[laptop-accessibility] Douglas Della Toffalo, Investing Psychology Today Requires All Traders to Awaken Their Speculator Minds
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Fri Jan 4 09:04:14 EST 2008
Douglas Della Toffalo, 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
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
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
Personal conditioning that provides mental clarity and emotional stamina;
A process that supports goals through implementation of in-line strategies;
Technology that accesses timely and useful information;
Research that avails probabilities.
The greatest, in my opinion, is often the most neglected: Personal
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
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
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
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.
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