The Duality of the Markets

The human mind operates in a realm of duality. We always see things as either black or white or hot or cold or up or down or good or bad and so on. It is simply the way the human mind works. And this polarity is what we seem to constantly experience. In the markets this polarity is often experienced as fear or greed. Actually the duality of life is based on the fundamental forces of yin and yang in operation. The brake and the accelerator, both of which are necessary for successful navigation through life.There is a third factor though....

... which is the proverbial steering wheel. We have to steer or navigate our way using the steering wheel while simultaneously applying the brake and the accelerator. Without the steering wheel, we will fall into the cycle that constantly repeats itself.

HOPE -----GREED -----ANXIETY -----FEAR -----PANIC -----HOPE

Without a steering wheel, we are doomed to repeat this emotional roller coaster as we tend to follow the fear greed cycle, the same cycle that is responsible for all the booms and the busts in the markets. Consider how we all start out with HOPE. We hope that what we decide to do is going to be successful. Hope is a critical emotion for moving us forward. Without hope there is no momentum. If we find some success, our hope turns to greed as we want more and more until we reach a level where it is difficult to maintain the momentum and as such we start to experience ANXIETY.

Our anxiety is the turning point between how to continue our success at the same time as becoming concerned about losing or protecting what we have achieved. Again without the proper steering mechanism in place, the natural cycle of yin and yang produces a reversal or correction as markets and external events tend to revert to the mean in a search of balance. This correction triggers the FEAR emotion. We fear losing what we have, or we fear making the wrong decisions. We actually fear the unknown of tomorrow. And since no one knows the future FEAR can be very gripping.

Finally without the appropriate actions or steering mechanism, our fear will lead to PANIC at the point where the correction has become too painful to bear. At this point we will liquidate positions in order to remove the fear that we are experiencing. After a period of recovery, or mourning our losses, we will pick ourselves up again with a refreshed sense of hope. Spring leads to summer, summer to fall and then winter and back again to spring.

The art of managing this natural cycle is in the way we make our decisions and how we apply ourselves to steering our course as we apply both the brake and the accelerator. Trading is all about this art and it begins and ends in our own minds.Thus we need to develop a mental system that will give us the proper steering ability; the first job of any successful trader! Only with the proper trading habits can we find consistent success.