative functions. Currently, the managing members have not invested in the pool, but reserve the right to do so in the future. Curtis M. Faith is a managing member of Acceleration Capital, LLC, an investment management company and the General Partner of the Partnership.”

    Hedge Fund Alert ran with the headline “Commodities Whiz Back in Business” on May 19, 2004. An excerpt:

    “Curtis Faith, a trader who cut his teeth under commodities luminary Richard Dennis, has started his own managed-futures fund. Faith launched his Acceleration Mercury 4X last month with a small amount of cash. He has just now started to market the vehicle and believes he can raise $100 million by year end – although he hasn’t set a formal fund raising goal.”

    This excerpt appeared in HedgeWorld Daily News on May 20, 2004:

    “Mr. Faith manages the fund with Yuri Plyam, managing member of Acceleration Capital and president of Castle Trading Inc., Northridge, Calif. Mr. [Curtis] Faith also is…a managing member of Turtle Trading Software, according to the firm’s web site. Mr. [Curtis] Faith previously worked with noted futures trader Richard Dennis and had taken a 15-year break from the business, he said.”

    Acceleration Capital’s performance history showed significant losses from April 2004 until July 2005. Routine NFA examinations of Acceleration Capital started on August 22, 2005. Curtis Faith’s NFA associate member status, associated person status and principal status were withdrawn August 23, 2005.

    Acceleration Capital permanently surrendered registration with the CFTC via settlement in January 2007 for what the CFTC believed were violations of the Commodity Exchange Act.

    Silent? Everyone can draw their own conclusions about that characterization. More to come…

  • M. Covel

    I don’t mind having a conversation here, and continuing to offer more insights and explanation, but it would be nice to know if people have read Chapter 7, 12 and the Afterword of my book on the Turtles.

  • Milktrader

    I have not read your book.

    Quite frankly, I’m not sure it’s worth my time trying to figure out what Curtis Faith did or did not do and when. I’m sure you have good reasons for your views on Curtis Faith.

    I cannot speak for the others.

  • M. Covel

    Why did you bother to enter a discussion if you are not aware of the facts (or don’t want to the facts)? Why do you call facts opinions?

  • William F.

    Hey Michael …. Why don’t you enlighten us about your trade performance……. yeah yeah… I know you are not a hedge fund nor are you interested in trading other peoples money….. I just want a simple answer to a simple question… The one you always seem to dodge….
    … What is YOUR trading performance? What % return did you make on your personal trade account this year?
    And once again…. I am NOT interested in you trading my money……..

  • William X

    Am I missing something or does covel really not have a track record. I mean why is he selling 2000 plus dollar course on trading when he doesn’t have his own track record to back it up. Oh and William F, it looks like your question is unanswered. I wonder what that means.

  • ahmad

    lol at covel disappearing after being asked about his track record. what a snake oil salesman.

  • Tony Jacobson

    So what does a basic “trend following” trade look like? I’ve heard something like “buy a stock that is trending up. Sell it if it falls by 5%.” But when do you know to sell at the top or at least after it begins to turn downward?

  • Jez Liberty

    Hi Tony,
    There are quite a few basic trend following systems that illustrate how a trend following trade works. The principle is almost always the same/similar: Enter when the price is starting to move up/down (this can be “measured” via the price making a new high/low over n days, the price closing above/below its n-day moving average or a moving average cross-over. Exit when the opposite happens (somethimes with different values for n: number of days of the indicator). You can check the systems described in the State of Trend Following report for more info. Check the links in the appendix of that page: http://www.automated-trading-system.com/resources/state-trend-following/

  • Jez Liberty

    Of course, there is much more than just entry/exit to a (trend following) trading system (risk management, position sizing, filters, etc.)

Leave a Comment