Investing Psychology Today Requires All Traders to Awaken Their Speculator Minds
Stock trading strategies are as rampant today, as they were during the Great Bull Market. Yet, can you truly master the stock market like so many investing books propose?
Consider this: When you can't even trust the financial reports of analysts, and the company bean counters that feed them with data, how can you? What's needed are robust, stock trading strategies; the type that enables you to think above the crowd, but not apart from them! The kind of strategies in touch with your speculator mind response!
Witness the Enron fiasco. It is a classic case of corporate character gone sour. The accounting firm that assigned to do the books also got paid to advise. Even the board members failed in their fiduciary responsibilities to guard and plead the cause of the stock holders. Result: The crowd got lied to and cheated!
That's what causes many to follow technical analysis whereby the fundamentals are considered reflected in the market action, and leads the investors to never have to trust anything beyond the tape itself. So, what if you developed a dynamite system that would track such reflections? Would that be sufficient?
I personally do not believe it would for one, very simple reason: There is no mastery of indeterminate arenas like markets; and they most certainly qualify as being indeterminate. At best, in my opinion, you may merely flow with them.
There is, however, a form of mastery that you can learn. It is the mastery of the self, whereby you can become a student of your own attitudes and behavior as much as a student of market behavior. Relative to conditions with potential uncertain outcomes as in the markets, this is probably the most underestimated of all trading methods.
With all due respect to your intelligence and financial background, that is a lot more difficult to achieve than you might now imagine. First, simply arousing your market senses is not a simple task. Pre-existing mindsets, supported by memories and emotions, often hinder the process. It truly takes an awakening that a new method of thinking far beyond what your formal education has groomed you to think thus far may be necessary.
Second, that awakening further requires an act of acceptance that is sufficient to instill the discipline to change. The initiating belief for all of this, in my judgment, is accepting the stark reality of cause and effect; that speculative markets are not the true cause of you making or losing money. You are! And many market psychologists teach their clients that.
After all, the markets exist merely as trading arenas with fixed rules of engagement, and neutral ones at that. They may appear at times to operate like living, breathing organisms, but they have no bias and no intimidating authority to issue you orders to personally lose or gain money.
Markets cannot even force you to trade in any particular way any more than they can coerce you to interpret their conditions. Only you can do that through your own mental framework; and therein lays the enigma that haunts traders as they attempt to garner their share of the market's riches.
Discrediting your mental framework with its emotional ties perhaps explains why outperforming any market on a consistent basis is such a difficult task, even for professional fund managers. It requires that profit-making senses become honed and kept razor sharp at all times; and that definitely requires full mental attention in league with self discipline.
After all, the nature of speculation centers on a collection of random events, and is by definition an uncertain environment at every moment. The very act of dealing with markets, especially on your own, exposes you to personal challenges not found in any other endeavor.
My own research and personal market experiences confirm this. So, I have defined at least four dominant drivers just to achieve some semblance of parity:
The greatest, in my opinion, is often the most neglected: Personal conditioning.
So, what is the status of your conditioning? Have you cultivated your own profit-making senses? Or has the market actually re-conditioned you to wonder and perhaps doubt your very own capabilities and market intuition?
What about the next wave of market changes? Are you truly prepared? Have you refined yourself into a dynamic, forward-thinking market edge, one that is fully capable of extracting and protecting profits from the market arena for years to come?
You see, some may interpret an edge as merely a system or a method of trading. I view it as the whole trader.
How about simply viewing yourself as an investing professional? If not, why not? After all, taking risks in any speculative arena is certainly not an amateur's game. Each of us expects to get paid. The only difference is that the average investor is on a 100% pay-for-performance basis, not a salary or commission like brokers and fund managers.
Considering that the public has been groomed over many years to attribute the term "speculation" to gambling, few have ever defined themselves as speculators. Investing, it appears, has been and is now still considered more noble and worthy of honor than speculating or trading.
For the record, the Commitment of Traders Report (CoT) already legitimizes the special position that the speculator has. Speculators, especially the large ones, are not hedgers like the large commercial traders such as those in the food industry. Neither are they small, one-lot traders like the average small investors. They range from large fund managers to large-account individuals.
While the big-money fund managers move markets like four-hundred pound gorillas, the large-account individuals, more commonly tagged as speculators, are so astute that they read those gorillas like a web page, and end up making millions over their careers.
In my mind, though, there is little difference between the words, "investor", "speculator" and "trader". Those merely ascribe handles along a continuum of time, cycles, expectations and needs; and the only real difference appears to be trading styles. Speculation is, nevertheless, still the true name of the market game; and, with every thesaurus I checked, never even associated with gambling at all.
Now, I'm sure one of your goals is to make money with as little risk as possible. In my judgment, associating your mind and learning with the ideas of the famed speculators is about the best way to establishing a path toward reaching your goal.
Regardless of your own distinction, though, the "long haul" of speculating is surely not an easy one. In all likelihood, the challenge of keeping profits through cycles of high volatility and bearish tests over time will verifiably increase for everyone, professional and novice alike.
The fact that the investment-selection process already encompasses so many combinations of value, safety and time factors is a testament that even the criteria itself will continue to morph just like the market. A daunting task for seasoned professionals, the process will intensify even more unnerving for the lesser-experienced, independent investors; that is, unless the speculator within you is awakened and cultivated.
So, that leads me now to ask the obvious: What have you done to awaken your inner speculator? Are you even aware that one exists? How about the presence of the power within the speculator mentality? Probably not, but it's not entirely your fault either; for it is clear that our educational system has seldom taught entrepreneurism, let alone any wisdom that the speculator model and its mental framework might bring.
It is still astonishing, though, considering the degree of education in today's world, that the trading public is still so susceptible to the conniving marketing ploys of the brokerage and mutual fund industries. All of us may be encouraged to lead our own paths but through the comforting arms of their professional advice and management. Our own judgments, however, are politely encouraged to relinquish to a back seat.
Caveats exist with financial outsourcing, contrary to these many sales ploys. By every rational count, we are supposed to know better and thereby in charge of our own wealth at all times. Misplacing trust there can be as financially fatal, if not more than personal misjudgments. Witness the holders of Enron stock who were lied to unto the very end.
Even following the so-called, safe, undervalued selections of the many acclaimed professionals, for example, does not guarantee a profit let alone consistency over the long run. It's even written in their fine print. Simply witness the record whereby 80-90% of fund managers seldom beat the S&P 500.
It's no wonder, then, that brokerage advice hasn't faired much better either. Touting their own analysts' picks with the fervor of snake-oil salesmen, they seldom give an actual sell direction to their clients until it's usually too late. Another case in point is e-Toys. A sell direction there was never given until its price dropped below $2 from over $70; and, by the way, was later delisted.
The general market, on the other hand, is no respecter of personal stock selections either. When it acts with bearish tendencies despite good news, all bets can especially be off. Regardless of fundamental value, the best of the best stocks can go down literally with the rest. That explains why purchasing pseudo right stocks at the wrong time can still erode capital.
So, what should you do? Should you solely trust the buy-and-hold mantra of the so-called professionals? Or should you go it alone, trusting your own judgments? If so, how would you develop a mindset and a method that avails the best of all there is to know in this arena we call "the market"?
The Message of Years of Research
It's one thing to recognize the difference between assets and liabilities. It's quite another to be astute enough to know where and when to trade them. There are factors beyond the strict asset-liability definition that is just as important and further requires your full attention.
The behavior of crowds and its effects is a case in point that confirms economics and its markets as indeterminate issues. That explains why all of us, esteemed professionals and novices alike, are still in some state of constant search for some grail that will enable us to deal with them sufficiently to make us rich.
Economics and finance, on the other hand, are also adaptive systems by nature. That explains why speculating their derivatives, the markets, is so difficult to predict. There's so much adapting and morphing going on that it appears that the only way to respond to them is to somehow become adaptive along with them. After all, the only true constant is their element of uncertainty.
The ability to recognize and adjust the self, though, just may be the key to that grail, if not the grail itself, which allows us to engage that uncertainty. Therefore,my goal here is to inspire a simple realization that a market edge is possible within you. If you address the uncertain nature of the markets, the importance of your internal character, and the awakening of your speculative perspective, your edge will be sharp.
Your own internal mental control must then be viewed as crucial to your independent success. Learning the posture of thinking which facilitates successful speculators in their quest for success is, according to my research, a required element in developing your own. With character as its ally, it is a powerful enabler to wealth being protected as well as simply being accumulated.
I also confirm that awakening your inner speculator is not a quick and easy process. It's a wrenching procedure not much different than any other life-changing event. The only difference is that this one must be totally self wrought, totally self driven and totally self actualized.
Point: The process of awakening the speculator within is between you and nobody else; and only you can get in the way. By the way, you probably will!
It may be easier for some to understand the premise of the speculative mindset than others; likewise, when it comes to practicing it. Nevertheless, egos and preset notions about markets and trading are quick to run interferences, regardless of the personal ease or difficulty. That explains how we lose winning positions.
Training books need to focus more on paradigm shifting than just a bunch of trading techniques and strategies. Without the priority of setting your mental framework to humbly accept the market' reality, your success is limited, in my opinion; and has a lesser probability of being achieved, not by the market's obstacles, but by the greatest obstacle of all: You, coerced through your own emotions.
Learning to think and self manage like a clever speculator is far more important to your market success than any other, because trading techniques and strategies alone often fade as markets morph over time.Just be aware that attaining the humble adaptability to achieve and maintain success will forever be a major challenge. After all, as humans, we always seem to get in our own way. I know I do!
You are not alone in this battle either. Even the best of the best who have ever succeeded in the markets have had their share of failures. They sweated their first trade; they battled their own internal fears and greedy impulses; and they will tell you outright that they experienced the losses to prove their early ignorance! In other words, few succeeded in the beginning; and all continue to battle themselves unto this very day.
There is hope for all of us
If the master traders learned from their mistakes to gain and maintain, then so can we!
Absolutes are difficult to define. In this case, I believe these two are the vital ones: market uncertainty and personal responsiblity. You have the responsibility and the duty to deal with the market's nature of uncertainty; otherwise, you put your wealth at even greater risk.
By developing your inner speculator into a more dynamic one, you will automatically take personal responsibility to the necessary higher level; and, considering the morphing power of every era's market, there is no time like the present to begin accepting the market's uncertain nature; that is, since you want to make money and keep it, too.
Frank Sherosky is an active trader and research author. "Awaken Your Speculator Mind: How to Grow and Protect Wealth by Sharpening Your Investing Instincts" is available as a quality-bound, soft-cover edition (ISBN 1410776328), and as a downloadable ebook (ISBN 1890170054). Visit http://www.SpeculatorMind.com
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