LEARN FROM GENERALS OF THE MARKETS - PART 8
Michael Covel is the head of
Trend Following, which is an institution that boasts students in more than 70
countries. He’s written very popular books, including The Little Book of trading, Trend Commandments, The Complete Turtle
Trader, etc. Those books were translated into many tongues. His also made a
film whose title is, Broke: The American
Dream. He’s known in most parts of the world, where he’s done live
presentations.
For Michael,
trading isn’t the only calling; teaching also is a calling. His institution has
been teaching trend followers since 1996. Michael Covel has vigorously espoused
trend following; a great trading and investment strategy. This strategy allows
speculators to make money from bear and bull markets. It’s been proven that the
art of following the trend is a permanently successful trading method. For more
information on how you can benefit from Michael’s trading ideas, you can visit
his websites at: Michaelcovel.com,
Trendfollowing.com and Turtletrader.com.
Lesson
There are many
useful trading hints and techniques we can learn from Michael. Below are some
points.
A. It’s possible to imitate top traders,
provided we’re disciplined enough to do so. This isn’t hypothetical. Top
traders have common attributes that are timeless. If you can study their
trading styles and apply them, you’ll soon become a real trading expert.
B. There are
losers and winners in the markets. There are losers who refuse to go out of the
market that’s moving against them. There are winners who know when to buy and
when to sell. They also know how to deal with negative positions. Herd
mentality isn’t always a good thing. Trading alongside the trend remains
one of the smartest thing you can do in the market. For example, going long
when the markets are predominantly bearish can be suicidal. With that kind of
market situation, one will just need to go short. Hundreds of billions of
dollars have been made by following the flow of the markets.
C. Personally, I don’t believe in the
Efficient Markets Hypothesis. Merlin Rohtfield doesn’t believe that the theory
is correct. Numerous permanently victorious market wizards across the globe
have proven that theory wrong. Ultimately, Michael Covel also thinks that
theory is against any beneficial trading knowledge. Efficient market dogma has
been proven wrong by impressive track records.
D. Great traders are made, not born. You need
no unique gene, or heavenly miracle or inborn ability or special secret or PhD
to become a consistently winning trader. Your wishes
and opinions aren’t known or respected by the financial markets. These markets
can’t be wrong, but you can be wrong. You don’t need to wait for a position
that’s moving against you to come back to your entry price. You can manage your
risk and minimize your losses in the markets. That’s the only thing you can
control.
E. The buy-and-hold strategy is no longer
useful. It’s useful only if you’re immortal or you’re a magician who can turn
back the hands of the clock.
Review
Going against the
trend is very dangerous, no matter what those who think otherwise may say. Many
traders feel that an overextended bearish market could be ready to rally and do
so protractedly. But the reality is that it might still fall by 600, 800, 1000,
1300 points before it even goes up. One of the major reason traders buy
renowned and world-famous stocks is that analysts talk about them and investors
are often aware of them. If the overextended market continues in the direction
that people don’t expect, then investors get whacked. As a result of this,
everybody would be looking forward to strangling the prime economic forecaster,
as investors holding other instruments are apprehensive. Invariably, you’d see
some suave ape who’s shown on the screen or other type of media, often a
forecaster whose studies were published in the previous year and adjusted some
days prior to the occurrence, safeguarding his studies by reducing the likelihood
while announcing that he still prefers the scenario since it remains
overextended. Or it might be that the stock displays a temporary halt in its
journey and some speculators feel it’s now great to enter contrary to the
established trend and realize gains in counter-trend or mean reversion trading.
They may not realized, yet they’ve fallen in love with a wrong direction and
would go on opening positions against the trend, usually with heavy losses,
till they receive a margin call or forfeit their portfolio.
This article is ended by a few
quotes from Michael:
1. “Speculation isn’t
evil. Think about what drives a market: millions of investors speculating to
make money. That’s evil? That’s life! Recent college graduates speculate that a
high-paying job will come after graduation. That’s evil.”
2. “Zero sum battles are life. Someone has to lose for you to
win. Forget trying to be loved. Need a friend? Get a dog. If you’re going to
win, someone else will lose. Does survival of the fittest make you uneasy? Stay
out of the zero sum game.”
Azeez Mustapha
Market Analyst, Trading Signals Provider and Coach
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