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How Many Clients Do You Have?

Michael Covel (February 16, 2005)

Traders who take advantage of the opportunity to learn our trading systems do not guarantee that they will either learn it or use it. Most people are still more comfortable with the status quo. Sustaining the focus, self-discipline and recognition of reality required by proper trading is part of the game too. Most people would rather simply watch CNBC or chat online, rather than learn how to trade correctly. They are committed to neither the trading process nor the only real goal of trading — profits.

So, how many people actually do trend trade? People ask this question because of their concern that there must be so many people trading this way, opportunity to trade profitably no longer exists. This is 100% false.

For systems trend trading to lose its profitability:

  1. People would have to no longer buy and hold: Traders believing in fundamental analysis (the vast majority of market participants) would have to switch to how they trade the markets. They would need to cease buy and hold approaches based on fundamentals and start trading as Trend Followers. Won't happen.
  2. People would start trading short and long: Again, the vast majority of people in the market do not trade short because of fear, ignorance or laziness. They trade long because trading long is all they know. Will this change? No.
  3. People would begin to think for themselves: Most mutual funds are nothing more than buy and hold index buyers. The mutual fund industry and its mammoth size of combined assets would have to shrink dramatically and change their investing styles. The majority trusts their money to these managers and settles for buy and hold returns. They would have to think for themselves which means taking a risk. Most people aren’t risk takers. (There will always be huge opportunity for trend traders to feed off the simplicity of mutual fund managers' actions.)
  4. Sideways markets would exist for eternity: For trend trading to lose its effectiveness, trends would need to end. Change would no longer occur. All markets would need to go sideways forever.
  5. People would branch out from what they know: Most traders are afraid to trade outside of their knowledge area. Since most people only follow fundamental analysis, which requires you to be an expert in a stock or commodity, they lose out on huge opportunities.
  6. Trading based on only price seems too simple: Trend traders don't care if they are trading on a Paris exchange or a New York exchange. All they care about is the price. This is a huge advantage since you are not limited by market or country.
  7. Money management: Most traders don't think about how much to buy or how much to sell. They only worry about when to buy and rarely think about when to sell. Selling will always require more commitment than most people are willing to give.
  8. Hedging would stop: Individuals and companies often hedge their portfolios against unforeseen risk. Since the money needed to hedge goes to systems trend traders (see: zero-sum), hedging would need to stop. Never happen.
  9. People would disengage their emotions and egos from trading: As long as there are human beings involved in the process, there will be excessive reactions and, in the process, profit opportunities.
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