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Forbes.com Endorsement

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The Forbes review was before site makeover!

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Stocks and Commodities Magazine Endorsement

Review excerpt from David Penn,a staff writer for STOCKS & COMMODITIES:

While TurtleTrader.com is obviously devoted to trend following, what makes the method work is not the genius of the website developers, nor the genius of Richard Dennis or other traders identified with turtle trading. In some ways, the secrecy to which many original turtles were sworn has confused the issue of turtle trading, making the methodology seem more clandestine and complex than it really is, while providing an unfortunate platform for less scrupulous promoters to offer the secret of turtle trading to aspiring, yet unsuspecting, traders. As one of the administrators of TurtleTrader.com suggested in e-mail, all Turtle trading amounts to, in the end, is trend-following. Indeed, there were successful trend-followers long before Richard Dennis and William Eckhardt’s turtle trading experiment, according to that administrator: ‘To some degree, we see the question as a continuation of the secrecy hype first revealed in Schwager’s books. Great books, indeed, but the secrecy part of turtles and trend following was misleading…Given that so many other trend-followers were kicking butt at the same time of the turtles’ creation…turtle trend-following is not a secret. It simply takes proper teaching.’ And that is good news for all of us.

Business Week and Trend Following

Placing Bets in a Volatile World As you read the article at the above link note the confusing use of the term futures funds. The article should be speaking of trend following …

Placing Bets in a Volatile World

As you read the article at the above link note the confusing use of the term futures funds. The article should be speaking of trend following traders, not futures funds. We commonly see trend following called commodity trading advisors or CTAs or commodity funds. Trend following is a style. It’s not restricted to one market in particular. Stocks, bonds, currencies (FX), meats, energy, etc. can all be traded as a trend follower.

If you believe for a minute that trend following is only futures or commodities ponder again Jerry Parker’s wisdom (excerpts from Managed Account Reports):

I think another mistake we made was defining ourselves as managed futures, where we immediately limit our universe. Is our expertise in that, or is our expertise in systematic trend following, or model development. So maybe we trend follow with Chinese porcelain. Maybe we trend follow with gold and silver, or stock futures, or whatever the client needs. It’s called managed futures because that was the profit center at the FCMs. We’re trading these great systems, and testing, and making sure what we do has worked in the past. And being disciplined, and unemotional, and applying our methods to the futures markets. But limiting our trading to this one group of markets. We need to look at the investment world globally and communicate our expertise of systematic trading. You have Big Blue beating the world chess champion, and everybody saying yeah, that makes sense, I can understand that. We’ve not been able to maximize our opportunities with systematic trading. People look at systematic and computerized trading with too much skepticism. But a day will come when people will see that systematic trend following is one of the best ways to limit risk, and create a portfolio that has some reasonable expectation of making money. We’ve got to be there and ready to take advantage of the opportunity. I think we’ve miscommunicated to our clients what our expertise really is. Systematic trading is going to be better for everyone in the long run. Our methods will work on lots of different markets. The ones that are hot today, the ones that are not hot today. We don’t want to pigeon-hole ourselves as managed futures or commodities.

Trend Following w/ Stocks

Leon Cooperman comment on stocks.

Many of our clients trend follow on stocks alone — nothing else. You can trade stocks in many ways:

Welling@Weeden Writer Peter Deoteris Drops the Ball on Trend Following

Kate Welling runs a well-respected newsletter called Welling@Weeden. One of her writers Peter Deoteris recently reviewed the book Trend Following. We quickly thanked Kate for the review letting her know that in a world where so many make every controversial argument a personal bash, that it was refreshing to see an honest to goodness major difference of opinion with the Trend Following book.

First read the review from Welling@Weeden:

Download Trend Following Review (PDF).

Our Response & Clarification to Welling@Weeden Review

  • The 3rd paragraph uses the phrase: “couple of commodities traders”. This is a misleading statement. Why? The universe of trend following traders is not simply Ed Seykota and John W. Henry (see Trend Following book). Secondly, to call them “commodities traders” discounts the vast majority of the markets trend followers actually trade. Trend followers trade stocks, currencies, bonds and some commodities too. We are not splitting hairs here — the phrase is used derisively. Many people attempt to position trend followers in this manner as it helps to protect whatever other philosophy one may have that conflicts with trend following trading. More on this subject.
  • John W. Henry and Barings Bank were covered here at TurtleTrader years before Henry bought the Red Sox.
  • Most, if not all, trend following performance data of public money managers is free to all. No special access needed.
  • The 6th paragraph states, “The Asian debt collapse, the Long-Term Capital Management debacle, the 9/11 terrorist disaster, etc., he maintains were all predicted in some fashion by some super wizards.” The book does not state this. In fact, the book goes to extremes to address why prediction is impossible.
  • The 6th paragraph states, “…there clearly is a strong element of revisionist history at work here. Covel is looking back and using subsequent events to justify various traders’ positions. When those positions were established, however, they were based on logic and assumed risks that were often entirely different.” The book does not state this. Trend followers took their positions with no knowledge that an event would occur. They took their positions as trends moved in one direction. The fact that those trends led to big events is not something anyone could predict. The reviewer does not seem to grasp the trend following concept at a root level.
  • The 8th paragraph states, “Experience informs, however, that in practice that is one whale of an assumption.” This might be the reviewer’s most confusing statement. Why is it a whale of an assumption? Is the implication that all traders in the book Trend Following were the result of luck? Does the practice of trend following itself by many traders over the decades not count for something? Of course, we believe it is great proof of trend following trading viability. Considering the billions given to trend following traders to manage in the last few years — we are not alone in our belief.
  • The 8th paragraph states, “I just hope our institutional clients know better.” We are not sure who these institutional clients are that Peter mentions, but numerous institutional clients have been embracing trend following trading on a monster scale over the last decade. And let’s face it, institutional could mean your state government pension or your corporate retirement plan. There is no doubt that many average people have money invested in trend following trading and don’t even know it! Pension plans, school endowments, etc. have been stepping up and legitimizing trend following for some time now.
  • Does anyone know what style of trading Peter employs? It might help put disagreements in context. But we thank Peter for providing an opportunity to further address trend following trading confusion. We welcome additional feedback on this debate to be posted on this page.

Michael Covel comment: I definitely enjoy baseball, but to postulate I admire John Henry’s baseball over his trading is silly. I think if Peter did his homework he would recall that John W. Henry is in Michael Lewis’ Moneyball! Comparing John Henry’s trading to Billy Beane’s baseball math is not exactly a stretch considering John hired Bill James — the same Bill James whose quantitative research is the foundation of Billy Beane’s work with the Oakland A’s!

Readers Respond

Chris Walsh comment:

Some time ago I wrote to say that there is always some level of prediction involved in any technical approach to trading. You wrote back, disagreeing and referred me to your book. Thanks for that. The book is great, and at last the distinction you make between prediction and reaction made sense to me. The 2/19 post on your blog, with the attached book review reminded me of this. Alas, [Peter Deoteris] does not see the distinction either. Trend following did not predict financial and global crises. However, since trends tend to continue, traders who react to them at or near the beginning create the opportunity of being there when the trends reach their crescendos. In down-trends, these are called “financial crises”, in up-trends “speculative bubbles.” Thanks, again, for a great book.

Think!

“Ah, what a nice web site! Lots of impressive words…Simple logic defeats you. If all take your advice on trending, all will equally loose, due to no trending when all think they see the same trend…Warren Buffett has always been right: buy undervalued stocks in excellent companies and hold the stock until it returns a nice profit. Making decisions to buy or sell based on lines on a chart is shear idiocy.”
J Mason

The above email arrived at TurtleTrader. Let’s address his issues:

1. If everyone trades as a trend follower there will be no opportunity is his position. The facts show otherwise:

  • Read link #1
  • Read link #2
  • In reality it works since so many people mistakenly view and trade the market just as you do. Your losses fuel trend following winners.

2. Our view on Buffett that he doesn’t like:

3. Trend following does not involve chart reading or lines on a chart.

4. His real issues are related more to his own psychology. Two quotes he must ponder:

“Perhaps the most important revelation coming out of current research on the biology of the mind is this: that the left cerebral hemisphere of humans is prone to fabricating verbal narratives that do not necessarily accord with the truth. We call this part of the brain the interpreter and it is the sources of familiar internal narratives that give us our sense of self.”
Antonio Damasio

“The left brain weaves its story in order to convince itself and you that it is in full control. What is so adaptive about having what amounts to a spin-doctor in the left brain? The interpreter is really trying to keep our personal story together. To do that we must lie to ourselves. Often when we think we’re being rational, we’re being spun by our own thinking. We believe our own press releases. This explains how we get ourselves into painful positions.”
Michael Gazzaniga

New Client Feedback on Psychology

New client, Mark M. Rostenko at info@sovereignstrategist.com writes:

It always amazes me how few people make any money at this game even though successful methods are available. The reason is that MOST PEOPLE AREN’T TRADING TO MAKE MONEY. They think they are, but the fact is they’re trying to fulfill some other needs: for excitement, gambling, feeding their egos, being right, being clever, outsmarting somebody, sharing their score at the next cocktail party. Meanwhile, Trend Followers (and others) are sitting around, ignoring all the chit chat, all the arguments pro and con, discussions of the Fed, etc., just plugging in their numbers, managing their money, with discipline, and watching the cash pile up over time. There is what you must do to make money trading. There is a plan, a methodology that works and if you DO it, if you WORK the plan, you make money. That’s just how it is, but most people are more interested in trading some method that feeds their other needs: they want to pick tops and bottoms, they want riches overnight, etc. It’s like Dennis said, you can publish the rules in the paper and people still won’t make money. Someone said you can publish tomorrow’s closing prices in today’s paper and people STILL won’t make money because they’ll put their own garbage in the way. It’s really a wake-up call when you realize that successful trading has nothing to do with forecasting the market. Something I fortunately learned early on is that it is a numbers game: knowing the risk, knowing the odds, and placing your bets accordingly. And it’s NOT glamorous. It’s NOT exciting. It’s NOT cruising in your Ferrari down Wall Street and flashing your Rolex. It’s just playing the numbers with discipline and doing the hard thing – the uncomfortable stuff that no one else wants to do. That’s what makes money and it’s why most people don’t. They’re not interested in making money. They’re not interested in being successful traders. That’s not their real motivation. If they really wanted to be successful traders, they would be because the information is there, the opportunities are there. But it doesn’t work the way most people would like to THINK it works and so you can show them what works, you can give them the methodology, and they don’t care. They don’t want it. It doesn’t fulfill their needs. Trading is for one thing — taking money [profits] out of the market. Any other needs you have, you better get them fulfilled elsewhere. But people bring their needs to the market and want the market to fulfill them. That’s why they get killed over and over again.

Please be aware that some sites that you may link to through this site are not supported by TurtleTrader. Because the material made available on these sites is not under the control of TurtleTrader, we make no representation to you about these sites nor the material you may find there. The fact that TurtleTrader has provided a link or name does not constitute an endorsement or recommendation of any kind.

Reporter Loses It

Life is unfair: No one can read the TurtleTrader site for long before the statement, Trading is a zero-sum game starts to sound familiar. It’s a fact that that some people win in the market and some people lose, and as our readers know, we like facts. The market is unfair just as life is unfair. Not everyone is equal nor is everyone going to get their fair share. To approach trading as a battle for survival makes it easier to accept another fact which is that those people who work the hardest at trading will win. Now that is fair.

Buy and hold – the lazy approach: Enter a reporter for a major financial web site. This reporter contacted TurtleTrader seeking an opinion about the downsides of buy and hold approaches given the dramatic NASDAQ declines during the bubble. Obviously, if you bought and held the NASDAQ for the last few years, you lost money. We told our new friend that investors and traders must have a strategy. If the last few years of watching the NASDAQ tank taught investors anything, it is that buy and hold is not the greatest of strategies. We even went so far to opine that buy and hold is not a strategy at all, but rather an excuse to be lazy with your thinking and your money in the market. You can always say I buy and hold. Sounds nice and comforting, maybe even slightly sophisticated.

What do I do if life’s unfair?: The reporter wanted to know what must investors do now? She wanted to know what we are advising investors to do who bought technology stocks, got slaughtered and are now burdened with mega losses. She asked us for specific advice for the investor who has been killed and now doesn’t know what to do (gamblers anonymous). She wanted forecasts about what would happen next year.

You accept reality and move on: We replied there are no forecasts for next year. No one can forecast the future. You can only react to the present. Furthermore, people need to have a strategy that has an exit point before they ever enter the market. Know when you are going to exit before you enter. Become smart. Lose your Las Vegas quick riches mind set. Stop day trading. We pointed out that there are clear strategies you can use to exit markets at proper times that enhance profitability. We added that buy and hold approaches must be rejected as irrational, except, of course, for people expecting to live forever.

Reality is hard to accept: Our new friend, who contacted us for an opinion, went ballistic. She proceeded to begin a wide ranging debate that is a common response and offers interesting clues as to why people lose in the market. Some of her more strident observations:

  • She asked if we were calling her stupid. She accused TurtleTrader of not worrying about all traders. She seemed to imply that investing must be a socialist exercise. We advised that people need a strategy.
  • She wanted to know why day trading was bad. She knew plenty of people who day traded and it was a viable strategy. She berated us for not giving day trading a fair shake.
  • She wanted to know what the single mother with three kids who worked all the time was supposed to do. (We wondered if TurtleTrader was a candidate for political office.) We calmly replied that the market doesn’t care who you are, so you need a strategy. She was literally screaming that this was not fair.
  • She retorted that people no longer listen to brokers in this new age of investing. We told her that tips from brokers were still a problem. Once we stated that broker’s tips were still a problem she asked us to cite a study. If we could cite her a study that broker’s tips were still a problem, our response would be front page news in her opinion.

At this point we politely ended the interview. Why pass this story along? Because for those who truly want to win at trading, it is always nice to be reminded that in the zero-sum game people like this reporter exist in droves. She presents a case study of all of the emotional and psychological roadblocks losing investors possess. We wish her the best, but she is destined to keep losing.

Aussie Dollar Dive Part II

Recently we posted an article about the Australian dollar dive down. Here are excerpts in the Sun-Herald along with our editorial comments, relating to the Australian dollar crisis.

Dennis [Richard Dennis’ trading firm] did not see good news in a stable Australian economy. He saw an opportunity to make a quick buck. If Australia did not put up its interest rates there was not going to be a rise in the Aussie dollar and he saw no sense keeping the hundreds of millions of dollars he had tied up in our currency.

TurtleTrader® comment: Trend followers don’t trade to make quick bucks. They follow trends. The Aussie dollar has been going down for four years. This downward trend has been a great trading opportunity. Since when did traders, who take risks with their own money, have an obligation to prop up a currency?

Selling short means betting how low the Aussie dollar will go over the next hour or day. When traders all over the world do this it drives the dollar down regardless of what its true value must be.

TurtleTrader® comment: True value? The true value of a currency or anything else for that matter is what someone is willing to pay for it. Unless this reporter has some special group who decides true value, our definition stands.

The effect has been that record lows are now being broken almost daily. Financial experts declared the fall was not justified, that the Aussie dollar was worth far more on the international market, and still it fell.

TurtleTrader® comment: What effect? The traders caused the currency to go down? Who are these financial experts? This is just nonsense.

Australia now has to spend two dollars to buy one US dollar and the likelihood of this unfair and uneven level staying for years is very real. The continued fall in the Aussie dollar was not due to bad economic news, a natural catastrophe or political instability. Nothing has changed in the fundamentals of the sound Australian economy since that first disastrous January plunge.

TurtleTrader® comment: Untrue and unfair. The Australian currency has been dropping for many years. One of the primary reasons is that Australians themselves are converting to other currencies in order to invest in other countries with better rates of return.

To put it bluntly, Australia has done everything the global economic rationalists wanted us to do, and yet these same global commodity traders now treat us like dirt.

TurtleTrader® comment: Trend followers are simply trading to make money. They put their money at risk every day. They are neither biased nor judgmental about the markets they trade. They are certainly not trading in order to treat anyone like dirt. This reporter is demonstrating her ignorance regarding basic market operations.

But the people who set the dollar rate, global traders sitting in front of glowing computer screens around the world, didn’t exactly analyze complex graphs and reports on the sound state of the Australian economy and solid prospects for the future.

TurtleTrader® comment: The trend is down. Staying short for now is the plan most traders are following.

See the Aussie dollar chart drop here.

TurtleTrader conclusion: TurtleTrader has nothing against Australia. We are commenting on an article by an inept reporter to make a point about how many people hold misconceptions about trading. We could find the same mindless financial reporting to annotate in any country on the globe, including ours.

Aussie Dollar Dive Part I

We recently spoke with a top reporter for one of Australia’s largest daily newspapers (Sun-Herald). After reading this exchange you will come away with a clearer understanding of the wrong way to view to the market. The reporter is asking the questions:

Q. I want to ask what’s wrong with our dollar and why it continues to fall when our economy is sound?
A. There are two problems with your dollar. First, better investments elsewhere are causing your dollar to sink as currency leaves your country. To some degree this is caused by Australians who want better returns in other markets outside of Australia. Second, the Aussie dollar has become a great currency to short. Traders make money as it sinks downward.

Q. Besides after we put on a great Olympics, why don’t the money men want our currency?
A. The money men don’t want your currency because its value against other currencies is sinking. Trend is straight down. No one wants to own a financial instrument that is trending down, including the Aussie dollar. Think about it. How can you make money by owning the Aussie dollar when it is dropping like a rock. One of the ways that the money men are making money off the Aussie dollar is by shorting it and making money as the price goes steadily downward.

Q. Can you give me some idea of how the US sees our dollar going from now on?
A. Who knows? Seriously, I am not being flippant. No one knows. Technical traders analyze price action, and the price is down. They will ride the Aussie dollar down as long as it will go.

Q. Will it continue falling through 50c? When might it climb back? Or is this sort of level around for good?
A. Who knows? Trend followers just follow the trend till it ends. They don’t predict. All they do is look at what is, not what might be.

Q. Are the traders considering how sound the Australian economy is to decide whether to sell it down or not?
A. No. Not at all. Who cares if the economy is supposedly sound? What measure are you using? The only fact about the economy that is truly known is that the value of the currency is down. So traders short the currency.

Q. The Australian Treasurer Peter Costello is flying to the US this weekend to try and talk up our dollar emphasizing how strong and stable our economy is. Will this have any effect?
A. No. Technical traders are not interested in hearing what he has to say. In the press US traders will pay lip service to the significance of his visit. However, since the models they use say the trend is down, they will continue trading short.

See the dramatic chart drop here.

This reporter did end up spinning a story in which currency speculators are characterized as evil and bad people. As usual, the currency speculators are the ones to blame. Keep in mind that the Australian Dollar has been diving for four years, as the chart shows. That is not the fault of traders. For anyone interested, the story was in the 10.22.00 Sunday edition of the Australian Sun-Herald.

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