"The trend is your friend." - Ed Seykota
Michael Covel's "Trend Following" is a comprehensive guide to successful trading and investment strategies, based on the principles of trend following. In this book, Covel draws on decades of experience in the field to offer valuable insights and lessons for traders and investors looking to improve their performance and maximize their returns. Here are 10 of the key lessons you can learn from "Trend Following."
1.Trend Following is a Proven Strategy:
Covel demonstrates that trend following is a proven and effective trading strategy, backed up by decades of data and analysis. He argues that this approach can be successful in any market, provided that traders follow certain rules and principles.
2. Keep it Simple:
Covel stresses the importance of keeping things simple when it comes to trading. He suggests that traders should avoid overly complicated strategies and instead focus on the essentials of trend following. This includes using clear and straightforward techniques for identifying trends, managing risk, and making trades.
3. Focus on the Trend:
Covel emphasizes the importance of focusing on the trend, rather than trying to predict market movements. He explains that trends are often driven by larger forces and can provide a clear signal for entering or exiting trades.
4. Manage Risk:
Covel stresses the importance of managing risk in trading. He explains that traders should always be aware of the potential risks involved in any trade and take steps to minimize those risks. This includes setting stop-loss orders, diversifying portfolios, and carefully considering the size of trades relative to the overall size of the portfolio.
5. Keep Emotions in Check:
Covel argues that emotions can be a major obstacle to successful trading. He suggests that traders should strive to remain calm and rational, even in the face of market volatility and uncertainty. This requires discipline, self-awareness, and a commitment to following a set of rules and principles.
6. Don't Try to Time the Market:
Covel warns against trying to time the market, as this is a difficult and often futile task. Instead, he suggests that traders should focus on following the trend and using clear and simple strategies to manage risk and make trades.
7. Diversify:
Covel recommends that traders diversify their portfolios in order to minimize risk and maximize returns. He suggests that traders should consider a variety of assets, including stocks, bonds, commodities, and currencies, in order to build a well-rounded portfolio.
8. Use Long-Term Perspectives:
Covel suggests that traders should take a long-term perspective when making investments and trades. He explains that trends can develop over time and that it is important to be patient and persistent in order to capture those trends.
9. Stay Committed to the Strategy:
Covel stresses the importance of staying committed to the trend following strategy, even in the face of short-term losses or market volatility. He argues that this requires discipline, patience, and a long-term perspective.
10. Continuously Learn and Improve:
Covel encourages traders to continuously learn and improve their skills. He suggests that traders should read widely, attend seminars and workshops, and engage in ongoing self-education in order to stay up-to-date with the latest developments in the field.
In conclusion, "Trend Following" by Michael Covel is a valuable resource for traders and investors looking to improve their performance and maximize their returns. By highlighting the key principles of trend following and offering practical advice for successful trading, this book is a must-read for anyone looking to build a successful trading strategy.
