Pod Insights Michael Covel's Trend Following Ep. 1359: Technical Analysis is Mostly Bullshit with Michael Covel on Trend Following Radio About this episode Please enjoy my monologue Technical Analysis is Mostly Bullshit 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 So I caught a post on X. It was an image, a book cover image. And it says, "This book will blow your mind." And the title, "Technical Analysis is Mostly Bullshit. Why Flipping a Coin is a Better Strategy Than Using Technical Analysis in the Financial, Stock, and Forex Markets," by Tim Morris. Now, that is a title that I can relate to, for sure. I've not read the book. I don't know Tim. If anyone knows Tim, please have him send me a book. I'd love to take a look at it. And with that cover alone, I'm sure we can do an interesting interview.
0:41 Speaker 00 But I replied to the post on X, and I said, "Predictive or reactive? Technical analysis." Now, that's taken me back a long time. Because when I was working on my first book that came out in 2004, the first edition of Trend Following, there was a big issue that I had to write about. And no one else had ever written about it. Which is these two forms of technical analysis. And I labeled these two forms predictive and reactive. So that was the question I asked to this post. And somebody else replied, "Hey, Grok, please explain the difference." Fair enough.
1:24 Speaker 00 That makes me realize it's 21 years later, and not everybody has learned the same things that I learned at the same time, all those years ago. Time marches on, new people come along, new generations. And everybody is facing the issue of, "How do I understand what's real, what's not real, what's bullshit, what's not bullshit?" So this guy asked for an explanation, an AI explanation, of what I meant. And Grok replied, predictive technical analysis aims to forecast future price movements using patterns, indicators, or models to anticipate trends or reversals before they happen.
2:07 Speaker 00 Reactive technical analysis, on the other hand, responds to confirmed market actions, like entering a trade after a breakout or trend confirmation, without trying to predict. Reactive approaches, such as trend following, emphasize adapting to what the market does rather than guessing. Hey, that's a fair description. That's essentially what I wrote in my book, Trend Following, the first edition in 2004. It's accurate. So let's go with the idea that there are two forms of technical analysis. What's your first thought? Are they both valid? Is there proof for both of them? Where is the evidence?
2:48 Speaker 00 For example, all of the people out there, the books out there, that talk about how you can use predictive technical analysis to essentially predict what's going to happen tomorrow, don't you want the proof? Sure, there are a lot of smart people with perhaps one-off or anecdotal evidence based on their career of using predictive technical analysis. But where are the armies of people using it? For all people to believe in this stuff, hey, if this squiggly pattern happens, then this will happen tomorrow. I just want evidence. That's what I wanted when I was first writing my first edition of Trend Following.
3:32 Speaker 00 Show me the money, so to speak. Show me the evidence. Now, look, there are all kinds of personalities in this world. Everybody has a take. Everybody has a pair of big balls. They want to show the world, so to speak. I got bigger balls than you. I'm cooler than you. I can talk louder than you. I'm more bombastic than you, and I could be pretty bombastic. But I've only ever been bombastic because I thought that there was enough evidence to show that for reactive technical analysis, what trend following is, the evidence is overwhelming. If you wake up and you're an individual trader, an individual investor, and you don't know
4:14 Speaker 00 what to do, the first step is to try to figure out how did people perform already using these strategies? Like who the hell wants to listen to somebody who says, "I have this unique strategy that only I have. It's super special. It's super secret. It's a special sauce, but only I have it. Now, don't you want to hear the secret? Or if you're rational, you say, "Hey, human nature is human nature. The markets are the markets. The markets are made up of people." Are there strategies out there that have endured? Strategies that have stood the test of time? Value has, and trend following has.
4:57 Speaker 00 Reactive Technical Analysis, otherwise known as trend following. So you might be thinking to yourself, "Mike, I know some guys on X and they're bigger than you. Maybe they're richer than you, and they're cooler than you, and they yell louder than you. And they love predictive technical analysis." That's great, but where's the data? Where is the fucking data? Now, if you want to go down the reactive technical analysis path, the trend following path, and you want to find data, there are decades and decades of data series that show trend following performance data. So if you're new to trading or investing, if you are unfamiliar with certain strategies,
5:40 Speaker 00 should you not want to use the strategy that actually has evidence that you can find? It just seems basic logic, right? Hey, over here, there's these people. Sikoda, Height, Parker, Baso, Harding, Luke, etc. And they've all got this evidence. Now, here I am, and I'm just talking about you out there, the here I am every man. Isn't that interesting? That you can find all this evidence for reactive technical analysis? But you can't find it for predictive technical analysis?
6:15 Speaker 00 Yeah, you can find books on predictive technical analysis. Yeah, you can find people screaming from the rooftops about it. And maybe there is one person out there who will say, here is my track record. And it was done with predictive technical analysis. But we're not into anecdotes here. I don't want to know about a one-off. I want to know about people over time, groups over time, that used a common or a similar strategy like trend following, and have had success that's endured over time. I don't want to know about the magic secret hidden in the closet. Because if there's too many magic secrets, eventually, I don't give a shit who it is. You start to say to yourself, I smell bullshit.
7:00 Speaker 00 Or I smell, not necessarily bullshit, I smell somebody who is telling me they're using a certain strategy. But maybe they're not really using that strategy. There's a lot of that out there. There are good people out there who perhaps have a track record, perhaps say it's predictive technical analysis, and no proof, but they are real. And if you saw the proof, maybe it would not be predictive technical analysis. On the flip side, on the other side of the ledger, when you look at trend following track records, you can see what the fuck is going on. How do you know you can see what's going on?
7:43 Speaker 00 When you start to look at multiple trend following track records over many firms or many traders, and you look at the markets that were moving, it's all there. The evidence is there. It's hiding in plain sight. Look, when I got started trying to uncover this interesting contrast between these two supposedly valid strategies, predictive and reactive technical analysis, there was no great social media out there. So you did not have armies and armies of people, for whatever their purpose might be, screaming, cajoling, texting every day
8:26 Speaker 00 about how wonderful predictive technical analysis is. If you think about it... And you've been swayed to the world of predictive technical analysis. You have sort of been brainwashed. You fell in love with it from somebody, from some book, because it looked cool. Somehow or another, explained the world. Trend following doesn't really explain the world. Trend following just says, unexpected moves or trends happen. And we just want to be on board. And we're going to have a lot of small losses while we try to find those big trends. That's trend following.
9:07 Speaker 00 Trend following is not some, hey, look at this Elliott wave. And let's start counting. And then the next thing you know, you're in the middle of mental masturbation. But hey, look, some guys love this shit. They really don't want to make money. They just want to jerk off. They just want to play with themselves. It's not about real. It's not about rational. It's not about proof. They really don't care. But you know what? I really don't care either. I'm in this to say the truth that I have learned. And the truth that I've learned is backed up by XYZ performance data. You guys can all find it. It's across my books. It's across my websites.
9:52 Speaker 00 It's a known commodity. That's fun for me to be the truth teller on a subject. I don't know what the hell the other people think. If you're promoting predictive technical analysis, what is your motivation? Because nobody ever says, hey, look at this. There's 10 professional traders that have all been using the same predictive technical analysis. And here are their audited track records going back decades. I've yet to hear that. Yet to see that. But it's always the implication that it exists. And obviously, it's pretty damn easy to get suckers to believe in things. And I'm not saying that to be mean to anybody or whatever, but you know, life is life. It is what it is.
10:36 Speaker 00 P T Barnum famously said it, there's a sucker born every minute. And I guess I just have fun in this niche world of trend following, sharing what I've seen. I've done it across this podcast for over a decade with the great trend following traders. I don't need to repeat their names. You know who they are. And if you don't know who they are. That's a rabbit hole for you to go down. If you're listening right now, it's the first time you've listened to my podcast, and you don't know about trend following, and you don't know about the great trend following traders. Don't be lazy. It's time for you to find out who the hell they are, and what's their connection to each other. What is this strategy? Why is it unique? Why does it have proof behind it?
11:21 Speaker 00 Why do some of the other strategies like predictive technical analysis? Why do they not have proof? What I'm really describing in this entire conversation today is the scientific method. Dig in. Test. Challenge. Be a skeptic. Hey, anything I've said today? Go verify for yourself. You think I'm full of shit? I don't care. Go verify for yourself. You can verify pretty damn quickly, and AI has made it a hell of a lot easier to verify. And going out today, I want to end with a few memes that I posted. Just love these. It's better to admit you went through the wrong door than to spend your life in the wrong room.
12:04 Speaker 00 That's just about taking losses. Another one. Imagine a box with a bunch of X's in it. Let's say 40 X's and then one check mark. And the caption is, "A winner is a loser who tried one more time." So trend following, right? You gotta keep trying. You're gonna take losses. You're hunting for the big winner. As I lay out this contrast between predictive and reactive technical analysis, otherwise known as trend following. That is trend following. A winner is a loser who tried one more time. Notice there's no counting waves, no Fibonacci, no candlesticks, no support and resistance.
12:50 Speaker 00 No triangles, no flags, none of that bullshit. Cut your losses until you get the trend. And one more that I posted recently that I really love. Quite simple. Price moves first. News explains later. Meaning if you're going to be this reactive technical analysis trader, this trend following trader, the price is going to move. We don't know why the F the price moves. We don't care. We simply go with it. And guess what? After the price moves, somebody will give you a news explanation. Who cares? It's not relevant to profit.
13:34 Speaker 00 The only thing you need for profit is for price to move farther than when you got in. But I love that. It should be on the wall of everyone's office, right? Framed. Price moves first. News explains later. And if you don't get it, drop me an email. [email protected] . See you again next week. 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
14:19 Speaker 00 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.
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