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Quotes from The Little Book of Trading

  
  Education
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The Little book of trading is a must read for trend followers. Michael Covel brings down to all of us what is needed in order to succeed in trend following:

Some of the quotes need to be internalized by investors of trend following strategies..

David Druz

Trend traders are trying to capture risk premium from the hedgers. […]
Hedgers hope to minimize their exposure to unwanted risk. Speculators (i.e. trend followers assume risk for hedgers. […]
Hedgers are net losers in futures markets over the long run, and Druz’s trend trading approach is based on capturing this risk premium.

The more robust a system, the more volatile it tends to be!
There are whole families of trend trading ideas that seem to work forever on any market. The down side is they are very volatile because they are not curve-fitted.

Larry Hite (more…)

Trading Wisdom Via Linda Raschke

  
  Education
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It’s important as a trader to always be studying and sharpening your skills. Here is a short video jammed packed with concepts from Linda Raschke that all traders can use in their trading plan.
Key concepts from the video:

  • The fewer decisions that you can make during the trading day, the better off you will be.
  • All exit strategies should be based of your initial entry.
  • 75% of trades test out best by taking your profits quickly.
  • Shorter the time frame, the less justification for trailing stops.
  • Trend followers often pay up to ensure they get a position.

 

Bernard Baruch’s 10 Trading Rules

  
  Education
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While pure trend followers and technical analysts will not agree with all of Mr. Baruch’s principles it is interesting to read through them, they are the same as some of the top traders and investors of our age. Some of these all traders can agree on.

Bernard Baruch was a millionaire in his early thirties after a few good runs in the stock market and devoted the remainder of his life serving the public and helping the U.S. win World Was I and World War II. He was a big believer in serving his country and that was the main purpose for the remainder of his life after he made his fortune.

Here is a summary of his 10 rules summarized:

1. Only speculate if you can do it full time.
2. Ignore inside information and tips.
3. Have a complete understanding of a companies fundamentals before you buy the stock.
4. Don’t try to buy bottoms or sell tops.
5. Cut your losses quickly.
6. Focus on and buy only a few stocks.
7. Review and update your investments periodically for changes.
8. Study your tax position to know when to sell at greatest advantage.
9. Never invest all your funds. Keep a reserve.
10. Stick to the field you know best in investments.

His biography is a great read for anyone interested in this great man and master trader who counseled presidents and was a close associate of Winston Churchill. It is interesting that it shows how far ahead of his time Mr. Baruch was in not only stock speculating but also discrimination and economics.  If you are reading it for only his advice on stocks just read Chapter 19: My investment philosophy. It is one of the greatest chapters you will find anywhere on advice for successful market speculation. He will explains to readers that economic conditions do not drive prices, peoples perceptions do. Cut your losses fast. Sell your worst performers and keep your best. Know what you are investing in. You can only truly learn the rules of stock trading by experiencing the losses personally.

You Might be a Trend Following Trader if…..

  
  Education
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Trend Follower“Trend  followers use reactive technical analysis. Instead of trying to predict a market direction, their strategy is to react to the market’s movements whenever they occur. This enables them to focus on the market’s actual moves and not get emotionally involved with trying to predict direction or duration.” -Michael Covel/ Trend Following

You Might be a Trend Following Trader if…..

  1. …you love buying break outs above resistance and new all time highs.
  2. …big trends make you happy not angry.
  3. …you do not trade the concept of something being overbought you just use a trailing stop.
  4. …your trading decisions are based on what is happening now, not your opinions, your fears of what will happen, or your hopes of what will happen later.
  5. …you risk a little capital over and over again to make a lot of capital eventually.
  6. …you are great at letting your winners run.
  7. …trend followers don’t need a story they follow actual price action.
  8. …you look for longs in a bull market and shorts in a bear market you are likely a trend follower.
  9. …higher highs and higher lows are one of your best indicators to go long.

Why Trend Followers Mint Money ?

  
  Education
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The reason trend traders make money in the long term is because due to supply and demand and the flow of capital equities, currencies, commodities, and future contracts tend to trend in one direction or the other in different time frames, trend traders and trend followers are there to capitalize on those trends by letting the market action determine their buy and sell decisions seeking to be on the right side of the market’s trend the majority of the time.
Here is why it works:

  1. Bear markets have no supports, they keep falling until a new support level is found.
  2. Bull markets have no resistance, they keep keep going up until a new resistance level is found.
  3. The world’s capital is always flowing and seeking to find returns; this flow causes trends to emerge.
  4. Monster stocks can double due to earnings growth expectations.
  5. Currencies can plunge based on fear of a nations solvency.
  6. Commodities can run to absurd levels based on supply expectations.
  7. Fear can bring markets down far below what any one thinks is rational.
  8. Greed can inflate markets up far above any reasonable valuations.
  9. Trend traders are not predicting price action they are simply following it. They let reality guide them not opinions.
  10. Markets tend to trend and systems that are able to capture trends and minimize losses in choppy environments are robust in the long term.
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