Psychology Needed for Trend Following Trading

Life Values & Risk: This Is How Trend Traders Think

“It may readily be conceived that if men passionately bent upon physical gratifications desire greatly, they are also easily discouraged; as their ultimate object is to enjoy, the means to reach that object must be prompt and easy or the trouble of acquiring the gratification would be greater than the gratification itself. Their prevailing frame of mind, then, is at once ardent and relaxed, violent and enervated. Death is often less dreaded by them than perseverance in continuous efforts to one end.”
Alexis de Tocqueville

In an effort to remind traders of the hard work needed to trade right, we include the address below from Charles Sanford. It was given when he was Chairman of Bankers Trust:

From an early age, we are all conditioned by our families, our schools, and virtually every other shaping force in our society to avoid risk. To take risks is inadvisable; to play it safe is the counsel we are accustomed both to receiving and to passing on. In the conventional wisdom, risk is asymmetrical: It has only one side, the bad side. In my experience — and all I presume to offer you today is the observations drawn on my own experience, which is hardly the wisdom of the ages — in my experience, this conventional view of risk is shortsighted and often simply mistaken. My first observation is that successful people understand that risk, properly conceived, is often highly productive rather than something to avoid. They appreciate that risk is an advantage to be used rather than a pitfall to be skirted. Such people understand that taking calculated risks is quite different from being rash. This view of risk is not only unorthodox, it is paradoxical — the first of several paradoxes that I’m going to present to you today. This one might be encapsulated as follows: Playing it safe is dangerous. Far more often than you would realize, the real risk in life turns out to be the refusal to take a risk. In other words, the truly most threatening dangers usually arise when you shrink from confronting what only appear to be the most threatening dangers. What is widely regarded as playing it safe turns out not to be safe at all.

What I’m offering here is not a surefire, guaranteed formula for success. No such formula exists. It never will. If anyone ever tries to sell you one, keep your money in your pocket. For life, above all else, is a risk. I’m not trying to dispel that risk with a bottle of Charlie Sanford’s Magic Elixir. I can only arm you with a little food for thought. I do have a few suggestions. You may not wish to follow them. But if you’ll think about them, I’ll consider our time together most productively spent. We all know that modern civilization owes much to the ancient Greeks. As the 20th century draws to a close, it’s difficult to single out a Greek thinker who speaks more directly to us than Heraclitus. All is flux, nothing stays still, said Heraclitus some 2,500 years ago. Nothing endures but change.

Most of us have come to believe that nothing endures but change, but its consequences still deserve some reflection. Obviously, if change is the fundamental rule of life, then resistance to change is folly — doomed to defeat. Just as obviously, if change is our constant, then uncertainty is an inescapable part of our lives. Uncertainty is unavoidable. Life is unpredictable. The very essence of life is the unexpected and the unintended, the unanticipated turns that we may metaphorically ascribe to Fate or Destiny or Providence. Therefore, unless we wish to be tossed about like so much flotsam on the waves of inescapable change, we must place ourselves squarely in the midst of change. We must learn to ride the current of change rather than to swim against it — although people who haven’t taken the trouble to learn how the world really works will think we’re doing exactly the opposite.

In other words, risk is commonly thought of as going against the current, taking the hard way against high odds. In a world of constant change, however, a world where Heraclitus said we can never step into the same river twice, taking risks is accepting the flow of change and aligning ourselves with it. Remember the first paradox: Risk only looks like reckless endangerment. For those who understand reality, risk is actually the safest way to cope with a changing, uncertain world. To take a risk is indeed to plunge into circumstances we cannot absolutely control. But the fact is that the only circumstances in this life that we can absolutely control are so relatively few and so utterly trivial as hardly to be worth the effort. Besides, the absence of absolute control — which is impossible in any case — does not entail the absence of any control, or even significant control.

There, again, is the paradox: In a world of constant change, risk is actually a form of safety, because it accepts that world for what it is. Conventional safety is where the danger really lies, because it denies and resists the world. I trust you understand that when I say risk is actually safety, I’m talking about a certain sort of risk. I’m not advising that you leap off tall buildings in the hope that the operation of constant change will reverse the law of gravity in mid-flight. I’m speaking rather of a sort of risk that actually aligns you with the direction of change.

To be more specific, I believe firmly that the sort of risks that put one in a position to control one’s lot in a world of incessant change are the risks that attempt to add something of value to that world. To create value, to focus one’s efforts on increasing the fund of that which is worthwhile, involves (as we shall see) a sort of risk. And yet, paradoxically, it provides you with the greatest control over a changing world and maximizes your chances to achieve a truly meaningful personal satisfaction.

Critical Thinking: Trend Followers Are Scientists at Their Root

In the book Critical Thinking, the essential thought processes of a trend follower are outlined:

Dispositions: Critical thinkers have dispositions that are skeptical and open-minded. They value fair-mindedness, respect evidence and reasoning, respect clarity and precision, look at different points of view, and will change positions when reason leads them to do so.

Criteria: To think critically, you must apply criteria. This means you need to set conditions that must be met for you to judge something as believable.

Argument: Is a statement or proposition with supporting evidence. Critical thinking involves identifying, evaluating, and constructing arguments.

Reasoning: You have the ability to infer a conclusion from one or multiple premises. To do so requires examining logical relationships among statements or data.

Point of View: POV is the way you view the world, which shapes your construction of meaning. In a search for understanding, critical thinkers view phenomena from many different points of view.

Procedures for Applying Criteria: Other types of thinking use a general procedure. Critical thinking makes use of many procedures. These procedures include asking questions, making judgments, and identifying assumptions.

Excerpts below taken from

Force Feeding the Students

Mindless memorization: Like fattening a goose before slaughter, force feeding students endless content in the form of declarative sentences and then asking them to remember the content is mindless teaching at its best, and mental torture at its worst.

The art of the question: We need questions to jumpstart our intellectual engines. Questions generate more questions until the student takes ownership of the material and focuses thinking on a process to gain the answer. The questions we ask determine where our thinking goes. When learners are asked to memorize facts, it’s as if they were told to repeatedly step on the brakes in a vehicle that is parked. Their mind goes nowhere.

Go below the surface: Deep questions drive our thoughts below the surface of things and force us to deal with the complexity of what is real.

Define the task: Purposeful questions force us to define our task. We must begin to evaluate information instead of mindlessly accepting it as truth. We begin to look at our sources of information as well as the quality.

Find Meaning: Questions of interpretation force us to examine how we are organizing or giving meaning to information.

Discover the facts: Questions of assumption force us to examine what we are taking for granted.

Show Direction: Questions of implication force us to follow through on where our thinking is going.

Find Context: Questions of point of view force us to examine our point of view and to consider other relevant points of view.

Focus: Questions of relevance force us to discriminate what does and what does not bear on a question.

Look for truth: Questions of accuracy force us to evaluate and test for truth and correctness.

Look for detail: Questions of precision force us to define details and be precise.

Self examine: Questions of consistency force us to examine our thinking for contradictions.

Put it all together: Questions of logic force us to consider how we are putting the whole of our thought together, to make sure that it all adds up and makes sense within a reasonable system.

Deadening Questions Create Dead Minds

Unfortunately, most students ask virtually none of these types of questions. Instead they ask deadening questions like, Is this going to be on the test?. Their questions imply they have no desire to think. Or they ask no questions, sitting in silence; their minds on both pause and mute. As a result the questions they do have tend to be superficial and ill-informed because they have not taken ownership of the content. At the same time, most teachers are not generators of enlivening and energetic questions. Most are not seriously engaged in thinking through or rethinking through their own subjects. It is easier for them to teach as purveyors of the questions and answers of other teachers, usually the authors of a textbook. We must continually remind ourselves that critical thinking about any type of content whatsoever, whether it is trading, history, biology or how to sail a boat only begins when questions are generated by both teachers and students. No questions equals no understanding. Superficial questions equals superficial understanding. If we want to think critically, we must stimulate our intellect with questions that lead us to even further questions. We must overcome what our previous schooling has done to our way of learning. We must resuscitate minds that are dead when we interact with them either as teachers or fellow students. We must give ourselves and our students what could be called artificial cogitation, the intellectual equivalent of artificial respiration to make dead minds come to life again.

Critical Thinking Quotes

“Critical thinking is deciding rationally what to or what not to believe.”
Norris, Stephen P. Synthesis of Research on Critical Thinking.

“Critical thinking is the use of those cognitive skills or strategies that increase the probability of a desirable outcome. It is used to describe thinking that is purposeful, reasoned and goal directed – the kind of thinking involved in solving problems, formulating inferences, calculating likelihoods, and making decisions when the thinker is using skills that are thoughtful and effective for the particular context and type of thinking task. Critical thinking also involves evaluating the thinking process – the reasoning that went into the conclusion we’ve arrived at the kinds of factors considered in making a decision. Critical thinking is sometimes called directed thinking because it focuses on a desired outcome.”
Halpern, Diane F. Thought and Knowledge.

“The purpose of critical thinking is, therefore, to achieve understanding, evaluate view points, and solve problems. Since all three areas involve the asking of questions, we can say that critical thinking is the questioning or inquiry we engage in when we seek to understand, evaluate, or resolve.”
Maiorana, Victor P. Critical Thinking Across the Curriculum.

“Broadly speaking, critical thinking is concerned with reason, intellectual honesty, and open-mindedness, as opposed too emotionalism, intellectual laziness, and closed-mindedness. Thus, critical thinking involves: following evidence where it leads; considering all possibilities; relying on reason rather than emotion; being precise; considering a variety of possible viewpoints and explanations; weighing the effects of motives and biases; being concerned more with finding the truth than with being right; not rejecting unpopular views out of hand; being aware of one’s own prejudices and biases, and not allowing them to sway one’s judgment.”
Kurland, Daniel J. I Know What It Says . . . What does it Mean?

“Critical thinking is a process which stresses an attitude of suspended judgment, incorporates logical inquiry and problem solving, and leads to an evaluative decision or action.”
NCTE Committee on Critical Thinking and the Language Arts.

“Critical thinking includes the ability to respond to material by distinguishing between facts and opinions or personal feelings, judgments and inferences, inductive and deductive arguments, and the objective and subjective. It also includes the ability to generate questions, construct, and recognize the structure of arguments, and adequately support arguments; define, analyze, and devise solutions for problems and issues; sort, organize, classify, correlate, and analyze materials and data; integrate information and see relationships; evaluate information, materials, and data by drawing inferences, arriving at reasonable and informed conclusions, applying understanding and knowledge to new and different problems, developing rational and reasonable interpretations, suspending beliefs and remaining open to new information, methods, cultural systems, values and beliefs and by assimilating information.”
MCC General Education Initiatives

MCC General Education Initiatives uses of critical thinking:

  • Underlies reading, writing, speaking, and listening . . . the basic elements of communication
  • Plays an important part in social change . . . institutions in any society – courts, governments, schools, businesses – are the products of a certain way of thinking.
  • Helps us uncover bias and prejudice.
  • Is a path to freedom form half-truths and deceptions.
  • The willingness to change one point of view as we continue to examine and re-examine ideas that may seem obvious. Such thinking takes time and the willingness to say three subversive words: I don’t know.

“Critical thinkers: distinguish between fact and opinion; ask questions; make detailed observations; uncover assumptions and define their terms; and make assertions based on sound logic and solid evidence.”
Ellis, D. Becoming a Master Student

Critical Readers Are:

  • Willing to spend time reflecting on the ideas presented in their reading assignments
  • Able to evaluate and solve problems while reading rather than merely compile a set of facts to be memorized
  • Logical thinkers
  • Diligent in seeking out the truth
  • eager to express their thoughts on a topic
  • seekers of alternative views on a topic
  • Open to new ideas that may not necessarily agree with their previous thought on a topic
  • Able to base their judgments on ideas and evidence
  • Able to recognize errors in thought and persuasion as well as to recognize good arguments
  • Willing to take a critical stance on issues
  • Able to ask penetrating and thought-provoking questions to evaluate ideas
  • In touch with their personal thoughts and ideas about a topic
  • Willing to reassess their views when new or discordant evidence is introduced and evaluated
  • Able to identify arguments and issues
  • Able to see connections between topics and use knowledge from other disciplines to enhance their reading and learning experiences
    Schumm, J. S. and Post, S. A. Executive Learning

Know Yourself: Trend Following Secret Weapon!

Michael J. Mauboussin offers great advice to avoid the dreaded market despair:

Knowing yourself means understanding how you?re likely to behave under various circumstances. Over the past couple of decades, behavioral finance researchers have developed a clearer understanding of the psychological traps investors fall in. The best way for you to avoid these traps is to become aware of them, the forms they take, and which you are most likely to fall into.

Here are five common pitfalls:

  • Over-confidence. Researchers have found that people consistently overrate their abilities, knowledge, and skill; especially in areas outside of their expertise. Investors must seek and weigh quality feedback and stay within their circle of competence.
  • Anchoring and adjusting. In considering a decision, we often give disproportionate weight to the first information we receive, hence anchoring our subsequent thoughts. You can mitigate this risk by seeking information from a variety of sources and viewing various perspectives.
  • Improper framing. The decisions of investors are affected by how a problem, or set of circumstances, is presented. Even the same problem framed in different, and objectively equal, ways can cause people to make different choices. Framing, too, plays a central role in assessing probabilities.
  • Irrational escalation of a commitment. Investors tend to make choices that justify past decisions, even when circumstances change. To avoid this trap, investors must only consider future costs and benefits.
  • Confirmation trap. Investors tend to seek out information that supports their existing point of view while avoiding information that contradicts their opinion. Psychologist Thane Pittman’s slip of tongue sums it up: “I’ll see it when I believe it.”

You must also understand how you tend to react under stress. People with different personality profiles behave in dissimilar ways when stressed. Here again, self-awareness and some basic techniques to offset suboptimal behavior go a long way. Pearson declares, “A gambler’s ace is his ability to think clearly under stress. That’s very important, because, you see, fear is the basis of all mankind….That’s life. Everything’s mental in life.”

Money is the Root of All Evil? Read Atlas Shrugged.

“Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter.”
Ayn Rand

Read Atlas Shrugged, by Ayn Rand, and put the following into proper context:

Standing unnoticed on the edge of the group, Rearden heard a woman, who had large diamond earrings and a flabby, nervous face, ask tensely, Senor d’Anconia, what do you think is going to happen to the world?

Just Exactly what it deserves.

Oh, how cruel!

Don’t you believe in the operation of the moral law, madame? Francisco asked Gravely. I do.

Rearden heard Bertram Scudder, outside the group, say to a girl who made some sound of indignation, Don’t let him disturb you. You know, money is the root of all evil, and he’s the typical product of money. Rearden did not think that Francisco could have heard it, but he saw Francisco turning to them with a gravely courteous smile. So you think that money is the root of all evil? said Francisco d’Anconia. Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil? When you accept money as payment for our effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor, your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money. Is this what you consider evil?

Have you ever looked for the root of production? Take a look at an electric generator and dare tell yourself that it was created by the muscular effort of unthinking brutes. Try to grow a seed of wheat without the knowledge left to you by men who had to discover it for the first time. Try to obtain your food by means of nothing but physical motions, and you’ll learn that man’s mind is the root of all the goods produced and of all the wealth that has ever existed on earth. But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man’s capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made, before it can be looted or mooched, by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can’t consume more than he has produce.

To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of your effort except the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of the traders. Money demands of you the recognition that men must work for their own benefit, not for their own injury, for their gain, not their loss, the recognition that they are not beasts of burden, born to carry the weight of your misery, that you must offer them values, not wounds, that the common bond among men is not the exchange of suffering, but the exchange of goods. Money demands that you sell, not your weakness to men’s stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best that your money can find. And when men live by trade, with reason, not force, as their final arbiter, it is the best product that wins, the best performance, the man of best judgment and highest ability, and the degree of a man’s productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money. Is this what you consider evil?

But money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. It will give you the means for the satisfaction of your desires, but it will not provide you with desires. Money is the scourge of the men who attempt to reverse the law of causality, the men who seek to replace the mind by seizing the products of the mind. Money will not purchase happiness for the man who has no concept of what he wants: money will not give him a code of values, if he’s evaded the knowledge of what to value, and it will not provide him with a purpose, if he’s evaded the choice of what to seek. Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent. The man who attempts to purchase the brains of his superiors to serve him, with his money replacing his judgment, ends up becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and the frauds come flocking to him, drawn by a law which he has not discovered: that no man may be smaller than his money. Is this the reason why you call it evil?

Only the man who does not need it, is fit to inherit wealth the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and you cry that money corrupted him. Did it? Or did he corrupt his money? Do not envy a worthless heir: his wealth is not yours and you would have done no better with it. Do not think that it should have been distributed among you; loading the world with fifty parasites instead of one, would not bring back the dead virtue which was the fortune. Money is a living power that dies without its root. Money will not serve the mind that cannot match it. Is this the reason why you call it evil?

Money is your means of survival. The verdict you pronounce upon the source of your livelihood is the verdict you pronounce upon your life. If the source is corrupt, you have damned your own existence. Did you get your money by fraud? By pandering to men’s vices or men’s stupidity? By catering to fools, in the hope of getting more than your ability deserves? By lowering your standards? By doing work you despise for purchasers you scorn? If so, then your money will not give you a moment’s or a penny’s worth of joy. Then all the things you buy will become, not a tribute to you, but a reproach; not an achievement, but a reminder of shame. Then you’ll scream that money is evil. Evil, because it would not pinch-hit for your self-respect? Evil, because it would not let you enjoy your depravity? Is this the root of your hatred of money?

Money will always remain an effect and refuse to replace you as the cause. Money is the product of virtue, but it will not give you virtue and it will not redeem your vices. Money will not give you the unearned, neither in matter nor in spirit. Is this the root of your hatred of money? Or did you say it’s the love or money that’s the root of all evil? To love a thing is to know and love its nature. To love money is to know and love the fact that money is the creation of the best power within you, and your passkey to trade your effort for the effort of the best among men. It’s the person who would sell his soul for a nickel, who is loudest in proclaiming his hatred of money, and he has good reason to hate it. The lovers of money are willing to work for it. They know they are able to deserve it.

Let me give you a tip on a clue to men’s characters: the man who damns money has obtained it dishonorably; the man who respects it has earned it. Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter. So long as men live together on earth and need means to deal with one another, their only substitute, if they abandon money, is the muzzle of a gun. But money demands of you the highest virtues, if you wish to make it or to keep it. Men who have no courage, pride or self-esteem, men who have no moral sense of their right to their money and are not willing to defend it as they defend their life, men who apologize for being rich, will not remain rich for long. They are the natural bait for the swarms of looters that stay under rocks for centuries, but come crawling out at the first smell of a man who begs to be forgiven for the guilt of owning wealth. They will hasten to relieve him of the guilt, and of his life, as he deserves.

Then you will see the rise of the men f the double standard, the men who live by force, yet count on those who live by trade to create the value of their looted money, the men who are the hitchhikers of virtue. In a moral society, these are the criminals, and the statues are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law, men who use force to seize the wealth of disarmed victims, then money becomes its creators avenger. Such looters believe it safe to rob defenseless men, once they’ve passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.

Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion, when you see that in order to produce, you need to obtain permission from men who produce nothing, when you see that money is flowing to those who deal, not in goods, but in favors, when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you, when you see corruption being rewarded and honesty becoming a self-sacrifice, you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot. Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked:Account overdrawn.

When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, ;Who is destroying the world?? You are. You stand in the midst of the greatest achievements of the greatest productive civilization and you wonder why it’s crumbling around you, while you’re damning its life-blood, money. You look upon money as the savages did before you, and you wonder why the jungle is creeping back to the edge of your cities. Throughout men’s history, money was always seized by looters of one brand or another, whose names changed, but whose method remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about the evil of money, which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves, slaves who repeated the motions once discovered by somebody’s mind and left unimproved for centuries. So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer. Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers, as industrialists.

To the glory of mankind, there was, for the first and only time in history, a country of money, and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time, man’s mind and money were set free, and there were no fortunes-by-conqust, but only fortunes-by-work, and instead of swordsmen and slaves, there appeared the real maker of wealth, the greatest worker, the highest type of human being ? the self-made man, the American industrialist. If you ask me to name the proudest distinction of Americans, I would choose, because it contains all the others, the fact that they were the people who created the phrase “to make money”.No other language or nation had ever used these words before; men had always thought of wealth as a static quantity, to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created. The words “to make money” hold the essence of human morality.

Yet these were the words for which Americans were denounced by the rotted cultures of the looters’ continents. Now the looters’ credo has brought you to regard your proudest achievements as a hallmark of shame, your prosperity as guilt, your greatest men, the industrialists, as blackguards, and your magnificent factories as the product and property of muscular labor, the labor of whip-driven slaves, like the pyramids of Egypt. The rotter who simpers that he sees no difference between the power of the dollar and the power of the whip, ought to lean the difference on his own hide as, I think, he will. Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns, or dollars. Take your choice, there is no other, and your time is running out.

Francisco had not glanced at Rearden once while speaking; but the moment he finished, his eyes went straight to Rearden’s face. Rearden stood motionless, seeing nothing but Francisco d’Anconia across the moving figures and angry voices between them. There were people who had listened, but now hurried away, and people who said, It’s horrible!, It’s not true!, How vicious and selfish!, saying it loudly and guardedly at once, as if wishing that their neighbors would hear them, but hoping that Francisco would not. Senor d’Anconia, declared the woman with the earrings, I don’t agree with you! If you can refute a single sentence I uttered, madame, I shall hear it gratefully. Oh, I can’t answer you. I don’t have any answers, my mind doesn’t work that way, but I don’t feel that you’re right, so I know that you’re wrong. How do you know it? I feel it. I don’t go by my head, but by my heart. You might be good at logic, but you’re heartless. Madame, when we’ll see men dying of starvation around us, your heart won’t be of any earthly use to save them. And I’m heartless enough to say that when you’ll scream, “But I didn’t know it!”, you will not be forgiven.

The woman turned away, a shudder running through the flesh of her cheeks and through the angry tremor of her voice: Well, it’s certainly a funny way to talk at party!

More on Fountainhead by Ayn Rand

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Audio MP3 of Patton Speech (5 MB)

Audio MP3 of Patton Movie Theme (360 KB)

Now I want you to remember that no bastard ever won a war by dying for his country. You won it by making the other poor dumb bastard die for his country. Men, all this stuff you’ve heard about America not wanting to fight, wanting to stay out of the war, is a lot of horse dung. Americans traditionally love to fight. All real Americans, love the sting of battle. When you were kids, you all admired the champion marble shooter, the fastest runner, the big league ball players, the toughest boxers … Americans love a winner and will not tolerate a loser. Americans play to win all the time. I wouldn’t give a hoot in Hell for a man who lost and laughed. That’s why Americans have never lost and will never lose a war. Because the very thought of losing is hateful to Americans. Now, an army is a team. It lives, eats, sleeps, fights as a team. This individuality stuff is a bunch of crap. The Bilious bastards who wrote that stuff about individuality for the Saturday Evening Post, don’t know anything more about real battle than they do about fornicating. Now we have the finest food and equipment, the best spirit, and the best men in the world. You know … My God, I actually pity those poor bastards we’re going up against. My God, I do. We’re not just going to shoot the bastards, we’re going to cut out their living guts and use them to grease the treads of our tanks. We’re going to murder those lousy Hun bastards by the bushel. Now some of you boys, I know, are wondering whether or not you’ll chicken out under fire. Don’t worry about it. I can assure you that you’ll all do your duty. The Nazis are the enemy. Wade into them. Spill their blood, shoot them in the belly. When you put your hand into a bunch of goo, that a moment before was your best friends face, you’ll know what to do. Now there’s another thing I want you to remember. I don’t want to get any messages saying that we are holding our position. We’re not holding anything, we’ll let the Hun do that. We are advancing constantly, and we’re not interested in holding onto anything except the enemy. We’re going to hold onto him by the nose, and we’re going to kick him in the ass. We’re going to kick the hell out of him all the time, and we’re going to go through him like crap through a goose. Now, there’s one thing that you men will be able to say when you get back home, and you may thank God for it. Thirty years from now when you’re sitting around your fireside with your grandson on your knee, and he asks you, What did you do in the great World War Two? You won’t have to say, Well, I shoveled shit in Louisiana. Alright now, you sons of bitches, you know how I feel. I will be proud to lead you wonderful guys into battle anytime, anywhere. That’s all.

This speech is for everyone in all countries. Patton’s must win attitude is timeless. That must win attitude is an absolute prerequisite for trading success or any life success for that matter.

The Bet: Richard Dennis and William Eckhardt Create the Turtles

Excerpt from Market Wizards:

Picture an oak-paneled English drawing room. Two obviously wealthy gentlemen sit in their armchairs facing a roaring fire, puffing on their pipes and discussing their philosophy of trading. It is my proposition, Colin, that anyone can be taught to be a superior trader. There is nothing magical about it. There is no rare talent involved. It is simply a matter of being taught the appropriate rules and following those rules. There is no question in my mind that I could train virtually anyone to make a fortune trading. That is nonsense, Duncan. You just think your trading success is due to your system. What you do not realize is that you have a special talent. You could print out your rules in twelve-inch-high letters and have people read them every day for a year, and they still would not be able to do what you do in the markets. Your success is a function of your talent. It cannot be taught! Well, Colin, this must be the hundredth time we’ve had this discussion. Let’s settle it once and for all. Why don’t we just pick ten people, teach them my system, give them each 1 million to trade and see what happens. That’s an excellent idea, Duncan. Pick your ten people, train them, and if by the end of one year they are not ahead, on average, by at least 25 percent–a modest figure considering that you normally make two to three times that per year–you pay me 1 million. If they are up by more than 25 percent, I will pay you the same amount. Duncan and Colin then proceed to the window, watching the passersby for potential candidates for their experiment. Each time they agree on an individual, they send their butler out to summon the person. — The above may sound like a fanciful plot for a story or movie. (Actually, it is a very loose adaptation inspired by the delightful Mark Twain story, The 1,000,000 Bank-Note.) However, change the setting from London to Chicago, eliminate the monetary element of the bet, and substitute a more sophisticated method for screening candidates, and you actually have a true story. The legendary trader Richard Dennis, who reputedly transformed an initial stake of several thousand dollars into a fortune estimated at $200 million, essentially had the same argument with his partner, William Eckhardt. It was Dennis’s contention that trading success could be taught, while Eckhardt scoffed at the idea.

Personality Crisis? Portfolio Crisis! Know Your Type

To the educated trader, personal psychology is the real difference between winning and losing. One of the many issues to examine within your personal psychology is your particular personality.

According to a 2004 study by Merrill Lynch Investment Managers:

Your personality is losing you money — not the market, silly. All investors make mistakes; it is all part of the learning process. That is a given. But what isn’t so obvious is that an investor’s personality has a big hand in determining what investing mistakes he or she is most likely to make. That was a key finding of a study done by the research firm of Mathew Greenwald & Associates Inc. for Merrill Lynch Investment Managers. Merrill divided the investors into four distinct personality types. See if you can find a match for yours…Measured investors are secure in their financial situation and confident they will have a comfortable retirement, Merrill Lynch said. These investors are least likely to say they waited too long to start investing or that they haven’t invested enough. Moreover, they are least likely to be plagued by emotions such as fear and anxiety that commonly cause investment mistakes. The most common mistake is not letting go of losing investments. Reluctant investors don’t particularly enjoy investing and prefer to spend as little time as possible managing their holdings. Not surprisingly, that group was the most likely to have a financial adviser, so that’s good for people like Merrill Lynch. Reluctant investors are least likely to become overly attached to an investment or to put too much money into a single holding. Competitive investors enjoy investing, are informed and try to beat the market. They are most likely to have started investing early, to put enough money into their in-vestments and to invest regularly. On the downside, their enthusiasm for investing “can be a detriment if left unchecked,” says Hannah Grove, chief marketing officer of Merrill Lynch Investment Managers. Competitive investors can have a hard time letting go of losing in-vestments, often dedicate too much of their portfolio to one stock or investment and tend to be greedy and chase hot stocks. Last, there are the unprepared investors, characterized as unhappy with their financial situation and lacking in confidence. They tend to start investing late and are the least likely to re-balance their portfolios. The survey involved 1,000 U.S. investors who had annual house-hold income of at least $75,000 (U.S.) and at least $75,000 in assets to invest. When asked for the reasons they make mistakes, 64 per cent said they just happen.

Another type of personality test worth examining is the Myers Briggs instrument That can be taken at As always these are tools or guides. When it comes to psychology nothing is perfect or one size fits all. The key is to be open to new information and be wise enough to keep your ego in check — all bottom line traits to winning in the market.

Behavioral Finance at TurtleTrader: Trend Following Keys

Below is one of the most comprehensive resources that is online. It provides behavioral biases that trend following trading looks to control and or manage: Read Now

What Motivates the Habitual Speculator to Trade?

Download the Adobe .pdf report.

Check out this excerpt taken from “An Analysis of the Profiles and Motivations of Habitual Commodity” writen by W.B. Canoles, S.R. Thompson, S.H. Irwin, and V.G. France:

The focus of this study is the habitual speculator in commodity futures markets. The speculator’s activity broadens a market, creates essential liquidity, and performs an irreplaceable pricing function. Working knowledge of the profiles and motivations of habitual speculators is essential to both market theorist and policy makers. Responses to a 73 question survey were collected directly from retail commodity brokers with offices in Alabama. Each questionnaire recorded information on an individual commodity client who had traded for an extended period of time. The typical trader studied is a married, white male, age 52. He is affluent and well educated. He is a self-employed business owner who can recover from financial setbacks. He is a politically right wing conservative involved in the political process. He assumes a good deal of risk in most phases of his life. He is both an aggressive investor and an active gambler. This trader does not consider preservation of his commodity capital to be a very high trading priority. As a result, he rarely uses stop loss orders. He wins more frequently than he loses (over 51% of the time) but is an overall net loser in dollar terms. In spite of recurring trading losses, he has never made any substantial change in his basic trading style. To this trader, whether he won or lost on a particular trade is more important than the size of the win or loss. Thus he consistently cuts his profits short while letting his losses run. He also worries more about missing a move in the market by being on the sidelines than about losing by being on the wrong side of a market move; i.e., being in the action is more important than the financial consequences. Participating brokers confirmed that for the majority of the speculators studied, the primary motivation for continuous trading is the recreational utility derived largely from having a market position.

Discipline: Why Do Trend Traders Win the Big Money?

Ted Williams. The man epitomizes the word “discipline”. Trend followers, like Williams, wait for their pitch — and then whack it for homeruns.

Now think for a moment about investment sites such as all of the stock tip chat houses. They are useless when it comes to helping you to make money in the long run. Why? There is no discipline. They say there is a good pitch to hit everyday. This is far from true.

There are typically three stages an investor goes through before they become successful. Building discipline starts with an understanding of these points:

  1. Easy Money: The first stage involves thinking there is easy money to be made. This is the thinking of a newbie. Often, after a big stock tip gone wrong or a couple great broker recommendations that lose serious money, you enter the second stage.
  2. I need a plan: The second stage begins when an investor or trader decides a plan is needed to win. The problems begin when the search for a plan becomes a search for the Holy Grail. And we all know there is no Holy Grail. What is needed is more than just a “system”. What is needed is you following the system. This leads to stage three.
  3. I’m responsible for my success: Stage three comes when the investor or trader realizes that success comes from inside the person, not outside. To achieve true success you must understand the market is not responsible, you are. There is no one to blame or compliment but yourself when it comes to trading. So find a solid plan and follow it.

Trend following demands that you detach emotions from your trading and maintain exacting discipline. Trend following, for example, can be a winning plan, but you must be disciplined to do the hard (and right) thing everyday.

Trend Following Products

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Michael Covel Trend Following Products
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