Strategies for Big Winners
Michael Covel has spent over a decade making trend trading accessible to the average investor. Those who have listened and taken heed to his advice have done well in the wild markets over the past four years, while buy and hold investors have ridden the proverbial price roller coaster to zero returns or worse. Covel created The Little Book of Trading: Trend Following Strategy for Big Winners from his in depth research and interviews with successful traders. In this book these traders share many of the main principles that have created wealth for them. These are not people that got lucky throwing darts at the quote page during a bull market, they all have lengthy track records of success, many spanning several decades while managing millions. This book captures their advice in an easy to understand format.
This book contains the same principles I have used to safely guide my investment account over the past decade to triple digit cumulative returns, while the market as a whole has been flat. I do not think or hope this advice is correct, I know it is from personal trading experience over a long period of time and many market environments.
This book is not written by CNBC talking heads. It does not contain untested theories, personal opinions, or academic ivory tower proclamations from professors that have never traded or managed money. We get to read the lessons that created millionaires and allowed them to live the life they wanted with freedom and independence from a job or boss. These rich traders did not get lucky, they have made money for decades across all markets and regardless of whether it was a bull or bear market. If any market trended on their watch list they made money.
Trend following is about trading with the predominant current trend by studying price history, creating a trading plan, having rules, managing risk, and eliminating the risk of ruin. It is about taking a high probability entry when a system says a trend has begun and exiting when your system says the trend is reversing by stopping you out. All the things most novice traders have no desire to learn about. While inexperienced traders are searching for the next hot stock and only know how to make money when stocks go up. Trend traders are searching for a winning system that has consistent returns over long periods of time. They manage risk with larger positions on high probability trades and less on trades as the trend starts to fade.
The biggest myth in the market is that money is made by predicting the future of prices. Trend traders do not make money by explaining why things happen or guessing what will happen. They profit from trading in the direction of the current trend when an entry signal is given on a market on their watch list. Their systems are mathematical in nature and they trade all markets, gold, oil, grains, futures, currencies, and stock indexes. Their long term success comes from proper risk management. The basic concept they explain for being a successful trend trader is to buy strength and sell weakness. You can use tools like moving averages, or new highs in price to go long or new lows in price to go short.
However you must test your system historically and ensure it is a winner over the long term in all markets. The key is to not give up on your system during flat and range bound markets and know that you will have drawdowns in equity. You must keep taking your entries until a big trend hits and pays for all your smaller stop outs.
Many people can not comprehend how traders make money in down markets. They do not understand shorting or trading only what is trending. They also can not comprehend that the most successful long term traders in the world do not try to predict the future, instead they follow predetermined entries and exits that have been proven historically to give the trader an edge by identifying trends. They do not watch CNBC all day or react to each news flash, they trade prices by using their predetermined system. If you want to join these great traders, read this book and follow the principles. You will never look at investing the same again.
One of my favorite trading/investing books out of the couple hundred I have read, a must have for any serious trader. An excellent addition to your trading library, possibly an instant classic.