The Trend Following Book That Changed My Thinking
The first step to being a trader is to identify what kind of trader you are. Its often a struggle for some, as the many traders that came before me I’ve struggled as well. At the start of my trading career I thought I would be a day trader, quickly it become apparent that I was not cut out as a day trader. I then tried my luck with swing trading but the thought of getting out of a position without know if top has been reached never sat well with me. A few blown accounts and thousands of dollars given away I stumble upon this book, the book that helped me change my outlook on the market and help me find my classification. “Trend Following, 5Th Edition: How to Make a Fortune in Bull, Bear and Black Swan Markets” by Michael W. Covel.
What really stood out to me in this book was how it answered my questions on the market and trading. Questions like:
- Where do I get into a Stock?
- How long do I hold my position for?
- How do I predict what direction the market will go?
- Why is Trading so difficult?
Reading the words, well more listening because I used Audible, that Michael Covel wrote really caused fireworks to light up in my head. My eureka moment. Up until that point in my trading career none of the material I was studying really stood out the way Trend Following did.
These are the princples I understood from this book:
- Don’t be predictive, be reactive
- Simplify your trading
- Identify the direction of least resistance
- Qaulity not Quantity
Don’t Be Predictive, Be Reactive
Rather than trying to predict the market Trend Following gives the idea that a person should be reactive to price movements. First seeing price action in the direction then trading in the direction of price movment. This is with the idea that price action will continue in the same direction or “trend”. This made sense to me as a trader, to see price action favor one direction and taking a risk that price continues. I’m not predicting the move I’m letting it decide it’s direction then following.
Simplify Your Trading
Instead of overly complicating trading Trend Following just ask one question, “What is the trend?”. Breaking trading into just one question takes out a lots of the headaches. Just Identify the trend and go with the flow. This point and “Identify the direction of least resistance” go hand in hand. The trend is the direction of least resistance. The trend is your friend.
Qaulity not Quantity
Its often a misconception that more positions means more profit, or taking more trades means more profit. Qaulity is often better than quantity. Better to find a great winning trade that you can stay in for months and years, then to find mediocre trades that lasts only a few days at best. I myself prefer to do as the saying “Make your money work for you instead of you working for your money”.
Trend Following is a great book to read or listen to, every time I re-listen to the book I discover something new. There are many lessons to be learnt from this book, to many to blog about without just rewritting the book. I really hope this post gets you to read or listen to the book. Maybe if you are struggling, like how I used to be, that Trend Following can help give you an eureka moment. Thank you for reading my post and leave a comment on what your thoughts are.
-Keng Vang
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