Trend Following (Updated Edition) Quotes

“Never let the fear of striking out get in your way. Babe Ruth”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“He also determined that people dislike losses so much that they make irrational decisions in vain attempts to avoid them. This helps explain why some investors sell their winning stocks too early, but hold on to losers for too long. It is human nature to take the profit from a winner quickly on the assumption that it won’t last for long, but stick with a loser in the futile hope it will bounce back.5”
― Michael W. Covel, Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets,

“Ruth understood the big home runs helped more than the strikeouts hurt. He summarized his philosophy: “Every strike brings me closer to the next home run.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“Your approach becomes objective, moving as close as you can to rational. You have enough confidence in your own decision making that you never seek out investment recommendations. You’re content to wait patiently for the right opportunity. And you’re never too proud to buy a stock making new highs, even all-time highs. For you, investing opportunities are market breakouts. Conversely, when wrong, you exit immediately, no questions asked. You view loss as an opportunity to learn, move on, and save money to play another day. Obsessing on the past is pointless. You approach trading as a business, making note of what you buy or sell and why in the same matter-of-fact way you balance your checkbook. By not personalizing your trading decisions, your emotional indecision has the chance to decrease.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“The Federal Reserve is not currently forecasting a recession. Ben Bernanke 
January 10, 2008”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“Science is about proving things wrong, it’s not about proving things right. What you’re trying to do is break your strategy.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“commodities, currencies, interest rates, credit, and equities.1”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“I guess that for a while it was justified because data was not so easy to access, so the whole academic world has developed without data in a sense.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“The 50–50–90 rule: Anytime you have a 50–50 chance of getting something right, there’s a 90% probability you’ll get it wrong. Andy Rooney”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“Markets may initially trend for fundamental reasons, but prices overshoot by ludicrous amounts. At some point, prices go up today simply because they went up yesterday. Michael Platt”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“The best place to live on this curve is the spot where you can deal with the emotional aspect of equity drawdown required to get the maximum return. How much heat can you stand? Money management is a thermostat—a control system for risk that keeps your trading within the comfort zone. Gibbons Burke5”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“When designing a system, I believe it’s important to construct a set of rules that fit more like a mitten than like a glove.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“Clarifying trading and risk management systems until they can translate to computer code.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“He pointed out his success comes from having a slight edge and proper betting.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“You can’t be a trader when you’re right and an investor when you’re wrong. That’s how you lose.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“One of the biggest mistakes most investors make is believing they’ve always got to be doing something . . . the trick in investing is not to lose money . . . the losses will kill you. They ruin your compounding rate; and compounding is the magic of investing.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“The Greek philosopher Archilochus tells us, the fox knows many things, but the hedgehog knows one great thing. The fox—artful, sly and astute—represents the financial institution that knows many things about complex markets and sophisticated marketing. The hedgehog—whose sharp spines give it almost impregnable armor when it curls into a ball—is the financial institution that knows only one great thing: long-term investment success is based on simplicity. John C. Bogle”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“To be uncertain is to be uncomfortable, but to be certain is to be ridiculous. Proverb”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“Trend trader Larry Hite put it another way: “There are four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“Daniel Kahneman, who was the first psychologist to win the Nobel Prize in Economics (see my podcast episode #212), attributed market manias to investors’ illusion of control, calling the illusion prospect theory. He studied the intellectual underpinnings of investing—how traders estimate odds and calculate risks—to prove how often people act from the mistaken belief they know more than they do.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“However, trend following strategies only work if price trends continue. But why should trends continue? If prices initially underreact to either good or bad news, trends tend to continue as prices slowly move to fully reflect changes in fundamental value. These trends have the potential to continue even further as investors herd (or chase trends). Herding can cause prices to overreact and move beyond fundamental value after the initial under-reaction. Naturally, all trends must eventually end, as deviation from fair value cannot continue infinitely.3”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“Human nature never changes. Therefore, the stock market never changes. Only the faces, the pockets, the suckers, and the manipulators, the wars, the disasters and the technologies change. The market itself never changes. How can it? Human nature never changes, and human nature runs the market—not reason, not economics, and certainly not logic. It is our human emotions that drive the market, as they do most other things on this planet. —Jesse Livermore (1940)”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“The players who score the most runs are home run hitters, not those with consistent batting records. “It’s the same with trading. Consistency is something to strive for, but it’s not always optimal. Trading is a waiting game. You sit and wait and make a lot of money all at once. The profits tend to come in bunches. The secret is to go sideways between the home runs, not lose too much between them.”12”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“NBA players made roughly the same percentage of shots from 23 feet as they did from 24. But because the three-point line ran between them, the values of those two shots were radically different. Shot attempts from 23 feet had an average value of 0.76 points, while 24-footers were worth 1.09. This, the Warriors concluded, was an opportunity. By moving back a few inches before shooting, a basketball player could improve his rate of return by 43 percent.41”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“1298: Seizure of the Gran Tavola of Sienna by Philip IV of France 1307: Liquidation of the Knights Templar by Philip IV 1311: Edward II default to the Frescobaldi of Florence 1326: Bankruptcy of the Scali of Florence and Asti of Sienna 1342: Edward III default to the Florentine banks during the Hundred Years’ War 1345: Bankruptcy of the Bardi and Peruzzi; depression, Great crash of the 1340s 1380: Ciompi Revolt in Florence. Crash of the early 1380s 1401: Italian bankers expelled from Aragon in 1401, England in 1403, France in 1410 1433: Fiscal crisis in Florence after wars with Milan and Lucca 1464: Death of Cosimo de Medici: loans called in; wave of bankruptcies in Florence 1470: Edward IV default to the Medici during the Wars of the Roses 1478: Bruges branch of the Medici bank liquidated on bad debts 1494: Overthrow of the Medici after the capture of Florence by Charles VIII of France 1525: Siege of Genoa by forces of Spain and the Holy Roman Empire; coup in 1527 1557: Philip II of Spain restructuring of debts inherited from Charles V 1566: Start of the Dutch Revolt against Spain: disruption of Spanish trade 1575: Philip II default: Financial crisis of 1575–79 affected Genoese creditors 1596: Philip II default: Financial crisis of 1596 severely affected Genoese businessmen 1607: Spanish state bankruptcy: failure of Genoese banks 1619: Kipper-und-Wipperzeit: Monetary crisis at the outbreak of the Thirty Years’ War”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“Imagine playing football where there are four quarters, and you have to score in each quarter to win. Imagine placing more importance on scoring in each quarter than winning the game. Now a great trend trader says, “I might score 28 points in any of the four quarters. I might score at any point in the game, but the object, at the end of the game, is to win.” If a trend following trader scores 28 points in the first quarter and no points in the next three quarters, and wins, who cares when he scored?”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“Our best trading days are when we don’t trade.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“We’re trying to exploit people’s reaction, which is embedded in prices and leads to trends.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“Price makes news, not the other way around. A market is going to go where a market is going to go.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets

“There is a second type of technical analysis that neither predicts or forecasts. This type is based on reacting to price action, as trend trader Martin Estlander notes: “We identify market trends, we do not predict them. Our models are kept reactive at all times.”
― Michael W. Covel, Trend Following: How to Make a Fortune in Bull, Bear, and Black Swan Markets