Trading Books: ‘Trend Following: How Great Traders Make Millions in Up or Down Markets’ by Michael Covel

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

Published in 2009 by FT Press, Trend Following by Michael Covel is a cornerstone text for traders looking to understand and apply systematic approaches to financial markets. This book offers critical insights for beginner, intermediate, and advanced traders, especially those seeking consistent profits without relying on market predictions. Covel’s method is based on a simple yet powerful concept: follow the price trend. Whether you are a systematic trader or curious about adopting a rules-based strategy, this book provides an essential framework. Covel’s writing demystifies trend following, presenting it as a robust solution for volatile markets, making it relevant for today’s ever-shifting financial landscape.

Michael Covel Background

Michael Covel is not just an author but a passionate advocate for systematic trading and trend following. With decades of experience studying the success of legendary traders, Covel has developed a reputation for demystifying complex trading concepts. He’s authored multiple books and hosts a popular trading podcast. Covel’s unique contribution to the trading world is his ability to distill strategies from great traders like Richard Dennis and Ed Seykota into actionable lessons for traders today. His focus on cutting through noise to identify what truly works in the market makes his work invaluable.

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

In Trend Following, Covel explains how the world’s most successful traders thrive in all market conditions. Here’s a breakdown of key topics covered in the book:

• The philosophy behind trend following and why it works
• The psychology of successful traders and how to overcome emotions in trading
• Practical examples of trend following systems
• Case studies of famous trend followers like Richard Dennis and Bill Dunn
• Risk management techniques that protect traders from catastrophic losses
• The importance of avoiding predictions and focusing purely on market action

Covel structures the book to walk readers through both the theory and application of trend following, ensuring they leave with a clear understanding of how to implement these strategies.

Key Concepts and Strategies

At its core, Trend Following revolves around the idea of capturing market trends—riding the big waves rather than attempting to predict tops and bottoms. Covel emphasizes that market prices move in trends, and it’s the trader’s job to identify these trends and follow them. Here are some standout lessons from the book:

• The Market Doesn’t Care About Your Opinion: Covel stresses that traders must remove emotions and opinions from their decision-making process. Instead, they should rely on price action to guide their trades.
• Risk Management is Key: The book drills in the importance of managing risk. Covel explains how successful trend followers use stop losses and position sizing to control their downside while letting their winners run.
• Diversification Across Markets: Covel explains how trend followers often trade a broad array of markets, from stocks and bonds to currencies and commodities, to capture trends wherever they arise.

These lessons are presented in a way that makes them accessible to traders at all levels.

Practical Applications

Covel’s book isn’t just theory—it provides actionable advice that traders can implement immediately. One of the most useful sections is the focus on backtesting strategies. He explains how traders can use historical data to validate their trend-following systems, giving them the confidence to apply these systems in live markets. Additionally, Covel dives deep into position sizing methods, showing how traders can maximize profits while minimizing risk by scaling their trades appropriately.

Powerful Trading Quotes from Trend Following: How Great Traders Make Millions in Up or Down Markets

Personal Insights from Michael Covel

Covel shares several personal stories about his own journey as a student of the markets. He recounts how learning from legendary traders like Richard Dennis and Bill Dunn shaped his approach. These anecdotes offer readers a closer look at the real-world application of trend following and provide much-needed motivation to stick with systematic strategies through thick and thin.

Conclusion

For any trader looking to step away from discretionary decision-making and move towards a more systematic approach, Trend Following is a must-read. Covel’s combination of theoretical knowledge, practical application, and real-world examples makes this book a powerful tool for traders of all levels—whether you are just starting out or are an advanced trader looking to refine your strategy. Traders who will benefit the most from this book are those interested in systematic or algorithmic trading, trend trading, or anyone struggling with the emotional roller coaster of discretionary trading.

If you’re looking to take your trading to the next level, this book is a must-read! Buy it now on Amazon.