Product Description

How did John W. Henry quietly become rich enough to buy the Boston Red Sox? How have traders like Keith Campbell, Bill Dunn, Jerry Parker, and Salem Abraham consistently generated immense wealth in bull and bear markets? The key is trend following -- the only strategy proven to consistently make money. Now, one of the field's leading experts pulls back the veil on trend following, showing how it works and how you can take advantage of it. Michael Covel reveals the "underground" network of little-known traders and hedge fund managers who've been using trend following for decades. He introduces its fundamental concepts and techniques, showing why market prices contain all the information investors need, and how to understand price movements well enough to profit from them. Using 100 pages of easy-to-understand charts from top trend followers, Covel proves the strategy works -- and shows why only a technical system based on following price trends can win over the long term. Covel presents more than a decade's worth of data: information you'd otherwise pay a fortune to see presented this clearly. He also shows even more backtested trend following results, so you can gain even greater confidence in the method. Along the way, Covel thoroughly debunks misinformation and failed advice from pros who ought to know better. This timely book capitalizes on today's intense volatility and uncertainty to give investors what they're desperately searching for: a strategy that really works.

Product Details

• Amazon Sales Rank: #50272 in Books
• Published on: 2007-03-16
• Number of items: 1
• Binding: Paperback
• 448 pages

Ed Seykota, Trend Follower for 35 years and Original Market Wizard
Michael Covel's Trend Following: Essential.

Robert (Bucky) Isaacson, Managed Money and Trend Following Pioneer for 30+ Years
This is a valuable contribution and some of the best writing on trend following I've seen.

Charles LeBeau, author of Technical Traders Guide to Computer Analysis of the Futures Markets
This enjoyable and well written book is destined to become a classic.

Customer Reviews

Worth it in the end
It took a fair amount of effort to wade through the large amount of baloney, hype and hero-worship which this book contains. For example, what is a chapter about baseball doing in a book about trading strategies? However, there are definitely nuggets of useful information in this book, and the appendices at the end contain some actual recipes for trading strategies with some backtest results.
Ultimately Covel succeeds in what he is trying to do, which is to popularise the idea of trend-following. The idea is that you only enter a market when there is a trend (as defined by a breakout signal, of which there are many to choose from) and then ride the trend as long as possible. He gives examples of successful funds which manage money using these techniques (although the performance charts showing compounded returns don't always look quite as good when inspected carefully), so it seems it can be done. The book also shows that the discipline of risk-management and sticking to your knitting are more important than the source of the signals themselves.
Nor does Covel shy away from explaining that large losses (or 'drawdowns' as he prefers to call them) are possible. In fact in trendless markets a trend-following system is almost guaranteed to lose money as it buys high and sells low on 'false signals'.
In sum, a decent introduction to trend following. Pedants like me will be annoyed by some of the grammatical and spelling errors and there are a few inconsistencies too. One thing that really needs to be protested is the implication that anyone involved in financial markets who is not trend-following must be a fool. Buy-and-hold is derided, the example of Warren Buffett being refuted by the odd arguments that 1) he is just one man and 2) he also uses derivatives.
Let's imagine what the world would be like if everyone bought and sold like a trend-follower. First of all, there wouldn't initially be any market movement because everyone would be waiting for a signal. Then, if there was a change in price, every trend-follower would immediately chase it in the same direction to either zero or infinity. In fact there would be no market because if everyone was a trend-follower then there would be no-one willing to take the other side of the trend-followers' trades. To say it a slightly different way, with no notion of fundamental value, prices can get to silly levels (imagine bonds trading higher than the sum of their cashflows for example). In fact, the only reason trend-following has a chance of working is because of the existence of natural buyers and sellers (ie 'non-traders') who have business reasons for transactions, as well as value investors and arbitrageurs. Trend followers hope that these market participants are 'greater fools', and this may well be true while there are not a huge number of trend followers in the market.
Which brings me onto the final point- beware of becoming a trend-follower just as a successful book about trend-following is popularising the idea. It is clear that with a greater proportion of trend-followers in the market, the returns will be less (since trading is a zero-sum game as Covel repeatedly points out, if everyone was a trend-follower then for every winner there must be a loser).
I understand that Covel is already working on a book called 'Swing Trading: How to make money in sideways markets'

vague
not really for beginners and gives general ideas with general discussion to traders very little detail of use to a beginner starting off trying to develop a strategy

Essential addition to any trading library
How do a small group of traders consistently make 20% plus returns on their multi millions portfolio each year, trading all markets (index,bonds,commodities). Trend following uses an example of 89 day high for a buy and 13 day low for a sell. Obviously the trend following formula each uses is a jealously guarded secret. But it's a good incite into the world of long term trend following.