Forex

Loyalty is the glue that holds groups together. Freud showed that group
members relate to their leader the way children relate to a father. Group
members expect leaders to inspire and reward them when they are good but
to punish them when they are bad.

Who leads market trends? When individuals try to control a market, they
usually end up badly. For example, the bull market in silver in the 1980s was
led by the Hunt brothers of Texas and their Arab associates. The Hunts
ended up in a bankruptcy court. They had no money left even for a limousine
and had to ride the subwy to the courthouse. Market gurus sometimes lead
trends, but they never last beyond one market cycle.
Tony Plummer, a British trader, has presented a revolutionary idea in his
book, Forecasting Financial Markets - The Truth Behind Technical Analysis.
He showed that price itself functions as the leader of the market crowd! Most
traders focus their attention on price.
Winners feel rewarded when price moves in their favor, and losers feel
punished when price moves against them. Crowd members remain blissfilly
unaware that when they focus on price they create their own leader. Traders
who feel mesmerized by price swings create their own idols.
When the trend is up, bulls feel rewarded by a bountiful parent. The longer
an uptrend lasts, the more confident they feel. When a child's behavior is
rewarded, he continues to do what he did. When bulls make money, they add to
long positions and new bulls enter the market feel they are being punished
for selling short. Many of tbem cover shorts, go long, and join the bulls.
Buying by happy bulls and covering by fearful bears pushes uptrends
higher. Buyers feel rewarded while sellers feel punished. Both feel emotionally
involved, but few traders realize that they are creating the uptrend, creating
their own leader.
Eventually a price shock occurs-a major sale hits the market, and there
are not enough buyers to absorb it. The uptrend takes a dive. Bulls feel mistreated,
like children whose father hit them with a strap during a meal, but
bears feel encouraged.
A price shock plants the seeds of an uptrend's reversal. Even if the market
recovers and reaches a new high, bulls feel more skittish and bears become
bolder. This lack of cohesion in the dominant group and optimism among its
opponents makes the uptrend ready to reverse. Several technical indicators
identify tops by tracing a pattern called bearish divergence (see Section 28). It
occurs when prices reach a new high but the indicator reaches a lower high
than it did on a previous rally. Bearish divergences mark the best shorting
opportunities.
When the trend is down, bears feel like good children, praised and
As long as bears feel like winners, they continue to sell at lower prices, and
the downtrend continues. It ends when bears start feeling cautious and refuse
to sell at lower prices.