Over the four day July 4 weekend, I read the book, Trend Following: How to Make a Fortune in Bull, Bear and Black Swan Markets by Michael W. Covel. This 688 page tome is the most complete book on the investment technique of Trend Following that I have ever read.
Don’t let the size of the book deter you from reading it. The first half of the book contains the meat of information, while the last half includes numerous interviews of successful traders, and an extensive appendix supported by lots of research.
The book shows how many of the so-called tried-and-true investment trading techniques, such as dollar cost averaging and fundamental analysis, are basically unsuccessful, and how using trend following can generate positive trades, no matter what kind of market we are in, even crashes. Covel gives numerous examples of how the trend following traders have made money over many years.
One of my favorite chapters was Chapter 4 – Big Events, Crashes, and Panics, which discusses such incidents as Enron, the great recession, the dot com bubble, and Black Friday. The author shows how money was still being made during those times. Probably the most important chapter is Chapter 10 – Trading Systems.
It is interesting that I actually started trend following trading a few months ago with some success. The problem I had was not cutting my losses. However, Covel has pounded the lesson into me to cut my losses quickly. (He has also provided me with many other lessons throughout the book.)
One feature that makes this book interesting is that he provides interesting quotations from famous people on almost every page in the book.
If you are a stock or commodities trader, and your performance hasn’t been as successful as you like, I highly recommend that you read Trend Following.