Key Takeaways
- • Trend follower Michael Covel argues that a trader can follow every rule correctly and still take a loss, and that a loss alone does not indicate a flawed decision.
- • Covel warns that judging trades by outcome rather than process leads traders to change working systems after normal losses and to reinforce reckless behavior after lucky wins.
- • Covel recommends reviewing trades by process through a simple log covering entry, size, and exit, and changing rules only after evidence over a large sample.
- • Covel notes that the trend followers he has studied are wrong on a large share of their trades and that their losses come in clusters, with whole years sometimes going badly.
Summary
In a blog post dated November 9, 2026, trend-following commentator Michael Covel argues that traders must accept that sound process can produce losing results. He opens with a line attributed to Captain Jean-Luc Picard in the Star Trek: The Next Generation episode "Peak Performance" (1989): "It is possible to commit no mistakes and still lose. That is not weakness. That is life."
Covel identifies a common mental equation, in which a good decision produces a good result and a bad result implies a bad decision, as harmful in markets. He describes a disciplined trader who takes a planned entry, sizes the position correctly and places the stop as planned, then takes the loss. The natural reaction, he writes, is to alter the system by moving stops, skipping signals or adding filters, even though the loss was a normal part of the system functioning.
Covel makes the reverse case with equal emphasis. A trader who breaks every rule by oversizing, omitting a stop or chasing an entry may profit, and that reward reinforces behavior that will eventually cause severe losses. Because results are noisy, he argues, a single outcome reveals little about the quality of a decision. He proposes that the right question after any trade is whether the trader followed the process, not whether the trade made money. Under that standard, a process-compliant loss is a cost of doing business, while a rule-breaking win is a warning.
Covel acknowledges that losing despite correct execution is psychologically difficult because there is no mistake to learn from. He writes that the trend followers he has studied are wrong on a large share of their trades, lose in clusters and experience entire years of poor performance, and that they maintain their process because the edge appears across many trades rather than any single one. His practical recommendations include reviewing trades by process through a simple log, refraining from rule changes after a single loss or a handful of losses, documenting any rule change backed by a large sample, and treating clean losses as normal costs.
Covel identifies a common mental equation, in which a good decision produces a good result and a bad result implies a bad decision, as harmful in markets. He describes a disciplined trader who takes a planned entry, sizes the position correctly and places the stop as planned, then takes the loss. The natural reaction, he writes, is to alter the system by moving stops, skipping signals or adding filters, even though the loss was a normal part of the system functioning.
Covel makes the reverse case with equal emphasis. A trader who breaks every rule by oversizing, omitting a stop or chasing an entry may profit, and that reward reinforces behavior that will eventually cause severe losses. Because results are noisy, he argues, a single outcome reveals little about the quality of a decision. He proposes that the right question after any trade is whether the trader followed the process, not whether the trade made money. Under that standard, a process-compliant loss is a cost of doing business, while a rule-breaking win is a warning.
Covel acknowledges that losing despite correct execution is psychologically difficult because there is no mistake to learn from. He writes that the trend followers he has studied are wrong on a large share of their trades, lose in clusters and experience entire years of poor performance, and that they maintain their process because the edge appears across many trades rather than any single one. His practical recommendations include reviewing trades by process through a simple log, refraining from rule changes after a single loss or a handful of losses, documenting any rule change backed by a large sample, and treating clean losses as normal costs.
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