In addition, he has a popular interview series where he talks with great traders and about a wide range of topics. We are honored that he chose to interview our portfolio manager, David Stendahl. Here is a link to the Interview.
The interview is simple enough for a novice, but nuanced enough for advanced traders. Some of the topics include:
Stendahl's world is 100% systematic, and he has been involved in conceptualizing and thinking up systematic approaches to trading the market for decades. But what is a system? Stendahl's explanation may surprise you.
Stendahl's approach is that a system should have as few moving parts as possible; it should be simple enough to be explained on the back of a cocktail napkin.
Stendahl explains that your system doesn't have to be complex to work. Sometimes the best system can be only four lines of code.
Covel and Stendahl make an analogy to cars, and how you can easily fix a simpler car in your garage as opposed to a complex Lexus.
Stendahl explains that everyone is using a system in one way or another: every time you make a decision to buy or liquidate, whether it's based on a real system or based on advice from someone on the television, it's systematic in some regard.
If you can talk it, you should be able to quantify it. If you can't quantify it, it might not really be there.
Find out how Stendahl's dyslexia played a role in his technical trading, and how he turned this disadvantage into an advantage.
Covel and Stendahl discuss Ray Dalio of Bridgewater, who says that he is 100% systematic, but doesn't use any technical information.
Covel and Stendahl also discuss position sizing and money management, and how you can approach this systematically.
There is a lot of good stuff in the interview. Hope you enjoy it.
Frank Partnoy ex-Wall Street derivative trader and self-confessed procrastinator, reveals the science behind our decision-making disasters and successes, and argues that decisions of all kinds, whether 'snap' or long-term, benefit from being made at the last possible moment.
The art of knowing how long you can afford to delay before committing is at the heart of many a great decision.
Too many times, a brainstorming session to figure-out how to do something turns into a discussion about how or why it can't be done.
Here's to getting it done anyway!
Sometimes a little extra is all it takes.
It's the extra degree of effort that often separates the good from the great.
For example, at 211°, water is hot. At 212°, it boils.
The one extra degree makes the difference. It's that extra degree that can power a locomotive.
This simple analogy reflects the ultimate definition of excellence. Because it's the one extra degree of effort, in business and life, that can separate the good from the great.
It is from Mac Anderson's Simple Truths. I'm a fan of their work, which takes a simple idea and presents it in a memorable way ... with lots of great quotes and stories to illustrate the concept even better.
It's your life ... You are responsible for your results. It's time to turn up the heat! Are you content with just being pretty good? Or are you ready to go the extra degree?
The author is Chuck LeBeau. He is someone I learned a lot from over the years. He is the consummate "old pro" ... and I always enjoy his stories. They often serve to remind that human nature is a constant in the face of changing markets.
Here is one of those stories. He calls it "Trading Messages from Mars".
Back in the late 1960s, I was a young commodity broker at E. F. Hutton and Co. Our office was a brand-new high-tech office (for its time) that was considered the "flagship office" for E.F. Hutton.
In this office about 30 brokers and as many clients shared one very large boardroom, and there were no private offices. The brokers had elegant and expensive desks, and the clients had a comfortable seating area in the front of the office where they could hang out and watch the tapes and monitor our state of the art commodity "clacker board."
Sitting at my desk near the front of the boardroom, I could read my Wall Street Journal and keep track of the commodity markets without looking at the board. By just listening to the rhythm and tempo of the mechanical clicks as the prices changed, I could easily tell when anything important was going on, because the tempo of the clicks would increase noticeably.
Just in front of my desk were a half-dozen comfortable sofas facing a high mahogany-paneled wall with the tapes and the "clacker board." A gallery of traders, mostly retired "old-timers" who were trading real commodities like grains and pork bellies, lounged around on the sofas plotting their charts and talking about life and the markets. They typically arrived early to get a good seat in their usual spot and then spent the day trading, exchanging commentaries and offering unsolicited advice to one another on any subject.
For the most part, they were a very sociable group who would take coffee breaks together and greeted each other on a first-name basis. These traders enjoyed the elegant atmosphere and treated our well-appointed boardroom as their private men's club. (Were you aware that women were not allowed to trade commodities back in those days? My, how times have changed!)
One of these "old-timers" kept to himself and was not interested in becoming a member of the friendly and often boisterous social circle. He usually sat quietly by himself, intently watching the price changes on the commodity board and holding an old glass Coke bottle up near his ear.
The vintage-shaped Coke bottle had been emptied many years before and now contained only a 12-inch tube of bent and broken radio antennae, which extended awkwardly out of the top of the bottle.
Keep in mind that in the 1960s no one had yet heard of cellphones, so the purpose of this Coke bottle was a real mystery to everyone. When the trader would talk to the bottle from time to time, all the heads would turn, and the traders nearby would try to listen to the conversation. But the trader spoke very softly, and no one was able to eavesdrop on his conversations with the bottle.
The traders knew that the fellow with the Coke bottle was a client of mine, and eventually a representative of the group came to me and said they were extremely puzzled about this guy and his Coke bottle and asked me if I knew what was going on. I didn't know the purpose or meaning of the Coke bottle, but I was as curious as anyone was, and I promised I would find out. The next time the client came back to my desk, I promptly placed his order and then politely asked him about the Coke bottle.
With a serious expression and no embarrassment, he explained to me that the Coke bottle was an inter-planetary communication device that had been given to him by aliens. He said the aliens were very interested in our commodity markets and they often gave him trading advice from their various observation points on other planets. He said he had just had a message from Mars and they were buying soybeans, so he had also purchased soybeans. After revealing his unique trading methodology, he returned to his seat and resumed his whispered conversations with the Coke bottle.
As soon as I revealed my discovery of the meaning of the Coke bottle to the other traders, all attention was immediately focused on the Coke bottle trader and the soybean market. The soybean market proceeded to go the wrong way, and the trade from Mars was eventually closed out at a loss. The other traders had no sympathy and were quick to begin ridiculing the trader and to poke fun at his beliefs.
The next trade, however, turned out to be a big winner, and the Coke bottle trader went from sofa to sofa telling his story and pointing to the clacker board while waiving his Coke bottle and bragging about the profitability of his most recent message from outer space. Because he was making money now, his previous critics had to endure his bragging about his success on the current winning trade.
After a few winning and losing trades later, a clear pattern of behavior began to emerge. The Coke bottle trader was ridiculed unmercifully on his losing trades but was able to get his revenge and the last laugh during the winning trades. This trader might have been a little bit crazy, but he wasn't stupid. He soon learned that his only defense against ridicule was to hold on to winning trades as long as possible and to quickly get out of his losses.
As long as he was sitting on his sofa with a winning trade, no one could tell him he was crazy and make cruel jokes about his messages from Mars. In fact, while he was winning he was quick to wander around the room and ridicule the methods of the other traders who were not making as much money as he was. He displayed the profits in his trading account as hard evidence of the validity of his methods and offered copies of his statements as irrefutable proof that he was getting valuable advice from his alien contacts. Who could argue when his advice from other planets was obviously working?
For a young broker, this experience and the firsthand observation of the Coke bottle trader who suddenly became profitable gave me my first important lesson about the importance of exits. I knew the entry signals had nothing at all to do with his success. His batting average was not any better than that of any other trader. However, this crazy old trader seemed to be able to make money consistently, while other traders with more "sanity" and more valid entry methods were losing.
Before long I was able to recognize that this man had become a successful trader simply by his efforts to avoid ridicule. He knew he was vulnerable during his losing trades, so he closed them out very promptly. His winning trades became his shield against the ridicule of the other traders, and he kept his winners much longer than before his unorthodox methods were revealed.
In the many years since this experience, I have encountered many claims of success for entry methods that probably have even less validity than the Coke bottle messages. I have learned to look only briefly at the entries of winning traders and to examine their exit strategies very carefully. I am very fortunate that more than 30 years ago I learned from the Coke bottle trader that success in trading depends on our exits and not our entries.
Controlling Risk in Volatile Markets.
Chuck says "Buy and Hold" is flawed because it encourages a wait-and-hope outlook among investors and does nothing to provide badly needed control of gains and losses. He claims that the most obvious problem with buy and hold is that it is not a strategy at all. Worse, it sacrifices any semblance of control and relies on luck and hope rather than planning and control. Instead, he advocates risk control techniques, and often uses Average True Range (ATR) and the Average Directional Index (ADX) in his Stop calculations.
Covel has made a name for himself as a chronicler of the Turtle Trading experiment and an outspoken proponent of trend following. Here is a photo of him and me at the Symposium.
Truth be told, I often sit through presentations at a trading conference feeling skeptical, and looking for an idea that rings true or at least seems worth investigating further.
This was much better than that.
Covel claims that market profit is about the right mentoring and practice, not genetic gifts, inborn talents, or Asperger's memory brilliance. You simply need a winning philosophy and strategy, backed by proven positive results that you can execute.
Unlike some industry experts who hint at elusive secrets, Covel's unabashedly open about what he believes works and the things that he's learned from winning traders. He also sprinkles in wisdom from the ages, like this quote from the ancient Greek trend follower, Epictetus.
Do not strive for things occurring to occur as you wish, but wish the things occurring as they occur, and you will flow well.
The audience at an MTA event is filled with an impressive group of people ... you'll meet portfolio managers, strategists, analysts, quants, and traders who rely on technical analysis. Talk of oscillators, histograms and regression testing fills the air. So, it was refreshing to hear Covel challenge the room. Covel loves to poke technicians who talk about quant trading; he claims that systematic trend following is the only quant strategy that actually works.
He said that what he does is real technical analysis because despite what anyone else thinks, he's skeptical that any of the complex strategies being discussed consistently beats the technique he's talking about. The proof, he says, is in the evidence. In this case, it's the detailed trading records of dozens of systematic trend traders who have produced consistent results that dramatically outperform the markets, year-in-and-year-out for decades.
Simple Is Often Better.
If you asked someone who builds trading systems to describe a trading system, they'd probably focus on inputs and technique (e.g., what indicators does it use; is it a momentum strategy; does it seek to profit from artbitrage, reversion to the mean; does it use a simple crossover technique?). In contrast, Covel starts with a proverb:
If you must play, decide upon three things at the start: the rules of the game, the stakes, and quitting time.
Going a little deeper, Covel says a system should confidently deal with these questions.
What market do you buy or sell at any time?
How much of a market do you buy or sell at any time?
When do you buy or sell a market?
When do you get out of a losing position?
When do you get out of a winning position?
However, he cautions that trend following starts with knowing when to do nothing. If the market is screaming like a spoiled brat ... Step to the side. That’s your first play. Cash is a legitimate position.
Learning More.
Covel is an engaging speaker and writer. In addition to the keynote, I had an opportunity to sit down with him and have a real conversation. I'm happy to say that he has a terrific grasp on trading, traders, and an interesting perspective on what works.
Covel has a new book called Trend Commandments: Trading for Exceptional Returns. He claims it is for those who know deep down that there is a real way to make money in the markets, but just do not know how yet.
As a result of our conversation, I bought a copy. Since I had already read several of his other books, including Trend Following and The Complete Turtle Trader, I didn't expect much new information. However, just as he promised, this book has a different tone and is chock-full of insights and tradable ideas.
I spent part of this week at the First Rate Performance Conference. It was held at the Four Seasons resort in Las Colinas, Texas (which is a pretty nice place for a retreat).
In addition to hearing industry experts and company representatives talking about equations, risk management, and regulatory compliance, the conference featured Terry Hershey, who wrote a book called The Power of Pause (Becoming More by Doing Less).
In the book, Terry counters the modern cultural decree of More-Bigger-Faster. His message was simple (and perhaps even easy).
One of the takeaways was that some things are tactical, some things are strategic, and some things are transformational. All of these things can be good ... but the quality of your life and the results results you get change as you spend less time with the tactical and move towards the transformational.
Each student came up with a list and shared with the class. As you might guess, students called out entries like the Pyramids, the Amazon River, the Grand Canyon, or the Taj Mahal. The teacher cheered them on and told them what a great job they were doing.
But one girl stayed silent. The teacher asked her about her list, and the girl answered, "I don't think I understand the assignment."
"Why?"
"I don't have any of the right answers."
"Well, why don't you tell us which you wrote on your paper, and we'll help you."
"Okay," said the girl, "I think the seven wonders of the world are ... to see, to hear, to touch, to smell, to feel, to love, and to belong."
Somewhere along the way, we tend to forget what we used to know.
How much of our daily experience is defined by what we shoot for and what we measure?
Life can be so "daily". That's a problem, isn't it? No wonder we're easily tempted by things that are urgent, rather than important. But it doesn't have to be that way ... and the first step is recognizing that it doesn't have to be that way. The second step is figuring out how you want it to be instead.
To see some of his messages in video format, click this link.
I spent part of last week at the Inc. Magazine GROWCO Conference.
If you're not still learning ... your dying. So, consider continuing education part of your perpetual youth plan.
Plus, there are plenty worse places to be then New Orleans ...
With that said, I know I'm getting older because after walking through the French Quarter - the part of me I most wanted rubbed were my feet. (I wish I was joking).
The first speaker was the Mayor of New Orleans. He explained that one of the key decisions they made after Katrina wasn't to re-build the city ... instead, it was to build the city they always wanted New Orleans to be.
Bill Clinton was there, too. He was articulate, charismatic and clever. But the star of the show (based on audience response and the rush of people to get his autograph) was Daymond John (of FUBU and Shark Tank fame).
Daymond talked about his five Shark Rules: 1. Set Goals; 2. Do your Homework; 3. Always do what you love; 4. Remember you are the brand; and 5. Keep moving.
He stressed that the secret to power is to be decisive.
He also shared that the money they invest on the Shark Tank show really comes from each of them; however, only about 20% of the deals actually get to a closing.
Daymond said that he invests in people, not companies. Moreover, he claims that each of Sharks know who they will invest in within the first minute of the presentation (and he suspects that is how most business-people make decisions). Interesting.
Here Are Some Links for Your Weekend Reading
Here are some of the posts that caught my eye. Hope you find something interesting.Lighter Links:
Trading Links:
Posted by Howard Getson at 03:47 PM in Books, Business, Current Affairs, Ideas, Just for Fun, Market Commentary, Trading, Web/Tech | Permalink | Comments (0) | TrackBack (0)
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