Michael Covel: The Trend Following Expert

Michael Covel is a significant figure in the trading world, especially known for popularizing the Trend Following strategy. Here is a comprehensive story about him, including his background, the principles he teaches, and the keys to success in Trend Following according to him.

A Glimpse into Michael Covel's Background

Michael Covel was born on September 1, 1968, in Virginia, USA. He is known as a businessman, author, and speaker focusing on the Trend Following strategy in trading. Covel founded TurtleTrader.com, which later evolved into TrendFollowing.com, a site providing resources and information for traders and investors wanting to learn about the Trend Following strategy.

Michael Covel is the author of several best-selling books, including:

• "Trend Following: Learn to Make Millions in Up or Down Markets" (2004): This book introduces the basics of the Trend Following strategy and how to apply it in various markets.
• "The Complete TurtleTrader: The Legend, the Lessons, the Results" (2007): This book recounts the history of the Turtle Traders, a group of traders trained by Richard Donchian, who achieved great success by following market trends.

Covel frequently appears in major media outlets such as The Wall Street Journal, Bloomberg, The Straits Times, and Fox Business, sharing insights about Trend Following with a broad audience.

Covel's Views on Fundamentals and Trend Following

Most investors believe that an in-depth understanding of fundamental factors like supply and demand, along with economic analysis, can help them predict price movements. However, Michael Covel holds a different view. According to him:

"Investors often become addicted to 'cause and effect' explanations and feel comfortable with the illusion that there is a deeper theory behind fundamentals. For them, what matters is not whether the strategy they are running works or not."

Covel believes that Trend Following is more effective than fundamental analysis. Instead of trying to predict the market's future based on economic theories, Trend Following focuses on following established trends. Covel considers that markets have patterns that can be followed to make profits without understanding all fundamental aspects.

Trend Following According to Michael Covel

According to Michael Covel, Trend Following is a reactive, not predictive, approach. Some basic principles of Trend Following taught by Covel include:

• React to Trends: You don't need to predict when a trend will start or end. The primary focus is to identify and follow the direction of existing trends.
• Market Diversification: Trend Following can be applied in various markets such as forex, stocks, options, ETFs, futures, commodities, and bonds.
• Risk Management: Covel emphasizes the importance of risk management rules to determine trading size, use stop losses, and manage leverage.

Covel states:

"If you apply the Trend Following strategy correctly, you will never buy at the lowest price (bottom) or sell at the highest price (top). The main goal is to capture opportunities in the middle or early part of a trend."

Michael Covel's Trading System

Covel believes that a trading system must be created with clarity. He suggests five key questions that must be answered to create an effective Trend Following system:

1. What markets are you involved in? (For example, if forex, which pairs do you trade?)
2. How big is your transaction size?
3. When do you trade? (For example, during the Asian, European, or New York sessions)
4. When do you exit a losing position?
5. When do you exit a winning position?

The answers to these questions must be clear and unambiguous. Covel emphasizes that consistency in a trading system is key to success.

Three Keys to Trend Following Success According to Michael Covel

Here are three main principles Covel considers essential for success in Trend Following:

1. Don't Speculate Focus on price movement patterns on the chart. You don't need to know why prices move in trends; you only need to follow the trend's direction.

2. Risk Management is a Priority Use appropriate stop losses and manage leverage wisely. Good risk management will protect your account from significant losses and ensure the strategy's continuity.

3. Discipline Must Be Enforced Discipline in following the trading plan and avoiding emotional influences is critical. Covel reminds us that many traders fail because they cannot maintain discipline and often panic or get caught up in emotions.

"Trend Following essentially takes advantage of the market's tendency to panic easily. Discipline can minimize specific biases, reducing the urge to take profits too early or the reluctance to cut losses."

Michael Covel is a figure who has significantly contributed to popularizing the Trend Following strategy. With an approach that prioritizes reactivity to existing trends and avoids complex fundamental analysis, Covel teaches traders to follow market patterns with a disciplined and measured system.

If you are interested in learning more about Trend Following, Michael Covel's works like "Trend Following" and "The Complete TurtleTrader" are excellent resources for gaining deeper insights into this strategy.

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