Trend Following Mindset by Michael W Covel

46 BOOK REVIEW

By Michael W. Covel (2021) Harriman House, Hampshire, UK

risk management and trade selection were all secondary to that in his view.

The book is split into two parts. The first part narrates the numerous podcast interviews between the author and Tom over the years. The second part offers some research papers that Tom and others have produced that offer some insight into their thinking on trade management, gearing and risk management, which I found useful. Tom’s trend following models or methods are not detailed, but as you read the book, it becomes clear again and again that he believes that the search for ‘serenity’ in trading and ‘enjoying the ride’ is more important than what price action gives a buy or sell signal. The idea of holding position sizes that let you sleep at night, taking profits by running reasonable stop profits in your system and controlling volatility in your portfolio or trading system make a lot of sense. Apparently Tom Basso has earned the nickname of ‘Mr Serenity’ as he doesn’t get excited on good trading days or depressed by bad trading days. The definition of a good day for him is when his trading strategies and models did what they were supposed to do. He anchors the days that making money seems easy by reminding himself of the days when he lost money, and lifts his spirits back up when he is losing money by remembering the days that he made money.

Trend Following Mindset: The Genius of Legendary Trader Tom Basso

Book review by Gerry Celaya, MSTA

Michael W. Covel has written numerous books that highlight famous trend following traders and money managers, directed a movie that covered key economic themes, runs a website and offers podcasts and social media updates that are very popular. ‘Trend Following Mindset’ compiles his podcast interviews with Tom Basso as well as publishing some of Tom’s research papers. This book will appeal to those who find value in reading about how others manage the mental process of trading and achieve success.

This book was an entertaining read for me. I didn’t make it through the ‘Market Wizards’ books, and generally avoid books that interview traders or money managers in order to try and spill their ‘secret sauce’. I do like books that lay out real technical indicators, models or processes and try and explain what works, and doesn’t work, in different markets. This book doesn’t do that, but I found it interesting as I had never heard of Michael Covel or Tom Basso before reading it and felt that I had learned a lot by the end. Intrigued enough to finish ‘Market Wizards’ and pick up other ‘secret sauce’ books? Maybe.

‘Trend Following Mindset’ was enjoyable as Tom Basso made it clear early on that the most important thing in his trading process when he ran TrendStat, and now that he focuses on managing his own money, was the mental part of trading. The entry, exit, One surprising statistic that he mentions a few times is that he can run systems that he knows will lose money around 66% of the time they are implemented. He takes the view that as long as the 33% of trades that are successful make a lot more money that the 66% of losing trades gave up (let your profits run, a key part of any trend following system) then that is ok. Another surprising fact that he has strived for, from the start of his trading career (which started as a side project while he was working as an engineer), is to trade and manage money/risk in a manner that allows him to enjoy his lifestyle.

Tom has apparently honed his system to run on a laptop, come up with the trading positions and send the orders out in 12 minutes or so at the end of the trading day. This goal should appeal to all of us who have put in long shifts at trading desks - work smarter, not harder! I would suggest that this book should be part of a traders reading list to give some insight into how important the mental part of the trading process can be, and some useful rules to keep in mind when allocating money to external managers and running trading positions.