Jonah Lehrer writes:

“The data is clear. Gamblers in a playground casino will stay longer, feel better, and bet more. Although they come away with bigger losses, they’re eager to return.” Finlay notes that the effectiveness of such designs comes at the expense of the guests, who have been persuaded by flowers and nice furniture to squander money on games that are rigged in favor of the house. According to her findings, Thomas’s designs have a particularly marked efect on those guests who normally don’t gamble. The seduction of his décor, perhaps, is that it doesn’t feel like a gambling environment. The beauty is a kind of anesthesia, distracting people from the pain of their inevitable losses.

Daily financial fundamental news and opinion? Same design.

Session #1 from Daniel Kahneman, the psychologist who is the co-creator of behavioral economics (with his late collaborator Amos Tversky), for which he won the Nobel Prize in Economics in 2002:

Sessions #2-5 here.

Why interesting? His work is truly one of the foundational reasons why everyone will never be a trend follower.

Want to know how Ben Bernanke does his magic show? Basic psychological techniques explained by Teller (yeah, the one who never talks):

Source: http://www.youtube.com/watch?v=J5x14AwElOk.

Recently had a coffee with a potential student who was in town on a conference. He reached out, I was here, we shared some time. Nice talk. He is a private jet pilot, and was seeing very clearly the “checklist” mentality of trend following (and parallels to flying).

His motivation for going the trend following route? He works for the figurative billionaire. During the crisis, right at the heart of chaos, he was ready to take off, but was waiting on his boss. The boss was on a cell call prior to the Lehman collapse and based on the information he was receiving, was selling as fast as possible–all before the crash.

My potential student realized at that exact moment that he would never have billionaire-like information access. He knew he had to find a way to make money that did not involve high-level tips. Smart thinking on his part.

Could you make money on a desert island with just price quotes and a way to place trades? That’s the question.

Jim Rogers said it:

“Most of us don’t have the discipline to stay focused on a single goal for five, ten, or twenty years, giving up everything to bring it off, but that’s what’s necessary to become an Olympic champion, a world class surgeon, or a Kirov ballerina. Even then, of course, it may be all in vain. You may make a single mistake that wipes out all the work. It may ruin the sweet, lovable self you were at seventeen. That old adage is true: You can do anything in life; you just can’t do everything. That’s what Bacon meant when he said a wife and children were hostages to fortune. If you put them first, you probably won’t run the three-and-a-half-minute-mile, make your first $10 million, write the great American novel, or go around the world on a motorcycle. Such goals take complete dedication.”

Put that in my first book. Truth.

The man who thinks he knows all:

The man who knows he doesn’t have to know all…is comfortable with less:

Nobel laureate Daniel Kahneman on his book Thinking, Fast and Slow. Take a listen!

Tip to Cullen Roche.

A reader writes:

“How can I trend follow? What are the indicators to follow in equity and commodity markets? Could you please help me?”

Have you read any of my books?

“No and 1 thing I also want to tell you I have lost 5k in trading. It’s like an emotional breakdown.”

Ok. Let me ask: Why have you not read my books?

“I don’t have knowledge about this. I was surfing web to know more about trading then I saw articles about turtle trading.”

But you are connected with me on FB? You know I have written 4 books on trading? But you don’t read the books, but want advice? When are you going to read them? Don’t you think we will have an initial better conversation if you have read at least one of my books?

“Yup. Which book do you suggest? And one thing more I want to know how can you know in the middle of the trend whether the trend is up or down?”

I have 4 books. You choose!

Note: Not being mean to this reader, just real. Lazy is not the path to get ahead.

From Seth Godin:

“The formula doesn’t work. It never has. And yet we act as if it does. We act as if there are only two steps to school: Get kids to behave Fill them with facts and technique Apparently, if you take enough of each, enough behavior and enough technique, then suddenly, as if springing from verdant soil, passion arrives. I’m not seeing it. I think that passion often arrives from success. Do something well, get feedback on it, and perhaps you’d like to do it again. Solve an interesting problem and you might get hooked. But if it takes ten years for you to do math well, that’s too long to wait for passion.”

You want to be a trend follower? There is a secret.

Note: Read Godin’s new book–free.

I tell people all the time, “Don’t trust me, verify me.”

Source: behaviorgap.com.

In case you’re concerned that I will create a whole new generation of trend followers who will negatively affect the frequency, direction, and intensity of trends (as well as your ability to make money trading trends), forget it. Here are reasons why systematic trend following will continue to excel:

• Trend followers follow. They don’t generate trends. At the beginning or end of a major trend, there may be volatility, but it will be an extremely superficial, temporary effect.

• People play zero-sum games for many reasons. Not all play to win. Hedgers, for example, trade the market for certain reasons. It’s portfolio protection for them. Their insurance premium goes to trend following speculators. The hedgers are getting a benefit even when they lose.

• People would no longer buy and hold. Those believing in fundamental analysis (the vast majority of market participants) would have to switch how they trade.

• Most do not sell short. They now trade long only. That changes when?

• People would have to dump mutual funds. That will be hard with retirement programs literally mandating 100 percent investments in mutual funds.

• Most traders don’t think about how much to buy or how much to sell. They only worry about when to buy and rarely think about when to sell. That thought process is very hard to break for a mass trend following conversion.

• CNBC, WSJ, Bloomberg, etc. would need to stop broadcasting.

• Investors would have to disengage their emotions and egos from their trading. However, as long as there are human beings involved in the trading process, there will be excessive reactions and trends to exploit.

• People would need to stop gambling. I guess they might stop eating too.

Frequently the question is asked, “If trend following works so well, why aren’t more people doing it?” Acknowledging complete ignorance about the future is tough to accept, admit, and act on, but that is what trend following requires you to do.

The right attitude for trading success? Mission critical:

Fear is the dream killer, the silent voice that pushes us to lose our passion in a vain attempt to seek safety.

True that.