A interesting excerpt that arrived today:

“Money isn’t everything. It’s the process that matters, not the prize. It is much more satisfying to pursue objectives for the pure joy of pursuing them, regardless of how much money you can make. Winning traders are motivated by the inherent rewards of trading rather than profits. It’s common to hear traders say, “I love trading so much that I would do it for free if I had to.” They find trading personally meaningful. The markets fascinate them. Market action is intrinsically interesting. It is a rewarding intellectual challenge to devise innovative new trading strategies, and seeing how well your ideas pan out is exciting and enjoyable, regardless of whether you win or lose. Viewing trading from this perspective can act as powerful motivators. Individuals who pursue trading in this way are more likely to feel satisfied and can more easily manage the extreme stress the market is infamous for producing. When you aren’t focused on the profits, it’s easier to stay calm and focused. The money is either secondary or not an issue at all. Successful traders love the challenges the markets offer and view their work as meaningful. But many novice traders focus on competing with others, beating them out of profits, and winning bragging rights. Such an approach may satisfy a trader initially, but over time, it’s unlikely to be sufficient. Pursuing trading as a passion is a healthier, more satisfying way to approach trading. It’s more useful to focus on pursuing goals that are intrinsically interesting and personally meaningful.”
Innerworth.com

Now of course, the goal of trading is to make money. No money and you will not be around long. But this excerpt is a reminder that great traders don’t wake up each day stressed that they must make money. He wakes up and says he is going to follow his process — which leads to money. Also for many of the great traders, money is a way to keep score, not a means to buying “stuff”.

Also read.

A reader wrote here recently hyping another book he was reading:

“…there is a chapter on why trend forecasting beats trend following…He is trying to reduce the lag and retain the benefits of moving averages. So yes he is forecasting, but says his prediction computer program is 70% accurate.”

Accuracy goals are false. Think about it. You can be 70% accurate and make pennies per trade, but on the 30% of your trades that are losers, you can have monster losses. Promoting that you can predict a certain accuracy is a false prophet.

Why does prediction fail?

Ed Seykota (www.seykota.com) stated clearly in a recent update:

“In trading and in life, you cannot act in either the past or future; you can act only in the moment of now.”

A deal to translate the book Trend Following into Complex Chinese has been signed. Pearson Education Taiwan is the publisher. A translation of Trend Following into Simplified Chinese was signed in August 2004.

“There are several psychological forces that tend to keep people committed to a course of action long beyond the point when they should rationally quit. The first is the sunk cost fallacy. This can be seen in the actions of the stock market investor who has watched share prices of a company plummet from $60 to $20. At this point, instead of objectively assessing the potential of the stock, the investor may hold onto this stock–or buy more shares–in hopes of regaining these “sunk costs”. But if the company is collapsing, there will just be more losses.”
Yoram Wind & Colin Crook with Robert Gunther
The Power of Impossible Thinking

“Sunk costs” are also discussed on p. 185-6 of Trend Following.

Max Gunther set forth basic trading principles called The Zurich Axioms:

On Risk:
- Worry is not a sickness but a sign of health – if you are not worried, you are not risking enough.
- Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
- Resist the allure of diversification.

On Greed:
- Always take your profit too soon.
- Decide in advance what gain you want from a venture, and when you get it, get out.

On Hope:
- When the ship starts sinking, don’t pray. Jump.
- Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.

On Forecasts:
- Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.

On Patterns:
- Chaos is not dangerous until it starts to look orderly.
- Beware the historian’s trap – it is based on the age-old but entirely unwarranted belief that the orderly repetition of history allows for accurate forecasting in certain situations.
- Beware the chartist’s illusion – it is characteristic of human minds to perceive links of cause and effect where none exist.
- Beware the gambler’s fallacy – there’s no such thing as "Today’s my lucky day" or "I’m hot tonight".

On Mobility:
- Avoid putting down roots. They impede motion.
- Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.
- Never hesitate to abandon a venture if something more attractive comes into view.

On Intuition:
- A hunch can be trusted if it can be explained.
- Never confuse a hunch with a hope.

On the Occult:
- If astrology worked, all astrologers would be rich.
- A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.

On Optimism & Pessimism:
- Optimism means expecting the best, but confidence mean knowing how you will handle the worst. Never make a move if you are merely optimistic.

On Consensus:
- Disregard the majority opinion. It is probably wrong.
- Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.

On Stubbornness:
- If it doesn’t pay off the first time, forget it.
- Never try to save a bad investment by "averaging down".

On Planning:
- Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own long-range plans or other people’s seriously. In essence these axioms point to the benefit of having an investment strategy and sticking to it, regardless of what other investors say or do. If you don’t have an investment strategy, you could do worse than adopt these principles. However, don’t be afraid to add or subtract ones according to what works for you.

This PDF offers good food for thought in regards to absolute return investing styles. It also offers some nice motivational images for traders.

“Trend Following is a great resource for all future successful traders. It covers the four bases of successful trading using real-world success stories:
1.) Follow the trend of the market; don’t waste time trying to predict it
2.) Have sound money management rules, especially a strict loss-cutting policy
3.) Be disciplined by implementing proven trading rules
4.) Have the patience to wait for the right opportunity
Michael Covel has hit for the cycle with Trend Following.”
John Boik
Author of Lessons from the Greatest Stock Traders of All Time