'Trend Commandments' - Trading for Exceptional Returns

by: Dorsey Wright Money Management

Like all of Michael Covel’s prior books, Trend Commandments is well-written. The first time through, I read it in one sitting. However, it is quite different in style and intent from Trend Following and The Complete Turtle Trader. Trend Following introduced an unfamiliar approach to trading, to many people for the first time. This book is about more than the tenets and background of trend following. Trend Commandments is an inspirational piece and exhorts the reader to stop making excuses and go out and do something about it. This book is also about mindset and motivation.

Trend following is not complicated. Mr. Covel points out that you need answers to only five questions: 1) what market do you buy or sell at any time? 2) how much of a market do you buy or sell at any time? 3) when do you buy or sell a market? 4) when do you get out of a losing position? and 5) when do you get out of a winning position?

The tough part of trend following is in the doing. Mr. Covel discusses the discipline required and the psychological mindset needed in a very entertaining and systematic way. In approximately 60 short chapters, he hits on nearly every trend following topic imaginable—from many different angles. There’s tremendous throughness here, which may bother some readers, but it’s mostly because so many parts of the trend following mindset are interrelated. When you see something and you think to yourself, ”didn’t he just say that a couple of chapters ago?” you’ll find that it wasn’t quite the same and that he is simply exploring a closely related topic from another angle.

When I say it is both thorough and entertaining, you still might not have the right idea. The bibliography ranges from Bill James to Seth Godin to Ludwig von Mises. There are citations ranging from the movie The Matrix to the Greek philosopher Epictetus to the Smashing Pumpkins—and that’s just in the first two chapters. That might give you a better flavor for how much fun this book is to read.

Beyond just a discussion of risk and reward and the tenets behind trend following, Covel’s argument is essentially a moral one about initiative, self-reliance, and accountability—things that are sorely lacking in our culture today. Without a strong moral core, you’re not going to succeed in anything, least of all investing.

In short, the book covers the waterfront on trend following and Covel makes his points well. If you don’t understand trend following as an investment approach after reading this book, well, maybe the light is never going to come on for you.

In a world awash in fundamental forecasts, self-appointed gurus, false prophets, efficient marketeers, modern portfolio theorists, high-volume gong-ringing market commentators, and a public (along with much of the investment industry) striving for safety in the middle of the herd, going it alone as a trend follower is certainly the road less taken. And that may make all the difference.