Pod Insights Michael Covel's Trend Following Ep. 1366: The Transformation IV with Michael Covel on Trend Following Radio About this episode Please enjoy my monologue The Transformation IV with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive.
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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/
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Hope you enjoy my never-ending podcast conversation!
Transcript 0:00 Speaker 00 Let me say the quiet part out loud. Everyone thinks they're smarter than the market until the market takes their face off. As we go into Black Friday, as we go into Christmas, as we go into the new year, the annual ritual of mindless buying. I'm not here to tell you what to buy, I'm here to tell you the truth. Most people don't fail in the markets because they lack intelligence. They fail because they lack stories of reality. Not theories, not slogans, not memes, not buy the dip TikTok garbage. I mean, actual lived stories of traders who made money for decades while the rest of the world got smacked in the head.
0:40 Speaker 00 Today, I'm going to give you some truth through some great examples of those who lived it. Number one, the turtles, real people, zero experience, millions in profits. You want real, here's real. Rich Dennis did take these 20 random people in the 80s. Blackjack player, guard from the Chicago prison system, Dungeons and Dragons gamer, a pianist, US Air Force pilot, a kid barely out of college. They did not have trend-following trading experience. Some had some fancy degrees, some did not. One, I recall, and I did not get a chance to interview him, lived over top of a saloon.
1:21 Speaker 00 They didn't have forecasting skills, no prediction skills. Dennis gave them two weeks of training. Two weeks, not two years, not some college time of four years, two weeks. What did he teach? No prediction, no chart reading, no market feel, no fundamentals. He taught, enter on price action, exit on price action, take small losses, ride big winners, size positions, control risk, ignore emotions, ignore news, ignore opinions. Simple, mechanical, uncomfortable truth. And the result? That group of 20 made over a hundred million dollars profit after they were done after four years. I mean, that's just a great story.
2:06 Speaker 00 Of course, it's the story of my second book. And while my second book is affectionately titled Complete, and it is, but you can only put so much information in a book. All of the backstory, I've got to figure a way to get it out there. There is so much turtle backstory that just gives you this feeling of, man, he truly took them off the street and made them traders, just like Trading Places. The best one, Jerry Parker, been on this podcast a ton. One of the youngest, launched his firm Chesapeake Capital after, to this day, he refuses to predict the market because he knows he can't. His rule is so simple, it almost sounds, I don't know, silly.
2:51 Speaker 00 His rule, follow price, nothing else. That's it. He's been doing that for 40 years. I mean, I don't know the exact number off the top of my head. I first met Jerry in 1995, and he'd been doing it for a decade at least by then. What can be a possibility for you? I can't guarantee a damn thing. I can't guarantee you will be Jerry Parker. Give me a break. How the hell could I do that? I'm not an idiot. But I can share the stories. I can give the inspiration. The rest is up to you. Number two, John W. Henry, the farm kid who bought the Red Sox. Henry didn't grow up rich. He didn't grow up connected. He was on a farm in Arkansas.
3:35 Speaker 00 The multi-billionaire owner of the Red Sox, a farm in Arkansas. You know what happened. Bought the Red Sox, bought the Liverpool Football Club, NASCAR racing team. He's got league championships in the Premier League, World Series titles. It was all from trend following. I mean, he's not been in the game for a long time. He made his money to buy the Red Sox from trend following and then went into a second career. But it was trend following. There is no John W. Henry and World Series titles with the Red Sox unless there was trend following. They're connected at the hip. His system, his trend following approach, go long when prices broke out, go short when
4:18 Speaker 00 they broke down, diversify across every damn commodity he could, and control your risk. People probably snickered, farm boy, no Wall Street pedigree, no Harvard MBA, no CFA, and he quietly made billions for himself and clients. His net worth today, multi billions. One philosophy, systems beat humans. When asked why he doesn't predict, he said, "Human nature hates randomness, but markets are random, so you must get yourself out of the way."
4:57 Speaker 00 My number three blast from the past, Bill Dunn, hardcore trend follower, no longer with us, passed away recently, his firm continues though, a 50-plus year track record. And if there was ever a guy that should have been in the market wizards book, or books, and wasn't, it was Bill Dunn. I'm not sure how that oversight happened. I mean, he was absolutely a peer of many of the market wizards, just like John W. Henry was, and actually, I don't think this is really an argument, but Dunn and Henry were far more successful than many of the market wizards.
5:40 Speaker 00 You know, when Dunn started, he started not too far away from where I grew up in the northern Virginia area near DC. In a typical split level home, he was running his trend following fund, and everyone told him, "Your drawdowns are too big, your volatility is too high, use fundamentals, predict something." His response, "Price doesn't lie, you do." 2008, Great Recession.
6:05 Speaker 00 His firm up 50%. Lehman collapsed. Markets panicked. The Big Short movie was built out of that time period. Everyone ran to cash. Dunn was getting paid. Why? He had a system. He didn't care about forecasting GDP. He couldn't. Or trying to guess Federal Reserve guidance. Analyze predictions from Wall Street talking heads. Taking in CNBC narratives. He didn't do any of this stuff. He followed his system. Long or short, price decides. And you know, I've said it many times on this podcast. The thing about Bill Dunn. That if you had a chance to meet him. Especially in a world of beta males that we exist in today.
6:47 Speaker 00 You know, those men where you shake their hand and it's like a dead fish? They've got no personal strength. They're weak. They're worthless. You want to wash your hand after you shake a dead fish hand. Not Bill Dunn. Bill Dunn would break your hand. A former Marine. When you went in for that handshake. And even if you didn't know it was coming. And I didn't know it was coming. You sure as hell had to react fast. Because you were going to get something strong. And I love that. There's not enough of that these days. Not enough strong men. Not enough leaders. So do yourself a little honor. Make a small change right now. Shake hands like Bill Dunn. Why not?
7:32 Speaker 00 Why do you want to shake hands like a fricking dead fish? Be like Dunn. Number four, David Harding. Founder of Winton Capital. You know, when I did my first book, Trend Following. I was slightly aware of David Harding. And remember, there was an original firm called AHL. And that firm was sold. And the people that started AHL. Developed their own companies. Winton, Aspect, etc. And they were British. So for me in the States. I didn't completely follow all of that. But in 2005, on my own dime, I went around the world after my first book. To talk to some of the best traders who I had never spoken with. And they all liked trend following, so they gave me the time of day.
8:18 Speaker 00 David Harding was one of those men and I was in his office and he pulled up a screen. And he was kind of a curial and kind of interesting guy, really interesting guy, quiet. And he pulls up the screen and he's showing me his track record. He's showing me other major trend following track records and his was better. And I finally got what he was doing with me. And I looked at him, I said, okay, okay, I promise when I do a new version of my book, I will fix things. His point was how the hell could you leave my track record and my story out of your book? Now, he didn't say that and he wasn't looking for attention, but he was educating me.
8:59 Speaker 00 He was educating me to something that I was not aware of at that exact moment. Cheers to him for that. Number five, Ed Sikoda, definitely one of the godfathers of trend following. Right there with Richard Doncian. In fact, I believe Ed learned from Richard Doncian some things. But he was an original, an original guy who did his own testing in the labs. And when I mean testing, he went down there and did the punch card stuff on the computers before you had what you had today. And this wasn't about predictions again, this was all trend following. There was not this big market intuition. His system was the famous line that you've heard, the trend is your friend till the end when it bends.
9:40 Speaker 00 He had the three core rules, the ones we all know, cut losses, ride winners, size properly. That's it. People want magic. Sikoda gave us math and math wins. I've shared on this podcast before and you can listen to my interviews with Ed. But we had a lot of calls back in the day, a lot of meetups. And he was one of those guys where you sat down with him and without him even saying something, the feeling was this guy is special. This guy can see things other people can't see. He can see through me. That was an interesting feeling, one of the first times in my life. And when you're with someone who has that ability to see you, to see through you,
10:24 Speaker 00 you better not try to fool them. You better just speak the truth. The truth is you know it. Otherwise, you won't become friends with them. They won't care to know you. We live in an age now where people hide online. They create fake social media. They create fake images. They create fake videos. Their whole fucking lives are fake. Now, I don't know what will happen into the future if we'll find these sages, these zen masters like Ed, but that's what you want to be like. You want to be the zen master. You want to be in control. You want to keep the distractions to a minimum. I mean, this is all the philosophy and the psychology behind trend following. If you're sitting around looking at the screen, looking at your candlesticks,
11:09 Speaker 00 yakking about support and resistance, and seeing how many indicators you can put across your monitor, you're fucked. That's not what you want. It's not how the world works. I saw the other day, somebody was yakking on X, Elon's X. They didn't understand the difference between predictive and reactive technical analysis. And they were pushing me. And I was like, well, look, one has a track record, one has proof, and one is bullshit. And this guy responded, "I expected some kind of a more detailed response. I asked you a question, and you said on your podcast that anybody can email you." He starts whining like a little bitch. And I said something to the effect of like, "Hey, do you even know how to use this app?" I mean, if you click on Grok,
11:54 Speaker 00 and you don't like someone's response, and my response was clear enough, if you click on Grok, Grok will give you a three paragraph clarification on why I just said what I said, or anybody for that matter. And if this individual would have bothered to click on the Grok emblem, the AI emblem, it would have explained my answer in detail, predictive versus reactive technical analysis. Look, I love helping people. I don't love helping dead fish handshakes. Do you know what I mean? Be hungry. Show some effort. Do something. Don't be a loser. Try. How the hell do you think I got started? I got started by trying. So do you think all of a sudden, when I get older and a little success,
12:38 Speaker 00 I'm going to respect people that don't try? Come on. Life is fun when you try. Life is fun when you make the effort. Don't be a pussy. Number six, the guy lost everything because he wouldn't follow rules. We know somebody like this. They started with 10 grand, maybe they ran it to a million bucks. They really didn't have a system, but that's how life can be, right? Sometimes luck can be on your side and things can just take off. Next thing you know, you've gone from 10 grand to a million. Now this guy in particular, this guy that we all know, thought he was smart, thought he understood the markets,
13:19 Speaker 00 thought he didn't need any rules. He had gut level intuition, could predict the reversals, turned off his stops. Now what happens when you have that kind of a system, which really isn't a system, and a bull market goes the other way? Like the NASDAQ did in early 2000 until 2002. Big egos get slaughtered. You go from 10 grand to 800 grand, back to zero. This story will always repeat, and there will always be those people that just don't follow the rules. They fail the rules. Now, the sad thing is, these kinds of individuals that run it up from a small account on luck,
14:01 Speaker 00 and then crap out and lose it all, we only hear the upside story. We don't hear the downside story. We don't hear when things go bad. And so many people get fixated on the upside story. This was what I loved about putting trend following out there into the world in a big way, which is what I've done. Because I could put the pro track records out there as proof, audited proof, on file with the Commodity Futures Trading Commission. So when I see these predictive technical analysis guys, and they want to argue with me, these dead fish handshake guys, they never show the proof. Like, just go to the Commodity Futures Trading Commission or the SEC,
14:45 Speaker 00 and find me all of these professional funds that use candlesticks and support and resistance.
14:54 Speaker 00 Like where are they? Now, of course, the Dead Fish Handshake guys will always make up some story about how it's a very secretive technique that only a few people know about. You know, the master living in his closet. Everyone gets what they want. Back to Ed Cakota, right? Everyone gets what they want. If they want to believe bullshit, they're gonna believe bullshit. Now me, I love having the opportunity to play off bullshit. Because if you have millions upon millions of people, let's even say 50% of the audience that are out the lunch, clueless, saying crazy stuff. If you have in your hip pocket, the right way, the right rules, damn, it's a great time to be alive.
15:34 Speaker 00 Because you have unlimited numbers of people that are clueless to fight against, to make the point, to make the contrast. It's great for teaching. Let me give a lumber story. Most people have never thought about trading lumber. You know, like wood? Well, there was a lumber mania in the last couple of years. Trend following trader told this story. He didn't know the lumber fundamentals. He didn't care about sawmills. He didn't care about home construction data. Prices broke out. Lumber prices broke out, meaning they started to go up. He bought. Prices kept rising. He added, prices went parabolic. He held.
16:17 Speaker 00 His friends told him, sell and lock in your profits. Aren't you watching CNBC? Watch the news. This is unsustainable. You're insane. Well, he knew that. He knew it was unsustainable. He knew it was insane. But he had a system. You don't get out early in a big move in trend following. You get out late. So while that market is rocketing up, you stay on board until you get your exit signal. Trend following makes all markets, whether they are, for example, cocoa, gold, silver, lumber, the NASDAQ, Bitcoin. All markets are the same in the trend following mind, in the trend following approach.
17:01 Speaker 00 They are the same because it's all based on price movement. It's a video game in a way. I mean, it has nothing to do with investing. It's finding a mathematical edge and betting on it.
17:15 Speaker 00 So as we head into the end of the year, as we head into Black Friday, and I've said this for the last few weeks, I want to do something for those individuals that want to get to a place of understanding, a place of trend following, understanding faster than they could get there by themselves. And I can help. I can coach. Look, the facts and stories that I told you today, you can go verify, you can go look up the performance data of trend following traders. You can find out how they got started. Their stories are in my books. They're on my podcast. The historical evidence is undeniable. Now, that doesn't mean trend following will be for you. Maybe it's not. I mean, if you're a dead fish handshake, probably not your cup of tea.
17:58 Speaker 00 If you're a dead fish handshake, you can do other things in life. I don't know. Towel attendant at the local bath house might be a good job for the dead fish handshake. Let me remind you, though, the winners in this life, they're not necessarily geniuses, but they are humble. Even me, you might sometimes think, hey, that guy Mike has got a lot of attitude. And maybe on a podcast, I do give a certain amount of attitude. But I'm pretty down to earth. I'm really down to earth, in fact. I mean, people win by following rules. They win by turning off the opinions of other people. Even today, I don't want you to listen to me and say, well, that guy has an opinion. I want you to listen to me and say, let me verify all of this. I
18:43 Speaker 00 don't want to trust that guy at all. I want to verify every damn word that he is saying. Because if you verify, if you go down the path, you're going to be more confident. Look, these stories are all about the mirror. You looking in the mirror. You either see yourself with the winners, or you see yourself as the guy that blew up, or the dead fish handshake. It starts there. It really does. You've got to believe, out of the gate, you can be the winner. And if you believe that, there will be people that will come into your life who can help you get there. I'm one of them. There's others. But once you accept the winner mentality, the winning mindset, you're off to the races.
19:28 Speaker 00 You need something, we all do. Clarity, discipline, and freedom. And this Black Friday, coming up essentially right now, for those of you out there who are new to my world, join me for a strong handshake. And I promise to awaken your mind to the trend-following world and give you the send-off into a trend-following system, a trend-following mindset, trend-following techniques that give you the chance for the absolute returns. Because that is exactly what we all want. See you again next week.
20:12 Speaker 00 I see a time when those awake will understand how to make money in up, down, and surprise markets. Whether a 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. 1365: The Transformation III with Michael Covel on Trend Following Radio Next Ep. 1367: The Transformation V with Michael Covel on Trend Following Radio Page updated November 6, 2026 · transcript and summary are machine-generated
