Idolization is a basic function of human nature. I don’t think it has to be proven any more. From the little child that looks up to his or her older sibling or parent, to the full grown man sitting down on any given weekend watching his favorite sports figure in a state of awe, we all seem to idolize someone. In my case any one of Jack Schwager’s personalities mentioned in his “Market Wizards” books, Jessie Livermore, or any number of not so popular yet successful traders such as Chris Lori or Carolyn Boroden. To distort Dylan’s words: “it might be the devil, it might be the lord but your gonna have to <idolize> some one”.
In our natural idolization we forget that these extraordinary people are after all just people. Even though in many cases they have been able to accomplish extraordinary things, in the end they are subject to the same influences to which we are subjected. Though it may be hard to believe at times, yes they all put their pants on one leg at a time.
What the heck does this have to do with trading? I’m glad you asked.
I notice that our trading terminology is littered with idolized lingo. We talk of “smart money”, “institutional investors”, “market makers”, and such. When we talk of these folks it’s as if they are gods that are somehow immune to the effects of human nature such as fear and greed. I believe that it’s not so much that they are immune, as it is that they have learned to subdue and control their reactions. They are active thinkers, not reactive thinkers. Even then, they do all they do in a human body, with a human mind, that has human constraints and habits.
This tells me that even the “smart money” or the “institutional investor” is subject to patterns in his thinking and behavior. The smartest of money managers goes to sleep at certain times of certain days of the week and is trading at certain times of the day. Institutional guys have to create and deal with the markets patterns and behavior within the constraints of their own daily routines. This creates opportunity for those willing to sit back and try to think about it. (more…)