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Summer Read: Trend Commandments by M. Covel

August 8th, 2011 · 2 Comments · Books, Trend Following

Trend Commandments - Michael Covel - Summer Reading
 
 

You want confidence and inspiration? It’s here.

Michael Covel’s Trend Commandments is a new book on Trend Following, which focuses mostly on the psychological and philosophical aspects of this trading strategy.

You want a “how-to” book, including a “turn-key” Trend Following system? It is not there (The Complete Turtle Trader did this with the original Turtle system rules though).

It is a fact that you need to have faith in a system or idea before you can start trading it. This is a central premise of this book, which seems aimed at “would-be” trend followers, to give them the conviction required to start and keep trading this strategy – “a real, proven way to make money in the markets”.

The contents and format of the book make for an easy read, good to pick up for the beach (or the metro if you are not blessed with a Summer holiday). It is divided in many short chapters (50+) each dealing with a specific topic in a few pages.

In some way, there is some overlap with Covel’s first book, Trend Following (after all, the main principles have not changed since), but this book does it in its own ways:

I thought a different approach to get that story out was required.

About 25% of the book is composed of footnotes for the numerous quotes or references that illustrate or complement the author’s points, and provide the reader ways to explore some concepts further. As part of these references, Covel makes an analogy with the movie The Matrix, which could apply to the overall message in the book.

Pushing the analogy further, one could say that Covel plays Morpheus, and you get to play Neo[-phyte] (the book is mostly aimed at beginner trend followers, in my view).

The tone is quite different from the first books, more direct; almost that of a missionary on a crusade against the Matrix robots and their agents, and to evangelise the crowds on Trend Following.

Reading Covel’s words is similar to taking the red pill, going down the rabbit hole… You get access to an “alternative truth”, which can be divided into a dual view:

  1. The principles of a winning philosophy and strategy (Trend Following that is – just in case you’re not… following)
  2. “Removing junk from people’s heads” (the crusade against the Matrix robots and their agents)

Covering the principles of Trend Following, each chapter provides a nugget of insight with topics such as:

  • Irrationality of the markets
  • Buy High
  • “Price is the only true reality in trading”
  • No prediction
  • Calculated Risks
  • Discipline in following a system
  • Diversification: “trade everything”
  • Drawdowns are inevitable
  • Let your profits run
  • Handling losers
  • Statistical reasons why Trend Following works
  • Low winning percentages: no need to be right

But in the words of Covel:

Getting rich is a fight

It’s you [...] against the world

The well-constructed fortress of government, media and Wall Street, all designed to bleed you dry [...]

great trend trading knowledge and wisdom are found by removing junk from people’s heads.

And as a complement to presenting Trend Following principles, the second main aspect of the book fights the “junk” that is part of the “establishment”.

Wall Street, financial academics, Buy-and-Hold, use of fundamentals in trading, gold bugs, politicians and government, media, CNBC, Jim Cramer and other “market gurus”, even Warren Buffet all get the “irreverent Covel treatment”, exposing the myths, misconceptions or biases surrounding them. This aims to act as “reality check” against what most people are led to believe all their (trading) life.

Throw in a bit of “self-help” advice (lessons in happiness, finding truth, living big) and you have a book which is indeed quite accessible and distils the insights and over-arching principles of Trend Following, which Covel has amassed in his 15 years of tracking down and studying the most successful trend traders.

Do not expect a full combat training though. The chapters are short and subjects covered are not explored in-depth; but this is not what the book pretends to:

This book is the primer that unlocks the path of trend trading.

You will not be ready to jump from building to building after reading this book, rather it aims to “free your mind” and give you that “push” to take a leap of faith into Trend Following.

As a non-novice in the principles of Trend Following, and having previously read Mike Covel’s first book, I personally prefer the format of Trend Following, which I feel will still retain its role as a reference in my library. I find it more thorough (filled with facts and figures, philosophical principles, trading concepts, quotes and stories of successful trend following traders) but I can understand the need for simplifying its message for newcomers.

To a friend (or reader) still “plugged into” the system and wanting to get started in trading, I would definitely recommend reading Trend Commandments as an introductory volume. If you are well-versed and/or a believer in Trend Following and have read the previous books, do not expect any “ground-breaking” discoveries in these pages, rather similar concepts and principles presented in a different angle and tone, with added rhetoric against the establishment.

The book on Amazon:


 

Previous Covel books:

Trend Following – Michael Covel
See Why and How Trend Following works. Over a dozen of top CTAs covered.Link to review
Look up on Amazon US | CA | UK
The Complete Turtle Trader – Michael Covel
The Turtle story and their complete rules
–No review/summary yet–
Look up on Amazon US | CA | UK

 

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2 Comments so far ↓

  • Neil

    Hi, really enjoy your posts. This is a bit of a random question.. is it true if you work for an investment bank (a non trader role) and trade you have to hold the shares for a long period. So if you’re serious about trading on the side banks are not the places to join?

  • Jez Liberty

    Hi Neil,
    Thanks for the comment. Glad you enjoy the posts!
    I was “working for” an investment bank as a non trader role, and you are right, they usually have fairly strict rules about trading, that apply to employees. I believe it is mostly due to avoid potential conflicts of interest or insider dealings from staff, so I would think that it is mostly for equity-related trading (ie not sure if they would stop you from trading gold futures or EURUSD forex – but some of my colleagues who wanted to trade/invest in shares definitely had to get HR approvals for specific share transactions). So, this might be an issue for short-period trading (ie the approval process could take days…). The reason I am not sure is that I was never an employee per se but actually “provided services” as a consultant, and as such was not subject to these rules, and in any case did not really trade directly in my own name – so never bothered to find out all the ins and outs of these restrictions. I am sure there must be ways around it (one of my bosses was “trading” his dad’s account!) and banks probably do not investigate every employee (i.e. it is probably as much of a CYA. policy in case their staff are investigated by authorities for ny wrong-doing). I am sure I have seen other bloggers or forum members doing trading and working for investment banks…
    Probably best to talk directly to a few HR departments from different banks to get the full picture

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