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Trend Following: How Great Traders Make Millions in Up or Down Markets

Book Description

Trend Following is the only long-term trading strategy proven to profit consistently in bull and bear markets alike. Now, Michael Covel demystifies this little-known strategy, using hard performance data to prove its extraordinary value. Covel introduces you to great traders who've built enormous fortunes with Trend Following--including Boston Red Sox owner John W. Henry, Bill Dunn and legendary Ed Seykota. You'll learn exactly why stock prices contain all the information you need to ride trends--and profit.

Table of Contents

  1. Copyright
    1. Dedication
  2. Praise for Trend Following
  3. FT Prentice Hall Financial Times
  4. Financial Times Prentice Hall Books
  5. Preface
  6. Acknowledgments
  7. Part I
    1. 1. Trend Following
      1. The Market
      2. Winning and Losing
      3. Investor v. Trader: How Do You See the World?
      4. Fundamental v. Technical: What Kind of Trader Are You?
      5. Discretionary v. Mechanical: How Do You Decide?
      6. Timeless
      7. Has Trend Following Changed?
      8. Trend Following Modus Operandi: Follow Price
      9. Follow the Trend
      10. Handling Losses
      11. Conclusion
      12. Key Points
    2. 2. Great Trend Followers
      1. Bill Dunn
        1. Extreme Performance Numbers
        2. Be Nimble
        3. About Bill Dunn
        4. Life at Dunn Capital Management
        5. No Profit Targets
        6. Drawdowns Are Part of Success
        7. Dunn Capital Management in Print
        8. Clients
        9. Passing the Torch
        10. Check Your Ego at the Door
      2. Key Points
      3. John W. Henry
        1. Prediction Is Futile
        2. About John W. Henry
        3. A World-View Philosophy
        4. It’s What You Think You Know That Gets You Into Trouble
        5. It Starts with Research
        6. John W. Henry on the Record
        7. Change Is Overrated
        8. Fade the Fed
      4. Key Points
      5. Ed Seykota
        1. Performance Second to None
        2. About Ed Seykota
        3. The Seykota “Secret”
        4. Amos Hostetter: “Never Mind the Cheese”
        5. Jay Forrester: System Dynamics
        6. Seykota.com
        7. Seykota Students
          1. Easan Katir: Seykota Student #1
          2. Jason Russell: Seykota Student #2
          3. David Druz: Seykota Student #3
          4. Jim Hamer: Seykota Student #4
      6. Key Points
      7. Keith Campbell
        1. About Keith Campbell
        2. Campbell Compared to Benchmarks
        3. Correlation and Consistency
      8. Key Point
      9. Jerry Parker
        1. The Virginia Gentleman
        2. Parker Downplays Intelligence
      10. Salem Abraham: Texas Pioneer
      11. Key Points
      12. Richard Dennis
        1. Dennis’ Students: The Turtles
        2. Turtle Selection Process
        3. Dennis, Clients, and Blowups
      13. Key Points
      14. Richard Donchian
        1. The Father of Trend Following
        2. About Richard Donchian
        3. Donchian: The Personification of Persistence
        4. Donchian’s Student
      15. Key Points
      16. Jesse Livermore and Dickson Watts
      17. Key Points
  8. Part II
    1. 3. Performance Data
      1. Absolute Returns
      2. Fear of Volatility; Confusion with Risk
        1. What Is Volatility for Trend Followers?
      3. Drawdowns
      4. Correlation
      5. The Zero-Sum Nature of the Markets
      6. George Soros Refutes Zero-Sum
        1. Dot-Com Meets Zero-Sum
      7. Key Points
    2. 4. Big Events in Trend Following
      1. Event #1: Stock Market Bubble
        1. Drawdowns and Recoveries
        2. Enron, California, & Natural Gas
        3. September 11, 2001
      2. Event #2: Long Term Capital Management Collapse
        1. Who Lost?
        2. Who Won?
      3. Event #3: Asian Contagion and Victor Niederhoffer
        1. Niederhoffer Confuses Trend Following
      4. Event #4: Barings Bank Meltdown
        1. Who Won?
      5. Event #5: Metallgesellschaft
      6. Final Thoughts
        1. The 1987 Stock Crash
        2. The First Gulf War
      7. The Coming Storm
      8. Key Points
    3. 5. Baseball: Thinking Outside the Batter’s Box
      1. The Home Run
      2. Moneyball and Billy Beane
      3. John W. Henry Enters the Game
      4. Pedro Stays In
      5. Key Points
  9. Part III
    1. 6. Human Behavior
      1. Prospect Theory
      2. Emotional Intelligence: Daniel Goleman
      3. Charles Faulkner
      4. Ed Seykota’s Trading Tribe
      5. Curiosity Is the Answer, Not Degrees
      6. Commitment to Habitual Success
      7. Key Points
    2. 7. Decision-Making
      1. Occam’s Razor
      2. Fast and Frugal Decision-Making
      3. The Innovator’s Dilemma
      4. Process v. Outcome
      5. Key Points
    3. 8. Science of Trading
      1. Critical Thinking
      2. Chaos Theory: Linear v. Nonlinear
      3. Compounding
      4. Key Points
    4. 9. Holy Grails
      1. Buy-and-Hold
      2. The King of Buy-and-Hold: Warren Buffett
        1. Buffett Now Trades Derivatives
      3. Losers Average Losers
      4. Crash and Panic: Retirement Plans
      5. Wall Street: Analysis Paralysis
      6. Final Thoughts
      7. Key Points
  10. Part IV
    1. 10. Trading Systems
      1. Risk, Reward, and Uncertainty
      2. The Five Questions for a Trading System
        1. What Market Do You Buy or Sell at Any Time?
        2. How Much of a Market Do You Buy or Sell at Any Time?
        3. When Do You Buy or Sell a Market?
        4. When Do You Get Out of a Losing Position?
        5. When Do You Get Out of a Winning Position?
      3. Your Trading System
      4. Frequently Asked Questions
        1. FAQ #1: How Much Money Do I Need?
        2. FAQ #2: Is Trend Following for Stocks?
        3. FAQ #3: Can You Offer Insight on Computers and Curve-Fitting?
        4. FAQ #4: What Are the Limitations with Day Trading?
        5. FAQ #5: What Is a Good Example of the Wrong Way to View a Trade?
      5. Key Points
    2. 11. Conclusion
      1. Slow Acceptance
      2. Blame Game
      3. Understand the Game
      4. Decrease Leverage; Decrease Return
      5. Fortune Favors the Bold
    3. A. Personality Traits of Successful Traders
    4. B. Trend Following Models
    5. C. Trading System Example from Trading Recipes
      1. System Background Information
      2. System Details
      3. A Canadian Dollar Trade
      4. System Performance
      5. Summary
    6. D. Modern Portfolio Theory and Managed Futures
      1. What Are Managed Futures?
    7. E. Critical Questions for Trading Systems
    8. Resources
    9. Endnotes
      1. Preface
      2. Chapter 1
      3. Chapter 2
      4. Chapter 3
      5. Chapter 4
      6. Chapter 5
      7. Chapter 6
      8. Chapter 7
      9. Chapter 8
      10. Chapter 9
      11. Chapter 10
      12. Chapter 11
      13. Appendix C
      14. Appendix D
      15. Appendix E
      16. About the Author
    10. Bibliography
    11. About the Author