Book Review: Trend Following: How Great Traders Make Millions in Up or Down Markets by Michael Covel
Book Review: Trend Following: How Great Traders Make Millions in Up or Down Markets by Michael Covel (2004)
Michael Covel’s Trend Following explores the systematic strategy of capturing long-term price trends to achieve success across various market environments. Covel reveals how disciplined investment portfolio managers and traders focus on actual price movement rather than predictions, making the strategy adaptable and effective in up or down markets. With historical examples, including the successes of the Turtle Traders and figures like Ed Seykota, Covel demonstrates that trend-following relies on straightforward principles, such as identifying trends, controlling risk, and maintaining emotional discipline. A trend-following approach can result in asymmetric investment returns by aligning with market trends and capturing gains while managing risk effectively.
Chapter Outline with Key Takeaways:
Chapter 1: Introduction to Trend Following
Covel introduces trend-following as a systematic approach focused on trend adherence rather than market forecasting, setting the stage for how traders can capture price movement effectively.Key Takeaway: Trend-following aligns investment decisions with market momentum, supporting the pursuit of asymmetric investment returns.
Chapter 2: Big Events, Crashes, and Panics
Covel illustrates how trend-following can exploit extreme market events, where other strategies often falter. Using historical crashes, he demonstrates trend-following’s potential during high volatility.Key Takeaway: Trend-following’s flexibility in various markets, especially during panics, creates opportunities for positive asymmetry.
Chapter 3: The Philosophy of Trend Following
This chapter examines the mindset of trend-followers, explaining the importance of adhering to systematic rules and remaining emotionally detached from market fluctuations.Key Takeaway: Covel emphasizes that investment portfolio managers pursuing asymmetric investment returns benefit from a trend-following mindset focused on discipline and consistency.
Chapter 4: Performance Data
Covel provides performance comparisons of trend-following against other strategies, validating its potential for asymmetric returns across diverse asset classes.Key Takeaway: Data shows trend-following’s capacity to generate asymmetric investment returns, especially during prolonged trends.
Chapter 5: Case Studies of Trend Followers
Covel profiles successful trend-followers like Richard Dennis and the Turtle Traders, demonstrating how their disciplined approaches consistently capture market trends.Key Takeaway: Real-world success stories illustrate that trend-following offers a proven path for investment managers pursuing asymmetric investment returns.
Chapter 6: Risk Management and Discipline
Covel delves into risk management practices essential to trend-following, from position sizing to controlling drawdowns, crucial for minimizing losses while allowing winners to grow.Key Takeaway: Effective risk management is fundamental to trend-following, crucial for investment portfolio managers focused on asymmetric investment returns.
Chapter 7: System Development and Backtesting
Covel explains the process of developing a trend-following system, emphasizing backtesting, entry/exit rules, and cross-asset applicability.Key Takeaway: Covel underscores the value of systematic backtesting for creating consistent systems that support asymmetric returns.
Usefulness for Investment Portfolio Managers Pursuing Asymmetric Investment Returns:
Trend Following is particularly beneficial for investment portfolio managers focused on asymmetric investment returns. Covel’s examples and data show how trend-following strategies achieve positive asymmetry by riding market trends and limiting downside risks. His insights into disciplined risk management and the psychology behind trend-following make this book a practical resource for building robust, data-driven systems in pursuit of asymmetry, resilience, and sustainable returns.