Author, Film director, Educator
Program(s) Developed: Michael Covel's daily trend following, economic and political commentary
Interview Date: September, 2009
Interviewed by John F. Gallwas - Founder of Striker Securities
Michael Covel is a highly respected author, film director, and entrepreneur. He extends his trading expertise to readers and clients through the use of film, the worldwide web and the written word. He has published two books: "Trend Following: How Great Traders Make Millions in Up or Down Markets" and most recently "The Complete TurtleTrader: The Legend, the Lessons, the Results"
Fueled by the success of his two bestselling books, Covel enters filmmaking with his debut film, "Broke: The New American Dream" an insightful and witty documentary that explores the ripple effects of behavioral finance across the 2007-2009 market and economic crash through the diverse worlds of fish markets, sheep farms, lottery stores and poker tables.
Covel earned a Bachelor's of Arts from George Mason University and a Master's of Business Administration from Florida State University. He has also completed graduate level courses in international relations in London.
John Gallwas: In order to get everyone on the same page, let's start with a simple definition of the two basic price forecasting theories known as "fundamental" and "technical" analysis.
Michael Covel: Fundamental analysis to me means assembling all of the data and knowledge about some market to hopefully make a prediction about its direction. Doing this will hopefully allow you to buy "cheap" or find "value". Built into fundamental analysis is the assumption that you will know when to exit. Technical trend following says something quite opposite. It says we have no idea why any market goes up or down, there is too much information, so why not simply follow the trend up or down with a preset exit plan. Trend following could care less about crop reports or Fed conjecture, just follow the price trend.
John Gallwas: What are the "pros" and "cons" of each our readers should know, and which do you believe is the best for most traders to study.
Michael Covel: I think fundamental analysis is a waste of time. Is that too blunt? Bottom line, no one has any idea what stock, bond, currency, and commodity markets will do over the next six months. How many of the great fundamental analysts had calls that made their clients money over 2008? Not many as trillions of dollars were lost through buy and hold prediction nonsense. Sure, some very smart analysts will get the next six months of predictions right, but then again when you flip a coin you have a 50% chance of being right too. Does that mean there is no hope for profit? No. If you can put aside the need to try and predict the future and if you can instead trade as a technical trader, like trend followers who made fortunes in 2008, you will have a chance to make money going forward. If we can't know the future and if we can't know what direction any market will trend it is far better to have a plan to systematically profit by reacting to market moves versus a reliance on the false hope of predictions. Let me also use some quotes from top trading minds that I have interviewed. Consider the most successful Turtle Jerry Parker: "Technical Analysis relies upon the idea that smart money will move into a market and give advance warning that a position should be taken. This often occurs when the true major fundamentals are unknown." Ed Seykota, from "The Market Wizards" adds: "While Fundamental Analysis may help you understand how things work, it does not tell you when or how much. Also, by the time a fundamental case presents, the move may already be over."
John Gallwas: As a well known author, lecturer, and consultant, you work with many traders. What have you found to be the difference between the profitable and unprofitable trader?
Michael Covel: In my second book "The Complete TurtleTrader" I go into the differences between the world famous Turtle traders who won big and lost big (Chapters 11, 12, and 13). That's right, contrary to myth, not all Turtles were big winners. Some Turtles like Jerry Parker have won massive profits over the years and some Turtles, like Curtis Faith, have not made it as successful traders and have literally imploded. Why is that? It comes down to emotional intelligence. Some Turtles could harness their emotions in order to stick with their trading systems, some could not. The ones, who did not, the ones who thought they were smarter than the system, went bust. I guess I could be less black and white about it, but why do that.
John Gallwas: There are many "trading systems" that have been developed by third-party vendors, brokerage firms, and by individuals. What advise can you give our readers on how to choose and operate a trading system?
Michael Covel: Understand what is under the hood and why -- or don't trade it. Real simple. Next step? Risk and reward are interrelated. How much risk are you willing to take to get the desired reward? It can be different for every person. A good trading system should allow you to turn up the "heat" (or down) to your desired risk tolerance.
John Gallwas: What is the story behind the documentary you produced titled "Broke: the New American Dream"?
Michael Covel: I have been fortunate to learn about markets and money from some of the best traders around the world. I wanted to share their wisdom with others and a documentary film seemed like a great way to reach people. Plus I am very passionate that the government has no answer to the current economic mess and no one is speaking that truth as bluntly as it needed to be said! The film is for everyone. Whether twenty-something?s or sixty-something?s, feedback so far has been one of "I did not expect that." "Wow, is that how it really is." "I need to change what I am doing!" Is there a central theme running through? Trust, but verify. If most people actually did that they might find out that they are on a really "wrong" path. Meaning, whether trusting the government, trusting social security will be there, trusting media images, trusting buy and hold...people just blindly trusted without even thinking. I always want to show people how "it" really works. Dissecting the wrong messaging of government, media and Wall Street is fun. To me, the film is a universal and timeless message.
This interview is for informational purposes only and is not intended to be
a solicitation of any kind. Trade only with risk capital. The risk of
trading can be substantial and each investor and/or trader must consider
whether trading systems are a suitable investment.
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