The Little Book of Trading: Trend Following Strategy for Big Winnings
The last decade has left people terrified of even the safest investment opportunities. This fear is not helping would-be investors who could be making money if they had a solid plan. The Little Book of Trading teaches the average person rules and philosophies that winners use to beat the market, regardless of the financial climate.
The market has always fluctuated, but savvy traders know how to make money in good times and bad. Drawing on author Michael Covel's own trading experience, as well as insights from legendary traders, the book offers sound, practical advice in an easy to understand, readily digestible way. The Little Book of Trading:
- Identifies tools, concepts, psychologies, and philosophies that keep people protected and making money when the next market bubble or surprise crisis occurs
- Features top traders in each chapter that have beaten the market for decades, providing readers with their moneymaking knowledge
- Shows how traders who beat mutual fund performance make money at different times, not just from stocks alone
Most importantly, The Little Book of Trading explains why mutual funds should not be the investment vehicle of choice for people looking to secure retirement, a radical realization highlighting the changed face of investing today.
Cullen O. Roche
Introduction: A Wake-Up Call xvii
Stick to Your Knitting 1
Gary Davis, Jack Forrest, and Rick Slaughter
Someone’s Gotta Lose for You to Win 21
No Guts, No Glory 37
In a Land Far, Far Away from Wall Street 53
Think Like a Poker Player and Play the Odds 65
Stand Up, Dust Yourself Off, and Keep Going 83
Throw Away the Fundamentals and Stick to Your Charts 103
Study Hard and Get an A+ 117
You Can’t Know Everything 131
Eric Crittenden and Cole Wilcox
Make It Work Across All Markets 147
Stay in the Moment of Right Now 163
Sing the Whipsaw Song 181
Appendix A: Getting Technical: What Is Capitalism Distribution? 187
Appendix B: Fund Performance Data 193
Glossary of Key Terms 201
Author Disclaimer 207
Michael W. Covel serves as President of Trend Following (www.trendfollowing.com), a privately owned research firm. His first book is Trend Following: Learn to Make Millions in Up or Down Markets, and his second is The Complete TurtleTrader. He also founded TurtleTrader.com® in 1996, and since then, it has grown into an internationally recognized archive of trading information and data visited by over 10 million users. His first documentary filmBroke: The American Dream, about the 20072009 crashwas released in 2009 and premiered on The Documentary Channel.
—Addison Wiggin, Best-selling author ofDemise of the Dollar; Executive Publisher, Agora Financial, LLC
“In The Little Book of Trading, Michael Covel has
collected many gems of wisdom from some of the great traders of our
time. After reading this book and piecing together all of the
commonalities therein, you’ll begin to understand what it
takes to be successful in the markets. Ignore these key truths and
one day you’ll watch your account disappear.”
—Van K. Tharp, Ph.D., President, The Van Tharp Institute.
“Michael Covel’s unique insight into trading is
invaluable. Both novice and experienced traders can benefit from
Michael’s thorough knowledge of markets around the
globe. The Little Book of Trading is a must read for serious
—Louis G. Navellier, Chairman and Founder, Navellier & Associates, Inc.
“Imagine being in the circle of trust of some of the
greatest traders of all time, knowing what made them successful and
having them share heartfelt advice. Though the eyes of Michael
Covel in The Little Book of Trading, you will truly feel
—Murray A. Ruggiero Jr., Contributing Editor, Futures Magazine; VP Research and Development, TradersStudio Inc.
“Michael Covel’s Little Book of Trading is a
must-read guide to help you succeed in the shark-infested waters of
the investment world.”
—From the Forward, Cullen O. Roche, Founder and CEO, Orsus Investments, LLC; Proprietor of Pragmatic Capitalism
“The latest addition to the ‘little book big
profits’ series, Michael W. Covel’s The Little Book
of Trading: Trend Following Strategy for Big Winnings looks at
the financial world through the eyes of successful trend traders
… What Covel stresses throughout the book are the
accompanying principles that make trend following viable: stick to
your plan and manage your risk through diversification, stop
placement, and position sizing. These are important principles for
any kind of trading, but for trend following they are critical
… Successful trend following traders try to capture the
outliers, the really big moves that more than compensate for the
many small losses they take. This goal requires traders to have
confidence in their systems and confidence in themselves. By
introducing the reader to successful trend traders, Covel believes
that some of their ‘magic’ just might rub
Trend following trading is the polar opposite of fundamental analysis. In the latter, you have to know the inner details of a company’s financial statement and determine value to know where to invest. That is the cornerstone of accepted investing. An investor has to know how great the demand will be for the next Apple iPad or how far gold will go up, or down, and why. In trend following, the only variable to making money is to know which way the market price is trending and go in that direction.
In The Little Book of Trading: Trend Following Strategy for Big Winnings, Michael Covel argues vociferously that mutual funds and their long standing foundation of fundamental analysis, long the investment vehicle of choice for retirement security, are no longer valid. He identifies the alternative trading tools, concepts, psychologies, and philosophies that keep money growing—and safe—especially when the next bubble bursts or crisis hits. Each chapter contains core knowledge from top traders or trading firms that have beat mutual fund performance, including Gary Davis, Jack Forrest and Rick Slaughter of Sunrise Capital Partners; David Harding of Winton Capital; David Druz; Kevin Bruce; and Paul Mulvaney.
How to be a Trend Following Trader
Advice from Michael Covel and his All-Star List of Trend Traders:
- Be cautious. Scale back the size of your trades in high volatility situations, placing relatively larger initial trades in times of lower volatility.
- Make sure you never “miss” a potential big move. Always put some kind of trade on when your system says ‘enter.’ Having stops to protect capital and your downside is mission critical.
- Never risk more than 1 percent of your total account on any one trade. This is crucial. You don’t want an individual trade to kill you if the trade doesn’t work out.
- Markets don’t move from one state to another in a straight line: there are periods of shock and volatility. Riding the bucking bronco is the name of the game.
- There is no perfect trend trading system. It’s like being able to define the perfect game of golf or tennis. You can only compare one person’s game against another’s. Don’t argue with your trading system. If it tells you to sell, sell.
- Your portfolio should be broadly diversified, across interest rates, currencies, energies, commodities and stocks. Everyone can trade all markets these days. Take advantage of the opportunities.
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