Market Manifesto

We speak here of trends and that which cre­ates and sup­ports them.

What is a trend?

Well, in the mar­ket a trend up is a series of high­er highs and high­er lows, or if it be a trend to the down­side, a series of low­er lows and low­er highs. It is direc­tion­al move­ment. It is a reflec­tion of ener­gy expressed in prices, when the prices move in a series of steps to new ter­ri­to­ry. Of course trends exist in areas out­side of the mar­kets, as well – trends in life, such as good times and bad, and trends expressed in gen­er­al eco­nom­ics cycles, and the like.

If we say the mar­ket con­sists of dif­fer­ences of opin­ion about val­ue, then a trend in the mar­ket is the reflec­tion of greater con­fi­dence in one direc­tion as opposed to the oth­er.

Are these ele­ments suf­fi­cient for us to under­stand what lies beneath a trend?
Per­haps the words are suf­fi­cient. Con­sid­er the worlds we have just used: “Energy….series of steps …new ter­ri­to­ry ….opinions ….value ….confidence.”

In our pre­vi­ous mus­ings about change in the uni­verse we have talked about how new ener­gy thrusts out from the crowd, or the con­sol­i­da­tion of energy/opinion.

This new ener­gy could be called exis­ten­tial con­fi­dence, or evo­lu­tion­ary con­fi­dence, or mar­ket con­fi­dence, or per­son­al con­fi­dence. It is the will­ing­ness to strive, to achieve, and to accom­plish. It is a man­i­fes­ta­tion of the will­ing­ness to put assets at risk.

But a trend can also be the reverse. It can derive from capit­u­la­tion, from fear, from the absence of con­fi­dence. It can reflect the unwill­ing­ness to strive any longer, the desire to throw accom­plish­ments to the winds, and it can be a man­i­fes­ta­tion of the wish to remove one­self from risk.

Because a trend express­es dom­i­na­tion of one side over the oth­er in mar­ket activ­i­ty, it usu­al­ly express­es the will of the crowd. A crowd in move­ment is gen­er­al­ly not a hap­py sit­u­a­tion for the thought­ful, the clever, the sub­tle, or the con­tem­pla­tive. A crowd on the move is like a riv­er rag­ing forth in spring melt. If you want to ride it, the trick is to jump in and hang on, not to stand on the banks and study the per­fect launch.

Per­haps we should dis­tin­guish between the ear­ly stages of a new trend, which reflects a grow­ing deci­sive­ness on the part of the lead­ers of the crowd, and the con­tin­u­ing full-blown trend, in which the larg­er group is drawn along, in large part due to the desire not to be left behind.

Con­fi­dence is con­ta­gious, and attracts fol­low­ers, new believ­ers, and new join­ers as the trend gains strength.

A trend gath­ers ener­gy to itself. It may start slow­ly as forces gath­er or dis­trib­ute a posi­tion over time, attract­ing lit­tle atten­tion at first but as the influ­ence of their actions spread through the mar­ket, more and more indi­vid­u­als become aware of the shift­ing prices and the move­ment gath­ers speed. As it moves along, more and more peo­ple join in, and more and more mon­ey on the oppo­site side of the move will be forced to capit­u­late and add its ener­gy to the new trend.

To an extent this trend­ing move is self-gen­er­at­ing and feeds itself as the attrac­tive forces of the move pull more and more peo­ple into the crowd

A trend rep­re­sents new ener­gy, new con­fi­dence, per­haps new cap­i­tal com­ing into the mar­ket or a new opin­ion that prices are over-val­ued and con­se­quent­ly a sud­den new removal of cap­i­tal from the mar­ket.

Trends often hap­pen sud­den­ly, or seem to hap­pen sud­den­ly.

A new trend will require that you act quick­ly to hop on board. Until you get used to the trad­ing sit­u­a­tion this speed of action in new ter­ri­to­ry may well fright­en you for very under­stand­able rea­sons that are relat­ed to the spe­cial psy­chol­o­gy that is gen­er­at­ed by trends.

The roots of a trend are often hid­den in qui­et accu­mu­la­tion as the big fish build a large unno­ticed posi­tion at the bot­tom of a price area that is seen as under­val­ued or a short posi­tion at a price that is seen as over-val­ued. But by the time we have accu­mu­lat­ed three clos­es in a time­frame, the trend starts to be seen by many, and the speed may increase and thing can hap­pen in a hur­ry.

Most peo­ple see a trend first when it “breaks out” from the top or bot­tom of a con­ges­tion area, vio­lat­ing the con­fines of con­ges­tion and start­ing off into new ter­ri­to­ry. This is the chal­lenge of the “go-with” trend-fol­low­ing trad­er who attempts to fol­low the direc­tion of the mar­ket. What he or she wants is to iden­ti­fy the trend and then beat it to death, adding to their ini­tial posi­tion, pyra­mid­ing when pos­si­ble, and ping­ing along as the trend pro­gress­es. (We’ll talk about these tech­niques in detail when we deal with mon­ey man­age­ment in lat­er lessons.)

But the roots of a trend often lie deep­er, in the heart of con­ges­tions, as the posi­tions that will become dom­i­nant are estab­lished, either on the bull or the bear side. Here is where the “go against” trad­er can get aboard a trend as it begins to gath­er ener­gy, build­ing an ini­tial entry posi­tion on the oppo­site con­fine of con­ges­tion from the ulti­mate trend direc­tion.

All this about trends that we say here so far is well and good, but does it real­ly tell us what we need to know? Does this describe what a trend real­ly is?

Well, per­haps not. At a deep­er lev­el, we take an uncon­ven­tion­al view of trend, and see it as just anoth­er reflec­tion of ener­gy that orig­i­nates out­side of the mar­ket, so that when we see the mar­ket react­ing in a trend, in our view the mar­ket par­tic­i­pants them­selves are react­ing to move­ments of ener­gy in the uni­verse that orig­i­nate from far beyond their nor­mal deci­sion-mak­ing con­scious­ness. While the nature of the specifics of a trend does in fact reflect the kind of crowd dynam­ics that we out­lined above, the fact of the trend itself is not so eas­i­ly explained.

In our view, the fun­da­men­tal nature of exis­tence is that when the ener­gy flows of the uni­verse move from one state or one direc­tion to anoth­er state or anoth­er direc­tion, then the mar­kets react to that, and they will react to that change despite or with­out regard to the ratio­nal­iza­tion or con­scious deci­sions of the indi­vid­u­als or groups in the mar­ket.

When we see a trend in the mar­ket we are see­ing a reflec­tion of some ele­ment of the com­plex tan­gled flow of var­i­ous ener­gy forces, some large, some small, some near, some dis­tant, that cre­ate and move all life and all activ­i­ty in the uni­verse as a whole.

The impli­ca­tions here are sig­nif­i­cant. Instead of look­ing for the rea­sons for a trend we instead wit­ness the fact of its exis­tence, and attempt to align our­selves with it. Instead of con­cern­ing our­selves with the nature of the deci­sions made by the trend par­tic­i­pants, we see them all as the man­i­fes­ta­tion or reflec­tion of ener­gy flows far more pow­er­ful than the aggre­gate indi­vid­ual wills. When we take a posi­tion we look to align our­selves with a force or a flow, not to accept the ratio­nale for a move.

When we ana­lyze the poten­tial for a move we seek to iden­ti­fy the larg­er waves and flows of ener­gy move­ments that are orders of mag­ni­tude beyond our defined focus. When we under­stand the con­text of our focus then we can deter­mine the poten­tial for ener­gy to flow free in a trend — or for our focus ener­gy to be caught in the con­straints of con­ges­tions that arise from the bound­aries and end­ings of larg­er and larg­er forces mov­ing around and through us.

Is ener­gy divis­i­ble? In a trend we see ener­gy join­ing togeth­er and gath­er­ing force, so per­haps we can think of a mar­ket in con­ges­tion as a reflec­tion of ener­gy divid­ed.

Is ener­gy always the same enti­ty? We would say yes. Ener­gy can man­i­fest itself in won­der­ful vari­ety as the full panoply of mat­ter in the uni­verse can man­i­fest ener­gy. But the stuff of ener­gy itself is always the same, and varies only in the strength, loca­tion, and struc­ture of its man­i­fes­ta­tion.

But in the end, ener­gy is a mys­tery. We can say a trend is ener­gy run­ning free; we can say a con­ges­tion is ener­gy con­strained. We watch, we mon­i­tor, we align our­selves with these dif­fer­ing states of ener­gy in the world.

But the fun­da­men­tal mys­tery of ener­gy in the uni­verse? This eludes our under­stand­ing, at least so far.