The Flow of the Markets
Van K. Tharp, Ph.D.
yourself floating down a river, only you don't know that you are.
You do, however, notice that when you move in one direction, with
the flow of the river, you move rapidly. When you move in another
direction, against the river, you move slowly or not at all. In
fact, when you go in that direction, you seem to put out a lot more
effort just to stay in place. Your life becomes a struggle. It just
seems to push you in another direction. Feeling miserable, you fight
against it. But it doesn't help. You still seem to move only in one
direction—with the flow of the river.
Most people prefer to struggle against the river. They try
everything they can think of to go upstream. All solutions like this—going
against the flow—have the same result: frustration. If you were in
the river, what could you do to make your life easier? One solution
would be to get out of the river. But that would be giving up. There
is only one easy solution—to acknowledge or accept that the
problem has nothing to do with the river. The river just is. And it
moves downstream and nothing you do can change that. When you
realize that the problem stems from you, then the solution becomes
obvious—just relax and flow with the river.
Buy High, Sell
One of the oldest
adages in market psychology is "Don't be afraid to buy high and
sell low." Let's analyze what that means. If the market price
is high, then the market is moving up. Those who are afraid to buy
because the market is too high are fighting the flow of the river.
It is possible the river may change direction, but you cannot
predict if it will by determining how long it has been flowing in a
particular direction. It may continue in the same direction for an
unspecified length of time. Then again, if the market price is down,
it also indicates the direction of the flow of the river. Those who
are afraid to sell, once again, are fighting the flow.
Why do traders
resist the flow of the markets? They do so because they play
psychological games with the market. The most common game involves
not being willing to give up what you perceive to be control, the
need to be right, although you have no control over the market flow.
When you are
struggling with the market, the struggle becomes all consuming. You
don't realize that you are struggling with the market. Instead, you
find yourself always looking for some solution to overcome the
struggle. The struggle obscures the obvious solution: Letting go.
suppose you have a tendency to be in a perpetual market bear, always
expecting the market to go down. For you, every little turn in the
market is evidence that the market is turning. As a result, you
always go short and consequently, take a beating. You repeat the
process, over and over, until the market actually turns down. With
each transaction the struggle against the flow of the market
intensifies for you.
Even worse is the
trader who refuses to accept the inevitability of eventual loss. The
market moves against each position the trader takes, but he refuses
to go with the flow and refuses to accept the loss, no matter how
small. It is an affront to the trader's ego. As a result, he refuses
to accept it and the loss becomes larger. The bigger loss is even
harder to take and the trader again refuses to accept it. The
struggle continues until the loss becomes so overwhelmingly large
that the trader has no choice but to take the loss.
The solution to the
problem of resisting market flow is to realize that the problem has
nothing to do with the market. The problem stems from you, the
trader. The market is not going against you personally. The market
is simply moving. Whether you go with the flow of the market or
struggle against it, the market will continue to flow, taking you
with it one way or another. Market flow is bigger than any
individual trader. The question is whether you realize how you are
creating your struggle against the market. When you push against the
market, the market seems to push back. But the market is not the
struggle with the market is the problem.
About the Author: Trading Coach Dr. Van K.
Tharp, is widely recognized for his best-selling book Trade
Your Way to Financial Freedom and his classic Peak
Performance Home Study Program for traders and investors.
Visit him at www.iitm.com for a
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