Review: Trend Following

My review is from the hardback version. The author is the first to tell you that there is no Holy Grail in his book. It does excel at providing an encompassing look at the whole process and philosophy of Trend Following. It hasn’t received as much press as buy & hold. It isn’t as sexy as day trading. “Trend Following seeks to capture the majority of a trend, up or down, for profit.”

Trend Following

Author Michael Covel

What becomes clear throughout the book, the process is not to predict or guess the highs or lows. Trend Followers utilize a system or plan and when certain conditions are met, they act upon them. It is really black and white for them. Michael goes about defining terms and describing the philosophy of Trend Following. He then profiles top “Trend Followers” by documenting their returns, describing their attitudes, giving biographical summaries, quoting these men and noting any relevant web sites. Key points are listed at the end of each profile. While many investing books can be dry and slow moving, Covel’s work is surprisingly fascinating. He paints quite a different picture of who these men are and what they do in contrast to what the general public might “assume.” Other chapters include performance data, big events in Trend Following, parallels to baseball, human behavior, decision-making, the science of trading and there’s also a chapter entitled Holy Grails. Michael was saving the best for last by showing us the “bones” of a trading system. One of the final chapters is a primer on how to develop and plan a system that will work for you personally- how to evaluate your system, what to ask yourself about your own personality, how much to risk in a trade or a market, entry points, exit points, etc. The appendices keep delivering the goods. There’s a listing of personality traits, trend following models, a trading system example, a discussion of Modern Portfolio Theory and Managed Futures, and a list of critical questions for trading systems. Other reasons this book will probably stay on investor/traders bookshelves are the endnotes, bibliography, and index. These features make it an excellent reference book. Contrary to how most people feel about reference books, this one is fun to read too.

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