Pod Insights Michael Covel's Trend Following Ep. 1332: The Basics Make You Rich with Michael Covel on Trend Following Radio About this episode Please enjoy my monologue The Basics Make You Rich with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive. --- I’m MICHAEL COVEL, the host of TREND FOLLOWING RADIO, and I’m proud to have delivered 10+ million podcast listens since 2012. Investments, economics, psychology, politics, decision-making, human behavior, entrepreneurship and trend following are all passionately explored and debated on my show. To start? I’d like to give you a great piece of advice you can use in your life and trading journey… cut your losses! You will find much more about that philosophy here: https://www.trendfollowing.com/trend/ You can watch a free video here: https://www.trendfollowing.com/video/ Can’t get enough of this episode? You can choose from my thousand plus episodes here: https://www.trendfollowing.com/podcast My social media platforms: Twitter: @covel Facebook: @trendfollowing LinkedIn: @covel Instagram: @mikecovel Hope you enjoy my never-ending podcast conversation!
Transcript 0:00 Speaker 00 Today, I want to go back to the basics. In the current climate, the 2025, early 2025 climate,
0:10 Speaker 00 there are all kinds of discussions that really ultimately have nothing to do with your profit. Let me give a few examples. Tariffs. Trump policy, tariffs. Now, of course, many other countries around the world have tariffs on America already. From direct tariffs to VAT, etc.
0:39 Speaker 00 Tariffs are not new. They're not Trump-specific. Maybe they work, maybe they don't work. But tariffs are not new. The kicker for you, as you take in the daily information,
0:58 Speaker 00 how do you buy and sell based off tariff news of that day?
1:06 Speaker 00 Explain to me how that works. You buy because of XYZ news on tariffs today? You sell because of XYZ tariff news tomorrow?
1:19 Speaker 00 How much do you bet? Which markets do you select to trade? Now, of course tariffs, in my example, is just a synonym for fundamentals.
1:33 Speaker 00 Whatever fundamentals you want to debate. What is the US Fed going to do this week? What will they do next week? What will the Central Bank of Japan do, or China?
1:49 Speaker 00 This is a guessing game. Now, you can go through life guessing. You can pick that as a direction.
1:58 Speaker 00 But why would you want to do that? If the great traders of the last 100 years don't do that? The great traders use price because they know they will never have enough fundamentals. There will always be another factor, another variable, another shred of news, another opinion somewhere. So I ask you out there listening, you take it all in and do what? Put it in a blender, add fruit juice, add yogurt? And it spits out at you what?
2:42 Speaker 00 Even just a few weeks ago, the conversation was not tariffs. The conversation was Ukraine. Now bless Ukraine, but most people on this planet cannot find Ukraine on a map. That's not a slight towards Ukraine. But if we're thinking big picture, if we're thinking, how do we trade? How do we buy and sell? Trying to understand where things stand in the Ukraine war right now helps you to buy or sell? How? How exactly does this work? It doesn't work.
3:27 Speaker 00 It's these pieces of information that get us excited, get us worked up. Look, I'm not perfect. I'm guilty too. But ultimately, I would never bet on such information. Now, some people might bet and they might get lucky. And if you look at the progression of Americans who sports bet? And the number of offerings and advertisements about sports betting? Clearly, a lot of people don't give one rat's ass about whether they are successful or not. They're in it for the excitement. They're in it for the juice.
4:10 Speaker 00 Those people are never going to be interested in what I do here. Because I'm not offering you juice, I'm not offering you excitement. I'm offering you cold water thrown into your face, perhaps even a fire hose into your mouth of the truth. The data, how things really work.
4:35 Speaker 00 So if you get off on sports betting, if you think that is some kind of a plan or a system that you have.
4:45 Speaker 00 Or if you think you're going to be the next tariff expert. Or the next deep state expert, and trust me, I hate the deep state, and I might very well be an expert on it compared to most. But it doesn't help me to buy or sell. It doesn't help me to know my bet size.
5:06 Speaker 00 Whether you are on the left or the right, how does that help you to bet? How does that help you to buy or sell? Now, I get it, if you want to go Warren Buffett, if you want to go buy and hold, okay, that's one option, that's one strategy. But the trend following perspective is predicated on, we don't know what's going to happen. We can't predict a damn thing. Chaos is normal, people are batshit crazy, and markets will surprise us. And if that's the backdrop, if that's the world that we live in, how do you navigate it?
5:45 Speaker 00 Now, let me give one little side example of how some people navigate the scenarios that I've outlined. I've gotten this text message, this email message, multiple times recently. People text me, and they seem to understand everything that I've just described, and they tell me they're a trend following trader.
6:10 Speaker 00 But they tell me they are working for a prop shop, a proprietary trading shop. Some firm that has promised them the ability to use the firm's capital to trade.
6:23 Speaker 00 Every time I hear this, I know it's not really trend following. I know it's day trading. So they come to me with the idea that they are trend following trading. They get what I'm describing. I ask them a few questions, primarily, what's your timeframe? And invariably, it's 15 minutes or one hour. Look, if you are trading 15 minute bars or one hour bars, you're competing with the likes of hedge funds that have more technology and more capital than you will ever have. So you are right back to the sports betting.
7:06 Speaker 00 You're right back to the degenerate gambling. And that's no way to live. And I actually think good people get pulled into this. But stop, it's not trend following. And that's where I want to go today, back to the basics. What is trend following? First off, it's trading. It's a defined strategy to buy and sell, knowing how much you bet and having a portfolio structure of markets to follow. This is different than investing. Investing is buying something and just holding on and hoping for it to go up. And in many cases, that's been a strategy that has worked.
7:50 Speaker 00 But it's not a strategy that works when the shit hits the fan. It's not a strategy that works when chaos rears its head. Now, trend following can work during good times, at bad times, and surprise times. So it's not that it only works during surprise times. But when surprise times happen, trend following destroys it. Meaning trend following makes a bloody fortune. It makes its absolute returns. Go back to all the big time periods. Seventy-three, seventy-four, Black Monday in eighty-seven, Baring's Bank ninety-five, Long Term Capital Management ninety-eight, the stock crash two thousand,
8:32 Speaker 00 nine eleven, two thousand and one, the Great Recession two thousand and eight, two thousand and nine, oil markets in twenty fourteen to twenty sixteen, Brexit twenty sixteen, COVID, March of twenty twenty. And trend following has done exceptionally well for twenty-two, twenty-three, and twenty-four.
8:49 Speaker 00 The reason it does so exceptionally well is portfolio diversification and trend following is something different. With trend following, you are following a diverse group of markets. That doesn't mean you have a position in them. It means you're waiting for movement. You're waiting for a market to start to trend and then you can get on board. That's how guys like Paul Mulvaney made huge numbers in 2024 on the cocoa market. What did Paul know about cocoa? Absolutely nothing. Paul is a trend following trader. He's a price action expert. He simply had cocoa as something he was following. It took off. He took a position. He made a fortune in it.
9:34 Speaker 00 That's how it works. If you can be open to the idea that when you start the year, that you can make money in a market that you have no knowledge about, you can be a trend following trader. Now, of course, you need some rules. I help people with that. But you don't have to know the fundamentals of Bitcoin, of Nvidia, of Tesla. That's not a requirement to trade these markets. So portfolio diversification is something a little bit different with trend following. And here's where it also gets more interesting when it comes to portfolio diversification.
10:16 Speaker 00 If you have trend following inside of your typical portfolio, the return stream from trend following is different, not correlated to your typical stock and bond buy and hold portfolio. So if you add trend following, which appears to have a different risk structure, you will actually reduce the risk on your typical stock and bond portfolio and, drumroll please, you will get higher returns. So when you think about trend following, it's the diversification from following multiple
10:57 Speaker 00 uncorrelated markets and it's the diversification you get by adding it to a typical portfolio structure of stocks and bonds.
11:07 Speaker 00 And as I stay here focused on the basics, trend following works on all markets.
11:13 Speaker 00 And by market, I mean, again, the Nvidia, the Tesla, the corn, the soybeans, the gold, the Bitcoin. If something has a price, trend following can trade it.
11:28 Speaker 00 Because it's not about the fundamentals. I don't care. I'm not going to require you to have any Bitcoin understanding. Except that you can buy and sell it. Now, why does this work? Why does trend following work? It's because markets are inefficient. This whole idea of markets and efficiency. Come on. The proof is out there. You can find on my website at trendfollowing.com/resources. You could find PDFs of trend following trading going back 100, 200 years. These are timeless principles, timeless rules. Literally centuries of research. And the centuries of research.
12:12 Speaker 00 And this is the underpinning of everything that I do. Ultimately is about nurture beating nature. You're not sitting at the cockpit of some fighter trading jet. And you have some advanced intuitive skill. No. Trend following is CPA boring. It's rules. It's consistency. It's following those rules. That was what the original turtle traders were taught. The turtle traders that you can read about in my book, The Complete Turtle Trader.
12:49 Speaker 00 So if you're ever thinking to yourself, "It can't be me. I don't have access to the big investment banks. I didn't work for Goldman Sachs." Guess what? Most of the fantastically successful trend following traders did not either.
13:06 Speaker 00 They were outsiders. They were one man shops. And look, a one man shop can be a great thing. You can make a bloody fortune for you and your family. You don't have to aspire necessarily to go manage billions of dollars and be a hedge fund manager.
13:23 Speaker 00 You can be a trend following trader and be off the grid, just doing your thing.
13:29 Speaker 00 That's what's fantastic about this is it really gives everyone the chance to chase their ambition. But the bottom line is it's absolute returns. It's about making the big money. I talked about that in my recent podcast interview. The idea that many of the big trend following funds these days have dialed down their volatility. They're not trying to make the big money that the pioneers made. What do you want? Do you want 5% a year? Do you want the small money? Or do you want the pioneer trend following money?
14:09 Speaker 00 The John W. Henry, the Bill Dunn, the Rich Dennis, the Ed Cacota, the Larry Height. Those were the people that inspired us, right? They chased the big money. They didn't chase half returns. But there's no certainty here. It's all about probability. You gotta be comfortable with that. And you have to be comfortable with the mythological 100-year flood, which turns out to be not so mythological and seemingly happens quite regularly. I think since 1929, there's been 20-plus market crashes. Now, if you are of a certain age and the market crashes,
14:53 Speaker 00 for example, Mr. and Mr. Boomer, those folks over, let's say, 70, 75 years of age in America right now. If US equities were to drop 50%, like they did in 2002 or 2008, or '73, '74, if equities were to drop 50% during the retirement years of the Boomers, what would happen? Well, we'd be right back to the cat food jokes.
15:25 Speaker 00 We'd be right back to you save money your whole life with a buy and hold strategy. And right when you get to your golden years, they do a rug pull on you. Am I predicting that? No. Can it happen? Yes. How can you protect yourself? You already know the answer. Trend following. But look, I'm not stupid. I know that fundamentals are a religion. People think they can know. And to paraphrase a great trader, quote, "The illusion has been created that there is an explanation for every market move with the primary task to find that explanation." End quote. No, that's not the goal. Your goal is to make money. Why do you care about chart patterns?
16:10 Speaker 00 Why do you care about fundamentals? You care about making money. That's how I can help you. Whether through my books, whether through my podcasts, whether through my training and my systems. This is about making money. This is about changing your life. This is about the chance to do something awesome. More money equals more time. More time equals more freedom. Freedom is the goal. Trend following is the freedom solution. Yeah, that might sound silly, but it's not. You know, I mentioned earlier, the people that come at me saying they are already trend following, but it turns out they're just day trading. Trend following works on daily bars or weekly bars.
16:55 Speaker 00 That means looking at the markets once a day after the close, or looking at the markets once a week after the close. Some of the best trend following traders that have ever existed traded weekly bars. One market decision per week. That's freedom. That's taking back your time. Who doesn't want that? But it's a game of Kenny Rogers. You remember the singer, the Gambler song?
17:29 Speaker 00 If you're going to play this game, you've got to decide three things at the start.
17:34 Speaker 00 The rules of the game, the stakes and quitting time. As Kenny sang, "You've got to know when to hold them and know when to fold them and know when to walk away." David Ricardo, "Take your losses, let your profits run."
17:49 Speaker 00 It's all rooted in the behavioral work that Daniel Kahneman figured out, Prospect Theory.
17:55 Speaker 00 I mean, everybody loves their gains, but can you learn to love your losses? Because if you can love your losses, your small losses, then you start to understand the real game. Because this is not just about technology. It's about you.
18:14 Speaker 00 Computers are useless. They could give you answers. But it's about you understanding how to use a tool like a computer to automate. So don't get too tied up on the technology, the software, etc.
18:30 Speaker 00 You could trade as a trend-following trader with a piece of paper. You could write your rules and your price levels down on one sheet of paper. It's what the original turtle traders did.
18:44 Speaker 00 Sometimes things change. Sometimes things stay the same. The kicker for you, especially in a world where AI is going to solve everything. You have to get this at a deep level. AI is not going to solve human fear and greed. Trends are not going to stop because of AI.
19:08 Speaker 00 And even if you were on a desert island and you had no other information except price data for the last 5, 10, 25 years, would you need to know about AI?
19:21 Speaker 00 How would AI help you with your daily or weekly trend-following trading system?
19:27 Speaker 00 What would it do? Your system's still gonna be the same, AI or not. Because the markets don't change. Why are the markets not changing? Because the markets are people.
19:42 Speaker 00 That's the reality. People have been the same since day one. And there's always a new generation coming along. And that new generation takes time to learn how things work. And they make dumb choices. They make dumb decisions. They blow money in the zero-sum game. And if you actually have a plan, a system to take advantage, you are in a damn fine position to profit.
20:09 Speaker 00 I mean, when it comes down to it, it's all about those home run trades. Putting yourself in a position that when the big trend happens, when you are opportunistic, that you can make a fortune. But go on an information diet. Why do you need all the information? I know I'm beating a dead horse here. But the latest and greatest AI announcement, I think today's was Google. It's not going to affect your trading. It's not going to affect when you buy and when you sell. It's not going to affect what markets you trade. It's not going to affect how much you bet.
20:51 Speaker 00 Look, bottom line, the big voices out there that you see on all the channels, so to speak, government, media, finance, they will bleed you dry. They could care less about you. Oh, yes, they tell you they care about you, but they don't. And deep down, you know it. Look, we're in a fight. We're in a battle. We're in a war. But it's us. It's our families. It's our friends against the system that always wants to take what you have. And the only way to truly fight back is to be honest with yourself. And to be honest with all the points that I've made today.
21:35 Speaker 00 If you don't want to hear the truth that I've laid out on the table today, that's fine. Just put your earplugs back in. Get back to the gambling. Smoke some more weed. Go get drunk. Do whatever dumbass shit you need to do to pretend that the world doesn't really exist.
21:54 Speaker 00 But if you like learning, if you like knowing how things work, if you like having the opportunity for the big money, for the absolute returns, I can help. And I want to leave you today with one of my favorite parables. I've put it in my book. It goes something like this. Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion, or it will be killed. Every morning, a lion wakes up. It knows it must outrun the slowest gazelle, or it will starve to death. It doesn't matter whether you are a lion or a gazelle. When the sun comes up, you'd better be running. End quote. See you again next week.
22:45 Speaker 00 I see a time when those awake will understand how to make money in up, down, and surprise markets. Whether new trader or experienced, college student or financial advisor, protecting against a crash, or just trying to make a lot of money. Trend following offers everyone an answer in uncertain times. To get started immediately, send me an email, [email protected] . I will send you the right trend following steps to take, along with my free video. But if you want to buy and hold, trust the government and trust Wall Street, this is absolutely not for you.
Previous Ep. 1331: Moritz Seibert Interview with Michael Covel on Trend Following Radio Next Ep. 1333: Thoughts on Bill Dunn with Michael Covel on Trend Following Radio Page updated November 7, 2026 · transcript and summary are machine-generated
