ffttoocc..iinndddd xx 66//2299//1111 77::4455::0033 AAMM L I T TLE B E O H O T K OF TRADING ffffiirrss..iinndddd ii 66//2299//1111 22::5566::2244 PPMM Little Book Big Profi ts Series In the Little Book Big Profi ts series, the brightest icons in the fi nancial world write on topics that range from tried-and-true investment strategies to tomor- row’s new trends. Each book offers a unique perspective on investing, allowing the reader to pick and choose from the very best in investment advice today. Books in the Little Book Big Profi ts series include: The Little Book That Still Beats the Market by Joel Greenblatt The Little Book of Value Investing by Christopher Browne The Little Book of Common Sense Investing by John C. Bogle The Little Book That Makes You Rich by Louis Navellier The Little Book That Builds Wealth by Pat Dorsey The Little Book That Saves Your Assets by David M. Darst The Little Book of Bull Moves in Bear Markets by Peter D. Schiff The Little Book of Main Street Money by Jonathan Clements The Little Book of Safe Money by Jason Zweig The Little Book of Behavioral Investing by James Montier The Little Book of Big Dividends by Charles B. Carlson The Little Book of Bulletproof Investing by Ben Stein and Phil DeMuth The Little Book of Commodity Investing by John R. Stephenson The Little Book of Economics by Greg Ip The Little Book of Sideways Markets by Vitaliy N. Katsenelson The Little Book of Currency Trading by Kathy Lien The Little Book of Alternative Investments by Ben Stein and Phil DeMuth The Little Book of Valuation by Aswath Damodaran The Little Book of Trading by Michael W. Covel ffffiirrss..iinndddd iiii 66//2299//1111 22::5566::2244 PPMM L I T TLE B E O H O T K OF TRADING Trend Following Strategy for Big Winnings M W. C ICHAEL OVEL John Wiley & Sons, Inc. ffffiirrss..iinndddd iiiiii 66//2299//1111 22::5566::2244 PPMM Copyright © 2011 by Michael W. Covel. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchant- ability or fi tness for a particular purpose. No warranty may be created or extended by sales representa- tives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profi t or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Covel, Michael. The little book of trading : trend following strategy for big winnings / Michael W. Covel. p. cm.—(Little book big profi ts series) ISBN 978-1-118-06350-7 (hardback); 978-1-118-14388-9 (ebk); 978-1-118-14390-2 (ebk); 978-1-118-14389-6 (ebk) 1. Capitalists and fi nanciers—Case studies. 2. Investments. 3. Investment analysis. I. Title. HG4521.C815 2011 332.64—dc23 2011021445 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 ffffiirrss..iinndddd iivv 66//2299//1111 22::5566::2255 PPMM This book is dedicated to my grandparents: Wesley Albert Kavaliauskas, Anna Lenore Margis, John Brooke Pruden, Jr., and Mary Margaret Wright ffffiirrss..iinndddd vv 66//2299//1111 22::5566::2255 PPMM ffffiirrss..iinndddd vvii 66//2299//1111 22::5566::2255 PPMM Contents Foreword xi Cullen O. Roche Introduction: A Wake-Up Call xvii Chapter One Stick to Your Knitting 1 Gary Davis, Jack Forrest, and Rick Slaughter Chapter Two Someone’s Gotta Lose for You to Win 21 David Druz Chapter Three No Guts, No Glory 37 Paul Mulvaney ffttoocc..iinndddd vviiii 66//2299//1111 77::4455::0022 AAMM [VIII] CONTENTS Chapter Four In a Land Far, Far Away from Wall Street 53 Kevin Bruce Chapter Five Think Like a Poker Player and Play the Odds 65 Larry Hite Chapter six Stand Up, Dust Yourself Off, and Keep Going 83 David Harding Chapter Seven Throw Away the Fundamentals and Stick to Your Charts 103 Bernard Drury Chapter Eight Study Hard and Get an A+ 117 Justin Vandergrift ffttoocc..iinndddd vviiiiii 66//2299//1111 77::4455::0022 AAMM