the 10 minutes, look at the list and cross out everythingthat is a fact. For example, you would cross out statements such as I am aman/woman, I am blue-eyed, I am brown-haired.
All the statements that remain are the beliefs you are looking for. Thebeliefs that contradict each other are of particular importance.Contradictory beliefs cancel your energy because you have a built-in mentalconflict between the validity of one belief expressing itself only at thedirect expense of another belief.
What are some examples of conflicting or contradictory beliefs?
I have to win./I may be undeserving.
I am a winner./I am a loser.
I am successful./I've missed my chance to be successful.
I deserve more./I am guilty.
I am a perfectionist./I believe humans are inherently imperfect.
I am trusting./I am untrustworthy or people are generallyuntrustworthy.
I believe there is no middle ground of satisfaction between winning andfailure./I am pleased with myself and my progress.
IT am honest./I am dishonest or people are generally dishonest.
I believe working is the honest way of making money./I believe tradingis easy money, not work.
Asking Yourself QuestionsHere are some questions you can ask yourself that will help you to identifysome beliefs that may argue against your giving yourself more money.
What do you believe about guilt? How do you know when to feel143guilty?
Under what conditions would you not feel guilty, even if someone elsewanted you to?
Is it possible to transfer those same standards to areas where youwould feel guilty?
What would stop you?Who or what out of your past says it is wrong and you can't do that?Is their assessment of reality any more valid than yours? If so, why?
Do you find these beliefs useful? If so, in what ways? Do you find themlimiting? If so, in what ways?
If you could identify and change the experience that created thebelief, how would you change it?
What would stop you from changing it?
For the following questions you can substitute the words "is true" for thewords "do you believe."
What do you believe about competition?
What do you believe about taking money from other people as a resultof your superior trading skills?
What do you believe about losses? What do you believe about otherpeople's opinions? When are they valid? When aren't they valid? Whatdo you believe about being wrong?
By answering these questions, you will begin to gain a sense of your ownparticular behavior and the range of choices you allow for yourself, or donot allow for yourself, as a result of your beliefs.
Sometimes it is easier to identify a belief by trying to notice what youspecifically believe is not true. You could also look at your beliefs as ifthey belonged to someone else. If they did belong to someone else, think ofan experience in which this other person responded to certain life situationsin very typical ways (because of your beliefs). Then think of ways he orshe could respond if he or she had different beliefs.
When you discover some beliefs that aren't particularly useful or areinconsistent with your goals, then use an affirmation or collapsing techniqueto decharge the energy out of it.
WRITING AS A TECHNIQUE TOEFFECT CHANGE
Every movement we make alters the physical landscape in some way. The144more dramatic or expressive our movements, the greater the alterations. Bythe same token, every thought alters the mental landscape in some way. Themore expressive our thoughts, in other words, the more energy we generatein our willingness to think, the greater the potential to effect some change.The change comes from what we are willing to think. Wanting to directyour conscious thought process toward a specific intent is what effects thischange. I have found writing is one of the most powerful tools available tofocus my thinking and effect some change I desire.
When we write it is a physicalized version of what is going on inside ofour mental environment. Your willingness to write about certain issuesdirects your attention and gives the rest of the parts of your mentalenvironment instructions. What flows up or out of your consciousness iswhat is there. Once you find out what is there, you can then direct anychanges by writing back instructions into the mental environment. Thiscan be a very powerful technique, depending on how much power you putinto it.
If I were to do a schematic of the process it would look something likethis:
Consciousness > to > Mental environment (instructions for certaininformation).
The information flows to consciousness (maybe not right away).Consciousness physicalizes the information by writing it; this makes it realand tangible. Consciousness becomes aware of the information (self-discovery). Consciousness makes the connections between the nature of theinformation and the life conditions one has been experiencing.Consciousness assesses the current structure of the mental environment forits usefulness. Consciousness wants to create new conditions.Consciousness asks, "What beliefs do I need as resources to be moreeffective or create the conditions I desire?” This is the beauty and essenceof the creative process—to ask yourself a question and wait for the answerto pop into your consciousness or allow yourself to be directed to theanswer. Consciousness will know when it has found the most appropriateanswer because it will ring true in your mind or you will feel the truth of itin your body. Consciousness then formulates these new awarenesses intoinstructions for change. Then consciousness writes these changes back intothe mental environment, giving yourself instructions to accept these newawarenesses as truth. The act of writing forces us to focus our thoughts ina manner that is consistent with what we want to create, and thosethoughts alter the mental landscape.
AN EXERCISE TO DEVELOPSELF-DISCIPLINE
Self-discipline is a word used to describe a process of learning how to take145conscious control of your actions. It is not a personality trait or somethingyou are born with. It is a specific thought methodology, a mental resource,that allows you to change a belief or belief system when it is in conflictwith some goal or objective. Self-discipline is a more direct method ofeffecting some change because you would be purposefully acting in amanner that is in direct conflict with whatever you want to change.
So I would define self-discipline as willfully behaving outside of theboundaries of some belief (dealing with the emotional discomfort youractions will produce) to accomplish a certain goal or task that is inconsistentwith that belief. If you work outside of that belief long enough, it willeventually de-energize. The rate at which the underlying belief will de-energize is really not a function of time but rather intensity. In other words,the greater the intensity of our willingness and resolve, the faster theconflicting belief will lose its power.
For example, let's say you want to quit smoking or lose weight. These areconscious goals. Your beliefs (at least some of them) will be in conflict withthese goals. The belief system supporting the smoker definition willprobably have a great deal of power in your mental system. You can gaugethe power of these beliefs or any beliefs by paying attention to how muchdiscomfort and resistance you feel when you attempt to act (a consciousdecision) in a way that is inconsistent with them. It is very difficult thing todo. It's as if beliefs take on a life of their own and demand expression bothin our thoughts and behavior.
You can change these or any other definitions of yourself. However, youmust first identify them and then determine how useful they are in helpingyou get what you want. You could ask yourself, "Is this belief a resource orobstacle to the successful fulfillment of my goal?" One way you can changethese definitions is to build a mental resource for the sole purpose ofchanging beliefs that are not useful. I am going to call this mental resource"self-discipline."
Here is an exercise that will help you learn specifically how to developand use self-discipline in your life. The purpose of this exercise is to helpyou learn how to use your mind in different ways. You'll be training yourmind to stay positively focused on what you consciously want. You will alsolearn how to gauge internal resistance from belief systems, and how to buildmental resources for taking conscious control of your life.
1. Make a list of several things you dislike doing, feel you can't do, orwould like to stop doing or some things you have never done beforeand think you might enjoy You could start a jogging or exerciseprogram or take out the garbage on a regular basis, for example.
2. Once you have your list, look it over and pick a task that has a verylow priority in your life or one of the least important items.
3. Next, tell yourself in the most positive way that doing this new task youhave consciously decided upon is something you now want in your
146life. Don't say you are going to try and do it. A commitment to try tofulfill a goal is not strong enough.
4. Set up a rigid schedule for yourself to accomplish this new goal.
With each attempt to adhere to your schedule, keep track of yourthought process or stream of thoughts by writing them down. At thispoint you might be saying to yourself, "How do I keep track of mythought process?"
In the physical environment we are constantly being bombarded with allsorts of information competing for our attention. We are aware of manythings going on around us simultaneously. In effect our consciousness issplit in many different directions at the same moment. Use a part of yourconsciousness to pay attention to what is going on inside of your head. Youwill be using a part of yourself to monitor your stream of thoughts as if theydidn't belong to you. If you can temporarily act as if you were monitoringsomeone else's stream of thoughts, it may be much easier to gather theinformation you need to make this exercise meaningful.
6. As you attempt to adhere to your schedule, do you find yourselfexperiencing resistance, excuses, or rationalizations? If so, notice howthese thoughts divert your conscious attention away from yourgoal. This is a classic example of a conflict between the consciousgoal you have set for yourself and your belief system that doesn't havea belief or definition that corresponds with what you consciouslywant to do.
7. At this point you need to redirect your attention to the task youhave chosen for yourself. What is most important is that youunderstand the necessity of directing as much energy toward thefulfillment of your goal as possible. You will have to generate morepower toward keeping your attention focused on your goal than theamount of energy being directed through the beliefs that distractyour attention away from your goal.
However, there is one aspect to this exercise I must caution you about.Redirecting your attention away from what distracts you to what youconsciously want, does not mean that you suppress or deny what may bedistracting you. Acceptance and acknowledgment of what exists within youwill allow you to work with it. Suppression and denial require a lot ofenergy; this has the effect of supporting the beliefs you are trying tosuppress. Be gentle with yourself.
Each time you set out to accomplish your task, and do so, you create aresource that helps you do it again. Each success will draw some energyaway from the beliefs that acted as obstacles. With each success you willalso be allocating energy to the new definition of yourself. This newdefinition allows you to start the task each time with greater and greater
147ease until the definition becomes a fundamental part of your mentalsystem. When that happens, your actions concerning this task will seemautomatic.
The most important aspect of this exercise is the experience you gain inunderstanding the process of changing beliefs. Each time you set out tochange a belief or set of beliefs, you'll gain a resource that enables you to doit again. Each success you experience will help develop another set ofbeliefs that allow you to change more beliefs if and when it suits yourpurposes. You will establish a new definition of yourself that says: "Ibelieve I can identify and change any belief about myself that may be inconflict with my conscious goals." For this exercise to be effective, you mustkeep a few rules in mind. First, start the exercise with a task or goal that istruly insignificant and has little meaning in your life. The objective of theexercise is learning how to manipulate your inner environment consciouslyand direct your conscious focus of attention. The goal you decide upon asthe object of the exercise should not have a lot of value attached to theoutcome. If it does, that would be an indication you may be taking on somevery powerful and entrenched belief systems. This is something youdefinitely want to avoid until you have developed the necessary skills andresources.
Then, recognize that from the moment we are born, we are taught how tomanipulate the outer physical environment; however, you may not have theresources to be even minimally effective at manipulating the mentalenvironment. As a result, it is extremely important that you do not judgeyour ability to execute the schedule you set up according to the standardsof performance you expect of yourself in the physical environment. If youexpect too much and judge your ability harshly, it will only negate yourefforts and set up a fear and inadequacy cycle. The less you expect ofyourself, the faster you will progress. An expectation can easily become ademand that it be fulfilled. Demands usually generate a certain amount offear that the demands will not be met. When you are working in the innerenvironment, fear will always negate your positive efforts unless yourintent is to identify the source of your fear.
Finally, not having any expectations from your efforts to carry out yourplan will also have the secondary benefit of helping you to learn to acceptwhatever you accomplish as being all right. Any step, no matter how small,is a step. Just deciding you want to do this exercise is significant, even ifyou don't follow through with it right away. You may come back to it someday when you have more of a "sense" of the power you will acquire from theability to manipulate your inner environment consciously to be consistentwith your goals. So, to keep yourself from having any expectation about howwell you should do at this or any other exercise I offer you, I suggest youconsider yourself an infant in a brand new environment. You will have to learnhow to stand up before you can begin to walk or run.
148SELF-HYPNOSIS
Self-hypnosis is a relaxation technique that allows one to bypass the reasoningprocess of the conscious mind to make it easier to accept some message. So it isan excellent technique for establishing new beliefs or collapsing old beliefs. Forthose of you who are interested, I have a self-hypnosis tape specifically designed tomake it easier to learn how to cut your losses, reverse yourself, trust yourintuition, and value yourself more. For more information, you can contact me atTrading Behavior Dynamics, Inc., in Chicago or through the publisher.
POSITIVE AFFIRMATIONS
When you are in a trade and start to experience anxiety about what is happeningin the market, you will likely take those anxious thoughts and start runningthem through a negative loop—like thinking about money instead of thestructure of the market or what the market is doing to you. Eventually you willrun enough thought energy through your consciousness that it will cause you toact in a way that is not in your best interests. A positive affirmation will work thesame way. Formulate a positive affirmation of some trait or characteristic of theway in which you want to be. For example, you may want to become a morepatient person and wait for the market to give the signals to act. With anaffirmation like "I am becoming a more patient person every day," you willeventually become that person. In other words we will behave in a manner that isconsistent with the affirmation, if we run enough thought energy through thataffirmation. Eventually, the affirmation becomes a belief with enough energy toaffect our behavior.
The following are affirmations that, once turned into beliefs, will be veryeffective resources in helping you to work in your inner environment.
1. All beliefs are about reality, and are not necessarily predominatecharacteristics of reality. I will examine and question my beliefs inrelationship to their usefulness in achieving my goals.
2. I believe in the power of my conscious mind to make available to meall the information I need to know.
3. I have the power to change any belief in a way that would make itmore useful in achieving my goals of happiness, harmony,financial wealth, and being more productive.
4. I believe I am free to change the way I feel about any pastexperience.
I believe I have the ability to examine the contents of my mind.
6. I trust that all my beliefs about the way I trade will become known tome.
7. I place no particular importance on these beliefs about trading other
14910.
11.
12.
than the fact that they exist.
I have chosen these beliefs at certain points in my life and acceptedthem as true at the time. As I examine them, I realize that they maynot be particularly useful or true for me now. I accept this and I feelfree to change all those beliefs that are inconsistent with my currentgoals.
My first and immediate goal is to identify all my beliefs that may bein conflict with my long-term objectives of
I trust myself to become consciously aware of these beliefs in manydifferent ways. Once I become aware of these beliefs, I can just aseasily let them go to make space for new beliefs that are moreconsistent with my current goals.
I believe that changing and expanding my awareness and comfortzones are a necessary aspect of my growth and survival, and Iwelcome these opportunities to identify old beliefs and consequentlygrow and expand.
I feel an intense desire to succeed and achieve my goal of
Consequently I have an intense desire to clear my inner path of anyresistance or obstructions that stand in the way of the fulfillment of mygoal.
150PARTIV
How to Become aDisciplined Trader
151CHAPTER 15
The Psychology ofPrice Movement
My objective for this chapter is to break down and analyze the dynamicsand psychology of price movement, first, at its most fundamental level, thatof the individual trader; then I will broaden the explanation by examiningthe behavior of traders collectively as a group. I want to demonstrate that, ifyou understand the psychological forces inherent within traders' actions,you can easily determine what they believe about the future by justobserving what they do. Once you know what traders believe about thefuture, it's not that difficult to anticipate what they are likely to do next,under certain circumstances and conditions.
What is really important about this insight is that it will help you tounderstand the distinctions between wishful thinking and the actualpotential that exists for the market to move in any given direction. You willbe learning to let the market tell you what to do by understanding theforces behind its behavior and then learning to differentiate between pure,uncontaminated market information and how that information is distortedonce it starts doing something to you.
The most fundamental component of the markets is traders. Keep in mindthat traders are the only force that can act on prices to make them move.Everything else is secondary. What makes a market? Two traders willing totrade, one wanting to buy and one wanting to sell, who agree on a price andthen make a trade.
What does the last posted price represent? The last posted price is whatsomeone was willing to pay and what someone was willing to sell for at themoment the two traders agreed on the trade. It reflects an agreement in
152present value between those traders acting at that price.
What is the bid? A trader announcing the price at which he is willing tobuy. What is the offer? A trader announcing the price at which he is willingto sell. How do traders make money? There are only two ways to play thisgame to make money. To buy at a price you believe is low relative towhere you can sell it back at some future point in time. Or to sell at a priceyou believe is high relative to where you can buy it back at some futurepoint in time.
Now, let's take a look inside the pit to see what has to happen for pricesto move off equilibrium and how this will tell us what traders believe.
98-18 The offer, sellers attempting to sell high.98-17 Equilibrium, the last price.98-16 The bid, buyers attempting to buy low.
Since the only object to trading is to make money we can assume that atrader will not knowingly enter into a trade believing he is going to lose.And for a trade to exist requires two traders who agree on a price. However,from the moment two traders agree to the trade, they are both subjectingthemselves to market risk. In other words, the next tick is going to makeone of them a winner and the other a loser. Since we know that bothtraders want to win and neither trader wants to lose, we can assume thatboth traders have completely opposite beliefs about the future value of thecontract. So for two traders to agree on a price and make a trade, they haveto have diametrically opposing beliefs about the future. The buyer believeshe is buying low relative to where he can sell back at some point in thefuture, and the seller believes he is selling high relative to where he can buyback at some point in the future.
If the next tick is going to make one of them a winner and one a loser,we can assume that neither one of them believes he is going to be that loser.If the seller believed the next tick was going to be up, why wouldn't he havewaited to sell it higher? The same is true for the buyer. That is the object ofthe game and the only way to make money. Basically what we have is asituation where two opposing forces are clashing; both believe they are rightabout the future, and only one side can profit at the direct expense of theother.
If the last price of a bond future was 99-14, what has to happen for theprice to move to 99-15? Very simply, some trader has to be willing to bidand pay higher than the last price. This means that relative to the lastposted price, he has to be willing to do the opposite of buying low. Anytrader or group of traders willing to buy high or sell low relative to the lastposted price is very significant for several reasons.
First, a trader willing to buy high or sell low instead of buy low or sellhigh has to have a stronger conviction in his belief in the future value, evenif his conviction is out of panic. Second, he is making the last price a bottom.
153Third, he is aggressively taking the initiative and is making losers out ofeveryone who sold at the last price and deepened the losses of those whosold lower. Fourth, he is creating price movement that can possibly gathermomentum if other traders perceive the new price as low relative to thefuture. This will also be true for the trader who is paying up to liquidate aposition. On the other hand, the seller on the other side of his trade isbeing lured into the market by the attractiveness of the high price at whichhe can sell. He believes he is getting the edge. He is in fact selling high, buthe is not creating movement or much of a possibility for momentum in hisdirection. He is picking a top and waiting for something to happen, hopingit won't go any higher.
Now, what do the actions of the two traders represent about the marketin its collective form? First, this trade tells us that nobody had a strongenough belief in the future value to risk selling it to him at the last price orlower. Second, nobody was aggressive enough to want to enter the marketshort or liquidate an existing long position by offering to sell it at the lastprice or lower. A consummated trade at the next higher level creates a newequilibrium. This new equilibrium makes winners out of all the buyers atthe last level and losers of all the sellers at the last level.
All of the losers at the last price level or lower would have to maintain abelief in the future value to stay in their position or demonstrate aconviction in this future value by adding on to their positions. This isbecause each new level the price is bid up makes it that much moreattractive to them. If they believed it was high at lower levels, at each higherlevel, it's even a better trade. However, at the same time, each move themarket makes against their position invalidates the sellers' expectation offuture value. Each move clearly demonstrates that the sellers are passive,that the buyers are the aggressors, and that the buyers have a greaterpotential to move the market in their direction.
The fact that buyers are aggressively bidding up the price and payingmore and more again tells the observer something. It tells him there aren'tenough sellers to meet the buyers' demand for a trade at each new pricelevel. If there is a limited supply of sellers, those traders wanting to buywill have to compete among one another for the limited number of sellersavailable willing to take the other side of the trade.
Just observing this price action tells you that at the present moment, themomentum is in favor of the buyers. Prices would not be bid up unlessthere were fewer sellers in relation to the buyers. If traders continue to paymore and more, the price gets further away from old sellers. Eventuallytheir belief in future value will erode, and one by one the sellers will jointhe existing pool of buyers competing against one another for the fewer andfewer traders willing to sell. As long as the ratio between buyers and sellersremains as I have just described, there is very little potential for downwardprice momentum to be established.
Now what will start to tip the balance to cause the market to fall back?
154For one thing, old buyers will eventually take profits. When they do, theywill be joining the existing pool of sellers, thereby increasing the number oftraders available to sell. If a move gathers enough steam, it can becomesimilar to a frenzied shark feeding. Eventually, prices will be driven way outof line with some economic factors other traders perceive as relevantcompelling them to enter the market in the opposite direction. If these newtraders enter with enough force, it will likely cause old buyers to panicadding to the downward momentum.
Maybe you can visualize this back and forth action. When there are moresellers than there are buyers to take the other side of the trade, the balancewill be tipped. Sellers will then aggressively offer to sell lower than the lastprice, responding to what they perceive as a limited number of buyers totake the other side of the trade.
All price movement is a function of group behavior. The market pricesflow back and forth like a tug of war between those who believe andexpect the market to go up—and consequently buy— and those thatbelieve the market will go lower—and consequently sell.
If there is no balance between the two forces, one side will gaindominance over the other. As prices move farther and farther away fromthe weak group, the emotional pain of admitting they are wrong will be indirect conflict with their need to avoid losses. Eventually, one by one theywill lose faith in their position and liquidate their trade, adding to themomentum of the dominant force.
The prevailing force will continue to dominate until there is a generalperception that prices have gone too far and are out of line with otherrelated factors. The members of the dominant force will have to switchsides to liquidate their positions, creating momentum in the oppositedirection.
As individuals, if we do not have the strength actually to move prices inthe direction we would most benefit from, then the next best thing is tolearn to identify and align ourselves with the side that has establisheddominance until the balance shifts and again align ourselves with the sideestablishing the strength.
As prices move back and forth in this tug of war, it creates an ebb andflow that is easily identifiable in price charts or point and figure charts.These charts will show us in graphic terms how the forces interact andcounteract. They are a visual representation of traders’ beliefs in the futureand the intensity in which they have been willing to act on those beliefs.
If, for example, a market has been making consistently higher highs andhigher lows, to determine what is likely to happen next, ask yourself thefollowing questions:
1. What kind of price action will sustain the buyers’ beliefs that they canmake more money?2. When are sellers likely to come into the market in force?
1553. Where are old buyers likely to take profits? Where are old sellers likely tolose faith in their positions and bail out?
4. What would have to happen for buyers to lose faith? What would have tohappen to draw new buyers into the market?
You can answer all these questions by identifying certain significant referencepoints where buyers' and or sellers’ expectations are likely to be raised and wherethey are likely to be disappointed if they don't get their way.
Actually, all this works quite nicely in the typical market behavior patterns andprice formations with which we are all familiar. So, we are going to look at thepsychological makeup of some of these typical patterns. However, before we do,I want to cover a few more definitions.
MARKET BEHAVIOR
The market's behavior can be defined as the collective action of individualsacting in their own self-interest to profit from future price movement whilesimultaneously creating that movement as an expression of their beliefs about thefuture.
Behavior patterns result from the collective actions of individual traders doingone of three things: initiating positions, holding positions, and liquidatingpositions.
What will cause a trader to enter the market? A belief that he can make moneyand that the current state of the market offers an opportunity to enter into atrade at a price level that is higher or lower than the price at which it can beliquidated.
What will cause a trader to hold a position? A sustained belief that there is stillpotential for profit in the trade.
What will cause a trader to liquidate a trade? A belief that the market nolonger provides an opportunity to make money. This would mean in a winningtrade that the market no longer has the potential to move in a direction that willallow the trader to accumulate additional profits or that the risk of staying in thetrade is too great in relation to the potential for additional profit. In a losingtrade, the trader believes that the market no longer has the potential to movein a direction that will allow him to recover his losses or the trade was acalculated risk in which a predetermined loss level was set in advance.
If you look at any price chart, you notice that over a period of time,prices will form patterns in a very symmetrical fashion. These kinds ofsymmetrical-looking price patterns are not an accident. They are a visualrepresentation of the struggle between two opposing forces—traderssquaring off, so to speak, taking sides and then having to switch sides toliquidate their trades.
Significant Reference Points156Now, what you would be looking for in these charts are significant marketreference points. These are defined as anything that causes traders'expectations to be raised about the possibility of something happening.They are points where a large numbers of traders have taken opposingpositions. Based on those expectations, they will continue to hold aposition in the belief that the expectation will be fulfilled, and mostimportant, they will likely liquidate a position as a result of the expectationbeing unfulfilled
Significant reference points are places where the opposing forces (traderswith opposite beliefs about the future) have taken a stand, where they have,in their minds, prescribed for the market very limited ways for it tobehave, an either/or situation.
The more significant the reference point, the greater the effect traderswill have on prices, as the balance of power will shift dramatically betweenthe two opposing forces at these points.
These expectations about what the market will do, projected into pricelevels, are especially significant because both sides, buyers and sellers, havedecided in advance their degree of importance, where one trader is takingone position, betting the market can't or won't do something, and the tradertaking the opposite side of the trade is betting that it will.
So, reference points are price levels where many traders on one side ofthe market are very likely to give up their beliefs about the future, whereasthe other side will have their beliefs about the future reinforced. It is whereeach side expects the market to confirm what they believe to be true. Youcould say it is a place where the traders' expectations about the future andthe future actually meet.
This means for one side, in their minds, that "the market" will makethem winners; their beliefs will be validated. All the traders on the otherside, however, will be made losers; they will feel the market tooksomething away from them and will naturally be disappointed. I want topoint out here that the "objective observer" doesn't care one way or theother; she would just be looking for signs and opportunities.
The greater the expectation traders have about something happening,the less tolerance they have for disappointment. On a collective basis, ifyou have a whole group of traders who expect something to happen and itdoesn't, they will have to trade from the opposite direction of theiroriginal trade to get out of their position.
On the other hand, the winners had their beliefs validated, consequentlyleaving fewer and fewer traders available to let the losers out of their trades.The losers will have to compete among one another for the limited supplyof traders willing to take the other side of the trade, the side they originallybelieved would be successful. For example, if buyers are the losers, theywill need other traders to buy from them to get out of their positions. All thisactivity will result in a great deal of movement in one direction.
157Balance Areas
J. Peter Steidlmayer and Kevin Koy in their book Markets and Market Logic(Chicago: Porcupine Press, 1987) refer to a "value area," where theydiscovered that the majority of trading activity on any given day takesplace in a normal bell curve distribution pattern. This is very easy to seeday after day when you organize trading activity so that you can see howprice corresponds with time.
I don't want to get into a lengthy discussion of their methods oforgan